Got to go to market

September 15, 2000

The Tories' new endowment scheme should be more radical, says David Blanchflower

The diagnosis is in - British universities need enormous transfusions of cash and they need them now. Without this treatment the prognosis looks gloomy. It is time for drastic measures.

My job as tenured professor at the private Ivy League university Dartmouth conveys enormous freedom, high status and is well paid. By contrast, in the United Kingdom most academics - and especially young lecturers - are not paid remotely competitive salaries. Poor working conditions, heavy administrative burdens and the strain of dealing with the various (and essentially worthless) assessment exercises certainly do not help. No wonder morale is low. That has to change.

Recently the Greenaway report - for which I was an adviser - offered the solution of market-based tuition fees. It recommended that universities be given their independence and be allowed to set whatever fees the market would bear, with some able to set high fees - perhaps even as high as Pounds 10,000 or even Pounds 15,000 a year - because of the high quality of their product.

I would go even further and make all such fees tax-deductible for parents for the next decade while the new system replaces the old. The report further recommended that large portions of the money raised from full-cost tuition fees be used to subsidise young people from the lowest social class groups.

To their credit, the Tories have recognised that higher education is "struggling to excel" and have spelt out plans to increase the funding of universities in their pre-manifesto document Believing in Britain.

The document tantalises with claims that they wish to "set universities free to grow and to recover their global pre-eminence", but it ultimately disappoints. It includes plans to create endowments funded from "auctions of radio spectrum, future privatisation proceeds and asset sales", and proper access to funds for the most deserving students.

But I am disappointed by the fact that the Tories have apparently ruled out a crucial component of independence - the ability of each university to charge differential tuition fees. This is the only way to set the universities free. Why not let the market decide who wins and who loses? The last thing that is needed is more state planning.

Providing universities with endowments is undoubtedly a good idea. Unfortunately there is unlikely to ever be enough public money around to make up for the years of neglect. There are simply not enough public assets or airwaves left to sell to make up the funding gap with the United States. Last year, 23 US universities had endowments of more than Pounds 1 billion, while Harvard University alone has an endowment of more than Pounds 10 billion.

UK universities do not have these kinds of funds available to retain or hire the best and the brightest. Dartmouth recently hired one of Britain's outstanding young scientists, Neil Macrae, from Bristol University, for example. The Tory plan is unlikely to raise enough money to reverse this kind of bleeding of top talent. Moreover, other public services, such as primary and secondary schools and the National Health Service, which really do have substantial social benefits, are considerably more deserving of extra public spending than are the universities. Spending on the health service benefits nearly everyone. In contrast, the benefits from a university education accrue mostly to the individual. Yet, currently, they are massively cross-subsidised by the rest of society. There is no good reason for this, and it should stop.

The Tories' statement in support of more open access for poor students is therefore to be welcomed. But market-based fees are the only way to go if the decline in the quality of UK universities is ever to be reversed.

David Blanchflower is professor of economics and associate dean of the faculty for the social sciences, Dartmouth College, United States.

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