Thursday, February 15, 2007

Credit where Credit's Due - Blair has been excellent on Higher Education

This blog is Conservative and usually pretty partisan. However, it has to be acknowledged that Blair's Higher Education policy has been not just good but much better than Conservative policy during most of his leadership. Iain Duncan Smith's opportunistic position of maintaining a subsidy to middle class voters created a significant political risk for Blair but he stuck to his guns and faced down both the opposition and numerous critics within his own party. As Blair points out to the Telegraph he has been proven right and numbers in university have gone on rising and funding has been put in place to allow the UK to maintain its leadership role. Well funded, quality universities make going well worth the cost of fees and keeping standards at university high is the best guarantee of continuing student demand for higher education.

The new focus on the endowments is more good news as it can further build up an independence and predictability in university funding which allows them to plan and make more ambitious long term investments. The idea of matching funds raising by English universities might get things rolling quite nicely.

Another interesting idea Nicholas Barr, the intellectual most associated with Labour's changes to higher education funding, suggested in a speech I saw him give at the LSE a few years ago was to increase the interest rate on student debt to the same as the government's cost of borrowing. This is still very low but allows government to significantly increase the volume of loans so that parental income is not a bar to students attending university if they are willing to face the debt. For all the National Union of Students complaints about the high volume of student debt the simple economics of the Permanent Income Life Cycle Hypothesis suggest that substantial borrowing while young to average out a life income which will mostly be earned when students are older is entirely rational and to be expected. The argument that this puts off poor students who cannot understand the logic of 'debt now, higher incomes to pay debt later' is both patronising and not borne out by the continuing increase in numbers after fees. It should also be noted that the big dangers of student debt are when students take on high interest loans from elsewhere or build up credit card debt and the proper policy response is to increase the availability of low interest rate debt as Barr suggests.

While there may be public benefits to having more university educated people in the economy, doctors are a classic example, there are private benefits to being university educated which are the market mechanism for encouraging people to invest in education and provide us all with that public return. The market reflecting higher demand for skills and creating an incentive to further education has actually the major drive behind recent rises, here and in the US, in income inequality. A public benefit to education only really becomes a public goods problem, underinvestment under the market, when there are insufficient private returns to encourage the publically beneficial behaviour but the case that this is true for university education is weak. Most of the benefits the university educated provide to society are easily captured (a doctor is paid when they provide medical care). For basic research there is a stronger case that the private sector will underinvest but that funding is still being provided. There is a case that university education is a good thing for democratic reasons which aren't rewarded by the market but shouldn't we assume that people do take some utility from being able to take part properly in democracy; otherwise why would they bother, even after being university educated?

For quite some time this was an important area of policy in which Labour were proposing more market oriented and realistic policy than the Conservatives. Thankfully, Cameron repositioned the Conservative Party to the right on this issue and we have, belatedly, caught up. Fortunately for my partisan soul Brown was on the wrong side of this debate within the Labour party. He was one of those who forced the compromises which are the main flaws in Labour's changes to Higher Education policy. Come the next election you'll have two leaders who were on the wrong side of this debate when it played out and we'll miss Blair but it won't be a reason to vote for a Brown-led Labour party.

1 comment:

Anonymous said...

Though left wing I see the advantages of a system where students have soft loans only repayable when earning. What I would be very unwilling to accept is the idea of different charges for different universities, which Howard Davis seems to be keen on. While not rich, my parents have enough money that they would probably have helped me pay any extra to go to LSE, but if I was poorer I would probably have ended up in Birmingham under such a system. The horror!