Education Economics II
In the last issue of Counterpoint, we discussed the vital role economics plays in deciding access to and the quality of the education system, which decides the country’s labour force dynamics. There is obvious correlation between the level of education and income, social mobility, economic and social status. Moreover, according to the Organisation for Economic Co-operation and Development educated individuals make more intelligent and informed democratic political choices.
Consequently, spending on education has been viewed as promoting human capital by many scholars. It was R.E Lucas who said, in his 1988 paper, titled ‘On the mechanics of economic development’, which appeared in the Journal of Monetary Economics, that public spending on education promoted human capital, which in turn contributes to economic growth. P. M Romer in ‘Endogenous technical change’ (1990) in Journal of Political Economy points out the significance of spending on research and development for economic growth. Growth in human capital invariably leads to economic growth.
Education and human capital
Heady economic formulae aside, the gist of the Endogenous growth theory is that investment in human capital, innovation, and knowledge is a significant contributor to economic growth. Consequently, investing in education is the sure-fire way to promote efficiency, knowledge and inventions, since all of these contribute to the economic growth of a country.
Spending on education is regarded as productive spending, which plays a comprehensive role in the economy, with private and social returns. For example Biswajit Maitra and C.K. Mukhopadhyay point out in their paper ‘Public Spending on Education, Health Care and Economic Growth in Selected Countries of Asia and the Pacific’, in Asia-Pacific Development Journal, that academic attainment and knowledge of the current generation, is transmitted automatically to future generations and therefore investments on education have self-sustaining returns in the long run.
Despite political instability during the last few years and 30 plus years of internal strife before this, Sri Lanka has recorded a much better performance in human development relative to other countries in the South Asian sub region. In fact, according to the Human Development Report 2017, Sri Lanka’s HDI value is 0.770, placing the country in the high human development category. Between 1990 and 2017, Sri Lanka’s HDI value increased from 0.625 to 0.770, an increase of 23.2 percent. There is no doubt that this is due to policy makers recognizing education as a priority sector, irrespective of the political party in power. In this respect, Sri Lanka seems to be doing a fine job so far.
However, Maitra and Mukhopadhyay point out that funding is pointless if there exist practical constraints, such as inappropriate planning, lack of monitoring and skilled manpower, widespread corruption and administrative bottlenecks. To economically utilise funds allocated for education, good governance and democracy goes a long way.
These very sentiments are reflected in Sujata Gamage in ‘Right to Education is Meaningless without Accountability in the Public Education Sector’ in the Law and Society Trust Review (2008), which argues that inefficiency of government is at the root of inequity in education and pouring more money into the present system is futile. Gamage points out that duplication of expenditure is a major problem. For example, the state spends twice for education administration, first for a central bureaucracy and second for a provincial bureaucracy.
Reducing funding pressure
As discussed in the previous issue, in 2016 the Sri Lankan government spent 3.48 percent of its GDP on education. But this is far less than the percentage advanced middle-income countries are generally expected to allocate, which is about 4.6 percent.
Harsha Aturupane points out in his paper ‘Economic Benefits and Options for Financing Higher Education in Sri Lanka’ that, in addition to hampering the country’s ability to develop modern education assets and infrastructure and curtailing the ability to upgrade technology, this would reflect negatively on quality of teaching and learning and on research. Low academic salaries not only expedites brain drain, but prevents universities from attracting young researchers with postgraduate level academic qualifications.
But there are other ways to ensure autonomy of at least the higher education sector, if not the whole education system, while reducing the burden on the government. One solution is to share the burden of cost between the government and students. For example, 30 percent of recurrent expenditure of the Open University of Sri Lanka is raised through tuition fees.
Another solution, as discussed in the last issue, is to establish private medical universities, ensuring priority for state university graduates when receiving appointment in state-run hospitals. State universities could be marketed to foreign students who are very likely to spend much more elsewhere in Asia. Provided that local students are still ensured their right to a free education, state-run universities could open their gates to paying local students who have the minimum entry requirement or those who obtain insufficient marks for entry, and international students. This would not only arrest the exodus of foreign exchange but also allow state universities to run autonomously on their profits, or the income could be used to strengthen scholarship schemes such as Mahapola for the benefit of those who exercise their right to free education.
Another interesting alternative pointed out by Aturupane is the system of deferred tuition fees, practised in countries such as Australia, New Zealand, England, Scotland and Wales, where students pay off their student loans, offered by the government, after the graduates are gainfully employed. Another practical method of funding would be is to offer student loans to those who qualify for university upfront, irrespective of the institution they would eventually chose to enter. But such loan schemes entail many practical difficulties when ensuring repayment, especially if the students decide to migrate.
There is a certain downside to levying fees. Aside from it being a highly politicised and controversial decision, such a policy decision could make education less accessible to economically disadvantaged students.
Government research grants made available irrespective of public or private nature of the educational institutions would go a long way to establishing a research culture in Sri Lanka through facilitating competitive research.
Although some of these initiatives would require a complete overhaul of the education system it would be beneficial in the long run as it would help produce graduates in the many disciplines required for Sri Lanka to become a regional economic hub and help substitute unskilled labour, such as house maids, that Sri Lanka provides to the global labour market, with trained labour.
(This is the second and last part of Education economics and eighth instalment in a series of articles which will discuss education related issues)