16 March 2018
by Simon Marginson

Higher education should be funded as a public good

The zero-sum trade-off between public good and private good is a key aspect of the present English policy approach to higher education, says Professor Simon Marginson in University World News.

It is one of the many things wrong with the English system model, with its obsession with austerity in spending, fake economic markets and controlling education and its users by sending all into competition with all.

The great democratic question of the value and purpose of higher education has been hijacked to service a Treasury-driven argument about limited public financing.

It is clear that higher education is both a private and public benefit, and the two kinds of benefit flow simultaneously, without harming or reducing each other.

The public/private split of the benefits of higher education is not the same as the public/private split of its financing. Across the world there is a vast range of tuition arrangements, from high fees (like England) to no fees, and from commercial loans to income-contingent loans, in societies with much the same level of higher education participation.

However, whether policy focuses on private or public benefit does affect the nature of higher education and the extent to which its benefits are spread evenly throughout society.

Economic approach and political approach

There are two contrasting policy approaches to the question of public good in higher education. One is the economic approach taken in the marketised English-speaking systems (with the partial exception of Canada). The other is the political approach taken in most of the European world that the United Kingdom currently seems determined to separate itself from.

The economic approach is based on the neoclassical economic assumption that ‘public goods’ in higher education are those goods that cannot be produced in an economic market because it is not profitable to do so. The public pays only for those aspects of higher education subject to market failure. This becomes the basis of the financing of higher education.

In the economic approach, the public/private funding equation is said to be based on the public/private split of benefits – though in reality it works the other way. Higher education is defined as predominantly a private good and this is used to justify a largely private funding system.

This approach immediately creates the zero-sum problem – the more education creates private benefits, the less public it is seen to be, and vice versa. Because financing is zero-sum, then benefits have to be seen the same way. This is a dangerous nonsense.

But the economic approach to private good does have one good feature – it establishes a minimum level of public funding that is needed to overcome market failure in areas such as non-commercial university research, that would wither immediately without public funding.

The political approach to public/private is different. From this perspective, the ‘public benefit’ of higher education is what we say higher education should do, in the society that provides it with its conditions of existence. The financing arrangements become those that serve the policy-defined goals and value of higher education.

This approach allows us to fully recognise and finance the collective, societal benefits of higher education – as well as the individual benefits, such as augmented economic productivity, employability, cultural and social capital and personal development.

Students pay too much

According to the most recent comparative OECD data, in 2014, 28% of the nominal financing of all tertiary education in the UK was from public sources, with 72% from private sources, mostly from students.

The real level of public financing was higher than this because it includes the subsidisation of unpaid tuition debt by government. I see the real public share of costs as being 45-50%, with a 50-55% private share. This is a low level of public subsidy – in the OECD countries only Chile, the United States, Japan and Korea are lower.

The financing and tuition regime in England means that students pay much too much. This and the constant market consumer talk mean that the objective becomes to maximise private individual rates of return. But a high graduate premium is associated with high levels of economic and social inequality, and fosters the idea that higher education serves a high income earning social elite.

In a system with very high (rather than moderate) graduate premiums, as in the United States, people who do not access higher education are condemned to a low-wage and low-status existence.

When the purpose of higher education becomes concentrated on private individual rates of return alone, this returns higher education to its old, regressive role as a marker of social distinction. It also limits the provision of equity in higher education to a small number of opportunities for low-income students to climb into the gentry.

If higher education sells itself as a pass-card into the elite – even while failing to deliver on this for most graduates – no wonder the pushback against elites readily translates into pushback against higher education.

The public pays too little

The financing and tuition regime in England also means that the public pays too little. Over time this will lead to neglect of the common and collective goods derived from England’s university and college infrastructure – and in the long run this is as important an issue as individual fees.

In England, the majority of students receive no direct public subsidy at all – according to England’s logic of the public/private split, this implies that students’ education generates no public benefits.

Some direct subsidies survived the 2012 reforms, in science-based disciplines studied by two students in five. However, for 18% of students the direct subsidy is negligible, only £255 (US$354) a year, and for another 20% it is low at £1,527. Only in clinical medicine and dentistry, at £10,180 a year, is the direct subsidy big enough to change the character of financing, but those students make up only 2% of the total.

In addition, much of the public subsidy that survived market reform is focused not on the common social benefits of higher education, but on financing access to higher education as a private good, through public subsidisation of the tuition loans system.

Again, this is an example of individualised equity offering limited opportunities to enter the gentry, rather than an egalitarian society in which everyone should receive the relational benefits of a common education. The latter is not impossible to imagine for the education system. It is the idea that underpins the National Health Service (NHS), for example. The NHS’s foundational principle is that everyone should have a shared healthy life. Why can’t everyone have shared high-quality education?

Perhaps England treats education differently to health because of its long history of vertically stratified provision, with independent schools elevated high above state schools, and the leading universities elevated high above the rest, rather than first among equals. High stratification and exclusion fosters education as a private good and undermines potential social commitment to a more egalitarian and solidaristic system.

Collective benefits

But consider, the neglect of public goods in the current system of financing of higher education means that there is no direct financing for a large range of collective benefits that research shows are firmly associated with higher education:

  • The many contributions of higher education institutions to building society, economy and education in cities and regions, especially disadvantaged regions. This is an important contribution of higher education institutions, especially given that England is grossly unequal by region.
  • The public cultural contributions of universities through performances and training opportunities in the arts, publishing and so on.
  • Universities’ extra mural education activities in the community.
  • The voluntary contributions of universities to better public policy and government processes, which require time and other resources. There are also many voluntary contributions to civil society, and in relation to industry.
  • All cross-border international activities in universities that are not covered by research funding or financed from foreign student fees and contribute to building social learning, a more capable workforce (which may not show in higher wages), better international relations and global public goods. This includes the cost of study abroad for many students.
  • The reproduction and advancement of all academic fields of knowledge, not only those fields that lead to professional qualifications generating specific earnings and not only those in the STEM (science, technology, engineering and mathematics) disciplines. The classic examples are foreign languages and other humanities, which have many public good spin-offs but are lowly valued as individual investments. Also, some STEM disciplines such as mathematics and the non-professional ‘pure’ scientific disciplines are not adequately subsidised as knowledge, yet are crucial resources for learning, research and social institutions in many other domains.

If universities follow the logic of the consumer market and the Teaching Excellence Framework (TEF), over time, unfinanced public goods will be whittled away. The TEF requires universities to focus on maximising individual student satisfaction scores and individual employability. This means targeting more precisely their spending and activities to maximise performance as measured by the TEF indicators.

In other words, the more the university neglects extraneous unfunded public goods, such as its contributions to the local region, the more ‘effective’ it will become.

Should policy aim for a different balance between public and private funding, based on a calculation of the public/private split of benefits? That would leave us stuck in a regressive neoclassical economic logic. The question about a normative public/private balance, which could never be agreed, let alone stable policy, is the wrong question.

It is better to approach the question in terms of political choices, the second approach. The more useful question to ask is: ‘What are the funding arrangements that will optimise both the public and private benefits of higher education?’

And the answer is that we need to:

  • Directly subsidise the collective goods that we want higher education to produce.
  • Sustain financing arrangements in which there are no financial barriers to individual participation and which foster access to under-represented groups, for example, through grants rather than loans.
  • Provide a more evenly valued set of institutions in which all higher education is not only of good quality, but seen to be of good quality.

In Nordic societies, higher education is seen as a common benefit that is provided at a high-quality level to everyone, with all institutions well funded and all enjoying social status. This kind of collectively supported higher education system is the basis for many other public and private benefits. Meaningful and well-remunerated graduate work is only one of those many benefits.

There is no doubt this is the better approach. To achieve it, we need to build the kind of consensual public support for public higher education that is given to the NHS – and to underpin both public health and public education we need to build a more solidaristic approach to wage fixation, taxation, the role of government and equal rights.