What's Wrong with Private Universities?

That is the latest question asked by Chris Dillow over on his blog, prompted by the recent announcement by Professor A.C. Grayling to open a 'New College of the Humanities', a new private university in London and protests over the planned estabilishment.

I think it's a very good question and I liked Dillow's analysis and I think he's spot on when he observes that:

"It’s unlikely, therefore, that the NCH will greatly increase our already terrible inequalities of educational opportunities."

and

"...state control does not guarantee the protection of high vocational standards..."

I think the question can be answered in even more simple terms than Dillow's though.  Perhaps it is useful to use a simple thought experiment here:

Imagine for a moment that Prof. Grayling wants to open a bakery rather than a university.  He intends to open this bakery in your town, where there are already several other competing bakeries.  He also intends to sell his bread at say £2 a loaf, twice the typical going rate of the bread from the existing bakeries, but he justifies this by claiming that his bread is of superior quality.

Two questions arise at this stage:

1. What happens when he opens for business in this situation?
2. Is there anything wrong (in a moral sense) with Prof. Grayling doing this?

Let's look at the first question.  When he opens for business in this situation, several things could happen:

• People are willing to pay more for the (percieved) increase in quality of the product and begin shopping at Grayling's Baked Goods Ltd.  Grayling makes a lot of money whilst the customers enjoy better bread; the existing bakeries sell less and make less money (some may even go out of business).
• He doesn't get enough business because his prices are too high and no-one is willing to pay them.  He can then embark on a World-class marketing campaign, lower his prices, relocate the business to where he would have more willing customers, or go out of business.

Now let's look at the second question: Is there anything wrong (in a moral sense) with Prof. Grayling doing this?

It seems intuitive to me, and I would bet most people, save the most hard-line communists, would agree with me that the answer to question 2 is 'no'.

There is nothing wrong with what is a mutually beneficial trade between two informed parties.  You can't object that the trade between Grayling and his customers is unfair because you can only afford to pay £1 for your loaf of bread.  You can still buy your bread for £1 from your usual baker - this trade does not hurt you at all.

You may object that this is a simplistic example and not representative of the real life situation, where we are discussing university education rather than baked goods.  So, we need to consider, does this example differ in any meaningful way from the real world case?  What's the difference between buying a university education and buying a loaf of bread?

Other than the scale of the purchase the difference I think would seem to lie in the fact that a university education is an investment for the future; it enables you to signal to employers that they might want to employ you raising your prospects of a better job, with better pay.  Again it has to be asked though, is there anything morally wrong with someone who can afford to pay more for an education doing so?

Again, the answer would seem intuitively to be no.  Setting aside the possiblity of paying for a degree with no regard to educational standards (i.e. it doesn't matter if you only get a 25% average, as long as you pay the fees), there is absolutely nothing wrong with this arrangement.  Professor Grayling has offered to provide a service for a fee; if there are people able and willing to pay that fee, why shouldn't they receive the service?

As in our quaint little bakery example, this trade does not hurt you in any way as a consumer just because you can't afford to partake yourself.  The alternative is to not have the option at all, for people who can afford it as well as those who can't.

We don't ban upmarket bakeries on the basis that the average person can't afford regularly to shop in them.  Neither should we ban private universities on the basis that the average person couldn't afford to attend.

Vince Cable's Graduate Tax

The latest news about university funding is Business Secretary Vince Cable's proposed Graduate Tax, where graduates pay a tax dependent on income after graduation and the money is channelled directly to universities.

Left Foot Forward covers the story here, however the focus is on Cable himself and on whether or not he will keep his campaign promise of scrapping tuition fees, rather than a discussion of whether this proposal is the best way to fund higher education or of the wider implications of the policy.

LFFs analysis is based on the assumption that:

The fair solution is to abolish tuition fees and ensure that graduate contributions are based on actual earnings in the real world, rather than sticker prices in prospectuses, which are based on guesswork.

However, little to no thought appears to have been given to whether or not this is the best way to fund higher education and what impact this will have on decisions made by students and graduates alike.

I think this is the appropriate time for a full disclaimer:

I am a university graduate; I have an engineering degree and a pretty good job; I had the privilege of attending university without the need to pay any tuition fees whatsoever (I do have a substantial loan to pay back, but that was only to cover living expenses).

In principle I have nothing against the idea of getting the people who have benefited most from a service to pay the most for it.  My concern is not simply out of self-interest of not wanting to pay any more tax.  My concern is in how the tax will affect people's behaviour.

For example how many potential students of engineering/medicine/law/etc. will choose to study history or teaching instead, figuring that they're likely to earn less in those professions therefore avoid the graduate tax?  How many potential students will decide not to go to university at all?  (This may or may not be a legitimate concern, considering that UK universities are already grossly over-applied for).  What will be the impact of these decisions on the wider economy in the long term?

Maybe the numbers are small and these concerns of little consequence.  What troubles me is that I haven't seen any analysis of the proposals that even considers these questions.