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Abu Dhabi, UAEThursday 20 September 2018

Economics 101: should the Arabian Gulf countries charge citizens for higher education?

Bringing in tuition fees in the UK has both improved performance in the education sector and increased participation among society’s poorest

University students take part in a panel discussion in Abu Dhabi. Christopher Pike / The National
University students take part in a panel discussion in Abu Dhabi. Christopher Pike / The National

Prior to the 20th century, higher education was reserved for eccentrics drawn from a wealthy elite.

By the 1980s, as rigorous research demonstrated the link between education and labour market earnings, people began viewing university education as a fundamental human right. Concerns about inequity generated a desire to make education free for all students: people were concerned about the possibility of the poorest members of society being priced out of a productive career.

This mentality took firm root in the Arabian Gulf countries, too, with citizens in countries such as Saudi Arabia and the UAE being guaranteed free education in public universities. The recently announced economic visions reflect Gulf policymakers’ continuing belief that high college participation rates across all socio-economic strata are central to a prosperous and equitable society.

Falling oil prices - a partial catalyst behind the economic visions - has forced Gulf governments to cut back on some of the benefits that citizens reap, such as subsidies on basic commodities and guaranteed public sector jobs. However, thus far there has been little appetite for the imposition of tuition fees upon university students.

A recent research paper by Richard Murphy of the University of Texas, Austin, Gillian Wyness, of University College London and Judith Scott-Clayton at Columbia University studied the effect of the UK government’s 1998 decision to switch from free higher education to a system of means-tested tuition fees.

Surprisingly, they have found that the prevailing state, which leaves students with an average debt of US$55,000 at the end of their bachelor’s degree, has both improved performance in the education sector and increased participation among society’s poorest. These seemingly paradoxical results should be of great interest to Gulf policymakers who are looking for budgetary savings. What explains them and do they apply to the Gulf?

The key to the UK’s positive experience with tuition fees has been the careful attention paid to people with limited financial means. Setting tuition fees to zero creates two, related problems.

First, education is like electricity, petrol and other subsidised commodities in the Gulf: it is systematically consumed more by rich people, meaning that setting its price to zero and financing it from the government budget constitutes a redistribution of income from the poor to the rich.

Second, as population increases, if the tax base doesn’t increase at the same rate (which applies to the Gulf), then spending per student will decline, damaging educational quality. In some Gulf countries, for example, this dynamic has become evident in very high teaching loads for professors which impedes their ability to perform research. This is particularly concerning if the goal of the higher education system is to furnish the country with the human capital necessary for a knowledge economy.

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After introducing tuition fees, the UK government took steps to ensure that the system was genuinely redistributive: all tuition fees were deferred until graduation; students were given increased liquidity to deal with living expenses; and students were automatically enrolled in an income-contingent loan repayment system, meaning that higher earners pay more than lower earners, and those earning below a minimum threshold pay nothing.

In addition to being a more effective way of ensuring that the rich help the poor, the system also ensured that the UK’s public universities were able to spend much higher amounts per student. In the years prior to 1998, per student expenditure was experiencing a long-term decline, leaving some of the world’s oldest universities in dire need of investment. While they are not out of the financial woods yet, they are at least capable of delivering high-quality education to their students, an impossibility under the prior trajectory.

Why not just fund them with higher taxes? Because education is expensive and there is only so much taxation that you can levy upon the economy. Moreover, high levels of taxation become expensive to administer, as the incentive to engage in evasion increases. In contrast, the UK’s system of tuition fees has comparatively modest running costs.

Should the Gulf states, therefore, consider importing a variant of the UK’s system? In the context of basic commodities, the governments here have already been convinced of the merits of charging people the full price for what they consume, as subsidies have been significantly cut. However, many claim that education is different because it confers society-level benefits in addition to those that the individual reaps and that it should, therefore, remain free.

Yet a closer look at the Gulf economies suggests that cheap education suffers from the same disadvantages as cheap petrol or electricity: frivolous over-consumption. Private sector employers regularly complain that young people have amassed educational qualifications which do not match the labour market’s needs, due in part to the lack of serious career planning that low prices engender. The UK’s unemployment rate averaged around 8 per cent from 1980-1998, while today it is down to 4.5 per cent, suggesting that the benefits of tuition fees may extend beyond the fiscal and educational ones to the labour market itself.

Omar Al-Ubaydli is the programme director for International and Geo-Political studies at Derasat, Bahrain. We welcome economics questions from our readers via email (omar@omar.ec) or tweet (@omareconomics).

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