In one decade, from 1998 to 2008, China’s university enrolment went up from 3.4 million to 20 million—an annual growth rate of 18%. This far outstripped university enrolment growth in India in the same period. This rapid expansion has had its problems, laid bare by the economic slowdown. Many universities borrowed heavily to finance expansion, and now have unmanageable debt levels. The quality of education at many newer universities has been substandard, and even established institutions allowed quality to slip as they pursued rapid expansion. What are the lessons for India, which has its own problems with higher education, and where there is a fierce debate about how best to manage that sector?
The Chinese case might seem to reinforce the suspicion of many in India, that a market orientation is inappropriate for education. Students will be cheated by unscrupulous private institutions operating without adequate regulation, and will end up with no marketable skills, despite having paid dearly for their shot at education. The credit bubble, the housing bubble and the Chinese education bubble are all, therefore, examples of the unreliability of markets in delivering certain kinds of goods and services. But this is not the right lesson to draw.
China had an explicit government directive in 1998 to expand higher education. Without a commensurate increase in direct government funding, or other grants or donations, universities were encouraged to borrow from state-owned banks, which had no hard market-based measures to evaluate these borrowers. With an unsophisticated potential student population, and huge excess demand, there was no incentive for universities to compete on quality or build reputation. The working of the market was actually subverted.
Supposed worries about quality deterioration have justified the Indian government’s continued tight rein on higher education which, unlike the Chinese case, remains closely regulated. But it would be a mistake to think that the Indian approach has yielded better results. We well know that many of India’s universities, though publicly funded and publicly run, are in abysmal condition, and deliver poor educational outcomes. Perhaps some Indian students have been protected from being cheated, but many more have been denied any opportunity at all by the artificial constraints placed on the supply of higher education in India.
In fact, China has gone forward much more boldly and successfully with the relatively small, elite segment of its higher education sector. The government began bringing faculty salaries to international levels, working to attract the best and brightest from anywhere in the world, and funding world-class research. India’s elite universities, meanwhile, have been living on borrowed time, with the constant threat of government intervention combined with inadequate funding and no rewards for talent and performance.
Thanks to misguided government policy, India has failed to leverage one enormous advantage it has over China in the higher education sector: the English language, which has been central to much of higher education in the country. This language proficiency, however narrow and shallow in comparison with the entire population, has sufficed to allow India to build a range of profitable businesses that serve rich country clients. If India were to allow foreign investment and expertise into the higher education sector, it could become an attractive global education hub, offering an environment that is in many ways more attractive than Singapore, which has been positioning itself in that manner.
The key point is that supply constraints in higher education need to be relaxed. The fact that many of India’s elite now send their children abroad even for undergraduate education illustrates these constraints. The Chinese situation demonstrates the perils of relying solely on domestic expertise for expansion—new universities have no reputation to lose, and they lack internal management experience to run their operations successfully, even if they are in it for the long run. There are dozens, if not hundreds, of colleges and universities in rich countries that could successfully expand in India if given the opportunity. American students could be educated side-by-side with Indian students, by American professors teaching along with their Indian counterparts.
Accreditation methods and expertise, too, could be imported, breaking the ineffective government monopoly on quality maintenance. In fact, the Indian government’s claim that it wishes to keep out exploitative foreign fly-by-night institutions, as well as prevent their domestic counterparts from operating, seems disingenuous given the extreme scarcity of quality higher education. In that respect, China’s experience at least has been one of learning by doing, even if mistakes have been made. India’s official approach of not learning by not doing will lead nowhere in higher education, just as it did in much of the economy until liberalization.
In the financial crisis, we have seen that the market is not infallible, and that regulation is often needed. Regulation should aim for transparency, good information and healthy competition, not on limits that protect poorly performing incumbents. China is heading in the right direction, and India should not be left behind.
Nirvikar Singh is a professor of economics at the University of California, Santa Cruz. Your comments are welcome at firstname.lastname@example.org