Economic Analysis of Lord Brownie’s Proposed Review

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Introduction

Higher learning institutions in United Kingdom (UK) are not exempted from restrictive government policies. Therefore, it is vital to note that statutory decisions that have been integrated in public policies have several impacts in higher learning institutions owing to the fact that they act as important determinants in shaping systems and structures in these institutions.

For the last two decades, UK’s Higher Education Framework has undergone tremendous changes that have been largely accelerated by implementation of myriad government policies.¹ For instance, Lord Brownie’s Review is one such policy that aims at introducing free market policy in higher learning institutions.

The economic rationale behind Lord Brownie’s proposal is based on the fact that higher marketing education has been affected by lack of thorough competition. The proposal also asserts that education markets have quite often been associated with solutions to multiple problems facing private and public sectors.

Therefore, the move towards adoption of market forces in UK’s higher education is aimed at fulfilling the much needed growth in the sector.² This paper offers a succinct analysis of economic benefits associated with free markets in higher education. It starts by tracing historical evidence of marketisation around the world and argues in favor of marketisation in higher learning institutions.

Overview of Brownie‘s proposal

The move towards this policy is in line with common trends that seeks to isolate perception of the public on higher education as social institutions. Instead, it attempts to view it as an industry.³ The legitimization of higher education institutions as corporate entities that produce wide range of goods and services creates a competitive marketplace platform.

This aspect changes their structure and operations.⁴ The main goods and services are priced and supplied based on the laws of demand and supply. In addition, parents, students and any other stakeholder are perceived as customers with varying tastes and preferences in such a market context.⁵

A critical analysis of Brownie’s proposal indicates that students’ education in UK will have quite a number of economic impacts whether there is some or no regulation of higher education industry.

For instance, the proposal argues that there will be plenty of market competition among profit and non-profit market providers and hence, the government will no longer impose price ceilings on fees or number of students enrolled as part of promoting free market forces. As such, users will meet their own fees since the government will no longer subsidize costs incurred in education.

Therefore, such users are free to choose what they what and the mode of study to adopt depending on availability of information in terms of price, quality as well as availability of their preferred programs.⁶

However, while the changes might appear attractive in terms of economic disposition; economic efficiency is not always automatic especially with uniqueness and complexity that continue to dominate higher education industry.⁷ A critical analysis of the role of free market in terms of competition, quality and pricing has been presented to shed light on both the economic efficiency and inefficient of such a move.

Historical marketisation of higher education

Arguments and counter arguments by founding fathers of economics on the role of privatization and market competition in promoting quality and efficiency in higher education have been widely embraced if not criticized by various governments.⁸

Although most of these scholars are in agreement on the role played by governments in education, there are those who argue that government policy is likely to interfere with economic efficiency, innovation and differentiation in education institutions. ⁹

Therefore, those who argue against Lord Brownie’s proposal on grounds of market failure should also realize that government interference might also fail in course of implementing changes in higher education industry.¹⁰ It is against this reason that contemporary debates on market role in higher education are deeply rooted in intellectual reflections by early economists.

To begin with, the debate on merits of applying market forces on private property and competition in higher education began with Adam Smith. During his proposition of the ‘invisible hand’ economic concept, the role of government in education was very limited and his skepticism was extended by his fellow economist John Stuart.

The latter continued the debate by highlighting the nature of education and possibility of market failure.¹¹ His arguments became more visible when they were expounded by Alfred Marshall who sought to shed light on economic contribution of educational training to national wealth and the economic costs due to underinvestment in the same.

Owing to the above arguments, the role of government in accelerating rapid expansion of higher education institutions has been greatly felt in twentieth century.¹²

However, resistance to apply market mechanisms in higher education created tension among economists in the last stretch of twentieth century leading to reopening of the debate that was steered by Milton Friedman. Since then, governments across the world have embraced the role played by market systems in higher education. However, the challenge of assessing the changes has elicited many controversies.¹³

While some proponents have identified developmental changes such as organizational fragmentation and increased administrative bureaucracy under market system concept, others have critiqued the same based on retrogressive effects brought about by market failures.

Those who support the measures based on perceived cost reductions and increase in teaching and research quantity and quality are in agreement with Adam Smith argument that has been presented above.¹⁴When these debates are put into consideration, it is evident that the idea of applying market systems to higher education leaves many unanswered questions mostly from an economic point of view.

At this point, it is important to discuss the Lord Brownie’s proposal on free markets in higher education by critically analyzing role of government regulation on education markets. Economic proponents have always been interested in understanding the concept of free markets and as such, many have viewed it as exchange of good or services between buyers and sellers that occurs independent of government interventions.¹⁵

The above notion implies that for efficient market exchanges to be realized, any form of government intervention should be eliminated as evident in Brownie’s proposal on the removal of fee cap.¹⁶

Markets have the ability to realize full social benefits without application of institutional laws and regulations to govern boundaries of market transactions. However, some of these government rules that define property contracts as well as enforce contract should be readily available as corrective measures in case of market failures.¹⁷

Historically, debate on whether to adopt or forego market systems in higher education is not between complete and controlled deregulation. Nonetheless, it has been about the type and degree of government regulations that would maximize social benefits of higher education industry especially when subjected to market forces.¹⁸

The dilemma has always arisen in identification of institutional framework or rules that would prevent market failures. At the same time, creation of necessary environmental conditions for competition to take place in order to maximize quantity and quality has also been one of the priority areas.

The idea behind the concept of competition is informed by long standing belief in the field of economics that if suitably applied, may heighten competition and consequently create desired outcomes in terms of quantity and quality of education being offered.¹⁹

What free markets in higher education means

Understanding of the proposed free market concept cannot be comprehensive without proper clarification of the term ‘market’. A market is perceived as an environment where comparable goods and services are exchanged at will with price being the basic determining factor.²⁰

Economists argue that organizing economic relations along the above assumption is the most applicable method to achieve efficiency for available resources. Markets have been known to provide both static efficiency and dynamic efficiency. Therefore, they are favored over command economies. ²¹

The concept of comparable goods and services implies that there are many possible markets in higher education.²² The possibility of numerous markets is what poses a challenge when choosing which market based reform to analyze in order to determine its effectiveness.²³

However, discussion in this paper revolves around market in terms students demand and supply of undergraduate education.

Economic benefits and efficiencies on marketisation of higher education

The concept of treating higher education industry as a marketable entity is not new. Economists have identified two key drivers that have led to popularity of this concept. To begin with, rising cost of running universities especially during this post recession period has compelled s managers to look for alternative source of income.²⁴

In addition, governments all over the world are operating on tight budgets and have cut down funding of universities. Initially, education needs of the public have always been a government affair. However, recent recommendations by Lord Brownie tend to argue differently.

The move is not unique bearing in mind that other governments have previously liberated higher education markets in a bid to allow these institutions to tap into derived benefits of free markets.²⁵ In economic terms, such a move is usually adapted in order to address weaknesses that are evident in public institutions such as inequality in distribution of resources and social polarization.²⁶

Although some critical argue that there are several negative outcomes associated with market systems, strong evidence indicates that market mechanism is likely to address issues of social and economic inequity in a more effective way.

Secondly, successive governments in UK have always set upper limits on fees, a practice that Lord Brownie’s review suggests needs to be eliminated. The economic results of such a move can be gauged on general impact of marketisation of higher education institutions on a global scale.

To recap it all, adoption of market concept has made these institutions to become economically efficient since they have managed to streamline their operational costs, abandoned unpopular courses to give way for courses on high demand. In addition, advertisements have been used to enhance brand recognition and increase sales of various services being offered.²⁷

Emphatically, even with the price limits on fees by UK government, new colleges and universities have managed to emerge to meet the rising demand for quality higher education. For instance, the London School of Business and Finance has expanded rapidly to meet worldwide demand as overseas students seek higher education in UK and other developed countries.²⁸|

As already mentioned, the idea behind the adoption of free market policy is not new and the motivation behind it is to reap economic benefits that arise when market forces are in fully in operation. For example, the first economic benefit is felt by taxpayers since resources that are used to fund education will be directed to other welfares to the benefit of every member in society.

Some economists are apparently against persistent government funding of higher education. They hold the opinion that it makes little sense to continue funding these institutions when they have increased earnings due to recent expansions. Alternatively, this funding should be directed other activities that are of higher priority.²⁹

It is also vital to reiterate that market systems are known to promote competition which in turn results into economic efficiency and better quality of education.

Although comparisons to gauge quality between national and state systems might prove to be difficult, it is paramount that some form of quality improvement will be realized following marketisation. It is suggested that if the availability of accessible and reliable information can be realized, then competition and quality improvement in higher education will be inevitable. ³⁰

Economic setbacks following marketisation of higher education

In terms of price, benefits of lower prices that customers perceive following an increase in supply is not likely to be achieved.³¹ There is no doubt that supply will increase to meet demand in respect to economic theory.³²

The underlying argument is that unlike other products or services, high prices in terms of fees will signal quality whereas low fees will similarly imply low quality.³³ While this might not be the case, universities that claim to offer excellent educational services may be prompted to increase their tuition.³⁴

The proposed review is indeed a driving force for higher education industry to consider marketplace where price of goods and services are the main indicator of ability and willingness of consumer demand to the producers.³⁵ As a result, demand is what determines allocation of resources as part of satisfying both consumers and investors.

In a free market, prices are adjusted as a result of voluntary transactions between producers and consumers unlike in a controlled or regulated market where price ceilings influence transactions.³⁶ Furthermore, competition between investors which aims at seeking ways on how to meet consumer’s demand in a normal market condition tends to lower prices as quality increases.³⁷

However, a contrasting economic theory indicates that high prices may sometimes shift demand curve to slope upward from left to right when goods or services are perceived to be prestigious.³⁸ Normally, an increase in price of a commodity leads to an equal decrease in demand.

On the other hand, demand curve prestigious goods behave in an abnormal manner. The unusual demand shift occurs because consumption of expensive goods (in this case expensive education) is perceived as a signal of success and wealth. Therefore, it is unlikely that the market mechanism will push the prices any lower.³⁹

However, the Lord Brownie’s review promises incentives in form of bursaries and loans to students from poor backgrounds. Consequently, negative economic effects due to high prices might be greatly felt by poor students.⁴⁰ Many students might shy away from applying university positions while others might eventually drop out before completing their studies.

In spite of recommendation to increase minimal income that warrants loan repayment, most students from middle and lower income backgrounds are likely to shun away from any further debt since their parents are already being crippled by lifetime debts.⁴¹

Moreover, the rising unemployment index around the world is a clear indication that the future may not be economically promising. Therefore, there is no need to incur debt that an individual might not be able to repay.⁴²

The fact that universities are expected to offer similar quality of education to students regardless of their financial ability compels the industry to deviate from the norm.⁴³ Under normal economic conditions, most of businesses that offer prestigious services usually have an option of reduced service to low income customers.⁴⁴

However, such subsides are not possible in higher education service delivery. Hence, free market concept might lead to escalating tuition fees in the long run thereby making these services unsustainable or unaffordable to many.⁴⁵

It is also vital to emphasize that liberalization of higher education industry allows providers to charge higher prices without deliberate discrimination of the poor. However, it might prove to be difficult to apply similar market contexts in higher education industry, as it embedded in so many factors that might lead to market failure.⁴⁶

In addition, to high prices barrier, prestigious universities target the high performing students with high social status background, and with enough social capital and by so doing eliminates those outside the defining bracket.⁴⁷

Therefore, on price perspective free market might make higher education services a commodity set aside for the elite both from UK and oversees who seek the prestige of obtaining degrees from English speaking Universities.

Additionally, information is a potential limitation that cannot be ignored at all. This can grossly hinder economic efficiency when market theory is applied in higher education industry. ⁴⁸ Economists assert that without free flow of information on quality, markets are likely to fail.⁴⁹

In economics, consumers can only make viable choices that are economically effective if the kind of information available to them has to meet certain conditions. Firstly, the higher education market must be able to produce reliable and valid information on the quality of different subjects, programmes being offered. Secondly, there is need for timely and easy access to information by student consumers.

Thirdly, information should be tailored to suit needs, wants and circumstances of each individual user. Fourth, users should be rational enough to be able to interpret and effectively judge available information in order to make economically viable choices. In addition, higher education institutions should be in position to react positively on judgments by their consumer.⁵⁰

As far as higher education is concerned, it is quite cumbersome for students to make informed choices mainly due to inability to make comparisons. Scholars in higher education industry agree that although it is not impossible, making effective comparisons between learning achievements gained from studying different disciplines might pose serious challenges.

Similarly, higher learning institutions have different missions and varied resource levels needed, bearing in mind that they operate under different conditions. As a matter of fact, it is an uphill task to compare them. In addition, there are myriad of variables that define programs. This can also hinder effective comparison especially when large amount of data is to be analyzed.⁵¹

The second condition is even harder to fulfill since consumers have to able to access available information in advance especially because higher education is a post experience good.⁵²

In addition, there is a big disparity when it comes to accessibility of information since students from unfavorable backgrounds might be at a disadvantage compared to those from favorable backgrounds. This makes their judgments to be relatively limited.⁵³

Additionally, the task of tailoring the market information to suit the needs of individual students might prove to be difficult and costly. Similarly, literature indicates that students, like any other consumers, are irrational when acting on certain information to make choices.

Therefore, the effectiveness of higher education market based on consumer rationality might not work.⁵⁴ In addition, assuming students’ act in a rational manner, it is less likely that the responsive action by institutions will reflect these choices. ⁵⁵

It has been suggested that in markets where information is inadequate, buyers tend to seek desired products while producers provide using symbolic or indirect indicators such as quality. ⁵⁶

Research studies that are specific to higher education indicates that consumers gauge quality based on prestige attached to specific learning institutions as a substitute to lack of information on quality. The search for prestigious status by higher learning institutions produce negative instead of the intended positive consequences behind the idea of marketisation.⁵⁷

Interestingly, further research indicates that the pursuit for prestige has led to academic drift since it leads to reduced diversity at institutional level. In addition, fees charged might not be true value for money bearing in mind that institutions divert resources to activities that are aimed at improving prestige at the expense of improving the quality of education.⁵⁸

Therefore, the poor value for money undercuts the whole idea of marketisation since under normal circumstances, high level of competition leads to better utilization of resources.⁵⁹

However, competition in higher education industry is more status than quality based. Therefore, as exemplified elsewhere in the paper, Lord Brownie’s idea of unrestrained price competition in higher education market actually increases costs making the commodity unaffordable to many students.⁶⁰

Conclusion

In spite of economic setbacks arising from marketization of higher education, it is definite that derived economic benefits outweigh associated costs. Economic studies in legitimization of public institutions have shown that marketisation treats public institutions as private enterprises that offer wide range of goods and services in a competitive market platform.

Based on the laws of demand and supply, competition among various enterprises increases supply and improves quality. Evidence from North American and Anglophone higher education industries which adopted marketisation sometimes back shows that economic efficiency is greater than any known setbacks. Therefore, it is high time UK government fully embraced marketisation of higher education.

Bibliography

Astin, Alexander & Oseguera, Leticia. The declining equity of American higher Education. The Review of Higher Education, 27.3 (2004), 321-341.

Besley, Tina (ed.).Assessing the Quality of Educational Research in Higher Education. International Perspective. Rotterdam: Sense Publishers, 2009.

Brown, Roger. League tables do we have to live with them? Perspectives, 10.2. (2006), 33-38.

Brown, Roger. Protecting quality and diversity in a market driven system. Higher Education Review, 39.1 (2006), 39-50.

Brunner, Jose Joaquin. From state to market coordination: the Chilean case. Higher Education Policy, 10.3-4, 225-237.

Fazackerley, Anna & Chant Julian. More Fees Please? The future of university fees for undergraduate students. London: Policy Exchange, 2010. Print.

Frank, Richard. Microeconomics and Behaviour (5^th ed.). New York: MacGraw Hill, 2003.

Gumport, Patricia J. Academic restructuring: Organizational change and institutional imperatives. Higher Education, 39 (2000), 67–91.

Jones Glen & Young Stacey. ‘Madly off in All Directions’: Higher Education, Marketisation and Canadian Federalism. Higher Education Dynamics, 6 (2004), 185-205.

Jongbloed, Ben. Marketisation in Higher Education, Clark’s Triangle and the Essential Ingredients of Markets. Higher Education Quarterly, 57.2 (2003), 110-135.

Leathwood, Carole. A critique of institutional inequalities in higher education. Theory and Research in Higher Education, 2. (2004), 31-48.

Lord Browne of Madingley. Securing a Sustainable Future for Higher Education: An Independent Review of Higher Education Funding and Student Finance. London: UK Government – Independent Review, 2010.

Marginson, Simon. Competition and Markets in Higher Education: a ‘glonacal’ analysis. Policy Futures in Education, 2.2 (2004), 175-244.

Molesworth Mike, Scullion Richard & Nixon Elizabeth (eds.). The Marketisation of Higher Education and the Student as Consumer. New York: Routledge, 2010. Nistoreanu , Bogdan Gabriel, Hornoiu, Remus Ion & Nistoreanu ,Puiu. The adjustment of perspective among students regarding protection of educational services’ consumer, Amfiteatru Economic, 7. 28, (2010), 349- 358.

Randle, Kelly & Brady, Newton. Further education and the new managerialism. Journal of Further and Higher Education, 21, (1997), 229-239.

Teichler, Urgey. Higher education policy and the world of work: changing conditions and challenges. Higher Education Policy, 12, (1999), 285-312.

Teixeira, Pedro, Nuno & Dill, David. Public Vices, Private Virtues? Assessing the Effects of Marketisation in Higher Education. Rotterdam: Sense Publishers, 2001.

Teixeira, Pedro Nuno. Markets in higher education: can we still learn from economics’ founding fathers? Berkeley: University of California. 2006.

Vedder, Richard K. Going broke by degree: why college costs too much. Washington, D. C: American Enterprise Institute, 2004.

Wolf, Charles. Markets or Governments: Choosing Between Imperfect Alternatives. Cambridge, Mass: MIT Press, 1993.

Footnotes

¹ Roger Brown. League tables do we have to live with them? Perspectives, 10.2. (2006), 33

² Ibid., 33

³ Roger Brown. Protecting quality and diversity in a market driven system. Higher Education Review, 39.1 (2006), 42

⁴ Ibid 42

⁵ Roger Brown. League tables do we have to live with them? Perspectives,36

⁶ Lord Browne of Madingley. Securing a Sustainable Future for Higher Education: An Independent Review of Higher Education Funding and Student Finance. London: UK Government – Independent Review, 2010.

⁷ Simon Marginson. Competition and Markets in Higher Education: a ‘glonacal’ analysis. Policy Futures in Education, 2.2 (2004), 204

⁸ Pedro Nuno Teixeira. Markets in higher education: can we still learn from economics’ founding fathers? Berkeley: University of California. 2006, 124.

⁹ Ben Jongbloed. Marketisation in Higher Education, Clark’s Triangle and the Essential Ingredients of Markets. Higher Education Quarterly, 57.2 (2003), 116

¹⁰ Ibid., 116

¹¹ Pedro Nuno Teixeira. Markets in higher education: can we still learn from economics’ founding fathers? 127

¹² Ibid 128

¹³ Ibid 132

¹⁴ Ibid 134

¹⁵ Richard Frank. Microeconomics and Behaviour (5^th ed.). New York: MacGraw Hill, 2003, 206

¹⁶ Lord Browne of Madingley. Securing a Sustainable Future for Higher Education, 18

¹⁷ Richard Frank. Microeconomics and Behaviour, 102

¹⁸ Patricia J Gumport. Academic restructuring: Organizational change and institutional imperatives. Higher Education, 39 (2000), 69

¹⁹ Ibid 82

²⁰ Richard Frank. Microeconomics and Behaviour, 223

²¹ Ibid 226

²² Glen Jones & Stacey Young. ‘Madly off in All Directions’: Higher Education, Marketisation and Canadian Federalism. Higher Education Dynamics, 6 (2004), 192

²³ Ibid 198

²⁴ Tina Besley (ed.).Assessing the Quality of Educational Research in Higher Education. International Perspective. Rotterdam, The Netherlands: Sense Publishers, 2009, 112.

²⁵ Mike Molesworth , Richard Scullion & Elizabeth Nixon (eds.). The Marketisation of Higher Education and the Student as Consumer. New York: Routledge, 2010, 86.

²⁶ Tina Besley (ed.).Assessing the Quality of Educational Research in Higher Education. International Perspective, 116.

²⁷ Ibid 122

²⁸ Anna Fazackerley & Julian Chant. More Fees Please? The future of university fees for undergraduate students. London: Policy Exchange, 2010, 22

²⁹ Jose Joaquin Brunner. From state to market coordination: the Chilean case. Higher Education Policy, 10.3-4, 225.

³⁰ Roger Brown. Protecting quality and diversity in a market driven system, 46

³¹ Anna Fazackerley & Julian Chant. More Fees Please? The future of university fees for undergraduate students. London: Policy Exchange, 2010, 28

³² Richard Frank. Microeconomics and Behaviour, 102

³³ Alexander Astin & Leticia Oseguera. The declining equity of American higher Education. The Review of Higher Education, 27.3 (2004), 321

³⁴ Ibid 326

³⁵ Richard Frank. Microeconomics and Behaviour, 102

³⁶ Ibid 216

³⁷ Ibid 222

³⁸ Richard Frank. Microeconomics and Behaviour, 117

³⁹ Ibid 118

⁴⁰ Richard K Vedder. Going broke by degree: why college costs too much. Washington, D. C: American Enterprise Institute. 2004, 42

⁴¹ Ibid 46

⁴² Ibid 48

⁴³ Pedro N. Teixeira, & David, D. Dill. Public Vices, Private Virtues? Assessing the Effects of Marketisation in Higher Education. Rotterdam, The Netherlands: Sense Publishers , 2001, 22.

⁴⁴ Ibid 25

⁴⁵ Ibid 28

⁴⁶ Charles Wolf. Markets or Governments: Choosing Between Imperfect Alternatives. Cambridge, Mass: MIT Press, 1993, 126

⁴⁷ Alexander Astin & Leticia Oseguera. The declining equity of American higher Education, 338

⁴⁸Carole Leathwood. A critique of institutional inequalities in higher education. Theory and Research in Higher Education, 2. (2004), 31

⁴⁹ Ibid 36

⁵⁰ Ibid 36-39

⁵¹ Bogdan Gabriel Nistoreanu , Remus Ion Hornoiu & Puiu Nistoreanu. The adjustment of perspective among students regarding protection of educational services’ consumer, Amfiteatru Economic, 7. 28, (2010), 349

⁵² Ibid 352

⁵³ Carole Leathwood. A critique of institutional inequalities in higher education, 36

⁵⁴ Ibid 38

⁵⁵ Ibid 40

⁵⁶ Kelly Randle & Newton Brady. Further education and the new managerialism. Journal of Further and Higher Education, 21, (1997), 232

⁵⁷ Urgey Teichler. Higher education policy and the world of work: changing conditions and challenges. Higher Education Policy, 12, (1999), 285.

⁵⁸ Carole Leathwood. A critique of institutional inequalities in higher education, 38

⁵⁹ Richard Frank. Microeconomics and Behaviour, 117

⁶⁰ Richard K Vedder. Going broke by degree: why college costs too much., 44

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