Reservations in the Indian educational system — Part 3

Previous posts: Part 1, Part 2

Reservations in educational institutions for specific groups are essentially a flawed response to a problem. It is flawed for a number of reasons. The first and foremost is that it does not even begin to address or even recognize the actual problem, namely, that there is a mismatch between supply and demand. Any attempts at allocating a limited supply among the competing demanders for it is definitely not going to succeed in correcting the basic problem. This follows from a general principle that to solve a problem, one should address the cause(s) of the problem rather than merely attempting to suppress the symptoms that give evidence of the problem.

Let’s start by asking if there could be a situation in which something akin to reservations for groups can be reasonably legislated. Suppose, for example, the educational system has sufficient capacity to cater to the needs of a specific group but due to bigotry the group is denied the opportunity. I can certainly see that mandating that members of that group be given the opportunity to seek and gain entrance into the system is an appropriate response. But this is not the case currently. The system is just not able to cope with the demand.

Just to be sure, I should emphasize that we are talking only about reservations in institutions of higher learning. We are not talking about primary or secondary education, although the primary and secondary educational system has something to do with the problem of reservations in higher education which we will go into presently.

Also important to keep in mind is that the world has changed, and is changing at an accelerating pace. The old systems developed for a more staid world are outdated and inappropriate in this new world. Besides being a good thing in and of itself, higher education has an instrumental role. For purely utilitarian purposes, a significant number of people need to have higher education if the economy has to function at any level of efficiency.

The old system of government-controlled education is inadequate to meet the needs of the present world because it is not flexible and responsive enough. We need not just an increase in the capacity of the system but we also need the system to respond rapidly to changing requirements of the market.

Here’s a recent news item that illustrates how the private sector responds to market needs. The International Business News of April 17th reports that Microsoft and HCL are collaborating on selling a very low-priced laptop. That collaboration is not limited to manufacturing and selling computers, however.

In addition, the companies will also collaborate to train and certify 50,000 students on Microsoft technologies, over a period of three years, across 100 HCL Career Development Centers that would be set up by HCL. The centers would create a sustained supply of skilled and certified manpower to address the demands of the IT and ITeS industry, the official said.

The lesson is simple. It is in the commercial interests of corporations to have workers who know how to do the jobs that needed done. So as long as a person has the minimal qualification to be trained, market dynamics will ensure that private entities will do the required training.

Let’s pause here for a moment to reflect on this: there is no shortage of jobs for qualified candidates. In fact, there is a shortage of qualified people. The shortage arises from the limited supply of seats in educational institutions. That shortage of seats is mandated by the government. The government mandates the shortage and then assigns itself the power to dictate how the rationing of seats will be done. That rationing is motivated primarily by vote-bank politics.

Now artificially created shortages are good for those who control the supply – whether it is about controlling the supply of diamonds or the supply of educational seats. In India’s case, government mandated shortage for the private profit of the politicians and bureaucrats is nothing short of criminal. It is responsible for much of the existing poverty in India and unless this situation is urgently changed will perpetuate poverty for the foreseeable future.

The reasonable thing to do is simple. I have written about it elsewhere in this blog. But let me restate it. First, remove all restrictions on entry into the provision of higher education. Any institution willing to get into the business of higher education should be allowed.

Second, support what I have called “foundational education.” Foundational education is something like high school education but a bit more. Everyone must have foundational education – whether they have the means to pay for it or not. If they don’t, then public support must be provided. And once again, there should be no restrictions on who can supply foundational education (FE).

To ensure that there is no cheating by providers of FE, there has to be an institution whose only purpose is to test students and certify whether a student knows a particular subject. That is, this body just tests and evaluates students; it does not teach, it does not dictate curriculum, or anything else. Based on the aggregate results of these tests, any FE provider can be judged. This information will ensure that the FE providers actually perform. Market competition will ensure that no FE provider is able to make above normal profits.

In other words, the strict separation of teaching and testing has to be implemented so that free entry into the market for FE education is efficient

Given that everyone has the FE, it is just a matter of aptitude and interest which will sort the people into various streams, some of whom will go for higher education. Because of free entry of higher education providers, no one will have to be discriminated against based on caste or any other irrelevant criterion.

Among the usual objections to free entry of private firms in higher education is that “the poor will not be able to afford the high fees.” This objection is pointless and rather silly.

Prices in competitive market reflect underlying costs. And therefore, if the price is high in a competitive market, it just means that the costs are high. If costs are high for a private sector firm, it is not likely that the costs will be any lower for the government. In fact, what is certain is that private firms are more efficient (that is, their costs are low) than public sector firms in all known cases. The government has no particular advantage in doing anything more efficiently than private firms.

There is no reason to believe that the government will be able to provide higher education more effectively and efficiently than private firms for the simple reason that the government cannot and has not ever been more effective and efficient than the private sector.

The only thing that the government can do is to tilt the playing field in its favor so that it kills any private sector competition. It can make Anil pay for Sunil’s education. It transfers wealth between people and often does this arbitrarily. The worse thing is it uses very sticky fingers in moving wealth around and therefore it has an incentive to move as much wealth as it can.

Asking the government to take care of education is a good way to ensure that it is done in the most inefficient and shoddy manner. The statistics speak for themselves.

So anyway, what about someone who is unable to pay the market price for a particular bit of higher education? The answer is student loans. If the benefit of that bit of higher education is higher than the cost, then the cost is worth incurring. Loans will bridge the gap. If the costs exceed the benefits, then of course that higher education should not be undertaken. This hard constraint will ensure that one does not graduate an army of scholars of medieval sociology if the market is not interested in medieval sociology.

All this talk about education and reservations is fairly boring. The solution is accessible to anyone who takes care to ponder the issue for a moment. Why the solution is not tried is not because it is not a good solution but because it will kill an extremely valuable source of ill-gotten wealth for those who have political power. Rent seeking is a fact of life as much as death and taxes.

Related post: Reservations about reservations. Really worth reading, even if I say so myself.