The Cassells report on third-level financing fails to paint the whole picture

The publication of the long-delayed and much leaked Cassells Report on third-level financing is both welcome and depressing.

It is welcome in that finally there is a clear and unambiguous analysis of the financial mess in which the sector finds itself. 

It is depressing in that it took nanoseconds for the old habits of Irish policymaking, ideological biases and selective analyses, to emerge. It is also somewhat depressing that the underlying economic analysis of the sector is incomplete.

Despite what a casual glance at the newspapers might suggest, the report did not come down in favour of a loans scheme. It is a masterpiece of objectivity in that regard, laying out the pros and cons of the various schemes — fully funded free at use, a loans scheme or a continued mix as we have now but with increased state contribution. 

The report is very clear that increased spending is required if the Irish third-level system is to have any hope of regaining lost ground, never mind improving. All that is for debate if that is accepted, and let us not kid ourselves that that proposition is universally accepted, is who will pay. 

There remains in public discourse an anti-intellectual chorus that deems state investment in third level a prima facia waste of money.

Leaving aside the shrill voices of those already up the ladder who seek to not so much pull it up behind them as to burn it to the ground, we can critique the report in one fundamental way. 

It commences from an unconscious assumption that third- level education is a homogenous good. It is nothing of the sort. The third-level system is one which produces a number of different goods at the same time and from the same base set of inputs. 

Modern macroeconomics has been harshly criticised for its reliance on overly homogenous agglomerations of sectors. 

It is perhaps ironic that Stephen Kinsella, the chairman of the Higher Education Authority, is one of the people who is making the greatest strides in building up macroeconomic models from sensible microeconomic foundations where individual agents act in a recognisably real world fashion. 

A deeper look at the foundations of third level might allow us to create sensible macro financing decisions.

Economists are good at goods. Typically, they classify goods on two continua — the extent to which they are rivalrous and the extent to which they are excludable. Rivalry means whether my consumption of the good prevents you from consuming it, and excludable means the extent to which possession or enjoyment of the good is tied to having paid for it. 

Thus, most private goods are RE — rivalrous and excludable. If I buy an apple you cannot , and if I eat it you cannot. At the other end of the scale are pure public goods, such as radio broadcasts or human knowledge. 

My knowing the works of Kant does not prevent you from so knowing. Finally, we have club goods. 

These might include satellite TV — my viewing of a Netflix programme is not at your expense but does depend on my having a subscription.

There are well-accepted pricing implications for these goods. Private goods are usually best delivered by a private market, public goods by the State as there are enormous incentives to free ride and over-consume. Club goods can be provided by monopoly suppliers to the point where rivalry impinges, and common goods require potentially complex regulatory intervention.

Third level produces at least the following goods. It produces education, increases in the stock of human intellectual prowess and ability, a better-educated populace. 

This is a pure public good. It produces certification, a statement that X knows Y or has the ability to do Z. This is perhaps a club good, as it is non-rivalrous but is excludable — if you didn’t go to college and pass exams you cannot avail of the certification. It produces integration or networking, whereby individuals can form long lasting bonds for future professional advancement. 

It produces initiation, whereby a person is confirmed and initiated as being in a group from which will be drawn those that will earn more.

All of these require different approaches to pricing and to funding, therefore. However, with the exception of the initiation element, there is no underlying economic reason to have this done by private individual pricing, in fact the opposite. 

In the case of the private good element private payment is already done, graduates earning significantly more across the spectrum than non-graduates and thus paying more tax. The underlying economic logic of what third-level produces is, in fact, more towards increased public provision via the free-to-use or upping existing state provision approaches. 

There is no logic, other than ideological, to a student loans system.


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