Policy Wise

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Setting the agenda

The need for government regulation of higher education is the subject of an interesting debate between Abi and Ravikiran Rao. Abi calls for changes in the regulatory structure to keep out ”crooks, politicians, and thugs” and facilitate the entry of large philanthropic institutions. Ravikiran’s response is to point to blogs: Without an external regulator, readers are able to differentiate between ”good” and ”bad” blogs as technology permits readers to avoid blogs which they may find uninteresting. Abi points out, quite persuasively, that the example of blogs would not be applicable to higher education: Students cannot sample different institutions and then decide which one may best fit their interests–the opportunity cost is simply too high. 

Before dealing with the larger debate, what also must be clearly understood here is that it is immaterial if the motivation for private investment in higher education is purely profit. It is perfectly possible to subscribe to profit motive and yet deliver high quality of education. Indeed, it is how modern marketplaces function. Market forces as represented by free consumer choices forces producers to deliver high quality products. Otherwise, they risk loss of market share negatively impacting their bottomline. Apart from an ideological belief that education must be treated differently, there is little reason why the same paradigm is inapplicable to higher education. Rather than worrying over motives of education entrepenuers, an appropriate policy response would be to incentivize investment in higher quality by making it a pre-requiste for profit maximization. 

The lack of accountability in the state owned educational facilities and failure to incentivize quality in the private sector are the key failings of India’s education regulators. The state’s stranglehold on higher education has created an artificial shortage leading to an acute supply-demand mismatch. Politicians and bureaucrats who have designed the regulatory structure directly benefit from it. The process of regulating higher education has become entirely politicised; no wonder, most private professional colleges are owned by politicians or well-connected business houses. The poor quality of such educational institutions is used to justify even more government regulation completely missing ignoring the fact that the high entry barriers erected by regulators ostensibly concerned over quality had allowed these institutions to thrive in the first place.  A particularly perverse application of this regulatory power has been the successful move by Arjun Singh led Human Resources Development ministry to prevent the entry of foreign universities in India. Concerns over quality, it must be recognized, have only served as smokescreen to promote monopolies. It has not served the interest of any of the important public policy considerations: Access, quality, and equity.  

As the government it self has recognized, a massive expansion of higher education has become imperative if India has to thrive in the knowledge economy.  The government can no longer be the key driver of this change. The onus of expanding higher education is clearly on the private sector with the state playing the role of a facilitator. Does it mean there is no justification for state regulation of higher education? 

External regulation of a consumer good may be justified in case of information asymmetry.  Quite clearly, such a situation exists in higher education: Prospective consumers–students–don’t know as much about educational facilities as institutions themselves. The institutions have an incentive to restrict the information flow or limit it to a form which benefits them.  More importantly, the opportunities for consumers to correct their mistakes are severely limited; a wrong initial choice may adversely impact a student’s entire carrer and indeed, his life. The limited supply of higher education further restricts the student’s ability to make appropriate decisions. 

Government regulation of higher education seeks to remove some of the uncertainty associated with selecting an education facility by guaranteeing–at least theoretically–a minimum standard of education. Government regulatory bodies like the University Grant Commission(UGC), Medical Council of India(MCI), and All India Council for Technical Education(AICTE) apart guarding the portals of higher education, are  entrusted with the responsibility of ensuring adherence to minimum guidelines by existing institutions. However, as explained above, such regulations are not costless.

Is there a better alternative?

(To be continued) 

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