By Dr. Noel de Guzman
During the Christmas season of 2016, students of state universities and colleges (SUCs) in the Philippines got a rather surprising gift from the government. It was announced that
starting the school year 2017, students in SUCs do not have to pay tuition. As it turns out, the government has enough money in the national budget to make this possible. This is undoubtedly good news for the parents of these students. However, let’s “unwrap” this present, and see exactly what is involved.
The rationale for public funding of education across all levels, not just tertiary, is the anticipated positive externality it generates. An educated citizen not only does well individually, but also contributes increased well-being for others. For example, educated citizens are presumably more cooperative members of society. They can also become more entrepreneurial and can generate jobs in the future. Not surprisingly, there is a large literature on the growth-enhancing effect of education. This is why, in an ideal setting, free public education should be made available to as many people as possible, regardless of ability.
The Philippines, for the most part, is on the right track when it comes to education reform. Earlier initiatives, like the K to 12 and the Conditional Cash- Transfer Program, are components of an overall push to improve the quality and quantity of education in the country. The granting of free tuition at SUCs is simply another intervention that, like the others, has efficiency and equity dimensions that must be carefully considered.
Let us examine the equity issue. The economist John Roemer discusses two principles that pertain to the “equality of opportunity”. The first principle, he terms as “leveling the playing field”. According to Roemer, this involves making sure that policies that neutralize advantages or favorable circumstances are in place during the formation stage, such as when a person is still in school. The second principle is what he calls “non-discrimination”, wherein once a person competes for positions, only relevant attributes matter, such as whether a candidate is the best person for a certain job. The tricky part is where the first principle ends, and where the second principle starts—or what he terms as “the starting gate”.
The initiative to make tuition free in our SUCs is an example of the first principle. If the students in these institutions are, indeed, disadvantaged, through no fault of their own, then the recent reform is a form of compensating mechanism for equal opportunity. However, the equity question is more complicated than this. In his proposal, Roemer proposes that equality be promoted across types of individuals, but not necessarily between individuals belonging to the same type. The reason for this novel suggestion is that within each type there is a distribution of effort, and these distributions may vary across types. In fact, in this proposal, equal compensation should be given to persons, not because they belong to the same type, but because they occupy the same centile in their respective distributions. The centile a person occupies serves as a measure of effort. In the present case, enrollment in a state college or university is de facto considered to be a certain type and, as far as public funding is concerned, there is equal treatment of all members of this particular type. A more sophisticated way to implement an equal opportunity policy at the tertiary level is to pay closer attention to the distribution of effort among the students within each school.
Public policy-makers who introduce new interventions must also pay close attention to efficiency. First, from a social standpoint, it is inefficient to provide the transfer to those who will avail themselves of the good anyway even without the transfer. This suggests that it may be socially wasteful to apply the free-tuition policy to “magnet” schools. Second, since the transfer applies only to those attending SUCs, there is an extra conditionality that creates a price effect in addition to the income effect. This price distortion can affect choice behavior, especially if people care about “transactions utility”. For example, an individual keen on pursuing a certain field in another institution can revise his plan in response to the price differential just to get more transactions utility. One potential problem is irreversibility. If, for some reason, the transfer turns out to be transitory, the individual has been locked in due to the presence of switching costs. This suggests that there must be a commitment on the part of the government to continue providing the transfer.
There are still many other issues regarding the equity and efficiency implications of this policy. Right now, we can say that it is a welcome development for the many students who stand to benefit from it.
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Dr. de Guzman is the assistant professor in Economics Department.