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Tertiary education is subsidised in almost all countries by the government. The subsidies may be given to educational institutions through grants or through in-kind contributions, or to students through grants and scholarships. The level of subsidy may also vary according to the characteristics of the educational provider (eg. according to whether it is a public or private provider, or according to the nature or quality of education provision) and/or the nature of the educational programme (eg. the subject matter or educational level) and/or the characteristics of the student (eg. socio-economic status or ability). But why subsidise tertiary education?

The normal justification for the subsidisation of tertiary education is because education has extensive "positive externalities" or "spill-over effects" that benefit the whole population. It is argued that if no subsidies were provided, participation in tertiary education would fall and as a result investment in human capital would be sub-optimal for the needs of society and the economy.

The argument for subsidies rests on there being substantial public benefits from tertiary education. What then are these public benefits? Some obvious ones are:

* Preservation of democracy

An educated populace is a necessary precursor to the retention of democratic freedoms in a developed country. Democracy relies on more than just having an educated elite in positions of responsibility in government, since the accountability of governments relies on the active participation of educated individuals in the processes of government and in the election or appointment of good government. An educated populace, therefore, benefits the whole population not just those that are tertiary educated.

* Dependance on public services

The more educated a person is, the lower the risk they will engage in criminal activities, the higher their overall level of health and social well-being, and the less likely they are to be unemployed. This means that the whole of society benefits from those that have tertiary education.

* Culture and community development

Educated people are more likely to participate in developing the community and to the culture and tradition in society. The quality of cultural and community environment are appreciated by the whole population.

* Productivity and growth

Educated workers may generate significant bernefits to less well educated co-workers. Education seems to be a major contributor to productivity and growth in the economy. Much of our learning occurs on the job from observing and being trained by others around us. Therefore, the more educated the workforce, the greater likelihood of all workers benefitting from that education.

Quantifying these positive externalities is extremely difficult. Some economists have suggested that it may be possible to quantify the last of these benefits through observing the gap between economic growth resulting from known determinant factors (such as investment in plant and machinery) and observed economic growth. However, this would still only quantify one of the four benefits listed above.

It can be argued that there are also substantial private benefits from tertiary education. These include:

* Higher lifetime incomes

* Better health, well-being and quality of life

* Reduced likelihood of extended periods of unemployment

Quantifying the first of these benefits is a well-developed science. The indications are that for most types of tertiary education the higher lifetime incomes gained more than compensate the individual for the costs of their education.

The observant reader will notice that some of the public benefits listed also accrue to individuals as private benefits. For example, better health and well-being are probably of greater benefit to the individual than to society as a whole. Providing a subsidy in recognition of the benefits of better health and well-being would not be needed since the individual already accrues recogniseable benefits.

This article Copyright 1999 Mike Woods MPP BSc DipTchg , Mike Woods & Associates

Posted by Mike Woods at January 01, 2002 08:07 PM

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Copyright 2002 Mike Woods & Associates