Wednesday, 26 February 2014

Should university be free? A report from Chile

By Carlos Fortin

In current mainstream debates on the economics of education it is a firmly established piece of received wisdom that universities should not be free. The World Bank and the IMF in particular have consistently argued that free higher education, especially in developing countries, amounts to a subsidy to students from rich and middle income families who can either afford the economic cost of their university studies or should finance them with loans to be paid back after the student graduates and starts earning an income. Only students from low income families should be entitled to non-reimbursable grants.(1)

The issue has recently come up in a major way in Chile, where the electoral platform of the candidate who won last December’s Presidential election, Michelle Bachelet, includes a commitment to free university education; this has predictably attracted sharp criticism from orthodox observers and analysts.

Interestingly, strong support for the unorthodox view – that higher education in Chile should be universally free - has come from someone who was Director of the Western Hemisphere Department at the IMF from 2009 until 2012, Nicol├ís Eyzaguirre, a Harvard Economics Ph.D. and former Chilean Minister of Finance.

Eyzaguirre’s main contention is that the orthodox view does not apply in a country like Chile, which is characterised by a highly unequal income distribution and a de facto segregated educational system. In those conditions, charging full fees to the better off and extending loans to middle income students would, in his view, lead to serious perverse results:
  • Parents who can afford the fees would prefer to send their offspring to private institutions – or universities abroad - at a similar or even higher cost but with a higher academic level, because of having more resources; the system would thus tend to become segmented between ‘a handful of paid and expensive universities, well equipped and with top level faculty, that would attract the scions of the elite, and a large number of [lower academic level] public universities for the rest’;
  • Parents and students who would receive loans would tend to factor in the issue of repayment into their choice of careers, biasing it towards those that involve fewer years of training and have more promising labour markets; this would create a disconnect between preferences and talents and actual choice of careers, resulting in both individual dissatisfaction and a loss of social efficiency and productivity;
  • The burden of repayment of the loans would be heavier for students of the middle and lower income brackets, as the unequal character of Chilean society manifests itself, among other things, in that ‘an important part of the income of the graduates is not a function of educational level but of networks and family contacts’; this would breed discontent and alienation among graduates, a phenomenon already visible in the student protest movement that erupted in 2011 and continues to date.
By contrast, Eyzaguirre argues, free higher education would help reduce educational segregation and raise student satisfaction and commitment, leading – together with a number of other measures and in due course - to better academic standards and an increased productivity.

The analysis is persuasive, but the orthodox are not convinced and the debate goes on. Fortunately, there might be a chance to put it to the test: President-elect Bachelet has recently announced that Eyzaguirre will be Minister of Education in the incoming government.

Related resources
(1) See Nicholas Barr, ‘Financing Higher Education’, Finance and Development. A Quarterly Magazine of the IMF, Vol. 42, No. 2, June 2005.

Carlos Fortin is an IDS Research Associate currently working on the relationship between the emerging international trade regime and human rights.


Clarissa Victor said...

No, university education should not be free. I am from a developing country and university education is practically free (once you pass all your examinations and work for the required period after you complete your degree, you will no longer be indebted to the government). The free education is taken for granted and I sincerely doubt that there has been any social improvement as a result.

Mention was made in your article that students who have to repay university loans will choose careers merely because they require fewer years of training and not out of a sincere desire to pursue that course of study, leading to individual dissatisfaction and social inefficiency. That is a good point. However, what I have seen in my country is that young people complete their secondary schooling (high school), they have no clue about the career path that they want but they choose a degree just because it is free. They will do multiple degrees to become employable for a variety of careers just because the education is free and so that they will have the option to choose any job that pays the highest and has the most/best perquisites. One can argue that the government could put measures in place to prevent the same person from pursuing various courses of study, especially when the studies are in vastly different fields. However, even if this were successfully done, most people would simply complete a degree in the hope that that results in better pay and not because they want to make a significant contribution towards the betterment of society. However, if the purpose of the free education is to improve the distribution of wealth then this would not be a problem. If the purpose is, on the other hand, to give more people the opportunity to 'make strides' in their chosen endeavours and improve society, we have a problem.

What should be free is a seminar that help people to identify their strengths and their truest desires to make a mark upon this world.

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