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Shalom Lappin (King's College, London) shared this striking presentation. Thoughts from readers? Signed comments will be very strongly preferred.
A comment about the slides for the first half of the talk: the case that universities should be free or heavily subsidised to students because it is a public good was badly undermined in the UK because of the strong correlation (frequently asserted, I should say, I never looked at the figures) between family income and the chance of getting into university (or Oxbridge). Lappin should have tackled this point; instead he wrote such things as "The reason for construing them as public goods is to ensure universal accessibility because of the collective economic and social benefits that they produce."
Setting to one side various points of disagreements with Shalom Lappin's description of what's been happening in higher education in the UK, I found his general conceptual framework disorienting rather than illuminating, for the following reason.
The presentation is called "Is Higher Education a Public Good?"
But in the ensuing attempt to answer this question, there is what strikes me as a frequent equivocation between:
(i) a "public good" on the economists' definition, which is a good that it is *impossible* (because of non-excludability) to charge each for, to the extent that he benefits from the good, and
(ii) a "public good" that is understood as something that society *ought* to make available to all, without charging each to the extent that he benefits from the good, even if this were possible.
Lappin, for example, speaks of public goods on the first understanding when he writes: "Because public goods are non-excludable, there is an incentive for consumers to enjoy these benefits without covering their cost."
But he speaks of them on the second understanding when he writes: "Which items are regarded as public goods depends on the products and services that a polity considers to be indispensable to its well being…reflecting the norms of the electorate."
…and when he writes of "the goods that a community chooses to take as
public".
…and when he speaks of the consensus in Western Europe and Canada, but not the US, that health care is a public good.
(An aside: Is it really the case that "Which items are regarded as public goods depends on the products and services that a polity considers to be indispensable to its well being"? Food and clothing are generally considered indispensible to well-being, but they're almost entirely provided via private markets in Western Europe, Canada, and the US.)
The point is irrelevant. My concerns were (i) to discuss the relationship between higher education as a quasi-public good, and the public benefits that it incurs, and (ii) the general view of higher education from this perspective in the recent (past 40 years) of public policy in the UK. The privileged role of Oxbridge is largely tangential to those concerns.
Hi Mike,
This comment, is I fear, seriously confused. I make it very clear in the slides that I am using the traditional notion of a (quasi-) public good used by economists, which is defined by (quasi-) non-exclusion, and (quasi-) non-rivalry of access. I take the grounds for identifying a service or product as a public good to be the public benefit that it offers, and the fact that the market cannot supply it cheaply or efficiently in a way that insures universal access. I then summarise several salient arguments for treating higher education as a public benefit of the sort that should be a prime candidate for provision as a quasi-public good. These arguments also apply to other levels of education, where this reasoning is, by and large, not controversial.
Concerning the fact that food and clothing are private goods that are indispensable to well being, this is a case that establishes my point. The market provides them relatively cheaply and efficiently (more so than government production and distribution has in countries which have attempted to handle this activity). By contrast, the market has failed dismally to provide cheap universal access to health care (as the American experience demonstrates very clearly) and education (higher or otherwise).
I agree with Mike: the economics doesn't seem right here. A public good is something where you benefit from it whether or not you pay for it (like clean air, or policing) and where my consumption of a unit of it doesn't prevent someone else from consuming that same unit. Then the reason for the government to pay for public goods is that no-one has any incentive to pay for them themselves.
If education were a wholly public good, my university education would benefit the whole country, but wouldn't benefit me any more than it would benefit people who didn't go to university – so I wouldn't have any incentive to go unless it's free and so the Government had better cover my costs. (In fact, they'd better pay me to go.) This doesn't look very plausible, not least because people are actually willing to pay very large amounts to go to university or send their children.
At the other extreme, if education were a wholly private good, my university education would benefit entirely me – the country would be a bit richer as a result of it but I'd keep all the extra cash. In that situation, straight economics says I should just foot the bill. (There might be moral reasons for another policy!) I actually think healthcare is mostly like this – the benefits go mostly to the recipient. The case for universal healthcare, though overwhelmingly strong, doesn't seem to have much to do with its public-good status.
Higher education actually seems to be a hybrid – part public, part private. Really quite a lot of the benefit of my university education goes to me personally, but plenty goes to society at large. Treating something like that as *either* a public, *or* a private good, seems a bad idea:
– if you treat it as a pure public good, so everyone gets paid to do it, then in economics terms you are putting inefficiently many resources into it; translated into public-policy terms, you are spending resources on it that would be better spent on something else. And – since actually higher education is *not* purely non-rivalrous, if you are not careful you end up channelling resources from the relatively poor who don't go to University to the relatively wealthy who do.
– if you treat it as a pure private good, so everyone has to pay sticker price, you won't get enough of it – that is, far too few people will go to university given the social benefit of having many more go. (And of course those who do go will predominantly be those with the family funds to afford it.)
The natural way to pay for a hybrid part-private, part-public good is to subsidize it but not make it free – and to target the subsidy at those who get the least private-good benefit in the form of increased salaries. That is pretty much what the current higher education funding model in the UK does. Estimating the level of Government support is fairly complicated because most of it comes in the form of subsidies for loans, but the Institute for Fiscal Studies estimates that about 40% of a Humanities undergraduate's education costs (tuition plus living costs) will be covered by the government on average – and the "on average" covers the fact that the amount you pay back depends on your income. You can criticize the ratio; you can worry that the government will not keep its promises on the loan mechanism; you can raise wider political-economy points; you can worry about stealth introduction of for-profit provision; you can (even though the actual impact of the changes is progressive) worry that poor-background students will be put off by sticker shock. But if you want to judge the policy on public/private goods grounds it seems to me to do quite well.
(In any case, nothing about the economists' definition of a public good seems to entail "cheap universal access". Indeed, the very identification of universal access as something which requires policy action to achieve goes against the idea of a public good: one of the defining features of public goods is that you get universal access whether you like it or not.)
Higher education seems to me a private positional good with public positive externalities.
No, this is quite wrong. Economists use the term "quasi-good" to describe services that are restricted by available resources in provision, but are still provided largely out of public revenue in order to insure universal (or near universal) access within the limits that public funds can sustain.
Your inference from the fact that graduates are the primary beneficiaries of higher education to the conclusion that is primarily a private benefit is unsound. The immediate beneficiaries of all goods, public and private, are the people who use them. The reasons for turning a service or a product into a public good are (i) it is of major public benefit, and (ii) public provision is more efficient in insuring universal access to it than private provision is. The increase in economic productivity, health, etc. that higher education provides (all documented in the slides) accrue to the individual through higher wages, longevity, etc. If your arguments were correct, then one should also seek to privatise, or partially privatise primary and secondary education. Market devotees and rightwing libertarians would endorse this view. The results in terms of declining access to education are well established (as they are in private health care systems). This constriction of access then degrades the public benefit that health and education offer.
Sadly, you are seriously misrepresenting the UK government loan system. It constitutes buying on credit, and is regressive in character. When combined with maintenance grants it saddles the average graduate with a debt of close to £40,000 (approximately $60,000), which is considerably higher than average student debt in the US. Repayment starts at an annual income of £21,000 ($31,000). These repayments seriously reduce the capacity of a graduate to undertake other long term financial responsibilities like a mortgage, or child rearing. Moreover, there are no government loans for graduate students, and graduate tuition fees have been going up in proportion to the (now tripled) undergraduate fees. Therefore, the government has devised a system that both transfer the primary cost of university education to students and their families, and provides a drastic disincentive for continuing onto graduate studies. Graduate student funding from research grants has been significantly reduced in recent years, intensifying this disincentive.
In any case, the main points in the discussion of the current loan system are moot. The government has been actively trying to commercialise student loans, because it cannot afford the front loaded cost of laying out undergraduate tuition fees. Should it succeed in unloading the loans on banks, then interest rates will go up considerably, and students will be subjected to exclusionary credit testing. Should it fail, then the entire loan system is in danger of crashing. In either case, significantly higher tuition fees at all levels are likely. This will significantly restricted access to UK universities on the basis of ability to cover the full cost of fees, as it is now doing at the MA and PhD level.
If one is at a well healed institution like Oxford, Cambridge, or the LSE, with a ready supply of financially well endowed students, both foreign and domestic, this is not a problem. If one is concerned to insure the continued expansion of participation in a high quality university system available to students on the basis of ability to study, rather than through ability to pay, then it is a serious concern.
Finally, I find it surprising that policy makers, university officials, and senior academics enamoured with current government policy are not embarrassed to confront the students who they are pleased to burden with such unsustainable costs. Given that most of these policy makers, officials, and academics benefited from free university education, the aesthetics of this policy are at best distateful, to say nothing of the disasterous consequences that they are incurring for British universities.
A useful characterization of quasi-public goods (and the one I am invoking) is provided in
http://econ.ohio-state.edu/Aly/docs/Privatization%20of%20public%20goods%20and%20vise-versa.pdf
Shalom, in your reply to me, you say "I make it very clear in the slides that I am using the traditional notion of a (quasi-) public good used by economists, which is defined by (quasi-) non-exclusion, and (quasi-) non-rivalry of access."
Actually, you don't make at all clear you're using the notion of a (quasi-) public good, as opposed to the notion of a public good. Nor do you ever explain what you mean by 'quasi-public good' as opposed to 'public good'. In your opening slides 3-5 headlined 'Public Goods', you offer the economists' standard definition of a 'public good', as involving non-excludability and non-rivalry. There's nothing 'quasi-' in this account. The word 'quasi-public good' crops up on just two occasions during the course of 92 slides, but at neither point do you signal what you mean by this term. Nor do you signal that your talk throughout your slides of 'public goods' is meant to be talk about 'quasi-public good'.
In your comment #8 above, you provide us with a link to what you describe as "A useful characterization of quasi-public goods (and the one I am invoking)." Here's the characterization:
"The quasi-public goods or services (education, health services, roads and highways are good examples) do possess most of the qualities of the private goods [MO — where these qualities are described in the previous paragraph as individual consumption; rivalry; and excludability] and some of the benefits [MO – where these are left unspecified] of a public good."
Where do you make very clear in your slides that by 'public goods', which you standardly define early on as involving non-rivalry and non-excludability, you in fact meant something very different: namely, 'quasi-public goods', which possess most of the qualities of private goods?
I suspect that what underlies the equivocation in your slides that I mention above is a different, more standard, notion of a quasi-public good: i.e., a good that is in actual practice open to all, whether or not they pay for it, but which it's possible to exclude people from enjoying. Roads and highways provide good examples of this. Throughout your slides, you go back and forth, without marking that this is what you're doing, between the standard economist's notion of a public good and the very different notion of a quasi-public good, so understood.
Okay, I grant that in the slides I did not make the distinction between pure and quasi-public goods sufficiently clear. Notice that the argument that I present concerns public services, and most (almost all) such services are quasi-public goods. Even the examples of services which have sometimes been used to illustrate pure public goods, like fire and police protection, and public parks are actually quasi-public goods. It is, in principle, possible for the market to provide them on an exclusionary basis, but it is generally recognized that it would be inefficient to organize provision in this way.
The main point is that a service is identified as a quasi-public good to the extent that securing univeral access depends on (largely) public provision. The arguments for treating a particular service as a quasi-public good depend both on the public benefits that it confers and the extent to which private provision undermines these benefits through restriction of access.
My central argument concerning the radical transformation of higher education in the UK from a quasi-public good into a private good holds. As the OECD comparison tables included in the slides indicate, Britain has gone from a system in which 80% of the cost of public education was covered through public funds in 1995 to a one in which 25% of this cost is publicly financed, with most of the remainder being directly imposed on private households, in 2010. In fact, this burden on households has gone up since the publication of these figures due to the near complete withdrawal of government support from teaching in all but STEM (Science Technology and Engineering) subjects. No other country in the OECD, except for Chile, has privatised its higher educational system to this extent. Even the US has retained a higher and substantially more constant level of public investment in universities.
The disasterous effects of this policy on continued access to the system, as well as on the way in which university management operates should be a cause of major concern.
With apologies to Brian for having to make basically the same points every time this is discussed:
(i) If Professor Lappin wants to claim that the new loan system is regressive, he should provide the evidence. The IFS analysis of its fiscal impact gives the opposite conclusion: relative to status quo the new system is progressive.
(ii) Professor Lappin describes UK debt as "considerably higher than average student debt in the US." I'm not hugely familiar with the US debt/loan system, but US graduates to whom I've spoken describe the UK repayment framework as enormously more generous than the US one. As I noted in my previous post, on average the Government is predicted to cover about 40% of the real costs, with the fraction covered mostly skewed towards those on lower incomes. So I'm sceptical of the value of a headline-number comparison.
(iii) "These repayments seriously reduce the capability of a graduate to undertake other long term financial responsibilities like a mortgage, or child rearing." I don't think there is any evidence of this. Remember that since around 2005 UK students have had student loans with the same repayment rate as a fraction of income over a threshold (9%) but a lower threshold. So the actual present-time burden of loan repayments is heavier on the last few years of students than on the ones studying now. But I have seen no evidence that it is deterring them from other life tasks. Talking to recent students, the message I get is that banks – predictably – treat loan repayment as equivalent to a reduction in salary, not as already-present borrowing. In most respects the "loan repayment" functions as a 9% graduate income tax above the median wage, not as a commercial loan.
(iv) The Student Loan book may be sold off. (I'm not in favour of that happening; I think it's worth politically opposing; my tentative prediction is that it won't happen.) But even if it does happen, and even if interest rates increase, I have nowhere seen it suggested that banks will be allowed to vary the repayment threshold. As long as repayment carries on being at 9% of salary above the median wage, it will continue in effect to function as a finite-duration tax. (And a 9% tax on income above £21,000 does not, contra Professor Lappin, seem to me to be "unsustainable".)
(v) I notice how frequently, in these conversations, critics of the system fall back – as Professor Lappin does – on the bad consequences of their predicted *change* in the system, rather than of the system in itself. Those fears may be warranted, but it would be helpful to separate them out from the consequences of the actual system we have.
(vi) Since the government reforms are increasing the per-student income for most universities by around £1700 p/a (assuming about 1/3 of the additional money returned in scholarships), and since last time I checked there was very little evidence of any significant impact of the new fee on recruitment, I think it's a little premature to reach the verdict that the policy is leading to disastrous consequences for universities. If Professor Lappin has evidence of systematic disastrous consequences I'd be interested to hear them. (I'm happy to concede that this very large and disruptive change has had isolated negative consequences for particular universities, and that that may be regrettable – I'm talking about sector-wide issues.)
(vii) Finally, I am quite unembarrassed (despite Professor Lappin's surprise) to "confront" my students. Why should I be? I think the funding reforms are broadly speaking sensible public policy; why should I be embarrassed to defend them? And while I was in about the last year of UK undergraduates who got free education, I was a reasonably vocal critic of the widespread student opposition then to the 1997 fee, and was an advocate of something not dissimilar to what we now have.
The reason that average debt looks higher in the UK, is because 1) Pell Grants (most of which go to older students who are basically in vocational training programs) reduce debt and 2) debt is very unevenly distributed among students — obviously, at the very top end of the distribution there is not much debt (parents pay), 3) debts are typically not income-contingent, and typically don't have a sunset clause and 4) a good proportion of those in debt went to college and dropped out (the completion rate in non-selective colleges and community colleges is very low) so they don;t have huge debts (they didn't go to college for long, and it was cheap) but they have nothing to show for it. The UK system does, indeed, look very generous compared with the US system. There is another possible difference in favour of the US — completing college in the US raises your expected income relative to merely completing high school enough to justify a lot of debt; I don't know what the effects of completing college in the UK are on your expected income, or whether those effects justify a lot of debt.
There's still a reason for keeping sticker prices low — not because higher ed is (or should be — Professor Lappin has equivocated in the way Mike suggests several times since Mike suggested it) a public good — but because we want to maintain fair access to it, and working class children are much more prone to sticker shock, and averse to taking on debt — and for good reason, because they have more reason to expect to fail, and thus have nothing to show for their debt. Given this, price differentiation is hard to do (if you care about access).
Regarding Harry's point about sticker shock and aversion to taking on debt: so far, there hasn't been a drop in university applications from students from the bottom quintile (by postcode participation in higher education) since the introduction of the £9,000 fees. Nor was there a drop when fees went up from £1,000 to £3,000 in 2006. Nor has there been a rise in Scotland since the abolition of their £2,000 fees in 2008.
http://www.esrc.ac.uk/_images/Briefing_TT2_widening%20access_tcm8-28589.pdf
I fear that we are becoming repetitive, reiterating our respective positions, as well as claims that you and David have made in previous discussion threads.
I very much doubt if anything that I say will persuade you of my view. Neither you nor David have advanced any well grounded arguments to convince me of yours.
We will have to agree to disagree on these points. Time will tell who is closer to an accurate presentation of the situation in British higher education.
I have to get back to my day job now.
I don't think I advanced many arguments: I just listed a collection of facts about the way the current educational funding system works that people seem continually not to be recognising: that it is not regressive, that there is no evidence that it is affecting access, that it functions largely as a tax and is structured very differently from a commercial loan, that it is increasing the income of universities, that the Humanities are the main financial beneficiaries, that mortgage providers do not treat student loans as debt, etc etc etc. With apologies for repetitiveness, I'm not sure what to do other than continue pointing them out until people either provide an evidence-based challenge to their factual basis, or accept them.
But I'm not holding my breath, and I too shall return to my day job! Thanks to Professor Lappin for an interesting new perspective at any rate.
Actually, for a change in my case, nothing I say above repeats anything I've said in earlier threads. David repeats some points he's made in earlier threads, but everything he says here is germane to what you say. The reason why his — and, in earlier threads, my — points are repetitive is that those with whom we disagree keep making the same points. What else are we supposed to do when Brian links to different people who (sometimes from different starting points or normative commitments) end up making very similar claims regarding the state of higher education in the UK?
There's a pretty devastating critique of the new system here:
http://www.lrb.co.uk/v35/n20/stefan-collini/sold-out
I'd be interested to hear a response from anyone who's at all sanguine about the changes.
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