Rethinking the Welfare State: The prospects for ... - e-Library

Rethinking the selfare state 176
Designing a new system
In light of the various concerns raised by the existing systems of university education, we
argue for a substantial re-orientation of the state’s role in supporting public university
education. Instead of conferring targeted subsidies to only a handful of public universities
that are required to adhere to a number of different regulations in exchange for this
support, we propose a more competitive and dynamic university system predicated on the
provision of a demand-side voucher calibrated to tuition and reasonable living expenses
that would be repayable upon graduation on the basis of earned income (a proposal
originally advanced by Milton Friedman 40 ). These income-contingent loans should be
made available to all students, regardless of parental income or other personal factors.
Further, the reliance on income-contingent vouchers would not be inconsistent with the
conferral of grant-based scholarships on some students based on merit, disadvantage or
other predetermined criteria. With financial assistance being made available universally,
tuition fees should be deregulated, allowing universities to determine their own tuition
levels. This will allow some universities to offer high-quality programs because they will
have the resources necessary to invest in infrastructure, materials and high-salaried
professors. It will allow others to gain a competitive advantage by offering programs at a
low cost. In such a market, it is necessary that there is relatively unrestricted entry and
exit of educational institutions.
The competitive benefits of this system are clear. 41 By relying on the demandside
voucher, consumers of university education will benefit from increased supplier
efficiency, enhanced quality of services, and a greater incidence of innovation in the postsecondary
education sector. Dohmen comments that “one effect that vouchers might have
is to link supply and demand more closely, with demand being based on the interests and
needs of the students.” 42 When students have true choice among suppliers and supplier
income is contingent upon the enrollment decisions of students, it is logical to assume
that institutions will be more receptive to student preferences. Those institutions that fail
to cater to the interests of the student population will not attract a sufficient number of
students to operate. Jongbloed and Koelman state that “Vouchers would enforce the
discipline of the market on the providers of education, just as it does on the producers of
automatic coffee makers. The introduction of market forces leads to competition and
competition will strengthen efficiency, because only the most cost-effective providers
will be able to survive.” 43 The idea that supply-side financing leads to inefficiency in
post-secondary institutions dates back to Adam Smith, who observed that “beyond some
point, the higher the level of endowment (subsidy) to any university, the lower its
efficiency.” 44
Demand-side financing also increases freedom of choice. 45 Prospective students are
often denied the ability to make a free choice, because of cost constraints and a limited
number of options being made available. By introducing an income-contingent loan
program (ICLP), the barriers associated with cost constraints will be significantly
diminished. A loan program is an essential consequence of tuition fee deregulation. As
Laidler points out, “government must ensure that lack of access to funds for education
does not shut any otherwise qualified and willing participant out of the university