The multiplication of paper credentials for employment contributes neither to true learning nor to the national economy

There is an old story about an American billionaire who was discovered to be unable to read or write English. One brave interviewer asked him, seeing that he had achieved so much, how much more he could have done if he had been fully literate. His reply was: "I would have got the job of lavatory attendant; maybe today I would have been a superintendent."

The story should not be taken too literally. A working group chaired by Sir Claus Moser concluded not long ago that 23 per cent of adults in Britain have low literacy or low numeracy. (Improving Literacy and Numeracy, Department of Employment and Education, 1999). One in 5 adults in England, if given the alphabetical index to the Yellow Pages, cannot locate the page for plumbers.

Most of these people are not going to become millionaires or even attain anything like the average standard of living. Both their careers and their personal development will be frustrated and they contribute disproportionately to the long-term unemployed and the prison population. The place to look for over-qualification is at the other end of the spectrum, namely higher education in universities and similar institutions. It is here one can find evidence for querying the role Tony Blair has given to "education, education, education" as his three priorities.

Financial constraints apart, can there really be such a thing as over-education? Surely knowledge is always better than ignorance? This is right as a slogan for personal development, even though there are other values apart from the pursuit of book learning. The real worry is not so much about the pursuit of knowledge but "credentialism". This means the multiplication of paper certificates and qualifications as a condition for more and more kinds of professional and other employment. When education in this sense is being promoted by so many governments and international organisations as the key to economic growth, it is time to ask critical questions.

Some researchers at the eminently respectable Centre for Economic Performance, at the London School of Economics, have unearthed some evidence of what they call over-education, which they define as "people with more educational qualifications than they need to do their job - such as estate agents with PhDs". Such a person will be no better at being an estate agent because of his doctoral thesis than someone with an ordinary degree - or perhaps no degree at all.

The authors published their results in the centre's Discussion Paper 435 last year and have now summarised them in the CEP's Centrepiece for Spring 2000. Their evidence is an examination of two surveys - the social change and economic life initiatives of 1986 and the UK skills survey of 1997. The first survey showed that 29 per cent regarded themselves as over-educated in the sense defined in 1986; and 32 per cent as so in 1997. One should avoid exaggeration. Some 20 per cent regarded themselves as under-educated in 1997 and 48 per cent regard themselves as "adequately educated". It still seems to be necessary to increase some people's qualifications.

But it does matter that some people are over-qualified. Sample data suggests that the majority of those who were in a first job for which they were still over-qualified "have still not moved in to a graduate level job six years later". So it is not just a matter of a graduate starting off as an office assistant or factory hand, pending promotion to higher things.

These results need to be linked to an ongoing debate about the return from higher education. The mainstream view among economists is that education is an investment in human capital that increases the productivity of both the individual and the society of which he or she is part.

But there is a more heretical "filter" view. It has long been known that employers who formerly recruited school leavers at 16 or 18 now look for graduates. One possibility is that they simply use the university system as a filter to sort out the abler people, who nowadays tend to go to university. But they might have been just as good if they had gone straight into employment.

In the survey results, it is not surprising that the degree of "over-education" is much greater among science graduates than those in the humanities. The fact that a degree, higher or lower, may not always be strictly necessary or lead to a financial reward is not of course an argument against taking it. Much of education may be a consumption good, that is something that people purchase for their own edification rather than as a contribution to a career.

If the activities of universities are regarded as partly the promotion of learning for its own sake and partly as a consumption good for students, rather than as just career training, then a different approach to the finance of higher education becomes attractive. Lord Owen has recently suggested that universities should fund themselves from teaching charges that they should be free to fix and to vary between subjects (A World Class University Education? Social Market Foundation, May 2000). In return the government would switch all the teaching contribution, now almost £3bn a year, to a bursary fund for which all students would be eligible subject to a means test, and from which they would pay their fees.

Lord Owen's motivation - he is now chancellor of Liverpool University - is not fear of over-education but a belief that universities must find new sources of funding if they are to free themselves from financial penury and government control. But the net result of this change - to which less radical reformers are moving in fits and starts - would be to undo the confusion between education and training that bedevils so much of government policy.