21 March 2010
Written by Dr Eamonn Butler
It is very hard to play the game of life – or of capitalism – when governments keep changing the rules. Which they do every time they fear that one of the players might actually be losing. It does not matter if the players’ loss is down to their own folly; the politicians still rush to turn them into winners. They do not want voters harbouring grudges. But in making sure that everyone wins prizes, they sap the very incentives that drive our social and economic progress.
The point came home to me after I had invested my worldly wealth in Icesave, mesmerised by its 7 per cent interest rates (remember those?). I knew this rate was probably too good to be true and that I was taking a risk. Not a total risk, because Icesave was registered in the UK, so the first £35,000 was guaranteed by the government’s Financial Services Compensation Scheme.
In the event, when Icesave failed, taking my money with it, Alistair Darling, chancellor of the exchequer, generously sent me a cheque, not just for £35,000 but for every penny I had so foolishly invested. More amazingly, he even threw in the interest.
I wondered why cleaners in Cleethorpes, or road workers in Reyk javik, should pay higher taxes to spare me from the results of my own greed and stupidity. Iceland’s citizens, in street protests and an overwhelming referendum, insisted that they should not do so. But generosity comes easily to politicians, who of course can be generous with other people’s money, even though it shoots a hole not just in incentives but in the public accounts too.
The same happens at the European Union level. Why should the Greeks bother to remedy their notorious corruption and fiscal alcoholism, when it is obvious that the taxpayers of other countries – including Britain – will ultimately be forced to bail them out? What sort of example does that set to other spendthrifts?
Parents know that you need to set clear rules and stick by them. Kids may scream, but they will accept the consequences of their actions if the rules were clear at the outset. Indulge their tantrums and it is mayhem. Yet our leaders imagine that they can fudge the basic principles of capitalism, indulge (on taxpayers’ money) whoever screams about the results, and still maintain a thriving, functioning economy. They are mistaken.
The rules need to be sensible, too. The banks did not fail because there was too little regulation but because there was too much, most of it inept. The regulations did not stop banks from expanding so fast they created megabanks that smothered the last breath out of competition – the best regulator. While the Financial Services Authority busied itself writing “customer care” guidelines, it seemed unaware that these monster monopolies were cheerfully gambling away those same customers’ savings on various arcane financial wheezes.
The regulators should have been making sure that the banks did what it said on the tin – telling savers how safely or how riskily their cash was being invested. But when customers are told that they are safe and warm in the feather duvet of regulation, they do not bother to check the bona fides of their banks. They just snap up those 7 per cent interest rates.
Politicians and regulators have created a looking-glass world in which they suspend reality and gull us into doing stupid things, and then compensate us when we do. Years of easy credit prompted the banks to take wild risks, but they were bailed out when it all went wrong. When inflation was rising, Gordon Brown, Mr Darling’s predecessor, simply changed the measure, making the Bank of England ignore the property boom under its nose. The boom created buy-to-let millionaires but, when it exploded, the Bank simply pushed mortgage rates down to near zero, bailing them out too.
The losers, naturally, are those who have saved and invested prudently and now are picking up the tab for everyone else. Instead of letting the pain fall on those who took the biggest risks (as in the case of Lehman Brothers), politicians and regulators have slowly painted themselves into a corner. The cost is: unemployment, a falling pound, a yellow card from the EU and public debt of £23,000 per man, woman, child and infant.
In the coming election in Britain we do not need simply a different bunch of politicians. The UK – and the western world – needs an alternative politics. We need leaders big enough to admit that they cannot airbrush out our mistakes, and that attempting to do so simply destroys the mechanics that make capitalism work. But if someone does not address the fiscal alcoholism that is affecting our judgments, we will all end up in the economic gutter, while the risk-takers of China and the Middle East pass us by.
Published in the FT here.Read more...
Written by Sarah Ebner
Lord Patten's comments follow on from a new report, out just a few weeks ago, by James Stanfield, a fellow of the Adam Smith Institute and of Newcastle University's E.G. West Centre, which is privately funded.
Dr Stanfield also called for the cap on fees to be abolished, and claimed that they completely distort the system.
The cap, he said, "artificially increases" the demand for university places, and even makes students value their education less, because they're not paying the full price for it. As you can probably tell, it's a very market-driven analysis.
"What politicians don’t realise is that tuition fees ought to send important signals about the relative value of different university courses, and help to co-ordinate the interests of students, universities, and future employers," he wrote. "By dictating what fees may be charged, the government is severely retarding the natural development of higher education."
Dr Stanfield goes further than Lord Patten, calling for all direct public subsidies of higher education to be scrapped. He says that the government's current subsidy simply "taxes the poor to help the rich get richer" as well as "crowding" out philanthropic involvement. Instead he calls for funding to be channelled though a new and expanded student loan programme. The new loans, he said, should be targeted at those most in need financially. - the wealthier should only be able to have a set percentage of their fees as a loan.
Although Dr Stanfield's plans are more extreme than Lord Patten's, both have a similar argument at their core - that it's wrong for all degrees to cost the same, whatever their quality, whatever the subject, wherever they are taken, and however much they help students to get a job afterwards.
Published in The Times here.Read more...
Written by Sean Coughlan
There have been calls for the scrapping of any kind of limit and the creation of a completely free market in fees. A report for the Adam Smith Institute says that setting an upper limit for fees creates an artificial demand for places.
Published on the BBC here.Read more...
Written by Lyn Gardner
Plans by the rightwing thinktank to replace arts funding with a voucher system could kill innovative theatre stone dead
Imagine a world in which there was no government subsidy for theatre-makers. It would be a place where art responded entirely to the demands of the market. Such a theatre would probably look much like the West End. Hang on a minute: it wouldn't, because from Les Miserables to The Caretaker, from Jerusalem to Enron, several West End shows emerged out of subsidised theatre. So, in fact, what this theatre landscape would look like is endless productions of Oliver! or Dreamboats and Petticoats. Except it couldn't be that either, because although those shows might be entirely commercial propositions, those who created them – the writers, directors, designers and actors – learned their trade in subsidised theatre and then transferred their skills to the commercial marketplace.
All three political parties are currently courting the arts while being careful to make no promises about what will happen to funding after the election. The Tories' Jeremy Hunt is working hard to wipe the memory of the 1980s when the then Conservative government made clear its dislike and distrust of the arts, and theatre in particular. Remember Norman Tebbit and Theatre Centre? Hunt recently laid out a vision for the arts that included increased donations from philanthropists and the building of endowments, while making it quite clear that "philanthropic giving should not be a replacement for state support".
But will such thinking continue to hold sway after the election if the Tories win and implement savage cuts in public spending? It shouldn't, according to the rightwing thinktank the Adam Smith Institute, which, in a report published on Monday entitled Arts Funding: a New Approach argued against all government subsidy of the arts and suggested that if it does continue, the Arts Council should be abolished to save its (currently falling) administration costs. Author David Rawcliffe proposes a new system of funding in which artists would no longer be subsidised, and subsidy should be distributed directly to consumers: everyone in the country would receive a yearly non-transferable voucher (at current funding levels, worth £11) that they could then spend on the event of their choice. Arts producers would exchange the voucher for cash. He argues that "the arts council system of government support for the arts is an outdated, centrally-controlled, bureaucratic nightmare that is expensive, unfair and ineffective. The objectives of arts subsidy would be fulfilled far more efficiently by a post-bureaucratic solution that empowered citizens, and compelled the arts establishment to meet their needs. A voucher system is exactly that."
Oh no it's not. There are good arguments for giving communities a say in how subsidy is distributed, and which artists and projects should receive it (the Arts Council has shown an interest in South American models), but Rawcliffe's suggestion that "the definition of good art would be that which people wanted to see, or that which private patrons wanted to fund" turns art into a kind of popularity contest. Such an approach to funding would kill our thriving and innovative theatre culture stone dead – the same theatre culture that gives such a good return on the investment it attracts.
In a world where government subsidy is abolished, our cities and towns would be full of crumbling, empty theatre buildings. People would lose their jobs and the local economy would suffer. The brilliant Drum in Plymouth and the Mercury in Colchester would be unable to make theatre for and about their local communities. Rural touring circuits would break down and companies such as Complicite and Kneehigh would disappear over night. Maybe the Royal Shakespeare Company and National Theatre would survive in some form if they could attract enough philanthropic support, although of course their education work in schools would have to go. And ticket prices would probably have to rise substantially – a seat for the new Simon Stephens play might cost £100. Only there would be no new Stephens play, if the donors didn't like the sound of it.
Arts Funding: a New Approach may, of course, never be adopted as Conservative party policy, but its very existence at this delicate pre-election time is a sharp reminder of Tory antipathy towards funding for the arts and their deep suspicion of artists.
Published on guardian.co.uk here.Read more...
16 March 2010
Published on CNBC here.Read more...
Written by James Stanfield
The academy should be brave enough to seek donations directly from individuals, rather than relying on the fruits of state coercion, says James Stanfield
While much of the current debate on higher education has focused on what is seen, namely the immediate benefits of government spending and national planning, it has tended to neglect what is not seen - the hidden costs and unintended consequences of these interventions.
First, there is no evidence to suggest that there is any economic benefit to the nation as a whole from the Government transferring £14.3 billion each year from taxpayers' wallets to students and universities.
Second, neither is there any evidence to suggest that the public benefits associated with spending £14.3 billion on higher education will be higher or somehow better than the public benefits associated with taxpayers spending £14.3 billion themselves.
Third, while many are convinced that the annual subsidy is helping to create a more equal and just society, it is impossible to escape the fact that part of this subsidy represents a transfer of income from those on lower incomes to those who will soon be on higher incomes.
Furthermore, it is clear that government subsidies and the manner in which they have been distributed have resulted in a significant number of hidden costs and unintended consequences that were not part of the Government's or universities' original intention. These include: undermining the autonomy and independence of private institutions; crowding out philanthropic donations; the disruption and distortion of the pricing system; confusing academic, professional and vocational education; the rationing of university places; restricting private investment from home and abroad; crowding out for-profit institutions and entrepreneurial talent; restricting competition and innovation throughout the sector; and qualification inflation.
One hidden cost that is clearly relevant concerns the widespread rationing of university places. As the whole point of transferring £14.3 billion from the taxpayer to students and universities in the first place was to encourage more higher education and not less, it would appear that this intervention is now having exactly the opposite effect.
In fact, when taking into account all the other hidden costs and unintended consequences of government subsidies and political interference, it becomes clear that they all involve (in one way or another) the distortion and the restriction of the natural growth and development of higher education, making it less efficient and less responsive to the needs of students and the business community. Therefore the £14.3 billion public subsidy to higher education is restricting and distorting the growth and development of one of the UK's most important service sectors. In short, the public subsidy is now doing much more harm than good.
While universities would celebrate if their public subsidy were doubled overnight, one wonders how they would react if told that instead of expecting the Government to confiscate money from the public on their behalf, they must now be prepared to appeal to the public directly. As universities have been happy to demand public subsidies from the rich and poor alike, then they should have no problem with appealing to these same people on the doorstep.
In principle, this method of raising funds is the same as the existing system in which universities use the Government to confiscate the funds from the taxpayer using the tax system. The key difference is that while one method is voluntary, the other depends on the use of force, and instead of the funds being transferred from the taxpayer to the Government and then to each university, they would now be transferred directly from the public to each university. This method of fundraising would at least appear to be much more democratic, as it would allow people to decide whether they wish to make a donation.
The ability of each university to collect sufficient funds from its local communities would now depend on its ability to convince local people, and especially all non-graduates, why and specifically how they will benefit each year from making an annual donation.
If universities are correct in their claims that they provide widespread and remarkable public benefits, then as long as they can provide the necessary evidence, those collecting the money on the doorstep can look forward to a warm and generous response. Three cheers for evidence-based policies.
Postscript : James Stanfield is a fellow at the E.G. West Centre, School of Education, Newcastle University. He is author of the Adam Smith Institute report The Broken University: What is Seen and What is Not Seen in the UK Higher Education Sector, published on 4 March.
Published in Times Higher Education here.Read more...
The cap on university tuition fees in England should be scrapped by the government, a think tank has said.
Universities should be able to charge what they like, according to the Adam Smith Institute.
Ministers are "retarding the natural development of higher education" with the current cap, said the free-market institute's James Stanfield.
Lecturers and students have attacked the proposals, saying they would have a negative impact on higher education.
The think tank does not think it is enough to raise the cap, which from next year will be £3,290 per year.
Capping fees artificially increases the demand for places and causes students to value their education less, its report called The Broken University suggests.
It results in less overall investment in higher education and encourages universities to be less responsive to student needs, it argues.
Mr Stanfield said: "There is a lot of talk about the importance of the universities in our new 'knowledge economy'.
"But how effectively can any market work when the government is distorting prices to such an extent?"
The report calls for an end to the taxpayer subsidising universities directly. Instead, it wants funding channelled to students through an expanded student loans programme.
The report also suggests loans should be targeted at students most in need, with loans to wealthier students limited to a set percentage of university fees.
Tom Clougherty, executive director of the Adam Smith Institute, told the BBC it was about recognising the independence of universities.
"Universities should be able to sell their services at what price they think appropriate," he said.
A spokesman for the lecturers' union, the University and College Union (UCU), said: "Hardly groundbreaking or surprising stuff from the brains behind the poll tax, rail privatisation and other policy disasters.
"It is rather disappointing that politicians have not come out and publicly distanced themselves from proposals that would destroy higher education."
The National Union of Students (NUS) also condemned the proposals.
Its President Wes Streeting said: "At a time where students are leaving university with record levels of debt, and graduate job prospects are at an all time low, it is offensive to argue that the cap on fees should be raised at all, let alone lifted entirely.
"The vast majority of the general public is against higher fees. If the cap on fees were scrapped, a disastrous market in higher education would open up, which would see poorer students priced out of more prestigious universities and other students and universities consigned to the 'bargain basement'.
"This would be a disaster for UK higher education and must not be allowed to happen."
Review under way
When variable tuition fees were introduced in England in 2006, the government said there would be no lifting of the cap until after a review of their impact had taken place.
The government-commissioned review into funding is not expected to be finished until after the general election.
Students have been campaigning against any increase in fees.
The Confederation of British Industry is among those who have said students should accept higher tuition fees as "inevitable" and pay more interest on their student loans.
Students in England and Northern Ireland and non-Welsh residents at universities in Wales have to pay tuition fees of as much as £3,225 a year.
Welsh residents studying in Wales pay fees of £1,285 while there are no tuition fees for Scottish students at institutions in Scotland.
Published on the BBC here.Read more...
Written by Melanie Newman
A claim that UK higher education cannot be considered a success while it receives a £14.3 billion annual public subsidy has been dismissed by senior sector figures.
The suggestion is made in a report published today by the Adam Smith Institute, a think-tank that promotes free-market policies.
The Broken University is written by James Stanfield, a fellow of Newcastle University's E.G. West Centre, which is privately funded.
The report claims that state funding brings no economic benefits to the sector, and identifies a series of negative consequences.
It states that as a result of the public subsidy, philanthropic donations are "crowded out", places are rationed, innovation is stifled and institutional autonomy is undermined.
It also attacks the Universities UK report The Impact of Universities on the UK Economy, published last November, which states that the sector earned £23.4 billion for the UK and employed more than 314,000 people in 2007-08.
Such claims are "meaningless", The Broken University says, as removing £14.3 billion of taxpayers' money, which would otherwise be spent by individuals, also has a substantial economic impact.
Steve Smith, president of UUK, responded that higher education provided an "outstanding return" on public investment.
"For every 61p of public investment received, universities also lever out 39p of private and international investment," he said.
"Compared with other sectors, this represents an excellent return. Universities now generate £59 billion a year for the UK economy, £15 billion more than in 2004."
He added that the sector achieved this despite receiving lower levels of public and private funding than competitor countries.
Mr Stanfield's report also criticises research council funding, highlighting costly projects that it considers to have been a waste of money. It adds that the lack of a profit motive in higher education has had a negative effect on the qualifications universities provide.
"Without government intervention, there would now be a variety of different, competing private qualifications providing a variety of educational experiences - many of which would have more purpose and relevance to an individual's future career than a degree," it says.
It recommends abolishing the cap on fees, allowing "full freedom of entry" into university, and extending tax benefits to for-profit institutions.
Terence Kealey, vice-chancellor of the University of Buckingham - the UK's only private university - said the report "demonstrates that Britain would be healthier if universities were privatised and the £14.3 billion subsidy was returned to the taxpayer".
But Paul Marshall, executive director of the 1994 Group of smaller research-intensive universities, said the sector already "drives positive social change that benefits individuals, the nation and the world".
A spokesman for the University and College Union dismissed the report as predictable fare from the Adam Smith Institute.
"It's hardly groundbreaking or surprising stuff from the brains behind the poll tax, rail privatisation and other policy disasters," he said.
"It is disappointing that politicians have not publicly distanced themselves from proposals that would destroy higher education."
Published in Times Higher Education here.Read more...
Written by Graeme Paton
The cap on university tuition fees should be abolished to improve the quality of higher education, according to a report.
Institutions should be free to set their own price, above the current £3,200-a-year limit, it is recommended.
The report, by the Adam Smith Institute, an independent think-tank, said the existing cap had “distorted” universities by restricting competition and artificially inflating the demand for courses.
At the moment, almost all degrees cost the same – irrespective of their perceived quality and students' chances of getting a good job.
James Stanfield, a fellow at the institute and author of the report, said: “Tuition fees ought to send out important signals about the relative value of different university courses, and help to co-ordinate the interests of students, universities and future employers.
“By dictating what fees may be charged, the Government is severely retarding the natural development of higher education.”
An independent panel, led by Lord Browne, the former head of BP, is currently reviewing the system of university fees, loans and grants.
The inquiry has already come under pressure to raise the cap – which will increase to £3,290 next year – amid claims that institutions are struggling to compete with wealthy universities in the United States.
A study last month by the think-tank Policy Exchange recommended increasing the charge to more than £5,000.
But the Adam Smith Institute said keeping fees artificially low meant degrees were devalued by students who are more inclined to “choose inappropriate courses or not work as hard”.
The study - The Broken University - called for a completely free market on fees. This would create a system similar to that in the United States where some elite institutions charge more than £20,000-a-year.
The study also called for all direct Government subsidy of universities to be phased out within 15 years – forcing institutions to be run by a combination of fees, philanthropic donations and corporate sponsorship.
In a further recommendation, the report said loans should be targeted at students most in need of support, with loans to wealthier students limited to a set percentage of their university fees.
Tom Clougherty, executive director of the Adam Smith Institute, said: “Ending the direct subsidy would empower students, because universities would be forced to treat them as paying customers.
"In the long run, it would also benefit universities since it would help them regain their independence from central government. And it would also benefit the taxpayer, by ensuring their money was used as effectively as possible."
Published on Telegraph.co.uk here.Read more...