Nick Clegg in Bath - "It will prove to be a fairer system"

"Social engineering?" Clegg dismissed claims that higher fees would make university the preserve of a privileged few. "It will prove to be a fairer system." But for whom? Students will have a much higher debt and will be paying off the debt for most of their working lives. Is that fair? In the last of my three posts on the student fee issue, like Woodward and Bernstein, I will be following the money and trying to bring down the government, or, more likely, just discussing who really benefits from the increase in student fees. 

In answering the question, we need to look at the assumptions underpinning the increase. The UK has the sixth largest economy in the world and it may surprise you, but the UK is also the sixth biggest manufacturing economy in the world. However, that position looks decidedly precarious. Russia, S Korea and Brazil are all closing in on poor little UK Ltd. Unfortunately, while those upstarts continue to grow, our manufacturing sector has shrunk considerably. Furthermore it is struggling to regain lost markets despite the collapse in the value of the pound making it far cheaper to export. According to the Institute of Fiscal Research this could be part of a structural decline rather than a temporary blip. 

What are the reasons for this? The IFS highlight a historical decline in manufacturing investment. Investors have been drawn to the 'higher' returns from the City to the detriment of our manufacturing base. Roughly 75% of UK GDP is accounted for by financial services and service industries. Just over 22% is manufacturing. Another reason, according to the OECD, is that we are slipping down the league tables of productivity. Central to this is having an well-educated workforce. We rank only 19th for the percentage of 'young' workers, 18 to 34 year olds, who have got a degree. We have been overtaken by a number of countries during the last few years, including S Korea and Ireland (although Ireland might slip back again given its own problems). 

The Coalition, and Clegg in particular, are talking up the importance of re-balancing the economy, so we have less reliance on the City and financial services. I think we can all agree that less reliance on the City would be a good idea. A healthier manufacturing base would also allow for a re-balancing of the country. Rather than drawing increasing numbers to the South-east it would provide opportunities across the country and regenerate the regions. How far have we got to go? To put it into context our role-models, the Germans, currently account for 30% of GDP from manufacturing.

The Germans

 

The argument, therefore, is that the UK's competitive edge can only be maintained in technical, high value sectors requiring a very well educated workforce. So, you would expect our school-swot German neighbours, with their healthy manufacturing and balanced economy to have a much greater number of graduates than the forlorn UK. In fact, they have a much smaller proportion, 23% to the UK's 38%. Despite this, German productivity is 11.8% higher.  

Yet, the Government insists that the UK needs to produce even more graduates. However, given the present economic constraints, who pays? They think the answer to that question is whoever benefits.   

At the meeting in Bath, Clegg stated that graduates earn, on average, £100000 more during their lifetime than non-graduates. According to the IFS, a woman with a degree can expect to earn 25-27% more and a man with a degree can expect to earn 18%- 21% more. The students personally benefit and therefore they should pay. On this basis it seems a reasonable assumption.

However, there is a social benefit as well as private benefit to higher education. Unfortunately, the social returns to higher education are very difficult to quantify, especially if you want to raise fees. Social returns can measure the effect of university education upon general productivity, the ability to adopt new technology quickly or even create new technology. Finally, there are a whole raft of benefits associated with having a better educated population that provide savings to the state: better health, a reduction in crime, social cohesion, less drug abuse and teenage pregnancies.

Quantifying the value of social returns is proving to be extremely controversial amongst academics. Methodology and conclusions are criticised.  Richard Venniker, from Tilburgen University in Holland, in a review of the work done on this subject, concluded that social returns are higher than private returns and may even be worth double. According to Venniker, the strongest evidence of social returns were not linked directly to economic output but rather in indirect benefits like reduced crime and social problems. 

If society is benefitting to the levels suggested by many academics, then this is clearly at odds with the Government's assumptions. As I noted yesterday, there are also concerns that students' private returns may have been wildly over-estimated. That would also agree with Venniker's conclusions. There are a lot of provisos attached to the research so it is difficult to draw any firm conclusions. However, it is surprising, given that public policy is being driven by assumptions of private benefit that there is so little research on the subject. I suspect that won't remain the case.

Even before we consider the broader benefits of education to creating a just state, such as social mobility, there is a strong argument that the students contribution will be too high. Overall, the research suggests that there is a benefit to society for providing higher education which, at the very least, is comparable to the private benefit. According to the IFS, the new fees will mean that students will pick up 60% of the cost, an increase from 24% under the present fees. From a conservative interpretation of the data available it seems reasonable to conclude that the new fee regime will overcharge students by anywhere between, 10 and 25%. Using the Government's own logic it appears society will be getting a free ride on the back of our students.

Meanwhile, graduate unemployment has risen by 25% to 8.9%, its highest level for 17 years according to the Higher Education Careers Services Unit. Yet, politicians continue to fuel this higher education boom. Why? Well the answer is probably down to universities proving to be very good at absorbing large amounts of young people for relatively little cost. Dr Bahram Bekradnia from the Higher Education Policy Institute, argues,

"The government's entire strategy is based around reducing public borrowing. Borrowing to give grants to universities counts as public borrowing. Borrowing in order to make loans to students does not count as public borrowing, to the extent that the government can show a stream of income to offset the loans."

With youth unemployment running at nearly 18%, you have to admire a government policy that gets young people off the unemployment statistics and at the same time gets them to foot the bill.