University Education - Whither More Subsidies

Economic reasons for subsidies

In many countries, including Singapore, public and private university education institutions exist side by side. However unlike in private universities, students in public universities pay fees that are heavily subsidized. This means that their course fees tend to be only a small fraction of the actual cost of running these programmes. Why are governments willing to subsidize fees in public universities?

The main reason behind this is that university education is deemed as a good where total social benefits from it are larger than the total private benefit. Social benefits include the private benefits enjoyed directly by the individual, such as the higher lifetime earnings from higher education. However, it also includes external benefits, that is, benefits that society derives from higher education over and above those enjoyed by the individuals. These include having more well-informed vote-casting citizens, a larger pool of capable businessmen and workers who can expand the economic pie and political leaders who can understand the local conditions and lead the economy in a fast changing world.

Given that an individual would not consider the external benefits but only his or her own private gains, there tend to be a situation where enrolments in university education is less than desired. Thus government subsidies come in handy in getting more people to enroll in such institutions to reap the full social benefits that such education brings. Of course, the ideal solution is a targeted subsidy that directs funds only at people for whom the subsidy makes a decisive difference. The difficulty lies in our imperfect ability to distinguish those for whom the subsidy is decisive and those who would opt to go for university education anyway. Due to this, subsidies tend to be across the board for public universities.

Competing uses of government funds

However, over time, as competition gets stronger with globalisation, people do recognize that university education is getting more important and their returns getting higher. In the case of Singapore, more students also qualify for university. If subsidies remain status quo, with the expansion of university places, the government will be forced to squeeze resources elsewhere from the economy to continue the heavy financing of university education. This may not be the best thing to do and I do agree that the Singapore government should control its expenditure on university education.

Government involvement in other aspects

The reasons for my stand is simple: The government needs to spend more on primary and secondary education to help the majority attain a standard of education which will allow them to find suitable jobs in this very competitive world. If we are successful in doing so, it will substantially reduce the burden on taxpayers having to assist the low-income earners in the future. In addition, there are also substantial medical and other social needs to be provided, especially for the poor, as well as the economic expenditure needed to ensure a sustained growth for the country. Our public funds may not be deep enough to spend lavishly on every item unless we keep adjusting our GST upwards.

Do not be mistaken; I am not advocating that the government should wash their hands off in making additional contribution to university education. Conversely, as mentioned above, there are great social benefits from university education and the government should be involved in ensuring high-quality, updated and relevant programmes for study. This is especially so as Singapore moves into a knowledge-based economy and many of our niche areas require highly-skilled personnel.

Conclusion

When limited government funds have many competing uses, there is really a need to prioritize. For those who are richly endowed with high intellectual capacities and moved on to the universities, perhaps they should pay a little more on their road to success. For those needy, there is always the availability of scholarship, bursary and interest free loans to assist them……..Don’t you think so?

Related Article: http://www.moe.gov.sg/parliamentary_replies/2005/pq28022005.htm

Posted by: Mrs Chua Siew Hong