How to tame the market without stunting growth

August 29, 2003

Private universities are a valuable asset to any country if they are regulated appropriately, says Roger King.

Governments everywhere regard a robust and growing higher education system as essential for economic development. Their problem is paying for it when there are other claims on public expenditure and within the low tax regimes that global competitiveness apparently requires.

In many developed countries the focus has been on reforming existing institutions. In the UK, Australia, New Zealand and continental Europe, for example, universities have become subject to more market-like processes and private funding. But in developing countries, higher education provision relies increasingly on private institutions. And this has left governments with a headache - how do you control and regulate private growth without stunting it?

The rapid growth of private higher education worldwide in the past decade or so has been unexpected. Unesco reports that in the 2000-01 academic year, private institutions educated up to 30 per cent of the student population in eastern and central Europe. Private providers in the Czech Republic, Hungary, Poland and Romania have a 22 per cent share of the higher education market (the same as the US). In Latin America, more than half of enrolments are in private universities and in Asia and parts of Africa there have been equally dramatic increases.

It is not hard to understand why developing countries with limited public funds would welcome private universities. Rising public demand for higher education is difficult to satisfy without them. The prevailing global dominance of economic liberalism offers a rationale for private rather than solely state provision. In central and eastern Europe, for example, most of the growing private provision is in new demand areas such as business and information technology, which the state sector is slow to provide.

Yet governments are wary of private providers. They often lack track records and a few are downright bogus. Many are dependent on tuition fees and vulnerable to sudden changes in demand. In eastern Europe in particular they operate within thin margins in an environment where public doubts about the quality of provision are often reinforced by state universities.

How can the consumer be given choices but be protected from substandard providers? And how should the objections of the traditional universities be handled? Academic peer judgements matter. It is not easy for governments to gainsay established university opinion as to what counts for quality.

Private organisations, for their part, complain that conventional quality assurance discriminates against them by focusing too strongly on traditional resources, such as libraries, and by taking too little account of new technologies and students' "real-world" skills.

Regulation can be done by either governments or the private sector itself.

I believe old-style command and control, where certain activities are banned and a government agency monitors compliance with legally enforceable standards, is too unbending. South Africa has a system of regulation along these lines. As a result, the number of private providers has halved since 2000, while the number of foreign university operators plummeted from 38 to about four. Abuses can certainly be constrained by this method, but can higher education provision be encouraged?

Self-regulation is an alternative: it has legitimacy, particularly in higher education, does not consume too many public resources and can keep abreast of changing trends. But, for the moment, private provision of higher education in most of the world is too immature and fragmented to operate in this way - firms are unlikely to put aside their competitiveness to associate and regulate. In the short term, perhaps we should look to the media and publicised performance indices. Having a good reputation, or facing the prospect of losing one, will act as a great incentive for a competitive sector to improve standards. Governments, too, can help. In Singapore, good private universities are rewarded with tax breaks and fast-tracked student visas.

The private providers of higher education have some way to go to convince sceptics that they have a role to play. In many places they will not be able to produce the "public goods" - the research and deep knowledge - that countries need for their social and economic development. But private institutions should be recognised as a valuable component in the global higher education mix. They are different but not necessarily inferior. They provide valuable choice, opportunity and often innovation. Regulatory frameworks should adopt measures that recognise these differences rather than those that seek to eliminate them.

Roger King is visiting research fellow, Association of Commonwealth Universities.

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