'Drop out of school': Does that advice work in South Africa?

PayPal founder Peter Thiel has encouraged America's top students to drop out of university and create a company instead. South Africans could benefit from considering entrepreneurship as important as a college degree.

Like many other black South African parents, my folks were non-negotiable on one thing: that my siblings and I, at the very minimum, go to university and graduate. They worked slavishly, too, to make it happen. I’m sure many other South African parents held and continue to hold the same view, but I highlight black parents specifically because education beyond high school at an institution of their choosing, sometimes even high school itself, was something often unattainable for many of their generation (and others before) due to Apartheid and its two-level education system.

They didn’t care – at least my folks didn’t – what degree it was, because for them, along with voting (political freedom) and living in any area they please (social freedom), access to university education (economic freedom) was another affirmation that the bad old days were indeed over.

I can imagine then how South African parents, especially black ones, would baulk if they were told, as PayPal founder Peter Thiel has said, that higher education is overvalued.

His reasons? Well, Thiel likens higher education to the housing bubble where the perception of security and insurance against the future has inflated the value of an investment (in this case college education) to well beyond its true value. He also says that higher education feeds off an uncomfortable elitist dynamic where the success of graduates from Ivy League schools depends on the exclusivity they have created – not because the schools (or the graduates themselves) are intrinsically better than others.

Thiel, so convinced of this assertion, has gone on to start a programme that pays the best 20 kids under 20 that he can find $100,000 for two years to leave college and start a company instead.

His comments are timely. The UK, for example, is in the midst of a tuition fee crisis that’s sparked debates about elitism, self interest, and the true value of a university education. And every year in South Africa, universities are flooded by students hoping to be accepted, however, many are turned away.

In as much as it is similar to the US and the UK, the situation in South Africa is also very different. The country is a mix of the developed and developing worlds. The lines between the two, though, aren’t as clearly defined as the symbolic image of the highway between the township of Alexandra and the ritzy suburb of Sandton. There are areas where these two worlds converge, often untidily, and ideas such as Thiel’s may not have universal applicability. The higher education system is one such area.

On one hand, you have kids from the lower rung of the country’s still-persisting two-level basic education system. These are kids from high schools (mostly public) that face developing world problems and as a result, generally, produce students who are ill-prepared for university, let alone dropping out of it to start successful businesses. Then you have kids from private schools and the better-run public schools who were afforded education at (and at times better than) the level offered to kids in the US or the UK.

Without limiting the aspirations of the others, it is for these kids – the ones whose education has equipped them with the basic know-how – that questioning the value of university education and considering whether better alternatives exist is more realistic.

I cannot imagine that with his 20-under-20 programme, Thiel intends to create yet another exclusive, elitist system. Meaning, I do not think his primary goal is that his programme would inspire other benevolent billionaires to create other similar programmes. Because if that happens, then someone will come along and prepare annual rankings for the programmes. The best ranked would then become more coveted and preconceived notions (or value) will be placed, sometimes without real cause, on attendees and businesses started by attendees of these best-ranked 20-under-20 programmes. Does this sound familiar?

I think… I hope that Thiel’s main goal is to show that university is not the only path to success and that entrepreneurship, given the right circumstances, is every bit as good. This appeals to me because of the situation in South Africa.

Economists often speak of the developing world’s “missing middle” – that gap between what small and medium enterprises (SME) contribute to GDP and employment in high income countries (typically in excess of 50 percent on both counts) versus what they contribute in low income countries (less than half of that). South Africa’s missing middle, despite many enterprise development programmes, is large.

During the nine years over which research has been conducted, the Global Enterepreneurship Monitor (GEM) ranks South Africa’s total early-stage entrepreneurial activity lower than average among low to middle income countries. This lower rate also gives context to why South Africa ranked last among the 53 participating countries in terms of established business activity.

There are policy and other practical factors contributing to South Africa’s missing middle, but those do not even come into play because the will is lacking. In the minds of many South African students, starting a business ranks low on the list of things to do after high school. This is reflected in the country scoring below average in GEM’s indicators of entrepreneurial attitudes and perceptions.

The conversation shifts to an even more uncomfortable place when indicators of entrepreneurial attitudes and perceptions are examined by race. It is uncomfortable because it raises questions around economic freedom for blacks in post-Apartheid South Africa.

Across the board, black South Africans score noticeably lower than other racial groups. Also, need rather than opportunity is what drives many black South Africans to entrepreneurship, which is quite worrying as the research shows that opportunity-driven entrepreneurs are more likely to succeed.

With an unemployment rate of about 24 percent, the economic and social costs of this for the country are massive.

This is the real cost of a higher education bubble in South Africa – the oversold promise that a university education, above all other opportunities, is the path to economic freedom. I like Thiel’s idea because it gives me hope. Hope that there are South African parents and kids – especially those who’ve been afforded a good enough basic education – who will hear about these kinds of globally changing perceptions and begin to believe that they too could found the next Microsoft.

– Osiame Molefe blogs on South African politics and social issues at Boos From the Pews.