Revival of tuition ceiling

Is allowing universities to run themselves such a tough call for policymakers? The college tuition ceiling has revived as agreed by both the ruling and opposition parties after more than a decade. The decision is a product of political collusion as the Democratic Party has dropped its opposition to the "study-now-pay-later" program and instead urged the ruling party to agree on the tuition ceiling. Imposing a legal ceiling on tuition is a price control. Universities are not allowed to increase the tuition more than 1.5 times of the headline inflation. Otherwise, they would face administrative and financial sanctions from the government.

Politicians appear to be considerate for parents and students. But a good intention does not necessarily lead to a desirable outcome. Everything in the world has its own rules and principles. If they are ignored and violated, a fatal outcome can occur regardless of the intention. We should recognize that the tuition ceiling, despite its well-intended purpose, is neither feasible nor desirable.

Education service prices and communication means

We first admit the fact that today's high education is not a closed society for those who know each other but a huge and open society consisting mostly of strangers. What matters most in any human relations are communication and its means. We exchange our view and thoughts with others through language. The evolution of civilization is interesting as it has created another means for communication. That is the market order and the prices of goods or services spontaneously set by the market.

Language would have been insufficient as the sole means of communication among a number of people who do not know each other and cannot directly see or hear others. It's price that makes it possible for them to communicate with each other. Price gathers information and data spread all around and impossible for anyone to obtain all and deliver them in a short form to those who need them. Without prices, a huge and open society would not have been created. This is an amazing aspect of cultural evolution.

Although it came out long after the prices of other goods and services, college tuition is a price of education service. Like the price of a good, tuition is an inevitable means that makes it possible for a number of anonymous people in an open education society to communicate with each other. The price of education service gathers knowledge from countless people directly and indirectly linked with the demand and supply and in various situations, including even implicit knowledge that cannot be expressed in words. And then it summarizes and delivers it to those in need of the information.

Intellectual conceit

As Friedrich August Hayek, the leading economist of the Austrian School, said in his book titled "Individualism and Economic Order," price enables people to know well beyond their capability. In other words, price allows them to know whatever they would not have known without price. The enormous and open higher education system would have not emerged in the absence of prices called tuition. As such, tuition is the nucleus of the education system. 

Against this backdrop, the parliament is set to control the prices of education service by law with the tuition ceiling. Is the price control possible and desirable? In short, it's impossible and undesirable for the government to arbitrarily decide the "appropriate" level of tuition increase. To make a fair decision, they have to collect and process all the existing and new data spread everywhere regarding the demand and supply of education service. How is it possible?

As seen in Hayek's "The Sensory Order: An Inquiry into the Foundation of Theoretical Psychology" (1952), it's impossible in essence. Individuals' "implicit knowledge" does not allow an access to anybody, including themselves.  Due to the "problem of knowledge," it's basically impossible to set the appropriate level of price hikes. Furthermore, price plays a role of relaying knowledge that exists beyond human being's cognition capacity or is newly created. People learn through prices. Therefore, it's not reasonable to control prices artificially. In conclusion, the legal tuition on college tuition is nothing but an abuse of political power and conceit of knowledge.

Fatal consequences

The tuition ceiling will inevitably lead to fatal consequences. In case of commodities, a price control usually results in poor quality or reduced supply. Sometimes it creates a black market. The move to control the price of education service is not an exception. Universities are forced to limit tuition hikes amid strong government pressure, which would over time lead to the deterioration in education service and research activities.  They will have to reduce their Investment in securing outstanding professors and improving facility needed to enhance the quality of research and education. It's obvious that universities will lose their competitiveness due to the limited capacity to produce well-trained talents and remarkable research outcomes. This is detrimental to the economic prosperity.

The government will try to increase its financial support for universities to prevent such a disaster. But that's not a good solution as it will cause another problem. Most citizens would have to pay more taxes. An odd situation will take place as workers without college diploma foot the bill of tuition for the students, even those from a rich family. This does not fit our sense of justice. It is one of the chronic problems caused by the state aid for college education. 

Price control is really fatal. It can destroy the entire city without a bomb. That's why it is rarely seen in advanced economies and more often in developing countries. It's a policy that only immature policymakers can think of. 

As Ludwig von Mises said in his book, "Human Action: A Treatise on Economics" (1949), the Roman Empire collapsed not due to outside invaders but due to the restraint on commerce and trade through price controls.

College tuition is of course a big burden on parents and students. However, imposing a legal ceiling on tuition increase is nothing but a populist idea and far from a fundamental solution. Price is an inviolable area that the government cannot do anything. A variety of scholarship programs at each university can help solve the problems of students from poor family.

Freedom for college education!

Our college education system lacks autonomy. The government intervenes into every area from recruitment to management and expansion. But there is one area that universities can decide at their disposal: tuition. Universities are allowed to set their tuition independently so that they could raise funds needed to meet their own development plans and management goals. Now, with the introduction of the ceiling, which is neither feasible nor desirable, they face the deprivation of the sole autonomy. 

German universities are a good example of a major policy failure as a result of the government's control. Germany enjoyed worldwide reputation for its college education in the early 20th century. About half of students in German medical schools were foreigners. German scientists grabbed 45 percent of Nobel prizes. Unrivaled development in medicine, physics, and chemistry proved the excellence of the German universities.

But they began to lose their fame in the later part of the 20th century. Currently, there are barely few internationally renowned universities in Germany. Only a few have kept their names in the list of the world's top 50 universities. Regretfully, their fame has completely disappeared. Everybody knows why it has happened: the government has introduced a number of regulations on universities for all kinds of ideological causes such as egalitarianism, public education, and paternalism.

Our higher education system needs to put the principle of freedom into practice. That's how universities can find and test the way to meet the demands of education consumers in an effective way at less cost, sparking a dynamic working of the discovery procedure. This is how we can enhance universities' competitiveness. This is the way to the prosperity.

I feel bitter that the politicians try things only to wither universities' competitiveness at a critical juncture for our economy to make a big jump and break through the threshold of $30,000 per capita income.

By Min Kyung-kuk / Professor of economics at Kangwon University