Higher Education, Public Good and Markets

Jandhyala B. G. Tilak

• Publisher: Taylor & Francis
• Year: 2017
• Print ISBN: 9781138107014
• eBook ISBN: 9781351379830
• Edition: 1
• Topic: Education
• Subtopic: Education General

This book critically examines some of the major trends in the development of higher education. It demonstrates how in the context of liberalisation, globalisation and marketisation, the crisis in higher education has assumed different dimensions in all advanced and emerging societies. The author shows how the state tends to slowly withdraw from the responsibility of higher education, including in the arena of policy-making, or simply adopts a policy of laissez-faire (of non-involvement) which helps in the rapid unbridled growth of private sector in higher education. The notion of higher education as a public good is under serious contestation in current times. The book argues for the need to resurrect the compelling nature of higher education along with its several implications for public policy and planning, while providing a broad portrayal of global developments, comparative perspectives and key lessons.

The volume will be of interest to scholars and researchers of education, political science, public policy and administration, governance, development studies, economics, and those working in the higher education sectors, think-tanks, policymakers as well as NGOs.

1 Higher education: A public good or a commodity for trade?

Commitment to higher education or commitment of higher education to trade^*

Conventionally, education has for a long period been regarded as a public good, producing a huge set of externalities (mainly positive externalities), benefiting not only the individuals but also the whole society. In case of higher education too, not only educationists but also other social scientists and thinkers, including economists, have recognised the public good nature: higher education constitutes a public good in itself, and also it produces public goods, benefiting simultaneously the individuals and the larger society. This view has been almost universally prevalent for a long period, influencing public policies on higher education.

In recent years, however, the growth in market forces and more importantly international law on trade in services tend to question or simply gloss over the long-cherished, well-established view of many that higher education is a public good and to propose and legitimise the sale and purchase of education, as if it is a commodity meant for trade. Higher education tends to be not regarded as a public good or a social service, and it appears as if we have ‘lost the “public” in higher education’ (Zemsky 2003). Even in the earlier decades, while there were some who questioned the concept of higher education as a public good, the heralding of the neo-liberal and globalisation policies, and later the advent of international trade in educational services accentuated such thinking. Public good and similar principles are viewed as too naive to be relevant in the rapidly changing, increasingly privatised and liberalised modern context.¹ The conventional wisdom is becoming rapidly invaded by the strong, powerful forces of national and international mercantilists, represented in the World Trade Organization (WTO) and the General Agreement on Trade and Services (GATS), the institutions that were set up outside the United Nations system. Higher education is seen primarily as a private good, as a tradable commodity that can be subjected to the vagaries of national and international markets. As Knight (1999) summed up:

With the massification of higher education, increasing at an exponential rate, there is strong interest on the part of large and small countries to make the export of education products and services a major part of their foreign policy. In fact, we see major shifts in foreign policies where education was primarily seen as a development assistance activity or cultural programme to one where education is an export commodity.

In short, higher education is subject to severe pressures from domestic and international markets. The divide between public policy and commercial activities is at stake. In a sense, at the centre of the current debate is a fundamental clash of values between traditional versus modern, state versus market, national versus global, and educational versus commercial. This article reviews the arguments on both sides: higher education as a public good and higher education as a tradable commodity, and argues how important it is to recognise and resurrect the public good nature of higher education.

What is a public good?

Let us start with the basic question: what is a public good? Among the several beautiful concepts that economists have contributed to development studies, the concept of public good is an important one.² What is a public good? Economists (see Samuelson 1954; also Musgrave 1959) define public goods as those that are non-excludable and non-rivalrous, i.e., such goods cannot be provided exclusively to some: others cannot be excluded from consuming them; secondly, non-rivalrous means their consumption by some does not diminish other people’s consumption levels of the same goods. Public goods generate a large quantum of externalities, simply known as social or public benefits. Public goods are available to all equally; marginal utility is equal, and the marginal cost of producing public goods is zero. They are also collective consumption goods.³ Economists consider all public goods that strictly satisfy all the preceding conditions as pure public goods; alternatively, other public goods that do not necessarily fully satisfy all the conditions are seen as semi- or quasi-public goods. Further, if the benefits of public goods are limited geographically, they are called local public goods (Tiebout 1956); and the public goods whose benefits accrue to the whole world are called global or international public goods (Stiglitz 1999).⁴ By contrast, private goods are altogether different; they do not satisfy any of these conditions.

An important implication of public goods is: production of public goods has to be financed by the state out of general revenues, without necessarily relying on prices or any user charges like student fees, and markets, as individuals do not completely reveal their preferences and will not be ready to meet the full costs. Therefore, the personal or market provision of public goods is not feasible, and even if feasible is inefficient.⁵ Even if some public goods are excludable, market mechanisms cannot provide public goods efficiently and cannot ensure optimum levels of production. Public goods are typically characterised by underproduction in a market situation, because private demand would fall severely short of socially optimal levels. Besides, public goods are generally made accessible to all and they are not subject to competition. That the provision of such goods is subject to market failures, and that economies of scale also operate in case of many of the public goods, further supports their public provision. In fact, public goods that are subject to economies of scale are better provided by the state as a monopolist, than by many, as the economies of scale enjoyed by the single supplier far outweigh any efficiency gains from competition. To prevent the abuse of the monopoly power, and to ensure that any producer surplus is returned to the society, it is only natural that it is produced and supplied by the state. On the other hand, private goods are not available to all and they are subject to the principles and laws of markets.

Some view that the distinction between public and private goods is ‘technical’ and ‘ideological’ and that classification of public goods is not an absolute one; it depends upon government policies, market conditions, level of development and political realities. After all, public goods have been provided since the Middle Ages, and hence they need to be redefined time and again in consideration of changing political realities (Desai 2003). Sadmo (1998) argues that normative theory serves better than the positive theory in recognising and classifying the public goods.⁶ The concept of public goods needs to be interpreted, considering all aspects – the intrinsic nature of the given good, the public goods it produces, the social purpose it serves, and the limitations of markets or what is widely known as market failures in the production of such goods.

Is higher education a public good?

Some argue that higher education cannot be treated as a public good, as it does not satisfy either of the first two features, viz., non-excludability and non-rivalrousness. Entry into education institutions, it is argued, can be restricted to some, and others can be excluded; and since the places of admission are generally given, admission to or consumption by some necessarily means reduction in the consumption levels of others. Similarly, it is argued that there are additional costs in providing access to higher education to additional members of the society. This, in my view, is a very narrow interpretation of the technical attributes of public goods and of consumption of education. As Stiglitz(1999) has argued, knowledge, thereby higher education and research, does satisfy all these conditions. As an illustration, he has given the example of a mathematical theorem, which is non-excludable (once it is published no one can be excluded from reading and enjoying the theorem), and non-rivalrous (one’s enjoyment of the theorem will not affect others’ enjoyment of the same). It is equally available to all; all may have same utility. There is zero marginal cost for making it available to an additional person.⁷ For the same reason higher education is also regarded as a collective good, as the cost of excluding an additional person from benefiting from higher education can be infinite, while the cost of an additional person can be nil (Johansson 1991, pp. 63–64).

Few deny the existence of externalities in the case of higher education. So if the consumption is interpreted as consumption of benefits from education, not consumption of a good per se (admission to a university in the present case), education satisfies both the essential features: the spread of benefits from an educated citizenry cannot be restricted to a small population, nor is the quantum of benefits received by some affected by the level of benefits others receive. As Stiglitz (1986) noted, there are two critical properties of public goods: it is not feasible to ration public goods, nor it is desirable to do so. While it may be feasible to ration admissions to higher education it is not feasible to ration the distribution of benefits that flow from higher education; nor is it desirable to ration admissions to higher education (Weisbrod 1988). Exclusion of the poor from the consumption of education will result in a loss of overall equity as well as efficiency in the economy. Thus education, specifically higher education, satisfies all the three essential features of public goods: they are non-excludable, non-rivalrous and they produce externalities. Other associated features of public goods, like ‘free-riders’, are also applicable to education.

Education is also a merit good, a good with special merit, ‘deserving public support to a level of supply beyond that which consumer sovereignty would imply’ (Colclough 1997, p. 10). Higher education is also an ‘experience good’ (McPherson and Winston 1993), whose product characteristics, such as quality and price and even the benefits, are difficult to observe in advance, but can be ascertained only upon consumption. Higher education is also associated with asymmetric information including imperfect quality information (Dill and Soo 2004; Stiglitz 2000). Consumer choice has no much meaning in case of merit goods (see Arcelus and Levine 1986), as consumer behaviour is critically dependent upon information the consumer receives (Nelson 1970), which in case of education is imperfect, incomplete and highly inadequate. Further, higher education institutions have multiple objectives and they are not just economic. They also produce multiple, varied types of outputs, some tangible and many not.

Because of these special features, public goods like higher education cannot be provided by markets in a manner that satisfies social demand. Optimum levels cannot be produced and supplied by markets, as profits cannot be a criterion in the production of the public goods; private producers cannot profit from producing public goods.

Obviously, since public goods yield both private and public benefits, there are also private benefits from higher education (Bloom et al. 2006). After all, while the benefits associated with private goods are exclusive to the private individuals, those associated with public goods are not exclusive: public goods benefit the society and private individuals too. But the public benefits outweigh the personal benefits by several times, and hence higher education cannot be treated as a private good, or as a ‘public and private good’ (Levin 1987), or as a ‘mixed good’ one that is both public and private, as some (e.g., Hüfner 2003, p. 339) argue.⁸ In short, higher education is a public good beyond any doubt and the current controversy is ill motivated and unwarranted.

The public good nature of higher education is well understood when one recognises the traditional functions of higher education and the social benefits that it produces, many of which constitute public goods in themselves.

Functions of higher education

Traditionally, the functions of higher education are recognised as noble and lying at the core of the very sustenance of societies. From the society’s point of view, the core functions high...

Table of contents

• Cover
• Title
• Copyright
• Dedication
• Contents
• List of figures
• List of tables
• Preface
• Acknowledgements
• Introduction
• 1 Higher education: a public good or a commodity for trade? Commitment to higher education or commitment of higher education to trade
• 2 Higher education between the state and the market
• 3 Are we marching towards laissez-faireism in higher education development?
• 4 Lessons from cost recovery in education
• 5 Financing of higher education: traditional versus modern approaches
• 6 The privatisation of higher education
• 7 Current trends in the private sector in higher education in Asia
• 8 Higher education in the BRIC countries: comparative patterns and policies
• 9 Economics of internationalisation of higher education
• 10 Social control on higher education
• 11 Higher education and development in Asia
• 12 Universities: an endangered species?
• Index