Why and wherefore of the opposition to private universities?

By R.M.B. Senanayake

Why is there such vociferous opposition to private universities? University students in the State universities campaign against them. So do the medical profession and even the Medical Council. They pretend that they are concerned with the quality of the education that will be provided and pretend that they are acting in the national interest. But the truth is otherwise.

Productivity

Economists refer to university education as a ‘positional ‘good. Before that consider why employers should pay higher salaries to graduates over non-graduates. They do so because they think a degree enhances the productivity of the employee so that by employing a graduate, he will obtain a higher marginal revenue product.

The central tenet of human capital theory is that education provides knowledge and skills that have a direct influence on the productivity of workers. Employers are willing to pay higher wages to highly educated workers because of this differential in productivity. But while it may be generally true that graduates are more productive than non-graduates, it may not always be so and may well depend on the aptitudes of the individual applicant. So there is uncertainty and unawareness among employers concerning the marginal productivity of potential employees. Employers do not know very well which knowledge and skills employees bring with them to the labour market, let alone how these competencies affect productivity. That is why employers look for crude signals that are associated to groups of applicants like graduates. But employers are willing to pay higher wages to highly educated workers only because of this differential in productivity.

A race

You have a positional good in your hands if you have something that is made valuable by the fact that others have not got it and cannot get it. It may be an uninterrupted sea view from a hotel room or a view of the centre court at Wimbledon. It obtains its special value from the fact of its position and from the fact that other people are not in that position. For an individual, having the right qualifications in the right subjects from the right institutions matter. Those who fail to get a degree or a degree from a good university will no doubt suffer. But so will those who get a university degree from a third rate university.

Getting tagged for a high salary is not just about getting a degree but getting a better degree than the next man in the job queue. To some extent university education is a race. If everybody runs faster that may be good in itself. But it does not mean that more people can finish in the top 10%.

This really is why our State university students oppose private universities. They fear that they will fall back in the race if private university graduates also enter the race. They fear the competition for jobs that may arise if employers perceive that the graduates from these private universities are better than those from the State universities.

We are a stagnant economy despite the hype of the Government – stagnant particularly in creating good and better paying jobs.

Private gains

Economists also point out that the gains from university education accrue largely to the private individuals who obtain such education rather than to society as a whole. Our doctors and engineers enjoy lucrative private practice in addition to high salaries in the State sector.

Should those who benefit not pay for the costs? No, they get a completely free university education. But they want to preserve their high incomes by shutting out competition. But the country needs more doctors and engineers to cater to the population and is less concerned about the earnings of these doctors or engineers. So the public interest lies in producing more doctors and engineers and the opening of a new medical faculty will contribute to the public interest.

Private fee levying universities operating on the profit principle do exist in many developed and developing countries including Britain, the USA and China. British universities charge high fees from foreign students and from postgraduate students which they use to subsidise research and the unprofitable teaching of British undergraduates.

Chinese stance

Zhou, a Chinese Minister of Education, was interviewed in the China Today magazine sometime ago and he was asked the following question: “China’s higher education started market-oriented reforms in the 1980s. Since then, colleges have charged tuition fees, and graduates have to seek jobs themselves. How do you evaluate the impact of this reform?”

His answer was as follows: “Marketisation is the direction of development. As a developing country, China needs to give priority to fundamental and compulsory education, instead of paying for all education. Charging for higher education is a common practice around the world.” Another question asked by China Today was as follows: “The private college is a product of the market. China’s private universities are dwarfed by their foreign counterparts with regard to teaching quality. What’s the problem?” Part of Zhou’s answer was as follows: “I once put forward two propositions. First, China in principle should not establish public colleges, leaving the field to private ones; second, the country should promulgate preferential policies to encourage private capital to enter the higher education sector, establish new colleges or purchase the old ones. We can use international experience for our reference. For example, if private capital is invested, says RMB 100 million to a project, the country will allocate another 100 million; a tax-exemption would also be attractive. I have always held that China’s higher education will not go far without excellent private colleges (universities).”

Need for private capital

The need for private capital to enter higher education arises from the fact that the State does not have the money to spend more on university education. The budget is hopelessly in deficit and the Government is resolved to reduce such deficit.

If the Government continues to run large fiscal deficits it will cause higher inflation, which will be the only way to fund such increased funding. But inflation pauperises the poor and the middle classes.

Yet modern university education is a high cost enterprise. Starved of funds, our State universities have failed to provide a quality education. Our university staff needs to be better paid to motivate them. The university buildings and hostel facilities should be smarter and the morale of the staff and the students need to be boosted. But none of this is feasible for lack of funds.

Economic realities

Today we are in a knowledge economy and we need to equip our brightest and the best with a quality modern education. Modern societies need excellent universities, not half-baked ones. These modern universities undertake research and are not exclusively engaged only in teaching.

Private universities, unlike State universities, will have to respond to the market and provide courses of study which are in demand. It is unlikely that any parent would pay for a university education in a private university in arts or humanities.

But today university education is a globalised product. The University of Nottingham was welcomed by the Chinese authorities when it set up a campus in Beijing. People can move from developed to developing countries and vice versa.

There is a whole globalised market in university education. There is also globalised competition for the jobs in the upper end of the scale. Many countries do not hesitate to employ foreigners in top jobs. Our State university students should take notice of these economic realities.