The consequences of growth

By Emran Mian –

The Office for National Statistics (ONS) in the UK estimated the value of the country’s human capital in 2010. What they were trying to capture in the calculation is “the knowledge, skills, competencies and attributes embodied in individuals that facilitate the creation of personal, social and economic well-being”. Since then, they have consulted on the methodology and recognise that the estimate can be improved. The size of the estimate is startling: £17.12tn, or two and a half times the value of the country’s physical assets. Incidentally the revisions to the methodology will probably mean that the estimate increases.

Another more significant driver of future increases can be more investment. Certainly when it comes to higher education, that additional investment is coming. At the Autumn Statement in 2013, the Chancellor George Osborne announced that there will be 30,000 additional places in higher education this year; and the number of places in the following year will be uncapped. While subsequent funding announcements have meant a small reduction (£125m) in the resources available to higher education, the new policy on student places means for the first time that there is the opportunity for the supply of higher education to grow constrained only by demand.

What is likely to happen is not only that the number of places in total will increase – early application figures for 2014 entry suggest record or near-record applications numbers – but that there will be strong increases larger than the overall trend in particular institutions. This is bound to attract comment within the sector and more broadly.

Some of this will be motivated by snobbery, an attitude already evident in recent months with the increase in the role of new and so-called private providers. I write so-called because even ‘traditional’ universities are classified to the private rather than public sector in the UK, so the use of the word ‘private’ to describe new providers tends to be pejorative rather than purely descriptive. In any case, if many of the institutions showing strong growth in future years are non-traditional, either entirely new to the UK market or established in the last ten or twenty years, there will be concern expressed that they are providing low-quality education, a lower return in human capital for the investment being made than higher quality providers would provide. That criticism will be given added force by reference to the fees being paid by students: are they being taken for a ride?

Looking beyond the snobbery, there are some data issues here as well as a risk of moral hazard. When it comes to established institutions and courses, there is now long-run data on the employment and earnings outcomes of graduates. There is also a looser, more informal web of recommendations and warnings provided by teachers and alumni. Sometimes the information is incomplete, out of date or shaded by nostalgia, but when it comes to newer providers, there is much less information; and what there is has for the most part been generated by the providers themselves. There will be providers who take very deliberate steps to deliver high quality courses; and there will be some that don’t. The moral hazard arises because at least in the early stages of the unconstrained market for students, the lower quality providers may be able to grow just as strongly as the premium ones.

The main bulwark against unproductive growth will be students themselves. They can by their choices determine who succeeds and who has to adapt or die out. Even over the last two years, while some student number controls have remained in place, student choice has already shaped a very wide range of performance across the sector with some universities (e.g. Aston, UCL and Exeter) growing by more than 30% over two years and others declining by a similar margin. While it’s unfair to suggest just on two years’ evidence that the universities that are shrinking are doing so because they provide poorer quality education, at the very least it’s striking that the universities showing strong growth are often also associated with high quality.

But while students may be making good choices about which institutions to apply to, they may also be favouring courses that are perceived as being easier rather than those that make the greatest contribution to their own intellectual development or provide the skills needed by the economy. Hence a market shaped by student choice may still fail to deliver substantial improvements in human capital.

In this regard, again the data provides a positive outlook. Looking at the 2013/14 academic year, courses in the biological, physical and computer sciences, as well as engineering, all saw above-trend growth in applications. Courses such as hospitality and leisure are often criticised by those advocating a more traditional model of higher education. Although these criticisms are overblown perhaps they are having some effect with demand for the courses in this category down, and the number of applicants for the category taken as a whole (also including sports, tourism and transport) smaller than that for mechanical engineering alone.

What is more worrying is that application numbers for languages courses are down as well. Many of these courses will have strong returns in human capital, there is always room for people with knowledge of languages other than English in any globalised economy. But these courses also seem to typically fall within the category of higher education which promotes the individual’s cultural and social development, rather than solely their earning potential.

This is one of the limitations of the human capital way of thinking about higher education, but it isn’t clear that the human capital view dominates students’ choices. While application numbers for language courses are falling, those for anthropology (up 15.7 per cent in one year), geography (up 10.2 per cent) and comparative literature (up 14 per cent) are not.

If those courses are growing at the same time as sciences and engineering courses, then the simple dismissive story (that always seems to get some airplay) about student choice creating a race to the bottom on quality – doesn’t work. We might be enabling student choice, creating a broad, diverse culture of higher education, and driving up the value of human capital – all at the same time. I happen to believe that this is true, and that the evidence entitles us to be optimistic about the future of higher education in the UK, but that optimism about the system as a whole has to co-exist with a pessimism about the prospects of some institutions. As the cap comes off next year student choice alone will determine which institutions grow and which contract, rather than the Higher Education Funding Council for England (HEFCE) keeping the system in equilibrium. This will force hard choices in some institutions and ultimately a harder choice for government itself: when the first university reaches the brink of failure, will it be better to intervene or not? One intervention will create the conditions for many more. Refusing to intervene will take political courage.

Emran Mian was the head of the civil service team supporting the Independent Review of Higher Education Funding and Student Finance in 2009/10 and is now the Director of the Social Market Foundation.

The Social Market Foundation is an independent, non-partisan think tank based in London.

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