Sally Hunt from the UCU

What?

“There is also the issue of prestige. By introducing a free market in to higher education and forcing universities to compete with each other for students, institutions are afraid that if they charge less than their next door neighbour students will see their courses as inferior.”

It’s amazing how that works out, isn’t it? Every shop I know of screams out that it wants to charge me more than the others and that by being charged more I’ll make sure that I don’t purchase inferior goods. Same with the car dealers, you know, all those signs saying “highest prices here!”. And the housing market: no, really, people do go around saying “well, I could have got it for £200k but I though it was so much better to pay £300 k for it.”

Jeebus, there must be at least one economist in the UCU. Any chance of getting Sally to have a little chat?

23 comments on “Sally Hunt from the UCU

  1. What about Veblen goods? Not that I think education is one, but the general concept isn’t totally outlandish.

  2. But this depends on the independent information available, doesn’t it, about the quality of the good that’s being bought? And the incentives that people have to find a genuinely good university, as opposed to one that signals that it’s good.

    My NZ health economist friends tell a story of one time, to try to control prescription costs, the NZ government decided to give doctors a list of prices of the different medications, in the belief that when the doctor was prescribing something the doctor would decide to prescribe the cheaper one if the two options were identical. Spending on prescriptions rose sharply – the doctors thought that the more expensive one might be better.

    And, for education, the estimates I’ve seen for lifetime return from a degree imply quite a bit of return from the average degree.
    Megan McArdle had an interesting speculation – that US college costs had risen so much with the government supporting student loans. That before government support, colleges could only charge what 18 year olds and their parents could pay, and for most 18-year olds that isn’t that much, as few people are willing to lend money without collateral to 18 year olds. But with government loans, colleges could take more and more of that lifetime return.
    So it’s one thing to let unis charge what they like. It’s quite a different thing to have the government subsidise the loans for this.

  3. Also I think the housing market does contain examples where discounting reduces the likelihood of sales. It’s not that you would rather pay £300k than £200k for the same property, it’s you don’t know the quality of the item you are buying and the price is one factor to go on.i

  4. To be charitable, I think she’s talking in marketing terms here about price being a signal – a Mercedes is more expensive than a better equipped Mazda for a whole range of reasons, but one of them is to differentiate on perceived quality.

    But, yes, she sounds like a dork.

  5. There’s a big issue though about the quality of education in different types of establishments. The newer universities (former polys) are very touchy about it. But they really don’t seem to be as good as the older ones. They’ll be damned if they’ll price to reflect this, though. Academic egos, especially mediocre ones, are powerful (if occasionally insane) forces.

    But if their degrees really don’t add the value to earning ability, they’ll have to price down eventually.

  6. “But if their degrees really don’t add the value to earning ability, they’ll have to price down eventually.”

    It’s going to be difficult to measure this though, isn’ t it? Time lags, changes in teaching and facilities over the length of those lags, different subjects with different records etc.

  7. This is one of the reasons having a cap on the price is a silly idea. I have a suspicion that university administrators will see the cap as a target, and will believe that the target will enforce a sort of Veblen regime. I’m not certain but that they may not even be right on the latter point.

    Without the cap, there would be no reference price for guiding expectations.

  8. There is a grain of truth in her utterings though. The market aimed at (teenagers) is used to paying over the odds for ‘designered’ goods for perceived status reasons.

  9. She was on R4’s ‘The World Tonight’ recently, complaining that London Metropolitan University was axeing some 300 courses. LMU’s Vice-Chancellor had just said that 80% of LMU students did c.80 courses, so lots of courses had to go. Sally Hunt spluttered that this was unacceptable when axed courses included “mainstream subjects like…trade union studies”!

    I look forward to her being interviewed by Jim Naughtie, by the way…

  10. I am a university lecturer. For a change, I agree with her, at least for decent universities and courses popular with employers. What’s the extra repayment per month on 9k a year over 7.5k? Not much. Things might change for the lower division universities. can’t see 9k being sustainable.

  11. John Kay has an interesting take on a similar theme relating to property – akin to Matthew2’s point. His consultancy firm was trying to sub-let their office. They advertised it at the rent that the realtor suggested but nobody came forward. Being good Worstall-type economists, they dropped the rent. Again no takers. So they re-advertised it at the realtor’s suggested price and eventually got a tenant – who they had to sweeten by offering a rent-free period and a contribution to mfitting-out costs.

    The rent sent a signal as to the kind of property it was. So when they dropped the rent, the prospective buyers assumed there must be a probloem with the building, otherwise the rent would have been in line with the rest of the market. The market rent sends a signal to all those people who are not property surveyors.

    It seems that the market for university places might work in similar ways.

  12. It does seem daft for the government to argue (correctly, as far as I know) that the deal on student loans is pretty generous to the student and then to be baffled that the Unis respond by bunging up the price. If you subsidise the buyer, don’t you expect him to be a bit reckless with the cash, and so expect the sellers to rook the mug?

    And as for the idea that students will try to try to get good value out of their degrees: if you suggest to a class of students that you might shorten a lecture course, I promise you that they mostly don’t cry “No, no, how dare you subtract from the value of my degree?”; they cheer.

    The whole business of Higher Education, and its lengthy bubble, needs a more intellectually acute examination than is implied by assuming that it’s identical to buying a pound of apples. It’s much odder than that.

    For what it’s worth, I thought that the general moral standards I encountered in industry rather higher than those I encountered in the universities.

  13. Come off it Tim, there’s prestige purchases already where high costs seemingly mean higher value. Profit is a given, pricing is based not upon maximising revenue, but outdoing the competitor. In supermarkets, the pricing is lowered – in something like vertu phones, where price is not an issue for customers, high prices are good things.

    Higher education is fast becoming like the vertu phone market, not the supermarket. Only here it does matter that the customer is getting ripped off.

  14. dearieme

    “For what it’s worth, I thought that the general moral standards I encountered in industry rather higher than those I encountered in the universities.”

    Really? Or are you just being provocative? I kinda think that the sets of standards are equivalent, having worked in an industry where there were many financial collapses at the turn of the century, all driven by people not daring to buck what the consensus wave was wanting mthem to do.

  15. In industry there was less bullshitting about motives in my experience, and a commendable effort put into making scientific measurements that were accurate. Contrast that with the academic rush to get data that’s publishable rather than accurate. Mind you, I mean “industry” as in making stuff: I have no experience in what’s called the “Financial Services Industry”.

  16. If it were not for the bureaucracy, I would be tempted to set up a profit-making university.

    I reckon we could do a decent law or business degree for £6,000, rather than the £20,000+ most universities will be charging soon, and still make a decent profit.

  17. Having experienced working in universities and the private sector, I would add to dearime’s comment that in my experience the private sector is also better at co-operation, collegiality and fostering an intellectual climate. And the staff are treated better by the management.

  18. Your argument isn’t stricytly true. A Toyota will get from A to b quite reliably, safely and in about the same time as it takes a Maybach or a Roller. Some people just like to travel in something a little more exclusive.

    Presumably the same will happen if university education is made a free market commodity. Most people will look for value, but some will always be prepared to pay extra just to be able to say they spent three years at Watford Polytechnic University.

  19. oh come on Tim – a university education is blatantly a good whose value is dominated by reputation. The value of a car rises to some extent if other people think it’s a good car, but the value of a degree rests almost entirely on whether other people think it’s a good degree, and price is a signal.

  20. Jon – I happen to have a nice spreadsheet for doing PV calculations costing the new student loans scheme…

    £9K*3 loan: median monthly payment £125
    £7.5K*3 loan: median monthly payment £122

    PV total cost, £7K*3 loan: £31K
    PV total cost, £9K*3 loan: £38K

    Based on average graduate earnings (ONS stats); all figs in today’s money.

    It may be co-incidence but for the graduate on average earnings the cost hits a maximum at around £9K/year borrowed. i.e. borrowing 3*£13K (max fee+maint grant) is no more expensive than borrowing 3*£9K.

  21. Richard: I keep wondering about the same thing, but in mathematics and related subjects. We can offer science degree benefits at arts degree costs, which only leaves a few small issues like staff, space, advertising, finance, accreditation and of course your bureaucracy!

  22. Philip Walker:

    – staff & space can be hired, and I think pretty easily (certainly in the subjects, and small numbers, I was looking at)

    – finance can be arranged (on the numbers I came up with, it was a good little investment)

    – for advertising there would be loads of media interest (even if hostile) for a really cheap university.

    The bugger is the accreditation, and the related bureaucracy.

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