Sunday, December 19, 2010

Funding Higher Education

By Olu Akanmu

There has been very significant outrage at the announcement by the Federal government that six additional federal universities will take off from next academic session. The paltry N10billion naira voted for their take off raises fundamental question about the quality of education that these universities will deliver. If the federal government has not been able to fund existing twenty-five universities properly, why should it start an additional six universities? It does not suggest that quality and standard are important to government. Patriotic concerns have been expressed that it is time to recognize that the current fee regime of the universities is too small to complement the paltry funding that they receive from the government. That the Nigeria state should not own a Nigerian youth, university education but a good secondary foundation education. That university fees need to be significantly higher perhaps at near commercial level for sustainability and standard of the university system. This may be complemented by endowment from rich and charitable individuals and a student loan program where students could borrow to pay the near-commercial high school fees. We respond to this school of thought in this essay.

The problem of our higher education and its larger social impact are complex hence the solution to the problem will be non-linear. Education is a public good whose larger social and economic benefits are bigger than what can be typically harnessed by private capital in investment returns. This creates a pricing problem in that prices may be either too high as to serve only the markets where capital can get its return, leaving a large section of society un-served with dire social consequences; or too low as to serve everyone but priced below the optimal level for private capital returns, which implies there will be little or no investment. This is the market failure problem that recognizes that while the markets may be best in allocating society’s resources efficiently, it has significant limitations in the case of public goods like education, national security and public health. When the state is endowed with abundant resources, it could intervene to correct the limitations of markets by providing public goods exclusively for society as we have tried to do in Nigeria. Given however, the current resource limitations of the Nigeria state, what we need is a structured, tiered and segmented partnership with private capital in the provision of our public goods such as our university education.

Firstly, we need to license more private universities and create structures that allow them to charge market prices for the market segments that can afford to pay such commercial prices. We should create incentives for the acceleration of private investments including tax incentives that will encourage the provision of world class infrastructures and standards in our private universities. There is a significant middle-class market that educates their wards in private secondary schools at costs that are fifty times higher than the highest fees in our public universities. That market should be served by the private universities and should free the public universities to serve the market segments that cannot afford to pay commercial prices. The public universities will serve as a social safety net for the larger section of the population that cannot afford commercial prices for education. It will provide for them university education as a public good whose opportunity cost would have been a half-educated population that could contribute very little to the well-being of the modern society. Then, we should have very tough regulation of standards by the National University Commission on curriculum, teaching qualification, facilities and minimum pass requirements including the unapologetic closure of departments that fall below such prescribed standards.

How would the public universities charging non-market prices be funded? We should re-set our national priorities to fund programs that have deep and spiral impact on society. The billions of dollars we have spent on ECOMOG operations since our first intervention in Liberia could have made a difference in the standard of our university education. Incidentally, there is a correlation between the decline of our university standards from the 1990s and our first ECOMOG adventure. We should also rationalize the structure of our governments at federal and state level and rationalize our executive and legislative bureaucracy with their bloated recurrent expenditures. We must also tackle corruption more vigorously. A key reason why society is unable to fund the provision of public goods is that society’s resources are looted heavily by the corruption menace. We can increase the efficiency of expenditure on public goods by at least thirty percent if we eliminate wastages and over-invoicing due to corruption in government. A student loan program learning from the American system could be useful but may be constrained by the limitation of our financial system with its very low financial inclusion where less than ten percent of our population has access to serious credit. We can also impose a one percent tax on foreign education remittances to support university education in Nigeria. A parent remitting USD20, 000 for her ward’s school fees will contribute a token USD200 to our university system and its public good. Because, many of us middle class people have been privileged by society, we should have such moral and legal responsibility to contribute to public good. Educational endowment from the rich could also be a good funding source as we have in the US, but this is a function of the depth of the moral fiber of the rich and their sense of duty to society. This is an area where our rich and those of the advanced societies are different. In a society where the rich do not even pay their legitimate taxes, it is not clear how much could be mobilized from them in serious charitable endowment to fund public goods like education. Rather we should strengthen our tax and tax collection systems to ensure that wealthy individuals fulfill their legitimate tax obligations ensuring that we spend a good portion of the increased tax revenue to fund our education sector.

In the last one year, we have spent a good part of state resources to bail-out our banks and the larger financial system. This is because our government is correctly operating with a paradigm that the financial system is a public good whose ill-being has serious social consequences and externalities beyond the private interest of our banks’ shareholders. We should also apply the same the public good concept to our higher education sector and its crisis. That there are significant externalities in social benefits in the well-being of our education sector beyond the private interest of individual students and their families. We must however do this within the context of good fiscal discipline; rationalize government fats and wastages ensuring that we do not create a ballooning public debt in the process.


Demola Olusunmade said...

While quality higher education funding can not be totally free, I think there should be enough funds for smart indigent students to access. More importantly is the need to rebuild our education from the base up. Sitting in interview panels upon interview panels I've come to the conclusion that something urgent needs to be done and it's not just about public universities alone. A lot of the big money private universities are not excluded from the rot. We meet their products everyday and wonder what the big monies were able to achieve. We've lost a lot of grounds already and the earlier we go back and reform our primary and secondary systems the better. Tertiary education will only churn out the same garbage it's being fed with.

Idowu said...

Deep, well thought out essay. I however hold the opinion that funding of good quality education is not beyond all reasonable people oriented government. The essay rightly pointed out that government should block all leakages in spending, revisit tax policies and administration. These are areas for enoumous wealth accruing to government. Wealth from this source along with others are enough to provide good infrastructures and fund education. Government should not abdicate its primary responsibities to the private sector. The essay refered to the 'middle' class? What is the incidence of this? The bulk of the populace, more than 60%, still leave below the poverty line. The public universities are not even taking care of them. This is a very dangerous development! If we should favour private sector university as is the case now, then agrees to commercial pricing as is being suggested, and set up loans to enable people attend such schools; what jobs will be available for these products after graduation, and therefore how will they repay? It is my opinion that good quality education as a key function of government is non negotiable. Private sector should focus on developing industries that will turn out value added products and generate employment opportunities. This way, we can keep building tax paying 'middle' class, thereby improve income base of government, and make more fund available for education and infrastructure. We have forgotten this basic theories, and have plunged ourselves into the current social problem. Solving the problem is not making it an advantage to the rich, but we must go back to the basics.

idiareno said...

Good piece sir, i believe the new universities were not well thought through ventures. The FG premised the decision on there not being enough spaces for the many youths who apply for UME/JAMB yearly

I believe our challenge in education is not qualitative enough...its not just about turning out loads of graduates.

Also imagine a situation where secondary school teachers are paid like entry level bankers? It would not be hard to attract 2.1 and 1st class graduates to teaching hence indirectly improving the quality of secondary school graduates.

I totally agree that the private sector needs to be encouraged to establish more educational facilities while the FG should strengthen the existing schools. Imagine if the 10 billion was used to upgrade 3 fed universities in each geopolitical zone to harvard standards?

I believe that would be more value for me