Higher Education and
the Public Interest
For centuries people have gained a substantial benefit
from the higher education they have received and wider society
has benefited too. This public interest is central to the argument
that collective action is needed to support, nurture, and strengthen
higher education institutions. It also affects decisions on how
much should be invested in higher education and where that investment
should come from.It is good to keep in mind that international support
for higher education has passed through three overlapping phases
in the past half-century:
- general support to strengthen existing universities.
- an accelerated effort to establish a new type of higher education
institution, the development university, focused on
serving local development needs, especially in the areas of agriculture,
health, and industrial development.
- attempts to establish centers of excellence, especially in
the areas of science and technology, but only in a very select
group of countries.
These phases have had an uneven impact on universities
over the decades and have gradually altered the way they serve the
public interest. This chapter explores the exact nature of the public
interest in higher education and discusses why its importance has
tended to be underestimated. It also explores the impact of the
new realities especially expansion and differentiation
on the strength of the public interest.
The Public Interest
Higher education simultaneously improves individual
lives and enriches wider society, indicating a substantial overlap
between private and public interests in higher education. Higher
education raises wages and productivity, which makes both individuals
and countries richer. It allows people to enjoy an enhanced life
of the mind, offering wider society both cultural and political
benefits. And it can encourage independence and initiative, both
valuable commodities in the knowledge society.
The benefits of education, according to the Inter-American
Development Banks Facing up to Inequality in Latin America
(1999), for example, are substantial. In Latin America as a whole,
a worker with 6 years' education earns 50 per cent more than someone
who has not attended school. This gap increases to 120 per cent
for those with 12 years' education (i.e. completing secondary school),
and exceeds 200 per cent for those with 17 years' education (i.e.
completing a university diploma). These benefits are private,
although there are also public benefits, as a better-trained workforce
contributes to rising tax streams, better healthcare, improved institutional
capital and so forth.
The macroeconomic impact of education is strong: just
as individuals with better education tend to succeed more in the
labor market, so economies with higher enrollment rates and years
of schooling appear to be more dynamic, competitive in global markets
and successful in terms of higher income per capita. The point is
dramatically illustrated by the experience of East Asia. From 199195,
East Asia experienced faster growth per year than Latin America.
Economists calculate that the higher education levels of the East
Asian workforce account for a full half point of that difference.
It is thus in the interests of a much wider set of policy-makers,
as well as the business community, to become more actively involved
in national debates about the reform and future of education systems.
This chapter does not attempt to provide an exhaustive
catalogue of areas where there is a public return to investments
in higher education, above and beyond the private return. The intention
is to illustrate the public-interest perspective as it relates to
economic and social development, concentrating on higher educations
- unlock potential at all levels of society, helping talented
people to gain advanced training whatever their background.
- create a pool of highly trained individuals that exceeds a
critical size and becomes a key national resource.
- address topics whose long-term value to society is thought
to exceed their current value to students and employers (for example,
- provide a space for the free and open discussion of ideas and
Developing countries are currently under great pressure
to meet increased demand for higher education, and many are finding
it hard to keep up. They are becoming increasingly reliant on fee-based
education and private, for-profit providers. In this environment
education becomes more narrowly focused on providing a skilled labor
pool for the immediate needs of the economy. Market forces predominate
and the public benefits of and responsibilities for
higher education recede from view.
Certainly, competition within the higher education
sector can lead to higher standards and to significant benefits
for individual students. In many developing countries, however,
markets do not function well and this leads to a serious misallocation
of resources. Access, for example, is limited by income, excluding
potentially able students and diluting the quality of the student
body. Poor market information dilutes competition, allowing weak
exploitative institutions some of them foreign to
survive and even prosper, and lessening the chances of dynamic new
Even when markets work well and students receive a
quality service, private institutions may still fail to serve the
public interest. For-profit institutions must operate as businesses,
facing the market test and trying to maximize the return on their
investment. It may not make good financial sense to invest in public-interest
functions, leading to underinvestment in certain subjects and types
of higher education, even if these are important to the well being
of society as a whole. The public sector thus retains a vital and,
in our opinion, irreplaceable role in the higher education sector.
This role can take many forms. Governments can be
direct providers of higher education; offer finance for its provision;
or do both. They can develop legal and regulatory institutions to
promote and shape the higher education system, as well as to regulate
individual institutions even when these are privately chartered
But governments do not have an open-ended mandate
in this area. They must act efficiently and on the basis of good
information, in order to demonstrate that their use of resources
provides benefits to the public over and above what the private
sector can supply. Whatever their policies, however, they must be
able to demonstrate that they are using resources in a way that
offers society benefits that the private sector cannot supply. The
public interest argument cannot be a cover for public sector waste,
inefficiency, and lack of vision.
The Influence of Rate-of-Return Analysis
Although the concept of human capital dates to Adam Smith's Inquiry
into the Nature and Causes of the Wealth of Nations (1766), it is
only in the past 50 years that labor economists have seriously examined
the returns to investment in education. By the mid-1970s techniques
focused on the difference between average annual earnings among
people with different levels of educational attainment (for example,
secondary versus primary school graduates). They also analyzed differences
between social and private rates of return, by comparing the amount
of public subsidy received by education with the amount of extra
tax society was able to levy on resultant higher earnings.
These techniques seemed to demonstrate that higher education offered
lower private returns than primary education. They also showed that
social returns were lower and, with higher education absorbing considerably
higher investment, that the public interest in higher education
was substantially lower than in primary education. Taken together,
these results provided a powerful justification especially
for international donors and lenders for focusing public
educational investment on the primary level. This justification
was further reinforced by the obvious gains in social equity associated
with such a strategy, as highlighted and endorsed by the Jomtien
Declaration in 1990. The World Bank drew the conclusion that its
lending strategy should emphasize primary education, relegating
higher education to a relatively minor place on its development
agenda. The World Banks stance has been influential, and many
other donors have also emphasized primary, and to some extent secondary,
education as an instrument for promoting economic and social development.
The basics of rate-of-return analysis
Estimating the rate of return on investments
in different levels of education allows public policy-makers
to judge the effectiveness of education policies that target
different levels of the education system. Labor economists
have a long tradition of constructing such estimates. One
conventional approach involves comparing the average earnings
of individuals at various stages of educational achievement
(for example, those who have completed primary education versus
those who have not, or those who have completed higher education
versus those whose formal education ended with the completion
of secondary school). After adjusting for direct costs associated
with the corresponding levels of educational achievement (for
example, tuition and fees), and taking account of the fact
that the value of a given sum of money will vary depending
on the point in time at which it is spent or received, the
(discounted net) earnings differentials can be expressed in
classic rates-of-return terms.
Rates of return are considered private if they are based
on differences in take-home pay and the costs of schooling
that comes out of the pockets of students and their families.
The social return is also based on individuals'
income generation, but accounts differently for information
on the taxes and subsidies associated with it. More specifically,
the social return reflects the fact that (i) people pay taxes
on their income (which benefits society as a whole, but not
the individual directly), and (ii) society pays some portion
of educational costs (via direct provision or subsidies),
and that the costs of such provision must be deducted from
the social benefits. (Standard references on the calculation
of rates of return abound, with the leading collection of
actual estimates reported by George Psacharopoulos, 1994,
Returns to investment in education: a global update,
World Development, 22: 132543.)
Once both private and social rates of return are calculated,
it is easy to calculate the difference in these rates
i.e. how much society benefits above and beyond the private
return. It is this difference that provides an economic justification
for government action. If the social return exceeds the private
return, this tells us that the unfettered operation of private
markets (so-called laissez faire) will not produce as much
education as is desirable from the point of view of society.
(This is because private markets base their decisions on private
returns, whereas society should base its decisions on social
returns.) Also, if the social rate of return to primary school
exceeds that for higher education, this in turn suggests that
primary school is a better social investment than higher education.
Such analyses have been undertaken, and have concluded that
the difference was greater in primary education than in higher
education, and therefore that government action is more justified
in the former than in the latter. But the standard rate-of-return
analyses stopped here, consistently failing to reflect that
the benefits of higher education extend well beyond the incremental
earnings accruing to those individuals who receive it.
The Task Force fully supports the continuation of large investment
in primary and secondary education, but believes that traditional
economic arguments are based on a limited understanding of what
higher education institutions contribute. Rate-of-return studies
treat educated people as valuable only through their higher earnings
and the greater tax revenues extracted by society. But educated
people clearly have many other effects on society. Educated people
are well placed to be economic and social entrepreneurs, having
a far-reaching impact on the economic and social well being of their
communities. They are also vital to creating an environment in which
economic development is possible. Good governance, strong institutions,
and a developed infrastructure are all needed if business is to
thrive and none of these is possible without highly educated
people. Finally, rate-of-return analysis entirely misses the impact
of university-based research on the economy a far-reaching
social benefit that is at the heart of any argument for developing
strong higher education systems.
Access to Higher Education
An important ingredient in the public interest in higher education
is its role in creating a meritocratic society which is able to
secure the best political leaders and civil servants, doctors and
teachers, lawyers and engineers, business and civic leaders. These
people are often selected from the most educated, and an economy
is less likely to develop when then they are chosen from the richest,
rather than the most talented. The Task Force challenges the notion
that public investment in higher education is socially inequitable.
This notion rests on the argument that university graduates constitute
the future élite of society, and already have the advantage
of tending to come from the better-off families and are thus not
deserving of public subsidy. This argument overlooks two self-corrective
tendencies. An educated and skilled stratum is indispensable to
the social and economic development of a modern society, giving
benefits to the society as a whole and not just to those being educated.
In addition, higher education has also acted as a powerful mechanism
for upward mobility in many countries, allowing the talented to
thrive irrespective of their social origins.
Broadening access to higher education is an ongoing process and
work still needs to be done. This should include helping disadvantaged
groups to overcome the endemic problems that exclude them from the
system. Equally important is a careful examination of ways to reform
tuition and fee structures that exclude candidates from poorer backgrounds.
And finally, measures are required to stamp out corruption in awarding
places in universities.
Problems facing women and disadvantaged groups
Disadvantaged groups be they racial, linguistic, or religious
groups in some societies, and women nearly everywhere find
competing for higher education places difficult. They have usually
received inadequate primary and secondary schooling, making further
progression in the education system much harder to achieve. In some
situations, for example with South Africa's African and colored
populations and India's scheduled castes, the discrimination has
been more direct, with concerted action to prevent groups from reaching
universities or securing faculty appointments.
Even if attitudes toward disadvantaged groups have changed, they
still face systemic discrimination. For many years, certain groups
have been poorly represented in higher education. This means that
the faculty is likely to be unrepresentative of disadvantaged groups,
and there will be real or perceived problems of institutional discrimination.
A lack of role models can lead to groups concluding that higher
education is not for them.
Higher education is also reliant on the rest of the education system,
with those who have received little primary or secondary education
clearly far less likely to progress to higher education. A long-term
solution therefore requires public investment at all levels of the
education system, in order that larger numbers of well prepared
candidates from disadvantaged groups can compete for access to higher
Higher education systems need to find a way of reconciling the
dual values of excellence and equity. In an ideal society, excellence
is best promoted by policies that select a society's most creative
and motivated members for advanced education. But selection based
on prior achievement will only reinforce a history of discrimination
and underachievement. Equally, programs to increase equity will
prove unsustainable if they are seen to undermine the standards
of excellence on which higher education is based. Merit criteria
cannot be relaxed. Awarding degrees or certificates to people who
do not deserve them cannot be in the public interest.
The answer seems to be to combine tolerance at points of entrance
with rigor at the point of exit. Proactive efforts to attract promising
members of disadvantaged groups must be coupled with well designed,
consistently delivered remedial support. With sufficient funding
from public or philanthropic funds, this will clearly contribute
to equity, but it has the potential to contribute to excellence
as well with institutions drawing their intake from an ever-widening
Tuition and Fee Structures
Well-prepared and talented students face difficulties in gaining
access to higher education when the costs of education exceed their
means. These costs include tuition fees, room and board, books and
material, and access to technology, as well as income that is foregone
while attending school. This problem, which is of course particularly
limiting at low income levels, is aggravated by the poor functioning
of financial markets in many developing countries. This means that
students cannot secure loans at reasonable rates to finance their
schooling. Using public funds for scholarships, fellowships, or
loan schemes, thereby lowering cost barriers for talented students
who would otherwise be excluded, is economically sound and a time-honored
function of public funds. In countries that have diversified systems
of higher education, it is in the public interest to reduce cost
barriers to private as well as public institutions.
With higher education offering such clear private benefits
both economic and social corruption in the awarding of university
places within some systems is unsurprising. Every higher education
place awarded through corruption gives rise to the possibility that
a less deserving candidate has been substituted for a more deserving
candidate. If the problem is endemic, an educated class will develop
that fails to reflect the true distribution of aptitude and talent
in the society. Even minor instances of corruption are corrosive,
increasing the possibility of disharmony within an institution and
compromising its reputation externally.
Research and the Public Interest
One of the most powerful arguments for a public interest in higher
education is the value to a country of a well-developed system for
research and knowledge generation. This is of increasing importance
within the emerging knowledge economy, allowing a country to generate
new knowledge, but also to engage in scholarly and scientific commerce
with other nations.
Privately produced and held knowledge, whether based on military
secrecy or commercial investment, has a role to play in society.
However, basic research and fundamental knowledge generation thrive
where new findings are widely shared and are available for testing
and refinement within an open forum. Public support of knowledge
generation is essential in developing countries.
Basic, non-proprietary research can be located in any number of
institutions (national laboratories, government agencies, and private
sector research institutes), but is especially well suited to universities
and other higher education bodies. Research universities
most commonly public institutions at least in principle integrate
a number of practices highly conducive to knowledge generation.
These include ideological neutrality in the selection of research
topics, peer review and scholarly publication, close links between
research and teaching, and the synergies that result from collecting
the full range of disciplines in one institution (or integrated
system of institutions).
A strong research system at the national level opens up the possibility
that substantial additional public benefits can be realized through
international links. Not all knowledge can or should be internally
produced, when a worldwide system of basic knowledge production
offers the classic economic benefits associated with specialization
and exchange. International involvement helps countries guard against
parochialism and remain open to broader economic, intellectual,
technical, and social possibilities. Institutions of higher education,
especially research universities, are particularly well equipped
to facilitate the flow of new knowledge and to disseminate it internally
once it is imported. Exchanges, both of faculty and advanced students,
need to be facilitated, along with participation in international
conferences and research projects. Nations must also act to remove
legal restrictions on the flow of scholars and ideas, and ensure
there is adequate funding for this important work.
Publicly funded knowledge exchange also offers an international
public good. Profit-based research is designed to capture and commercialize
the benefits it generates, not to make them universally and freely
available. In large measure, academic research stands outside these
commercial transactions. Internationally, higher education is an
intellectual commons represented by the invisible college of independent
scholarship, knowledge production, and scholarly training. This
intellectual commons allows the world to tackle a number of widely
recognized international challenges: emergent diseases that move
easily across national borders; invasive species that damage sites
far removed from their point of origin; and climate fluctuations
that disturb traditional growing seasons in widely scattered parts
of the globe. In addition to these problems that migrate internationally,
issues such as technology application or biodiversity protection
emerge in a variety of settings and benefit from comparative examination.
It is difficult for any single nation to justify investing heavily
on research focused on transnational problems, when other nations
can benefit without having contributed. Creating this knowledge
is in the public interest of all nations, but it needs supra-national
public investment if it is to be provided. A network of research
universities and institutes is a natural mechanism to advance the
required research agenda. Public health and medical schools can
collaborate on designing and managing a global surveillance system
on emergent diseases, for example, while agricultural faculties
and research institutes can do similar work on invasive species.
International knowledge exchange relies on each nation meeting
international standards on of higher education both formal
and informal. For example, a number of professions, including engineering,
medicine, accounting, international law, and epidemiology, have
developed performance standards that are generally recognized worldwide.
Ensuring that the graduates of each nations higher education
systems meet those standards allows those graduates to compete in
international markets. It also allows nations to work on a level
playing field with international agencies and multinational businesses.
For example, negotiating the terms of structural adjustment policies
requires a competence in economics that matches that of the international
donor community. Similarly, ensuring the effective operation of
tradeable permit systems to mitigate global warming requires scientific
competence within all the nations engaged in the trade regime. Attracting
direct foreign investment relies on the ability to negotiate successfully
with international business, which is likely to be attracted by
a high-quality professional workforce. It is the educated people
of a nation, even of a poor nation, who will assert their nation's
interest in the increasingly complex web of global economic, cultural,
and political interactions. Without better higher education it is
hard to see how many poor countries will cope.
Improving higher education is therefore in every country's interest,
and has legitimate claims on public funds. We also underscore the
responsibility of international donors to redress current imbalances
in research capacity across regions, so that every region can participate
in international efforts to address key global challenges. Libraries
are a crucial resource in this effort. Their improvement deserves
urgent consideration, an initiative that could be greatly facilitated
by advances in information technology.
The globalization of higher education can have damaging as well
as beneficial consequences. It can lead to unregulated and poor-quality
higher education, with the worldwide marketing of fraudulent degrees
or other so-called higher education credentials a clear example.
Franchise universities have also been problematic, where the parent
university meets quality standards set in the home country but offers
a sub-standard education through its franchised programs in other
countries. The sponsoring institution, mainly in the USA or Europe,
often has a 'prestige name' and is motivated by pecuniary gain,
not by spreading academic excellence to developing countries.
Higher Education and Democratic
Higher education has the additional role of reflecting and promoting
an open and meritocratic civil society. Civil society is neither
state nor market, but is a realm that links public and private purposes.
Within this realm, higher education promotes values that are more
inclusive or more public than other civic venues, such
as religious communities, households and families, or ethnic and
linguistic groups. Higher education is expected to embody norms
of social interaction such as open debate and argumentative reason;
to emphasize the autonomy and self-reliance of its individual members;
and to reject discrimination based on gender, ethnicity, religious
belief, or social class. The best higher education institution is
a model and a source of pressure for creating a modern civil society.
This is an ideal not often realized, but is nevertheless a standard
against which to measure national systems.
More generally, a society that wishes to build or maintain a pluralistic,
accountable democracy will benefit from a strong higher education
sector in two respects. The first is the task of research and interpretation.
A society's understanding of what form of political democracy will
suit it best can be advanced on the basis of debates and research
that start in universities and colleges. This is primarily the responsibility
of the social sciences, but the humanities also have a key role
to play. Higher education in the humanities is home to the most
careful reasoning about the ethical and moral values important to
that society. It joins the other disciplines in its respect for
objectivity, for testing ideas against observation with the
experience of all societies, across history, to draw upon.
Second, higher education helps to promote the enlightened citizens
necessary for a democracy. It achieves this by instilling the norms
and attitudes crucial to democracy in its own students, who then
become the teachers, lawyers, journalists, politicians, and business
leaders whose practices should promote enlightened citizenship across
society. Higher education also contributes insofar as it demonstrates
pluralism, tolerance, merit, reasoned argument, and other values
that are as critical to democracy as they are to the educational
The deeper values promoted through higher education extend beyond
those necessary for the design and preservation of democracy. Along
with other cultural institutions, universities and colleges ensure
that a society has a shared memory. This matters even if the memory
is painful, as it is for societies trying to escape a racially or
ethnically intolerant past, or a totalitarian and fearful history.
Painful national memories, just as celebratory and uplifting memories,
constitute part of the culture from which the future is built. Higher
education is a natural home for the study and teaching of history.
It provides the research that in turn leads to a history and civics
curriculum in primary and secondary school.
In pointing out these ambitious public responsibilities, the Task
Force is not so naive as to presume that they are practiced always
or everywhere. Higher education institutions have been home to moral
cowardice as well as to moral courage. A critical social science
was sustained in despotic Latin American countries only when its
intellectual leaders fled universities and established independent
research centers. Universities in South Africa collaborated with
apartheid, and universities in Nazi Germany with anti-Semitism.
Such instances of moral failure recur across time and place: not
often, but often enough to remind us that universities have to earn
the right of moral leadership.
Failures notwithstanding, societies have historically looked to
higher education as a venue for reasoned discourse rather than partisanship,
for tolerance rather than discrimination, for a free and open search
for truth rather than secrecy or deception. For these reasons, universities
are frequently the first targets of dictators.
Insofar as a higher education system meets these public expectations,
it contributes to a set of values necessary for democratic practices
to flourish. While it is, however, very difficult for universities
and colleges to disconnect themselves from the politics and culture
of their country, at best they aspire to reflect where their societies
want to be, rather than where they are.
All types of higher education institutions including those
run for philanthropic and profit motives can serve the public
interest. The system as a whole needs to benefit from the vigor
and interest of the market and the state. At the same time, it must
not be dominated by either. Too close a reliance on market forces
reduces public benefits, a danger that may be magnified by the globalization
of investment opportunities, thereby introducing priorities at odds
with long-term national needs. However, the private benefits, both
to individuals and in the aggregate, are a powerful and legitimate
justification for higher education. No system of higher education
should forego the advantages of the compelling logic of private
investment for private benefit.
Equally, higher education must avoid being captured by the short-term
partisan interests of the government in power, or being stymied
by bureaucracy. This is not to dispute that the state has a legitimate
interest in the quality and scope of higher education. This chapter
emphasizes the need for state policies to protect and promote the
public interest in higher education. But a critical principle of
those state policies is sufficient autonomy for higher education.
Subordination to government pressures or short-term political considerations
will not create a system of higher education that serves the long-term
interest of the public.