SOALAN/QUESTION 5 (20 MARKAH/MARKS)

Bincang berkaitan artikel berikut serta berikan pandangan anda.

Discuss the following article and also state your own opinion.

The Edge: 11 December 2011

LET'S discuss free education which demonstrating students have declared a basic right but from the standpoint of how economics might approach the issue in general.

We talk about Malaysia only in the conclusions. First, the concept: Can education ever be free? Suppose government pays for your education. To you, education is free, but of course, ultimately, the government has to coerce strangers (taxes) to pay the costs for you. Can this "basic right"somehow be made free? Let's run through the basics with a different activity.

My house cleaner spends four hours cleaning my apartment. I pay her RM65, which presumably she uses to buy something she wants. Suppose I convince the government that clean apartments are a basic right that should be free (say, to ensure citizens' good health). The government then taxes my house cleaner RM65 to return the money to me. Is my basic right free?

Not to my house cleaner, who is out four hours cleaning a stranger's filth for nothing. The cost simply won't go away. What does go away is my house cleaner's liberty. Ultimately, she or some other stranger must be coerced to pay the four hours, depending on who gets taxed.

Now let's come back to education. A teacher teaches you the teacher's time, augmented by acquired human capital, is the cost. But the cost is much greater there is the school, the equipment, grounds, capital, security, etc.

Again, no change: strangers must be coerced to pay up. What if the teacher volunteers to teach you for nothing (ignore the other costs). No more coercion needed; have we at last found free education?

Not so fast ... the teacher's time remains a scarce resource, capable of producing many other things, including his leisure. In economics, we call this "opportunity cost" this alternative best use of a scarce resource is never free. Sadly, there is no way out. Demanding "free" education as a right is no different from demanding strangers be forced to give you something for nothing.

But maybe all is not lost. Yes, education is not free, but Milton Friedman (1955) makes a clever argument for government intervention. He says: "A stable and democratic society is impossible without acceptance of some common set of values and minimum literacy on the part of ...citizens. Education contributes to both. The gain from [educating] a child accrues not only to the child but to other members of society . by promoting a stable and democratic society. Yet it is not feasible ... to [charge people] for the services rendered [thus] government intervention [is justified]" (The Role of Government in Education).

Friedman's argument is that education produces "positive externalities" which are the benefits (more stable society) that cannot be captured via the market by the people who pay for the education (students). The consequence is less education purchased than socially optimal.

This then justifies government taxing general society, which enjoys the "externality" benefits, in order to subsidise the payers who create them. Although education is not free, those taxed now get something in return (the externalities), and those subsidised will purchase more education, moving us towards the social optimum a win, win situation.

Then there is a second argument capital market imperfections. Some financially needy but capable students cannot afford higher education, yet cannot borrow in private capital markets against their higher future potential earnings. This market failure justifies the government providing loans to those students, provided the loans are fully repaid with interest, or providing interest subsidies to private lenders to lower the risks of lending to the students.

The externalities argument is largely accepted for primary/secondary education, and the imperfect capital markets argument is also generally accepted. The trickier issue is whether dully subsidised tertiary education (university/vocational) is good policy.

The critics raise these issues: First, subsidies are not needed because university students are investors in human capital; these investors will capture all the benefits from higher future productivity and higher incomes in the same way that firms fully capture the higher returns from non-human capital investments.

Even if new education externalities are assumed such as knowledge spillovers leading to higher economic growth the argument remains that these human capital investors will capture most of the benefits from the higher economic growth. For that reason, the un-captured benefits or externalities would be relatively small, and insufficient to justify taxing general society to fully subsidise the students.

In addition, a perverse income redistribution from the average man to the rich and relatively well-off could result, since the latter two groups are likely to be disproportionately represented in the university student population.

Second, a more educated labour force may not always generate positive externalities unless a country's institutions/governance and educational system are of sound quality. If the latter are not, more tertiary education may generate negative externalities, such that "free" education becomes counter-productive.

In a much cited cross-country study Where has all the education gone? (2001), Dr Lant Pritchett (World Bank/Harvard Kennedy School) finds that, on average there is no relationship between higher levels of educated human capital and economic growth! Why?

Pritchett postulates that in some countries, perverse institutional/governance incentives allocate educated labour into socially wasteful activities like bloated government bureaucracies and over-manned state enterprises. As a result, an increase in the educated labour force may reduce economic growth, instead of improving it.

Similarly, in countries with sub-par educational quality, an increase in the labour force's "years of schooling" may create no real improvements in their human capital just more meaningless diplomas and degrees. To avoid such traps, the necessary prior condition to any contemplation of new education entitlements must be first rectifying these defects in institutions, governance, and in the education system.

The analysis above suggests the questions to ask for Malaysia. Are the tertiary-related externalities large enough to justify full subsidies? If not, would the policy lead to a perverse income redistribution from the average man to the rich?

Is finance really the big problem? What about educational quality and standards, or an over-supply of ill-prepared students, or top-heavy bloated educational bureaucracies, a la Pritchett's study?

Are these the major problems, rather than finance? Why are PTPTN borrowers complaining about student debt burdens? Didn't their tertiary training prepare them for the high value-added jobs with attractive compensations? If not, why not?

If educational quality and institutional issues should be the major problems, shouldn't the first priority be rectifying them? Otherwise, unwittingly throwing money at an internationally sub-par educational system (inclusive of the primary/secondary levels, which supply the universities) would merely lead to an even bigger sub-par system, wasting taxpayer resources.