After Nick Clegg’s now infamous apology over the Liberal Democrats’ broken promise to scrap tuition fees, it was inevitable that the subject would become a key economic debate in the lead up to the 2015 General Election.
Tuition fees were raised by the Tory/Lib Dem coalition government to £9000 per year in 2012, causing a backlash among students. The Lib Dems had enjoyed a wave of popularity among young voters during the 2010 election campaign thanks to their stance on tuition fees.
This year Ed Miliband has pledged that Labour will reduce tuition fees to £6000 should he become Prime Minister in May. While this policy is sure to be popular with student voters, how viable would it be? One UEA School of Economics lecturer doesn’t think the proposed changes would work.
Dr Fabio Arico said: “Labour suggests a cut in university fees, which in line of principle I would welcome. However, cutting fees might not be the best solution right here and right now. If the project worked in practice, I would have no objection. But I do not trust this promise at all.
“We are dealing with a higher education funding system that is already at strain. Increasing evidence demonstrates that the system as it stands is not sustainable in the long-run as everybody is borrowing but very few are paying back!
“The best solution would be to review the whole higher education funding scheme, but surely no party will want to commit to do that.”
One party which has promised a more radical approach is the Green Party who have promised that they would scrap tuition fees altogether. Dr Arico agrees that scrapping fees with income tax payers picking up the costs would be the best solution.
He said: “I believe that education generates massive benefits to everybody and that, economically, it is fair that everybody contributes to generate these benefits.
“Presently parents are funding their children, and there are parents who have no money to support their kids to go to university. Perhaps these children could be the most academically apt, but they will never have chance to access education.
“I find this extremely unfair. It should not be about willingness to pay, but it should be about ability to excel academically and put education received to a good use.”
The positive externalities argument, on the face of it, looks like a compelling argument for scrapping fees. However, what happens if there is underinvestment by the working classes? This did occur when there were zero fees and generous grants. Then university education can actually reduce social mobility and funding through income tax can then be deemed to be inequitable. How would you respond to that?
Hi Louise,
1. If you believe in the positive externality argument, assuming equal ability, it really does not matter who goes to university. It just matters that the more the merrier, as everybody will benefit from more education accumulated in society.
2. When you come to criticism in terms of social mobility we start to consider a separate issue, dealing with inequality, which I fully embrace. If you allow everybody to go to university, everybody will be able to afford higher income taxes. After all, taxes are calibrated according to ability to pay. Surely the mechanism is not perfect, but it works in the right direction. Think about Scandinavian countries, like Denmark: they have free HE education, pay high income taxes, but have a very fair income distribution, so everybody is treated the same. (I think that as heaven!) Now, perhaps the problem is: how do we transition from the current equilibrium to the ‘Danish’ equilibrium? That is more difficult to address. Perhaps through a targeted ‘big-push’ at the very beginning? (A period of focused and intense subsidisation to generate a social and cultural shift that will then automatically feed itself in the future?)
3. Unfortunately there will be always underinvestment in HE within the working class. Independently of the fee regime, there are non-monetary reason for the poorer to underinvest in HE. These reasons are related to lack of information, myopia, and low aspiration. E.g. if your parents and you peers did not go to university, you will be less likely to go to university. Universities are expected to conduct ‘widening participation’ or ‘widening access’ policies to counter-act this problem. In fact, they would not be allowed to charge £9K if they did not do so. I believe that this kind of policies is great and should pursued independently of the fee regime adopted in the HE sector. The Robbins report in 1963 stated that HE should be available to ‘all those who are qualified by ability and attainment’. This should be the criterion to select people into HE, not income.
Thanks for the response Fabio. However, I would question whether these can be considered separate issues. Indeed, if social mobility is harmed we could have a net negative externality (given any accentuation of inequality of opportunity will harm overall economic activity). A funding system must first show that its consistent with improving social mobility.
Do you have any evidence of lower aspirations amongst the working classes? Its not my personal experience. Instead, the working classes essentially withdraw from education at the ‘further education’ stage. This is more likely to reflect the need to become an earner coupled with uncertainty over the returns from any education investment. Perhaps much more generous grants at further education is the answer?
Hello Louise, I prefer to separate two issues here:
1. When I talk about the externality generated by education I just look at numbers: the more people go into education (HE in our case) the stronger are going to be the positive externality effects to everybody (e.g. these people who study can invent technologies which will benefit everybody in society, are less likely to commit crime, etc.) In this case, I am not looking at “who” goes into HE, but “how many”. This has nothing to do with fairness and distribution, just with numbers. Producing a higher level of GDP can be easily, and possibly more efficiently, done by increasing inequality, rather than reducing it. There are contributions in literature that show you so (e.g. Galor & Tsiddon, JEG (1997)).
2. Now, I strongly agree with you that when we talk about increasing HE participation we also want to address social mobility at the same time. But we have to acknowledge that we are adding a political and ethical dimension here, which “some” Economics does not really care much about.
Coming to your second point. There are indeed two big problems with students coming from non-traditional background (this definition includes not only low-income households, but also mature student, students affected by disability, and other categories that have been ‘traditionally’ excluded from HE). The 2 big problems are: (i) participation = how do we encourage them in? and (ii) retention = how do we make sure they will stay? Your personal experience refers just to the latter, but I can assure you that the literature considers both. You can find good statistical reports from HEFCE and OFFA. (E.g. http://tinyurl.com/ow3bqlp). The impact of family, peers, and environment is a crucial factor in affecting young individual’s decision to attend HE. Then, those who eventually enroll in HE, find themselves in an environment that is not familiar, have stronger financial constraints (as you say), and are more likely to drop out.
Bursaries are still the most widely adopted adjustment to address these problems, but they are not enough. Why? Because: (i) they only address retention but not participation, (ii) they do not address the psychological issues of ‘fitting-in’, adapting to uni life, and addressing attainment problems. HE institution must pair bursaries with support, facilitate the creation of networks, treating students like human beings rather than accountancy records. And what about participation? Offering a bursary at point of entry to HE is too late. Some students do not even make it there. They go to schools in deprived areas which will never give them the grades to aim to apply to HE, they are not supported and encouraged by families and friends. We need more than bursaries to get them him. We need to go and fetch them, talk to them, show them what HE is all about, and encourage them to apply. References on this kind of approach can be found in the work of Anna Vignoles (University of Cambridge). In particular, I love this paper: http://tinyurl.com/oczgbdg.
I get always excited when I am confronted about these topics. But do please keep challenging me, especially if I have not been clear in my explanations. If you want more references, my email is: F.Arico@uea.ac.uk.
Thanks again Fabio for your well thought out comments. Its always good to see academics engaging with the wider community. However, there are a couple of aspects in your reply which I question:
1. Externalities
When I first encountered Economics as a discipline I found that this was a term which seemed rather overused. I do agree that markets will often fail, not just when compared to the illusion of perfect competition that I was taught in Economics of Business. However, if the analysis is used in isolation it cannot surely determine any notion of an optimal practical policy response? For example, the social gains from education will be largely illusionary if there is any further harm to equality of opportunity. Such harm will encourage the view of education as certification, rather than the wonderful creature it should be.
2. HE Participation
I appreciate your distinction between participation and retention. I also appreciate the impact of peer influence. However, this can be seen within consideration of investment and certainty: its easier after all to make a 3 year investment when our family & friends are all around us advertising the true value of that investment. “First in the family” participation, in comparison, involves great uncertainties. Want to remove those uncertainties? Then shift generous grants lower down the education system. It is non-participation in further education which is the big problem. It is here also where any psychological effects are pertinent. I only realised the potential gains from university when I commenced my A Levels.
Hi Louise,
I must agree on your vision of externalities: when the market do not work, we need to find a culprit rather than addressing the fact that perhaps our own view of markets and our models are entirely wrong to begin with.
Getting back to the way I modelled externalities in my previous comments, I was talking about developing countries and policies aimed at give countries a ‘big push’ to get them out of poverty. This would be surely a core objective. The paper I mentioned by Galor and Tsiddon (1997) states that re-distribution should indeed be promoted at some point, but not too early so that the country’s economic growth is able to take off. I do agree that equity is placed in the back seat to begin with, and that we would never know if it would return in the front seat later on. However this simple analysis gives us some perspective on the trade-offs that economists need to face.
On HE participation: we seem to have found an agreement 🙂
Having entirely state-funded higher education just strikes me as subsidisation of those who will, on average, go on to earn the most (graduates) by those who will not (non-graduates). It’s a pre-emptive redistribution of wealth from the poor to the rich!
A much better solution would be to have individuals pay, but backed by a student finance system robust enough to actually support individuals through education without any parental support. You then actually incentivise individuals to do degrees which will provide the most economic value.
Doesn’t the fact that people aren’t paying loans back suggest that there is a problem with the student loan system? I haven’t seen the statistics, but I suspect you’d see massive divergence by degree subject and institution.. which, one might postulate, suggests that there are a number of degrees being awarded with little economic value, that might otherwise not be undertaken if there wasn’t significant state subsidisation and the ability to throw the problem so far down the line it becomes almost invisible.
Hi Lewis,
1. In your first point you are basically saying that you do not believe in the positive externalities effects generated by HE. If externalities were zero, I would agree with you, but my own position is that externalities have in fact a very strong bearing on a country’s overall rate of growth. In defence of your point, a recent article on the Economist says that the UK has underperformed at translating academic excellence (e.g. in the Sciences) in effective R&D practice and introduction of innovations in the production sector. The answer to that would not be invest less in academia though, but invest more in translating academic training into useful skills (see about the ‘skills gap’ debate).
2. I would agree that if the HE financial system could fully support students we would be in a better equilibrium. But we are well far away from it: we have no money to finance such a generous scheme. Loans are not being re-payed already, public finances are at a stretch, despite all the austerity we have endured recently. If the HE loan system became even more generous the deficit and debt would increase further! It is not sustainable, in fact it is not feasible. (Looking again at Denmark: not only do HE students pay no fees, but they also receive huge subsidies on rented accommodation, book purchases, etc.)
3. Yes, there is a huge problem with the loans system: there is no money! I entirely agree with your analysis breaking down by degree subjects. We lack of good scientists and we have far too many low-prospects degrees perhaps. The massification of Higher Education has transformed good polytechnics in bad universities, without increasing the value of their qualifications. I am not sure this is a problem of state versus private financing. What I am more confident to say is that, for a series of reason, the quality of HE entrants is not as high, so the return to education of some individuals are zero, if not negative…which will not pay off in the end.
Reblogged this on Fabio's Higher Education Journey and commented:
An interesting discussion is developing from a recent contribution of mine to the School of Economics Blog here at UEA. Elections and tuition fees: hot topic!
Playing devils advocate, it is perhaps time to acknowledge that university is not suited to a lot of people at all. University should be challenging and only provide people with skills they cannot learn outside of its borders, where apprenticeship schemes can take the reins. We should therefore be vastly reducing the number of courses available and increasing spending even further on apprenticeship schemes for real jobs on the market that university cannot prepare a person for. Perhaps degrees such as English should be privately funded or removed altogether; it is my opinion that an apprenticeship will provide as much skills needed for the workplace as an English degree would, and quite possibly more, whilst not costing the taxpayer even close to the cost of a degree. Perhaps below the belt but, learning about Shakespeare or the Ancient Egyptians does not have the same impact to society today as learning medical sciences does. The time for humanities should be reserved to primary and secondary education unless we have intentions of becoming a historian or architect, the truth is however that these jobs are few and far between.
By providing only degrees such as sciences, engineering, law etc. instead of say English and communications, we increase the pool of potential economic agents who will significantly impact our society and economy in the future due to their degrees. Not only would this free up gov spending to allocate more money proportionally to a more narrow spectrum of specific courses, it may also encourage potential students to take a more ‘challenging’ and relevant degree without the availability of an easier one, potentially leading to an improvement in the labour force in the future.
We of course have the argument of us being a first world country and that we should have the right to choose our course and not feel forced into our choices. However, we simply cannot continue to put people through university who have little intentions (or chance) of becoming employed with the degree they have taken. We’ve had austerity measures in place for years and we still cannot afford the system we operate within. We’re currently breeding an attitude of carelessness with spending – 85% of loans are not paid off fully, all at the cost to the taxpayer. There is asymmetry in degrees provided all costing the same. Reduce the amount of degrees which do not translate into relevant jobs post graduation and efficiency of gov spending in HE will rise. With fees being heavily subsidized we can expect the 85% of loans not paid off fully to be drastically reduced, with the economic potential of our economy improving with factors of production (labour) becoming more efficient with tailored degrees and movements from university to apprenticeships.
Just a thought.
Hi Joel,
A lot of thought provoking reflections. I agree with some and disagree with others.
University not suited for all
I agree in general terms on your idea of what universities should provide. However, the constraint that we are experiencing in the UK is the very definition of university. The (relatively) recent changes in the HE sector have transformed a lot of polytechnic institutions (delivering vocational degrees) into universities, from 1992. It is with this broad definition of university in mind that we need to conduct our analysis. Otherwise, we should open a side debate on whether it would be better to bring back polytechnics and revive our system of vocational training. (I would be in favour of this!)
Let’s wipe off Humanities
I would disagree with this. To a certain extent this would contradict what we stated above. If university education is not all about training people for jobs, we should not worry about the ‘uncomfortable’ presence of Humanities. In fact, Humanities bring an invaluable contribution to every society. Human beings are not just working, eating and sleeping. They are complex beings able to communicate, feel, love, look into the past, and imagine their future. The contribution given by studying Literature, Philosophy, and Arts might not be evident, but it is extremely important to our existence. To a certain extent it also impact on our productivity, and I bet you will encounter in your path firms willing to enrich their team of experts, technicians, and ‘scientists’ with somebody who is able to think outside the box, seeing the bigger picture and offer a vision. Humanities can do all that, and they should not disappear. (You bring the example of Medical Sciences, but some GP cannot do much more than listening to symptoms and following algorithms and flow-charts to give a response to this. Perhaps a philosopher could do a better job in considering holistically what a person is going through and being able to find a solution to their problems).
Matching talent, aspirations, and labour demand
This is a tough one. In Soviet Russia people were told what they had to do in society, and were allocated to jobs that were pre-set and pre-designed in number of vacancies and duties. Frankly, I would not want to live in that world. I wanted to study Philosophy when I was younger, and I did not have the guts to do it, because I was afraid of not finding a job at the end of my education. Funnily enough, I ended up doing the same job that I would have probably done with a degree in Philosophy. To a certain extent my talent, abilities and aspiration drove me back to where I should have been.
Apprenticeship
You speak a lot about this in your comments, and I could not agree more. We need more of it. The German model is all based on the dualism academic versus vocational training. The only problem with it is that it streams people into either track very early in their life, when perhaps people have had no chance of showing their true ability or form their own aspirations. It does work though, and apprenticeships are at the centre of the action.