Introduction
Milton Friedman was a renowned economist and a reputable advisor of the United President Ronald Reagan and Margaret Thatcher who was a Conservative British Prime Minister. Friedman developed an influential and controversial manifesto on the role of the government in a free society on his work titled Capitalism and Freedom. His fundamental objective was to promote the laissez-faire economic policy by often disapproving the interventionist policies held by the government and their cost in economic efficiency and personal freedom within and outside the United States. It is with this light that Friedman provide his view on the significance of market economies to higher education policies. He proposed the idea of a free market to enhance the public school system in the United States. He argued that the public schools should be funded by the local and state taxes and children are admitted to the school on the basis of their parents' residence.
Friedman's Thesis
The main thesis for Friedman is that although the state plays a significant financial role in the higher education sector, he provides classic criticism on the provision of such services by the state. One of the main criticism is the poor efficiency as a result of the system monopolization by the state. As a result, this system limits the students say on their education and minimize the private contribution either by the students or their parents. Friedman argues that when the government subsidies are directed to the education institutions rather than the individual situations, it results into few responsive institutions. These institutions are under-funded and are not in a position to meet the demands of the society. Therefore, a system of vouchers, which allow the government to fund the students directly, increase competitions among the higher education institutions and efficient utilization of resources. Although this model focuses on the basic education, it can also apply to the higher education.
Friedman's main argument
Friedman pointed out that markets play a substantial role in higher education and have significant consequences on the governance mechanism of the education institutions and the regulation of higher education system. During the twentieth century, Friedman emphasized on the role of the government in the higher education and the imperfectability of the markets as the role of government in markets advanced. In this case, he argued that the major aspects of the government intervention on education should be justified. One of the aspects is to mitigate the "natural monopoly" and other market imperfections that hindered effective competition. Another aspect that would be justified in the condition of the "neighborhood effects." Neighborhood effects are “circumstances under which the action of one individual imposes significant costs on other individuals for which it is not feasible to make him compensate them, or yields significant gains to other individuals for which it is not feasible to make them compensate him.” (Friedman & Friedman, 2002, p.86). As a result, these circumstances hinders the voluntary exchange.
The third aspect of the government of the government intervention in higher education included the paternalistic concern for students and other irresponsible people (Friedman and Friedman, 2002, p.86). In this case, the notion held that freedom is meant for responsible units excluded both the insane individuals and children. As a result, this erupted two arguments concerning the government involvement in education. The first argument asserts that there exist positive externalities on education because the social benefits derived from the education is not reflected in its price. The second argument takes paternalistic perspective accusing parent of the failure to improve their children welfare. While the first argument focuses on the general citizen education, the second argument focuses on the specialized vocational education. In this case, Friedman provided the distinction between schooling and education. Friedman argues that not all education is schooling nor all schooling is education ((Friedman & Friedman, 2002, p.86).
Friedman will be remembered as the man who emphasized on the market concepts in the perspective of the educational debate. According to Friedman, most people ignored the contemporary role of the government in higher education, and this phenomenon led to the substantial nationalization of the education sector (Teixeira & Dill, 2011). He argues that the government's role in higher education is smaller than then at the lower levels. However, he asserts that the government introduced significant distortions on how the higher education system functions. For instance, the government involvement through the subsidies encouraged unfair competitions in the education sector. This is because most municipal and state higher education institutions were in a position to charge relatively lower tuition fee than their counterpart institutions. As a result, private institutions experienced the financial problem due to the existing unfair competition. As much as the private institutions wanted to independent to the government, the financial pressure forced them to seek aid from the government.
Apart from the observed externalities, Friedman also formulated the argument concerning the national productivity that would help to enhance higher education. He argues, “Public expenditures on higher schooling can be justified as a means of training youngsters for citizenship and for community leadership” (Friedman & Friedman, 2002, p.99). However, Freidman argues that it is impossible to justify the fraction of the government expenditure allocated for the severely vocational training in this way. Therefore, most funding should be allocated to the individual students to spend on their institutions of their choice. In addition, the government schools should charge fees on the basis of the educational costs to promote equal and fair competition with the non-government-supported schools (Friedman & Friedman, 2002, p.99). As a result, Friedman advocated for the equity contracts to fund the higher education.
Freidman pointed out that such education system would enhance competitions and more efficient utilization of resources in higher education sector. As a result, this would diminish the pressure for government assistance to the private education institutions and consequently promote diversity and independence. In addition, the change from institutional to individual funding would be a better option to enhance the diversity of various types of higher education due to the increased responsiveness associated with the private provision (Teixeira & Dill, 2011).
For the vocation education, Friedman advocates that the federal government allocate funding directly to the individuals who are in need of such education. Such arrangement would make the fund available to the individual to facilitate their education as an "equity" capital rather than subsidy. The individual is then obligated to pay the state a certain proportion of their income above the minimum. In this case, the proportion of income and the minimum should be determined to ensure that the program can sustain itself. Consequently, such program would help to mitigate the imperfections existing in the capital market and provide wider opportunities for such individuals to make sustainable investments. In addition. The program ensures that the costs of such program are incurred by those who directly benefit from the program rather than the entire population. The main point here is that instead of a student getting funding from higher education institution and then repay the amount with interest, the system allows the investors to clear the cost of their education.
In other words, Friedman sheds light on the two side of the coin on the higher education specificities, which include both the supply side and demand side. On the supply side, the market imperfection attributed to the government interventions restricts the higher education institutions to achieve their objectives. In this case, the higher education market is highly regulated and provide providers are always controlled and usually receive more strict regulation compared to public institutions (Teixeira et al. 2006, p.5). Subsequently, the students of the higher education do not have the free choice on their desired type of product. Instead, the students involuntarily choose from the pre-selected options outlined by the regulating authority. In addition, the low fees that student pays and some cases the minimum or no tuition fees hinders the prices in the market to play the signaling, allocative, and rationing role.
On the demand side, Friedman argues that the purchaser and the consumer of degree program often differ from each other causing inefficient allocations. In most cases, the government caters for the costs of the education while failing to confront the consumers on the costs of the decisions to join college. As a result, Friedman asserts that it is important to fund education through the consumers instead of indirect consumers. Therefore, the government should embrace the system of demand-driven funding.
When it comes to choosing a degree program, "It is a one-off choice, with very high costs to revert, and a choice that can transform the product by changing the preferences and tastes of other consumers of high education" (Teixeira et al. 2006, p.6). While some parents are in a position to bear the cost of basic education, some are unable, and this where the government comes in to relieve the financial burden. Therefore, the government should widen the opportunities for education to the children by enhancing a healthy increase in the educational institutions. However, the government should not run schools if the schools do not have equal chance to compete with the non-profit, for-profit, or privately run schools.
Friedman also proposed that the state can only hamper with the competitive market system only when there is clear and unambiguous market failure identified in suitable economic theory. In other words, the state should not allow natural monopolies that are in favor of certain individuals or groups at general public's cost. However, the government intervention is necessary to interfere with the private economy to enhance and protects the right of disadvantaged, handicapped, and those people who cannot protect themselves. The government should provide vouchers to all parent without considering which educational institution their children will join. To sum up, Friedman pointed out that government should allow the educational institutions to compete fairly in a free market while ensuring the schools adhere to the minimum standards.
Is Milton Friedman's argument on marketization of higher education convincing?
Friedman's idea of marketization of the higher education is convincing if it is perceived as an idea similar to the equity investment rather than an income-contingent loan that is practiced by the Democrat government. According to Holt (2012), Friedman's idea was more progressive and radical compared to the loan policies employed today. While the income-contingent loans privatize gains and socialize losses, Friedman's plan of an equity investment socializes both losses and gains. In other words, under the income-contingent loans, the low-income borrowers are usually forgiven the loans and do not clear the full amount, hence resulting to taxpayers incurring the costs. This scenario can be viewed as the social loss. In addition, the high-income borrowers can meet the full amount of their loan and continue to benefits from the dividends, a scenario that can be described as privatized gain (Holt, 2014). Such policy can be distinguished from Friedman's plan for the higher education.
Friedman's idea was not entirely focused on loan but an equity investment that makes sense in the contemporary world. According to Leef (2014), Friedman argued that loans were not sufficient means of funding higher education. Instead, he argued that the most appropriate means was to provide the needed financial support for higher institutions to the qualified students who would later repay according to their income over specified amount of time. Under this equity investment plan, a student who benefits more from their education investment extends the benefits to the taxpayer by paying back more than what they acquired initially. However, if they never reap substantial benefits from education investment, they are forgiven the loan and the taxpayers are the one who incurs the costs. In other words, the equity investment plan accomplishes both socialized gain and socialized loss. Therefore, although some individuals who are paying more may believe they are subsidizing those who failed in their education investment, this plan promotes equity. The loss or success of a student is the loss or success of the society. This means that the equity investment plan would enhance the efficiency of the education system through low-cost and high-quality programs. In addition, the plan would enhance equity and reduce debt in the higher education system.
However, the idea of equity investment in higher education has not been facilitated due to some reasons. For instance, Leef (2014), argues that one of the fundamental reason is that the federal government had massively employed the student loan programs since the 1970s. Such loans were affordable and easy, hence diminishing the opportunity for an alternative finance program. However, it is high time that the government should focus on the equity investment program to socialize both the gains and losses rather than just losses (Holt, 2012). Making this plan available would give the students opportunity to select between the equity investment and student loans.
Friedman's marketization of higher education was not a new concept and attempted to strengthen the concepts that were developed by other economists such as John Stuart Mill, Tom Paine, and Adam Smith. For example, the concept was almost similar to the GI Bill that was established in 1944 to promote the appropriate balance of government and capitalism to schooling. Among other benefits of the GI Bill, the bill focused on providing tuition support to the veterans. The bill changed the face of the American higher education system and changed the balanced between the public and private institution. Before the bill was passed, the public schools and private schools shared 50-50 of the students. However, the GI Bill allowed the public universities and colleges to absorb more students. Initially, the bill had various flaws such as limiting females and African-American veterans, which were rectified by the Friedman's concept.
The main plan of the GI Bill was to provide government support to the consumers of the higher education similar to the Friedman's arrangement. Therefore, having that long experience diminished the fear that the government support can result in the government taking over the private institutions, and subsequently affecting the alternative aspect of the private schooling. Under the GI Bill, the government did not fundamentally take control of all schools. When the government provides money to colleges or university, it gains a higher stake in the institution and hence leading to direct control. However, when the government provides money for financial aid to the parents, they give them the freedom to spend them and make their decisions on education for their children. Giving direct funds to institutions may also lead to misuse of resources since some institutions might use such funds to cater for the school expenses such as rewarding school teachers.
The Friedman's voucher system would promote competition and enhance the balance in the higher education system. The voucher system is convincing because it cannot only eliminate monopoly and promote efficiency but also develop a system of innovation and competition that would change the face of higher education. According to Friedman, the system would give parent option to take their children to the school of their choice and allow the public institutions to charge schools. Friedman argues, "The tuition would be competitive because public schools must compete for students both with one another and with private schools" (Tucker, 2015, p.92). While the plan does not relieve anyone the burden to pay tax, it provides the parents with the greater opportunity to choose the competing schools and help the society to grow and develop through the funded education. In addition, the plan does not allow direct government control over private institutions, hence enhancing efficiency. The best way to bring reforms to the higher education is by promoting competitions through creating an opportunity for parents to choose the schooling institution of their choice.
The Friedman's education plan is interesting because it also takes care of the disadvantaged individuals especially the blacks and the minority. The African-Americans and the minority are usually limited to the options when it comes to select good schools. Such communities can interact with other communities in different ways such as through shopping malls, but the schools in their areas are not of the quality they need. While affordable and quality education is argued as the best policy to trigger social development, it is significant to focus on the affordability aspect. The individuals from low-income communities have the only choice to join the worst school in their areas, and this hinders social development and leads to other effects such as crime and poverty. Therefore, providing vouchers to the low-income community is a way of promoting social development in the long run. The Friedman's voucher plan is cost effective because it minimizes the cost of education and at the same time improve the quality.
However, similar to various economic or political frameworks, the argument against Friedman's plan on higher education emerges. The opposition side views that introducing vouchers to the public schools would adversely impact the public schools. This is because the best performing students would be anticipated to migrate to public schools leaving students with special needs and discipline problems (Ferguson, 2002). However, this impact can be minimized in the long run if the public school can improve their education quality so they can compete with the private schools at the same level. Friedman argues that public schools should charge fees with accordance to the educational costs to facilitate equal and fair competition with the private schools (Friedman & Friedman, 2002, p.99). Such argument is focused on the supply side and undermining the demand side, which seems to be of great importance according to Friedman. Friedman argues that the government should focus on the demand-driven funding system.
Despite the argument against Freidman voucher system, many supporters have suggested that educational vouchers are effective educational reform. For instance, according to Ferguson (2002) vouchers promote free-market pressures in higher education similar to the economic models in the business sector. As discussed above, in a competitive environment, public schools must pull up their socks to compete effectively with the private schools. In other words, the free-market pressures improve the performance of the public schools and consequently improve the quality of education.
In conclusion, it is evident that although the government plays a significant financial role in the higher education sector, classic criticism on the provision of such services by the state illustrates the need for minimum government intervention. The financial aid for the students in the higher education sector should be on the individual basis through the vouchers rather than the institutional bases as suggested by Friedman. Such aspect among other factors proves Friedman's plan to be an outstanding educational reform. Such other factors involve increased competition due to free-market pressures, parents' freedom to choose, societal gain, and equity. Although some individuals may argue against Friedman's point, the above argument has proven the government and other stakeholders in higher education sector need to embrace his plan for better, affordable, and quality education.
References
Ferguson, J. 2002, September 16. Vouchers | First Amendment Center – news, commentary, analysis on free speech, press, religion, assembly, petition. Retrieved from http://www.firstamendmentcenter.org/vouchers/
Friedman, M., & Friedman, R. D. 2002. THE ROLE OF GOVERNMENT IN EDUCATION. In Capitalism and Freedom (Fortieth Anniversary Edition). London: University of Chicago Press.
Holt, A. 2012, August 17. Milton Friedman was actually a financial aid progressive. Retrieved from https://www.insidehighered.com/views/2012/08/17/milton-friedman-was-actually-financial-aid-progressive-essay
Leef, G. 2014, March 26. Equity Is Better Than Debt In Financing Higher Education - Forbes Welcome. Retrieved from http://www.forbes.com/sites/georgeleef/2014/03/26/equity-is-better-than-debt-in-financing-higher-education/#2c70ea18148a
Teixeira, P., & Dill, D. D. 2011. Public vices, private virtues? Assessing the effects of marketization in higher education. Rotterdam: SensePublishers.
Teixeira, P., Jongbloed, B. B., Dill, D. D., & Amaral, A. 2006. Markets in higher education: Rhetoric or reality? Dordrecht, U.K.: Kluwer Academic Publishers.
Tucker, I. B. (2015). Survey of economics (9th Ed.). Boston, MA: Cengage Learning.
