ACADEMIC economists like to make fun of businesspeople: they want competition when they enter a new market but are quick to lobby for subsidies and barriers to competitors once they get in. Yet scholars like me are no better. We work in the least competitive and most subsidized industry of all: higher education.
I do not want to suggest that helping underprivileged students attend college is bad. A true free-market system equalizes opportunities, if not for fairness, at least for efficiency: talent should not be wasted.
The best way to fix this inefficiency is to address the root of the problem: most bright students do not have any collateral and cannot easily pledge their future income. Yet the venture-capital industry has shown that the private sector can do a good job at financing new ventures with no collateral. So why can’t they finance bright students?
Investors could finance students’ education with equity rather than debt. In exchange for their capital, the investors would receive a fraction of a student’s future income — or, even better, a fraction of the increase in her income that derives from college attendance. (This increase can be easily calculated as the difference between the actual income and the average income of high school graduates in the same area.)
This is not a modern form of indentured servitude, but a voluntary form of taxation, one that would make only the beneficiaries of a college education — not all taxpayers — pay for the costs of it.
This proposal is worth discussing not because there is much danger that it will literally come to pass but because it shines sunlight on the mind-set of many conservatives, exposing a way of thinking that does in fact result in many policy decisions that are hurting American higher education.
There are lots of problems with Zingales’s proposal, but the most important one is that it conceptualizes higher education as an almost purely private good. His new system, he says “would make only the beneficiaries of a college education—not all taxpayers—pay for the costs of it.”
But of course the reason that American taxpayers have long subsidized college attendance as well as K-12 education, is that we are all “beneficiaries” to some extent when other members of society are better educated. Elderly people, who don’t have kids in public schools or in public universities, nevertheless benefit from the scientific and literary advances made possible by the education of others. As Claudia Goldin and Lawrence Katz have so persuasively documented in The Race Between Education and Technology, we all benefit when America invests in education and make the U.S. able to compete internationally and raise the standard of living in this country. And we all benefit when education helps democratic citizens better evaluate debates and arguments under our system of self-governance.