 The prosperity of countries and individuals has changed over the past centuries and the main reason for it is related to the fundamental parts of the economy, the aspects of the economy that provide the base of production. Nature of economies has changed from being predominantly agricultural to industry and manufacturing and now we're at a stage where services based on the skills are the factors that contribute to growth of economies and prosperity of countries and individuals. Initially land was the main factor that contributed to production then since the industrial revolution investment capital became an added but very significant factor and now from the middle of last century what we have experience is that the skills have become an added but fundamental part of economic growth and production and this change has brought a number of other changes with them that have contributed to the current state of economies. Skills and economic performance are related in many different ways. One of the major effects of this skill-based economy that started in the 20th century is that a middle class was created and that has changed the structure of income distribution in countries around the world forever. There are other fundamental relationships as well. There are three in particular that I'd like to refer to now. One is the link between skills and lifetime earnings and the studies around the world show that earning levels of two times or three times higher over the lifetime are quite common for university or higher education compared to completion of secondary education. The second effect is the link between employment opportunities and skills. When we consider employment rates around the world for university graduates compared to high school graduates or the labor force without a high school graduation diploma we find that differences of 30 to 40 percent in employment rates are common. In many countries you would notice that this changes across the business cycle but the differences are very prominent and become bigger during recessions as well. The third effect is the link between skills and productivity and growth and countries that have invested in skills in the past decades have been experiencing and showing much higher growth at this point in time. So the link between an additional year of education and earnings is significantly high around the world and in New Zealand. Some recent measures show that the world average returns to an additional year of education is 12 percent which compared to most investments is quite significant. In New Zealand some of the recent research that I've done shows that the return to university education is between nine to 12 percent per year. Higher education matters for many reasons but two that I'd like to talk about today are the following. One is that among all the policy tools that are available for lifting the standard of living of disadvantaged population groups education and in particular higher education is the most effective policy in the long term. It takes longer sometimes the results become fully manifest in 20 to 25 years and for this reason as a policy tool it may not sometimes get the attention that it deserves. The other reason why it really matters is that the sectors that are showing the highest growth at this time and they will continue to be important for countries are those that require skills and that includes technology innovation and high skilled services. There are a number of forces at work in relation to the higher education sector in the future decades. One of the effects that is expected to continue is that skills are important to economies and they will continue to be fundamentally important. So for that reason demand for higher education will continue to exist. The second effect is that the demand for education from Asia is going to become a lot more prominent. It's partly the age effect in that more than 62% of the age group in the world of 15 to 29 years lives in Asia at this time. A second effect is that the middle class in Asia is growing very significantly and both of these factors are going to contribute to a much higher demand for higher education. A third effect is that education will become a lot more global. The globalization of the higher education sector will become more prominent and that is relevant to both the students and graduates of higher education that will be working in a much more global economy and their education will have a much more global application and it will also have impacts for institutions in forming partnerships with other global partners. Finally, higher education of high quality has the highest return for graduates. The lesson for New Zealand is that skills will continue to be important in the world economy and both the provision of higher education and also work in the skilled sectors of economies will become much more global and competitive. So for New Zealand it's important to be mindful of opportunities that exist and challenges that we may face in maintaining our leading position in having a skill-based economy and also a provider of high skilled education.