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University Tuition Fees (Thoughts On Public Good Provision)

David Blanchflower (former member of the BoE Monetary Policy Committee [MPC]) thinks richer students [students who have rich parents] should pay tuition fees more in line with the market price for education (Link). That is closer to the £30,000 paid by Ivy League students in the US (elite private colleges eg. Harvard, Dartmouth). He wants the cap on tuition fees to be raised from £3,225 p.a. so that better-off students are charged more while (or so that?) financial aid is given to students from poorer backgrounds. An analysis can be found here.

This comes against the backdrop of the government’s decision to claw back £135 million on top of the £180 million savings they had to make over 18 months (a favourable analysis based on the incentives for innovation it gives to universities can be found here) as well as the funding review which is expected to recommend an increase in tuition fees.

Education as a (net) Public Benefit

It must be noted that university education has significant positive externalities (social benefits). For instance, if a significant amount of a country’s labour force is university educated,the growth potential of the country should increase. This is because the workforce becomes more productive; being able to produce more with the same resources- a better educated workforce is better able to generate innovations in production and administration which improve productivity. A better educated workforce also increases the flexibility of the economy- if and when a sector of an economy fails, the workforce can transfer quicker to another sector if they are well educated as it takes a shorter time to train [This is very simplistic and requires elastic demand for labour in all other sectors of the economy so wages do not fall and the extra supply of labour can be absorbed]. Flexible economies tend to be resilient to shocks as easy movement of resources to sectors with the best potential for growth works against shocks in any sectors. [Resilience does not mean that recessions or sector failures will not occur, it just means that even if they do, the economy is able to bounce back quicker and stronger than in a less flexible economy].

When looked at with this background, I think it should be plain to see that increased participation in university education (meaningful degrees) should be encouraged and indeed facilitated, for the public good, through loans, grants and price caps among others (as the UK has been doing so far- Thank you, Britannia and Labour of course). This has led to an increase in government university funding of 25% over the last decade. However, with the revenge of the CDO economic crisis <bad>, government bailouts and fiscal stimulus <good> we have reached a political equilibrium on spending somewhere between savage cuts now or savage cuts later. This has led to the aforementioned cuts and savings in university funding.

With cuts in funding I think it’s only fair that richer members of society should pay a higher price for education so as to subsidise the less well-off. This could leave the amount of “university education” (a good) the same or even raise it from the level it would be if the cuts were imposed at the same time as a rise in tuition fees as these would lead to a fall in participation by students from poorer backgrounds. As a reduction in a public good is harmful (leads to an efficiency loss) to society, anything that would leave the good demanded (and supplied, although this would have to be brought about by other means) unchanged or could raise it is useful.

I think this is a good argument for subsidising poorer students by richer students (I might be biased right now). However, it loses all weight if you’re a fiercely individualistic libertarian (“No such thing as society”- M Thatcher). Then you would believe that whatever is yours cannot and should not be used by others for anything other than your good so you should not be subsidising anyone (Read Nozick’s ‘Anarchy, State and Utopia’ for reasons why whatever you own is fairly yours if it has been traded legitimately etc. as well as arguments against redistribution). However, I believe that part of what makes us human is our ability, even our need to work together and help each other for the good of the collective. Now, while I do not dispute that what everyone owns is theirs and they should be left alone to enjoy it, I do think that the source of everything we own or will own can in some way be traced back to the society we live in, be it respect for property shown by others who do have incentive to steal what we own or the maintenance of the rule of law by the state. In most countries, public provision of primary and secondary education, maintenance/ provision of education standards in both public and private institutions by government and even (until recently in the UK) free university education through grants also show that at least part of what we own cannot be attributed to our individual genius. With this in mind, I think that the haves should help the have-nots so as to improve social welfare (which benefits all).

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