Hooray for a decline in university applications

Jamie Whyte
UNIVERSITY applications are 12 per cent down on last year. Some are blaming the government’s lifting of the fee cap from £3,375 to £9,000 a year. Sally Hunt, general secretary of the University and College Union, the trade union for lecturers, claims that this shows the increase to have been a “disaster from the start”.

She is wrong. When university education is subsidised, some people study even when the education they receive is worth less to them than it costs to provide. This means that the resources devoted to their education have been wasted. By lifting the fee cap, the government has reduced its subsidy for attending university, reducing the amount of wasteful education. A decline in applications is evidence the policy is working.

Many will object to my reasoning because they believe education produces positive externalities: its benefits accrue not only to the educated person but to others as well. This means if students must pay the full cost of their education, they will buy too little of it. We get the optimal amount of education only when it is subsidised. This is the standard view, but it is wrong.

Educating someone does indeed benefit others. For example, an educated person is not only more efficient himself but, because he is easier to communicate with, quicker to adapt, more likely to solve problems and so on, he also improves the efficiency of others who work with him. Nor are the beneficial spillovers all commercial. Educated people make good company and are less likely to commit crimes, among other pleasant effects.

But it does not follow that subsidies are warranted. The first reason is that the value of many such spillovers redounds upon the educated person. For example, if you make those you work with more efficient, you can expect to be paid more. This internalises the external benefit of your education and obviates the need for a subsidy. Similarly, if you are good company, you benefit along with those who like you. We like to be liked. Again, no subsidy is required.

More importantly, however, the quick argument from positive externalities to the need for subsidies fails to take account of an important distinction drawn by the economist James Buchanan. He showed that certain actions that are socially desirable do not need subsidies.

Oral hygiene is an example. Not all of the benefits of oral hygiene accrue to the clean-mouthed person. Everyone who sees his teeth and smells his breath gets some upside. Nevertheless, the benefits that do accrue to the orally clean suffice to get people to wash their mouths and deliver the external benefits. A toothpaste subsidy would thus be wasteful.

The same goes for education. Research shows that its positive externalities come mainly from pretty basic education and that people are willing to pay for this privately. Subsidising university degrees so that we get yet more graduates in post-modern hermeneutics or whatever adds nothing to the external benefits that private spending on education would deliver.

Of course, even if subsidies for university education are wasteful, reducing them will look like a disaster to their recipients, such as Sally Hunt and the members of her union. But we should be no more swayed by rent-seeking educators than we are by rent-seeking farmers, green energy producers or bankers.

Jamie Whyte is a senior fellow of the Cobden Centre and author of Crimes Against Logic (McGraw Hill 2004).