Wednesday, March 28, 2012

The Law and Economics of Higher Education Institutions Financing

I've just read the latest draft of Law on Higher Education, especially the parts related to financing activities and I think the provisions are just fine. Contrary to the majority opinion, I do not believe that the costs of higher education should be cheap. High quality education is actually very expensive, you have to spend a considerable amount of money to maintain the best talents (those who teach younger generations should be the best of the best not the worst of the worst) and to run the organization in compliance with the highest standard of quality. Asking the government to ensure that the cost of higher education will always be cheap would be a naive attempt if not totally ridiculous.

We should realize that government's budget is limited and it would be almost impossible to finance all higher education institutions in Indonesia in a country where we are still fighting for maintaining fuel subsidy. How could you expect the government to pay for the costs of education if you can't really sure on whether the fuel subsidy can be reduced or not?

And we've seen the result of this forcibly cheap education. I assume that the chance of getting admitted into the University of Indonesia might be significantly smaller than the chance of getting admitted into top universities in the United States, yet the outcomes produced by our University of Indonesia are still inferior compared to its counterparts in the United States. How could that happen? If we believe that the entry test has selected the best of the best of Indonesian high school students, how could the output is inferior in so many levels? The answer is simple, how could you expect the institutions to give their best if their budget is too constrained?

Let us talk about talent first. Most of the time, I see that the majority's logic on being an University lecturer is all about dedication to the society. Such logic is totally wrong. Dedication is good, but you need to ensure that the lecturer can also have a good and sustainable life so that they can focus on teaching and researching. The fact is, most of them receive such a small amount of salary that it is actually an insult to their dedication and hard work. Since they don't have enough salary, economic logic dictates that they will try to find additional income, meaning less focus on their primary job. Of course this is bad not only for the lecturer but also the students who should receive their full attention.

Even worse, since the payment cannot attract many candidates, the lecturers will also be overworked. Even if they don't have any additional job, they won't have enough resources to give their best for their own primary job. What a disaster! How could we maintain the logic of cheap education at the expense of the quality of our higher education institutions? The lecturers deserve a better treatment than this. The same analysis is also applicable for the quality of Universities facilities. If you don't have enough money, you can't build state of the art facilities for improving the level of education quality. You pay with peanuts, you get monkeys. As simple as that.

Now if we understand that the state budget is constrained and that further funding is necessary, what should be done? First of all, we need to increase the tuition fee. That's the least thing to do, but it does not mean that it would be the end of our poor friends. What I have in mind is cross subsidy mechanism, meaning that the rich ones should pay more and therefore they can subsidize the poor. This means that the government should permit universities to freely charge the price of their education service, and let the law of supply and demand governs the rest. What is more important to achieve is that the universities must ensure that even the poor ones can still study based on the cross subsidy mechanics.

In the United States, as far as I can see, poor students can still pursue their education at top universities as there are many ways to finance their studies, including scholarship from various institutions and education loan provided by the Government and the universities. We need to be more creative! We understand that education is very important for the development of our nation and we want to ensure that everyone should have access to better education. The solution is not by forcing the costs of education to be cheap, the solution is to find alternative ways of financing for the universities and the students.

I salute University of Indonesia's idea to bring in some expensive restaurants and cafes. If this businesses can target students from middle and high class families to spend their money there, hopefully it will also generate more income to the University. The main question is whether the additional funds are used for improving the University or not. If yes, why not?

Another idea would be to establish chairs of professorship in our universities. I've seen this trick practiced in top universities in the US and I am quite sure some of our most prestigious universities should also be able to do the same. These chairs will provide a good marketing for major businesses and industries while providing additional endowment funds to the university. Again, more money for the universities should be good provided that the universities spend them wisely.

I guess this is the right time to stop asking for false hope. Unless the government can produce money from the sky without causing crazy inflation, the idea of requiring the government to finance the entire higher education would be unpractical and unreasonable. Instead, we should try to find more money from the people. There are a lot of rich people in Indonesia, why not utilizing them by giving them the correct incentives to contribute more? Why not let the universities to be more flexible in finding ways to gather funds for financing their business?

In my view, the government should mainly act as a supervisor in ensuring that universities will not discriminate students based on their financial condition and that they will manage the money for the best interest of lecturers and students. I believe that would be far cheaper than paying for the entire education system. I really care about Indonesian education system and I believe that the best way to improve it is to find a better way of financing. There are a lot of things that we need to catch up. We can't waste our time debating on ideas that are not in line with the reality. Accept the truth and move on!

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