There is a bad idea that comes up time and time again that I’m sure I have argued against before. But there it was, in The Australian this morning:
“The current financing system gives universities a large financial incentive to enrol students who academically ought not to be there, and by failing to impose any accountability for whether or not these students actually receive any benefit from their studies,” [economist Andrew] Stone writes.
Put unis themselves on the hook, in part, for students debts. HELP loans would become joint loans, under Stone’s plan. Universities would be required to pay an annual interest charge on loans that weren’t being repaid. This would focus the minds of university administrators on the quality of their courses and the wisdom of enrolling students who are likely to benefit little from them.
Andrew Stone is a former economic adviser to Tony Abbott and son of John Stone. His book is available here.
Okay. So. Bad idea.
Universities cannot and should not ‘guarantee’ their students subsequent performance. In fact, the article in The Australian sets out exactly why that is the case:
Sure, students with degrees tend to earn more than those without them, but that has little to do with what they have actually been taught at university.
University education is just one of many factors that determine future success. Dare I say it, probably not the most important factor either.
So in detail:
Economic goods and services can be categorised three ways:
- Information goods – these are goods and services where all the features and characteristics of the good can be provided in advance of consumption.
- Experience goods – these are goods and services where some (perhaps all) of the features of the good can only be provided though actually consuming the good.
- Credence goods – these are goods and services where all the features of the good or services cannot be known even after consumption of the good.
It is possible for an experience good to become an information good. This is often the case with repeat purchases. I know what a glass of my favourite wine tastes like because I have tasted it before. It is not possible for a credence good to become an experience good or an information good.
Education is a credence good. Now to be clear – going to university can be an information good or an experience good. A university can specify in advance what subjects students will have to do, and what materials students will be exposed to, and broadly what sorts of assessment tasks student will have to undertake. That is trivial. Similarly going to university can be an experience good. It is only while at university that students discover if their attempts to consume large amounts of alcohol, fornicate, and pass exams is successful or not.
Whether a student was actually educated and whether that education played any role in future success is less clear. As much as universities would like to claim causation, at best they can claim correlation. Having a high performing alumni says as much about entry standards as it does exit standards.
Education is jointly produced by the university and the student. The university puts together a program of study and surrounds that program of study with policies and procedures. The student undertakes that program of study and complies with the policies and procedures. All the university can say about graduates is that they performed to some arbitrary standard (usually 50% as a minimum pass mark) and complied with the policies and procedures to the best of their knowledge.
At best a university can claim: graduate X was exposed to information Y, and assessed in process Z.
That is a lot less than many readers would be comfortable with – it is lot less than many university administrators would like.
My argument, moreover, is two-fold. Not only can universities not make a stronger claim, it would be socially undesirable to have universities have “skin in the game”.
Putting skin in the game would make universities less risk tolerant. Even risk averse. If educational success is defined as students future financial success universities would have an incentive to select those individuals whose future financial earnings were higher as opposed to lower.
What’s wrong with that some might ask?
Let’s have a look at pay data. On average men earn more than women. On average taller people earn more than shorter people. On average good looking people earn more than not-good looking people. On average white people earn more than non-white people. On average native born people earn more than immigrants. And so on.
Now we can quibble – many of the wage gaps that we observe are statistical artefacts and have underlying causes and so on. Okay – but ask yourself, why would a university that would be financially penalised for graduating lower earning graduates over time – for whatever reason – not select taller, white, good-looking, native born, men over anyone else?
Now when I ask my colleagues who think ‘skin in the game’ is a good idea they always always answer with “no, we would never do that” or “there are not enough taller, white, good-looking, native born, men to sustain the system” and so on. But why even go there?
Right now universities select on past performance and an expectation of future educational performance. Future employment performance is something universities cannot control.
Long story short:
- Given the economic nature of education it cannot be done.
- Given human nature it should not be done.