A former director of White House economic policy told a local audience yesterday that the most important issue western economies must address to remain competitive in the future is education.

Todd Buchholz was the keynote speaker at the Eighteenth International Reinsurance Congress which opened yesterday at the Fairmont Hamilton. Besides advising the first President George Bush on economic policy, he is also an award-winning economics teacher at Harvard and the managing director of the US $15 billion Tiger hedge fund. Mr. Buchholz has also authored the book "Market Shock: 9 Economic and Social upheavals that will Shake Our Financial Future".

Yesterday he told conference delegates: "The US and UK are both facing a challenge from other countries that have caught up or even surpassed us in our education systems," he said.

"Radical reform of education is the next market shock that we are going to have to embark on if our economies are going to sustain and grow themselves."

In his view, the building blocks of the world economy have shifted around so much in the last 15 years that the old economic models no longer made sense. He said that the "light economy, the scissors economy" and the toppling of the Berlin Wall were among the "fantastic monumental changes in the structure of the economy that have had a real impact."

"It is not that smart people became dumb, it is just that the structure of the world economy has shifted so much," he said.

"For every square inch of cement [of the Berlin wall that came crumbling down into dust, hundreds of workers who had been trapped behind the wall, trapped behind communism were suddenly free, suddenly unleashed, free to vote, free to speak their mind, free to compete, free to enter the worldwide workforce. Who are they competing against? You? Me? Somebody assembling textiles in Mexico or in Barcelona? Or someone writing software code in India or Silicon Valley? One reason why the economic models blundered throughout the 1990s is that when they introduced 100s of millions of workers into the worldwide workforce and if you include the opening up of China and India a couple billion into the worldwide workforce it pushes down labour rates and it conquered inflation which of course took a long-time for the central banks to realise."

Mr. Buchholz said that the reason outsourcing in the United States is getting so much attention nowadays is that it is no longer just blue collar jobs that are impacted.

"Now tax prepares are losing their jobs to Indians and that forces us to focus much more closely on education and on structural reforms such as tort reform," he said. "We live in a scissors economy. It threatens to snip the middle man out of nearly every transaction. Do you need a travel agent? No. Do you need a stock broker? No."

The reality of the "scissors economy" is that everyone is obliged to convince their customers why they need them and can no longer just take a profit margin for granted.

"The Japanese call it price destruction. They see profit margins collapse because their profit margins were based on tradition. We're entitled to this profit margin. Forget it. Price destruction is wiping out profit margins except those that can be justified."

Mr. Buchholz says another major shift has been the development of the Light Economy. Brains versus brawn.

"Now the value of the economy comes not from what we mine or smelt or vulcanise but from the human minds. From technology, ingenuity, from the financial innovations, the pharmaceutical formulas, the software algorithms. That is where value comes from."Mr. Buchholz is optimistic about the future of the world economy. He points to Japan which "for the first time in 15 years looks like it might conquer the recession" and also forecasts growth for the US and UK.

"My forecast is that 2005-06 we are going to be growing at roughly 3-4 percent and that will be seen as strong enough it won't rekindle inflation and at the same time it will keep confidence up," he said.

"I'm going to go out on a limb here. I am going to suggest that the second half of the 2000s we will actually enjoy a world economic boom that rivals or even surpasses the economic boom of the 90s," he said explaining that while the English speaking countries did well in the 1990s, Europe, Japan, Mexico, Brazil and Russia did not.

"We have a better chance for synchronised global recovery in the rest of this decade than we had in modern economic history. What will it rest on. Containing terrorism is crucial to that," he said adding that oil prices were also sapping economic growth.

"We need a program first for conservation so we reduce our dependency on oil but at the same time we have to recognise that the price of oil now is really being driven up by political forces," he said adding that he would that a new chapter of the WTO agreement which would promise energy freedom and make it more difficult for governments to get their fingers in the middle of the oil markets which has been prime culprit."