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Crisis could be a chance to change education for the better

Crisis could be a chance to change education for the better

In the mid-19th century, Japan was an impoverished feudal backwater.  A fleet of American warships totally humiliated their navy, and compelled Japan to sign a highly disadvantageous treaty.

Within a matter of just a few years, the Japanese completely transformed their system of government and industrialised very rapidly.

This is just one of many historical examples of how crises give rise to both destruction and opportunity.

Crises expose systems which have outlived their vitality. At the same time, they create the potential for much more effective and innovative ways of doing things.

The Covid crisis has revealed the failings of the health bureaucracy in the UK in ways which have become all too familiar. Judging by recent press reports, the Prime Minister has them in his sights.

In education, too, the antics of some of the teachers’ unions suggest they are more interested in shielding the more mediocre and outright useless members of the profession from having to work than they are in the welfare of children. Indeed, the teachers who have worked so splendidly through the lockdown are effectively being cold shouldered by their union leaders.

Education is a sector where enterprising teachers have brought in important innovations during the crisis, from primary schools through to universities.

Some of the world’s leading universities had developed free massive on-line open courses (MOOCs) well before the current crisis. For example, a Google search of “free on-lines courses Harvard” comes up with around 100.

The first three, out of interest, are Introduction to Game Development, Web Programming with Python and Java and Mobile App Development, all oriented to developing skills for the 21st century economy. Anyone can access these Harvard courses for free.

In the UK, many student loans will never be repaid in full. They constitute a substantial addition to public sector debt.

It must be possible to shorten many university courses to two years rather than three by making use of material made available for free by top universities. This would make a big difference to the level of student debt.

Going even further, students themselves could make huge savings if more of them stayed at home for the entire length of their courses. The Open University has shown for decades how this is possible.

Universities themselves could set entrance exams for acceptance onto a particular course and give guidance on which online material to follow.

Enterprising further education colleges have already put large amounts of teaching material online. Some courses, such as hairdressing, cannot be done completely online.

Even so, this is a way in which the weaker institutions and teachers could literally be driven out of business. FE students in principle need no longer be confined to what is on offer, in terms of both scope and quality, in or near their home town.

The ideas above are not in any way a fully worked out blueprint.

But the potential is surely there to deliver education at all levels much more effectively and more efficiently at considerable savings to the public finances.

As published in City AM Wednesday 20th May 2020
Image: Education via Flickr CC BY-2.0
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The ‘graduate premium’ is little more than a myth — invest in further education instead

The ‘graduate premium’ is little more than a myth — invest in further education instead

Universities and their students are seldom out of the news. Ever since Tony Blair pledged to send 50 per cent of 18–21 year olds to university, they have been a persistent topic in political economy.

University towns now notoriously favour Labour at the ballot box, often an island of red in a surrounding sea of blue. One of the few rational policies of Jeremy Corbyn in the last election was the commitment to write off student debt. It was an excellent way for him to gather votes.

A key argument put forward for increasing student numbers was the existence of the “graduate premium”. Over their working lives, graduates earned more than non-graduates, so the expansion of universities would be positive for both individuals and the economy.

Quite a few commentators at the time argued that this rise in graduate supply was unlikely to be met by a corresponding surge in demand. The graduate premium would therefore not persist, certainly not for the lower ranked universities. Why pay extra for something which is in excess supply?

This is exactly how it has turned out. Many graduates end up in mundane, low-paying jobs. The Office for National Statistics shows that 31 per cent of graduates have more education than is required for the work they are doing.

And what about the 50 per cent of the age group who do not go to university? It is ironic that the left-wing parties shed tears for indebted university students, who in general have more privileged backgrounds. They have little to say about the rest.

All school leavers at 16 must now stay in some form of education until 18. Most attend a further education (FE) college, often combining this with a part-time job.

A lot is heard not just about universities but about the impact of “austerity” on schools. But within the education sector, it is the FE colleges which have experienced the greatest cutbacks since 2010.

Here is a great opportunity for the government to both increase the level of human capital in the economy and be seen to be delivering for the “left behind”. There are already rumours that the chancellor is planning a big increase in spending on FE in the March Budget.

Investment in university students has gone well past the point of diminishing returns. In contrast, the neglect of the FE sector offers the chance of getting a real return on increased spending.

The obvious beneficiaries will be the young people who do not go to university. With extra skills, they can earn an “FE premium”. It may be modest, but being able to earn even £10 an hour instead of the minimum wage makes a big difference to the individual concerned.

There could also be major benefits to the economy as a whole. The UK is notorious for the so-called “long tail” of productivity. Many SMEs have low productivity levels, so increasing the quality of the labour available gives them the chance to address this problem.

Big spending increases on FE colleges, and less attention to universities, are win-win for the government.

As published in City AM Wednesday 5th February 2020
Image: Graduates via Flickr by Sakeeb Sabakka licensed for use CC BY 2.0
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The left’s support for university students is fuelled by political self-interest

The left’s support for university students is fuelled by political self-interest

Why do left-wing politicians want to shower money on privileged members of society?

In general, university students have a higher intellectual ability than non-students, and often come from more desirable socio-economic backgrounds. But leftists can’t do enough for them.

For instance, Jeremy Corbyn in 2017 promised to abolish tuition fees from 2018 onwards. He went on: “I don’t see why those that had the historical misfortune to be at university during the £9,000 period should be burdened excessively compared to those that went before or those that come after. I will deal with it.”

The poor old chap didn’t seem to realise that this would cost almost £100bn. But this figure is dwarfed by the commitment made a week ago by would-be Democratic presidential candidate Bernie Sanders.

Sanders said that he would abolish student debt in America – all $1.6 trillion of it.

The answer to the question posed at the start is very easy. Half of the relevant age group in the UK now goes to university – only slightly less than in the US – and being a graduate has become a key determinant in voting Labour here or Democrat over there. It is pure self-interest on the parts of Corbyn and Sanders.

In truth, the people who really need help are those who do not go on to college. They are the ones who really feel the pressure on wage rates, working conditions, and living standards.

Yet Bernie and Jeremy do not seem to show the same level of concern for them. Indeed, they are asking poorer people who do not go to university to pay taxes in order to support the better-off people who do.

In practice, many students will of course never pay off the loans that they have taken out. This is simply because they will not earn above £25,000 a year, the threshold which triggers repayment of nine pence in the pound on anything above this number.

The think tank Onward released a report earlier this year which showed that five years after graduating, 40 per cent of graduates earned less than this threshold. The median earnings of students of creative arts, for example, was only £23,200 even 10 years after graduation.

So we might reasonably wonder why student numbers continue to rise, despite the increasing evidence that having a degree does little or nothing for the earnings of these marginal additions.

In subjects such as creative arts, one possibility is that it is a rational gamble by students. There is a huge level of inequality in the creative industries; a small number earn vast amounts, while most earn relatively little. Why not take a punt and see if you draw a winning ticket?

But the most plausible reason is that, for many students who occupy places at our less prestigious institutions, education is a consumption good rather than an investment. They get paid to spend three years studying without the pressure of having a regular job.

For contrast, Switzerland prospers despite sending only 10 per cent of its young people to university.

Perhaps it’s time for a drastic rethink of the entire system.

As published in City AM Wednesday 3rd July 2019
Image: Student Protest by Roger Blackwell via  Flickr licensed under CC BY-2.0
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Why we should allow second-rate universities to go bankrupt

Why we should allow second-rate universities to go bankrupt

The political spotlight remains focused on Brexit, but an important dogfight is developing in the area of higher education.

The specific issue is whether universities in the UK should be allowed to go bankrupt.

It is not merely a theoretical question. In the past year, a number of universities have announced deficits running well into the millions, and are having to cut budgets and staff.

Chris Skidmore, the higher education minister, has warned that some institutions “may exit the market altogether as a result of strong competition”.

However, Angela Rayner, Labour’s shadow education secretary, explicitly ruled this out in a speech last weekend. Universities, she declared “are not profit-making private companies that can simply be left at the mercy of market forces”.

The source of the dispute is a reform introduced in 2015. Whereas each university used to face limits on the number of students it could recruit, the changes essentially enabled an institution to take on as many students as it wants.

Strict rationing was endemic in the previous system. The number of students with the A-level grades to qualify them for admission to good universities exceeded the number of places on offer.

Many universities have expanded their capacity in the last few years, especially in humanities courses which are cheaper to provide than science and engineering.

The overall effect has been a flight to quality. Students obviously want to go to a more prestigious university if they can. And since all universities charge the same level of fees, given the chance that’s exactly what students have done.

The impact on weaker universities has been pretty dramatic. Their intakes have fallen sharply.

From the students’ perspectives, the reforms have been unequivocally advantageous. Many more get to go to more prestigious institutions than they would have done when rationing was in force.

But weak universities have had to close departments and cut staff. There are persistent rumours that several face bankruptcy because their student numbers – and hence their income – have dropped so far.

Rayner’s speech tells us a great deal about the mindset of the current Labour leadership on this issue. Far from being the party of the workers, Labour under Jeremy Corbyn has become an unashamed ramp for the public sector middle class. Its instincts are to defend the lecturers teaching second-rate courses that no one actually wants to take.

The preferences of consumers in this market – where the students really want to go – are very clear. Yet Labour wants to override these and pander to the interests of the producers – the staff.

Regardless of the shape which Brexit takes, or even if by some machination it does not happen, the willingness and ability to innovate will be the key factor in determining the UK’s future prosperity.

America, China and the rest of Asia will press ahead working out how to create better products and services. Labour’s instincts, in education and elsewhere, are to prevent changes from happening if they threaten its core support. While the rest of the world moves forward, Labour wants Britain to stand still.

As published in City AM Wednesday 20th February 2019
Image: University Graduation via Geograph under CC BY-SA_2.0
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The misguided sugar tax is an ineffectual way to price the externalities of obesity

The misguided sugar tax is an ineffectual way to price the externalities of obesity

One of George Osborne’s last acts as chancellor in 2016 was to announce the so-called sugar tax. This came into force last week, in line with the original timetable.

Drinks manufacturers are taxed according to the volume of sugar-sweetened beverages they produce or import. The tax increases with the sugar content.

The aim is to combat the rise in obesity. The rise has been rapid, and there could be worse to come. The UK tends to lag behind the US, where the spread of obesity has been truly dramatic.

There is no doubt goodwill behind the motives of the sugar tax: a desire to save others from potentially harmful actions. Obesity, for example, shortens lives and is a major cause of diabetes.

But the economic rationale is based on the more austere concept of negative externalities.

Externalities are a key topic in both economy theory and practice. They arise whenever someone’s actions create consequences for others.

An obese person is likely to need expensive healthcare. This generates costs – the “negative” bit – for taxpayers, who are called upon to provide the finance for the public health system to treat the obese (although, of course, the lower life expectancy of the obese may to some extent offset their higher health costs).

It is fashionable in liberal circles to portray the obese as being in some way victims. It is not their fault that they are fat.

In contrast, economics places the responsibility for choices which are made squarely on the individual. It is the individual who acts with purpose and intent in selecting a particular alternative from the ones which are on offer.

It would be just as plausible in theory to assign the tax directly to the obese. Anyone with a Body Mass Index of, say, more than 40 – which is huge – could have to pay for any health costs which arise. In practice, of course, most of them would be unable to afford it.

So will the sugar tax work?

At one level, the answer is yes. Some manufacturers are already reducing the sugar content of drinks, for example, though this may simply switch consumption to brands which retain high sugar content.

Price increases will deter consumption, of course. But there is a large amount of empirical evidence which shows that the immediate impact of any tax like this tends to fall away over a couple of years. The eventual effect is considerably weaker than in the first few months.

A neat recent study by Pierre Dubois and colleagues at the respected Institute for Fiscal Studies offers an even less upbeat view of the efficacy of the tax.

Consumers with high-sugar diets are less sensitive to price changes than people with lower sugar habits. The tax is likely to reduce sugar consumption in the latter group even further, while having little impact on the ones who really need to.

Osborne does have things to be proud of, such as succeeding in creating the impression in financial markets that the coalition government was fiscally prudent. But the sugar tax is unlikely to be one of his best remembered initiatives.

As published in City AM Wednesday 11th April 2018

Image: Sodas by Marlith is licensed under CC by ShareAlike 3.0
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The university pensions strike is a selfish bid to hold future generations to ransom

The university pensions strike is a selfish bid to hold future generations to ransom

University lecturers began a strike over their pensions last week. The dispute may even run on and jeopardise the summer exams.

The main issue is that the universities’ pension scheme seems to be in substantial deficit. To solve the problem, a move from defined benefits to defined contributions is proposed.

With the former, the pension is a guaranteed amount each year. With the latter, the pension depends upon how well the assets which back it are performing.

Matt’s cartoon in the Telegraph brilliantly captured the reactions of many, as he so often does. Two dons are walking through a quadrangle, with one saying “if a philosophy lecturer went on strike and all his students slept through it, did the strike ever happen?”.

The more liberal elements of the media have been much more sympathetic. Lengthy interviews with the strikers and their grievances have been published.

These are illuminating.

A woman in her 30s, for example, complained bitterly that the uncertainty that the changes would bring to her future pension were creating so much stress she was barely capable of doing any work.

The life cycle theory of savings and consumption, favoured by many economists, would be helpful to her. Put simply, she should save more while young to draw more benefits when she is old. She, and others like her, could simply take out a personal pension scheme to boost their existing one. But this rational choice appears to have escaped her.

A lawyer in his early 40s conformed more closely to the paradigm of rational behaviour. He was very clear. It was the responsibility of his employer – the university – to provide him with a guaranteed income when he retired, so someone else could pay for his benefits.

The motives of many students are more difficult to discern. Many seem to be fervent supporters of high pensions for their teachers. This could be pure altruism, or it could just be stupidity – because they are the ones who will be paying for these pensions. They will be working when the lecturers have retired.

Pensions can only be paid out of the efforts of those currently in work. Even intelligent people, which for all their faults is a category which embraces many lecturers and students, often fail to grasp this basic fact.

Pensions provided by the state are funded out of taxation. Parts of many private pensions will be paid for by interest on government bonds, but taxes are needed to pay for this.

Pension assets invested in the stock market give rise to a stream of dividend payments. But these in turn depend upon the productivity and efforts of the labour force at the time.

An exception might seem to be a country such as Norway, which has used its oil assets to reap investments abroad. This just means the Norwegians have been smart enough to get foreign workers to pay their pensions rather than their own citizens.

A demand for a guaranteed benefit is nothing more than trying to hold a future generation to ransom. Only they can pay it.

Paul Ormerod 

As published in City AM Wednesday 28th February 2018

Image: The Graduates by Sakeeb Sabakka is licensed under CC by 2.0
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