28 November 2006

Student loans: a bad idea whose time has come

In an earlier post I wrote:

Further to my post on Gabriel Rozenberg criticising students in The Times for complaining about having to pay for their degrees. I suggested that turning the university system over to the market was not necessarily the best outcome, although perhaps unavoidable in a mediocracy. In a mediocracy it cannot be permitted that only a minority get subsidised to develop their intellectual skills. Therefore no one gets subsidised. (There is an intermediate stage in which a lot of people get subsidised, but it doesn't last long since it's not economically viable.)

Rozenberg replied as follows to readers' comments:
"I'm struck by how many of those who disagreed with me think that the answer lies in going back to an elitist concept of higher education for the top 2-5% of the country. My view is that such a system would damage the chances of millions of young people who will need advanced skills to get ahead. ... By calling mass higher education a "mediocracy", Dr. Tassano, you're saying they shouldn't get a chance to succeed."

Actually I didn’t call mass higher education a mediocracy. I said we live in a mediocracy, implying that mediocre standards prevail. The claim that “people will need advanced skills to get ahead”, and therefore need to go to college, is pure Blair-speak. Even if it’s true that totally new skills will be needed, where is the supporting argument that what is taught in degrees actually supplies these skills?"
Rozenberg commented on my response as follows:
Given your keenness for liberal economic theory elsewhere on the blog, I presume you believe that market choices indicate rational appraisals of trade-offs. In which case, the onus is on you to provide evidence that the hundred thousand or so students now paying £3,000 a year for their degrees are irrationally wasting their money.

Your main point is topsy-turvy: that "mediocre standards prevail" because of the expansion of higher education. Since when did competition for a service drive down its quality? Just as big businesses complain about red tape while simultaneously colluding with their regulators to block out new market entrants, so too are anti-competitive arguments like this now heard from representatives of a befuddled university as an excuse for rent-seeking.

Thankfully, in the future, students will more and more wield the power of their wallets. It's the only way Oxford will ever get better.
My reply

- The fact that lots of people are willing to pay £3000 to study for three years doesn’t prove much about the value of what they are taught. The process currently has very little in common with a typical consumer purchase decision. (Though conceivably if we went down GR's route it would become more like that.)

- I have never said, nor do I believe, that free markets are perfect in the sense of resulting in the best possible outcome, in terms of what people want. I merely reject the idea (in almost all cases) that anyone else’s paternalistic decisions – those of experts, or the government – would be better.

- As I said in my original comment on GR's article, I don’t think forcing marketisation, particularly partial marketisation, into a previously un-marketised area necessarily yields positive results. GR doesn't seem to have addressed that point. That was one mistake of Thatcherism which I thought the Tories might have learned by now. A completely free market is one thing, a pseudo-market another. (See e.g. NHS internal markets, railway privatisation, public finance initiative, etc.) I am also open to the idea that some things don’t work best on a free market at all (e.g. postal delivery), and I am prepared to consider universities under that head. In that sense, I am a conservative – I think, for instance, that Oxford’s priority at this stage is not to “get better” as GR suggests, but to stop getting worse.

- Following the massive expansion of higher education, it's now extremely rare for anyone from a middle class background not to go to college. A degree has therefore become more or less a sine qua non, without which the average employer would regard your CV rather dubiously. That, I would have thought, is in most cases enough to make people think they cannot afford not to go, regardless of whether they will enjoy, or otherwise benefit from, what they actually do there. If I were 18, that’s what I’d think.

- The economist Michael Spence’s model of college education suggests that the function of a degree for most people is largely as a signal of minimum ability. To quote Wikipedia, “employees signal their respective skills to employers by acquiring a certain degree of education, which is costly to them. ... For the model to work, it is not even necessary for education to have any intrinsic value.”

- GR's argument about increasing competition seems muddled. In what sense does increasing the number of universities from 50 to 100, or increasing student numbers from one million to two million, increase competition? Should one expect increases in quality if the number of soft drinks manufacturers went up from 50 to 100? By the way, I didn’t actually say that mediocre standards prevail because of expansion, just that they do prevail.