The current subsidy scheme in NUS and its voucher alternative
If anyone were to ask me, "What is the one lesson you have learned from Public Finance beyond the final exam," I will reply that I finally saw how a simple indifference curve diagram can actually make me understand why I choose to study in NUS instead of ever considering an overseas education. I remember sitting down on a grass lawn at the University of British Colombia, where I spent one semester in my third year as an exchange student, marveling at how economics has the capability of revealing to me what I should have known all along.
When I did my honours year here in NUS, I immediately jumped at the opportunity to do a thesis on the neoclassical paradigm, the dominant paradigm in economics that we are learning in all our economic courses here. I want to find out for myself, what is it about neoclassical economics that it can provide such illuminating insights about human behaviour. For the introduction of my thesis, I actually mentioned the above lesson that I have learned, to illustrate the originality of my thesis.
Of course, I had to face various obstacles along the way, including some from my peers who gave me the kind of look that seems to say, "Don't you know that a thesis with neither mathematics nor econometrics will always give you a second class lower honours? You are not supposed to be enjoying your honours thesis." Well, I had to constantly pray to God to trust in him and do a thesis that I have a passion in. I am certainly glad that he has shown that he will supply all my needs.
Let us now focus on the issue at hand J. The current system of subsidy for higher education in Singapore is in the form of a fixed-quantity subsidy. That means that, you can only get the subsidy if you enroll into NUS or NTU. For those of you who have seen the Great Eastern Life TV advert about their educational policy, the anguished look of the father says it all, for a kid who either fails to qualify for a local tertiary education or wishes to go for an alternative university, you have to foot the entire cost of a university education. Given this kind of situation, it is no wonder that we have never considered overseas education at all, as long as we can qualify for NUS. Using indifference curve analysis, given our income levels, most of us are clearly "maximizing our utility" by choosing NUS in the presence of such a subsidy system.
Now, what happen if the subsidy system is in the form of a voucher scheme instead? The basic philosophy underlying the scheme is that, by virtue of the fact that you are a Singaporean, as long as you qualify for a university education, you will be given an equivalent amount of subsidy to subsidize your education in any overseas university that you wish to attend. From the indifference curve analysis, you can clearly see that, under "strong preferences" cases, we will consume a "higher" level of education, assuming of course that all of us think that an overseas education is of higher quality than a local one. I personally do not think that it is an unreasonable assumption J, given that almost all our best scholars are sent overseas by the government.
What does that imply for our 'beloved' NUS? One essential prediction of neoclassical economics, is that competition tend to result in 'efficient' outcomes. We should be seeing NUS delivering higher quality services, catering more to 'consumer satisfaction', and at lower prices, if the theory predicts correctly. For me to keep my job here, I will need to teach in a way that ensures all of you will walk away happy, otherwise, I will get less students and my salary will get cut J. The various clerks and receptionists in the registrar, the departments and the dean's offices will have to be more courteous to you students, otherwise you will all move to Harvard or Cambridge. The librarians in the Central Library will have to be more courteous to you students at the loan counter as well. As for the lower prices, my experience in the University of British Colombia, widely acknowledged as among the top 3 universities in Canada, tells me that a foreign arts or commerce student pays about S$8,000 per year, in 1996. That is remarkable if you consider that the 'true' cost of an NUS arts education is about S$15,000 a year, in 1999, even when we take into account annual fee increases. If NUS have to compete with such universities for Singaporeans, I am sure the incentive to reduce costs would be stronger.
I suppose you get the picture. What about the costs involved? Firstly, some people might argue that the cost would be prohibitive to taxpayers as more students would qualify for the subsidy under the voucher scheme. That is certainly true but the essential equity question is why are we making parents, of children who wishes to go overseas for a university education, foot the entire cost of an overseas education. This is despite the fact that the subsidy we NUS students enjoy now, are from the taxes that these parents pay too. If I am such a parent, I would feel the pinch of being under a "double-taxation" scheme.
A second concern would be the problem of quality control. Well, it would be easy to start off the voucher scheme with a list of maybe 20-30 overseas universities with reputable quality, such as Yale, Cambridge, Sydney etc, where a student would need to produce an acceptance letter from them to MOE, in order to qualify for the subsidy. Another similar concern is that we might get too many lawyers, doctors etc if we move to a voucher scheme. Well, you can always allocate education vouchers in a way that limits the number of each profession according to our manpower needs, in the same way as NUS is currently doing with regards to places in medical or law school.
A third concern is that overseas universities would be benefiting from taxpayer's money through the voucher scheme. They might even set higher fees if they realize that Singaporeans are under the voucher scheme. Well I think the effects would be minor. The cost of an overseas education is not just the direct tuition cost. Besides, any overseas university attempting to raise their fees without any quality improvement would run the risk of a Singaporean choosing another university, which then might be NUS. The basic philosophy behind the voucher scheme is that every student who qualify for a tertiary education be given the same subsidy. It is then up to him to decide where to seek an education that best suits his needs. We should trust that individual's decision making abilities and not think that, by restricting him in some ways, we can make him better off.
A final and, in my opinion, perhaps the most important concern to the government is that, from PM Goh's recent National Day Rally, more Singaporeans will go overseas and not come back. Currently, many Singaporeans who are overseas are there because they are under scholarships, which bond them to come back to Singapore. Consequently, some people may even argue that scholarships will lose their prestige, given the voucher scheme. Those questions seem to be beyond the scope of economics. However, I would say that it is debatable whether it is beneficial to Singapore, in the long run, in denying Singaporeans like Hector Yee, who was in the center of the bond breaking controversy last year, the opportunity to participate in the global labour force. A recent letter to the Forum page made that point clearer here.
Milton Friedman was perhaps the first economist to forcefully push for the voucher scheme in the USA. At that time (1955), he was from the University of Chicago, well known for their strong belief in the power of the free market and against government intervention. He has even set up a foundation for the promotion of this scheme. A clear summary of the benefits of vouchers scheme can be read here; notice how the first paragraph really reflects how the fixed quantity subsidy in NUS works. Other useful materials about the voucher debate can be found here. An important note is that all these resources are based on the US context, where individual freedom is important. If you belong to the majority who 'rejects western-style democracy and cares more for bread and butter issues', then read these with a pinch of salt.
Latest addition
I have recently came across an article from sociology that provides another perspective over the issue of voucher and choice. It balances the above perspective with a warning that such a scheme may lead to greater social stratification, in the sense that many well-off Singaporeans might take the lead abroad while NUS/NTU will be filled with the less wealthy Singaporeans. I know this might already be happening now but this article argues that it will make it worse. On the other hand, a respondent to the article claims that having a voucher scheme would replace the existing stratification of the current scheme, which is based on income and race, to one that is based on performance and behavior, and he argues that the latter might be better. This article requires Adobe PDF reader and is 930 kb large, not too big for you I hope.