Don't play Arjun Singh's game

Business Standard, 7 June 2006

Many decades ago, wrist watches made by HMT were a prized posession in India. HMT was practically the monopoly watch-maker. HMT watches were fairly-good, and they were scarce, so getting an HMT watch was a big deal.

The government wouldn't make top quality watches, or enough fairly-good watches, but it wouldn't let you start a company to make watches. On one hand, we had people in the government system trying to lay their hands on the scarce HMT watches. On the other hand, the rich exited the system by purchasing top quality watches when travelling abroad.

There was no SC/ST or OBC quota for HMT watches. Apart from that, it was a lot like higher education today, where the government produces a miniscule quantity of seats at the IITs. There is considerable media hype about how amazing some IITs are. I studied at IIT Bombay, and I am very happy to bask in the glory of IIT, but unfortunately this image is simply not accurate. The IITs face a serious crisis on recruitment, given the fact that good researchers now have a global market, and command wages that the public sector won't match.

While the fact remains that the first year curriculum at IIT is more challenging than MIT, this accrues entirely to the extreme challenge of the entrance exam. If MIT professors faced the kids who get through JEE, they would switch to the IIT curriculum.

As with HMT watches, the IIT degree is fairly-good and very scarce. It is Indian socialism in action again. The government won't produce a top quality education, or an adequate quantity of the fairly-good education, but it won't let you start a new university. On one hand, we have classic rent-seeking behaviour where an M. M. Joshi or an Arjun Singh tries to derive personal benefits from controlling PSU universities.

On the other hand, there is elite flight. The extent to which the elite has abandoned an Indian college education is remarkable. Judges, IAS officers, or CPI(M) ideologues: all espouse socialism when it comes to the man on street, but when it comes to their own children, only capitalist colleges will do.

With water or electricity, the rich have abandoned public goods in favour of private solutions like bottled water or generators. So they now have no interest in getting involved in solving public policy problems. In the case of higher education, the elite actually has a direct incentive to support socialist policies, because it increases the scarcity of education, and thus the lifetime income of their own children, who have escaped the Indian education system.

The problem of HMT watches did not get solved by tinkering with how HMT produced watches. It got solved by massive entry into the watch business, through abolition of industrial licensing. New producers started making watches - with no connection to the pace at which PSU reforms took place. Today, all of us are able to buy top quality watches. There is no need of quotas for SC/ST or OBCs, because watches are plentiful. There is no caste system where people who travel abroad have superior watches.

Manmohan Singh needs to do for higher education what he did for industry. What is required is a massive scale of entry into higher education, by removing entry barriers. India cannot hold its breath waiting for reforms at the IITs.

A remarkable feature of universities abroad is their superior management. Stanford and MIT know how to run campuses which take in 5,000 undergraduate students per year - a single campus would have more seats than all the IITs put together. Such entry would flood the market with top quality education offerings, and give us a situation like wrist watches today. If 100 new universities come up, each taking in 5,000 students, then this means that 500,000 students get in every year - as opposed to the 3,000 who get into IIT. There will then be no interest in discussing quotas, and there will be no caste system where kids who can afford a foreign education are a class apart.

Conservatives argue that private colleges are of poor quality. This is because today, with the license-permit raj in education, it is only politicians who run universities. If this were overturned - as China has done - Harvard and Oxford could be in India running campuses.

Conservatives argue that Harvard and Oxford are fine, but ordinary businessmen are not. E.g. in China, Microsoft has started a university, which involves conflicts of interest. I believe it is not easy to get a student to sign up for a mediocre degree; that competition without entry barriers will do the trick with education as has been the case with watches.

A perfectly acceptable compromise is to look at the Science Citation Index for the top 500 universities of the world based on the citations of research in science, engineering and mathematics. Incidentally, only three to four IITs make it into this list. These 500 universities should get an invitation to setup a university in India, while being promised they would never have to meet the HRD ministry. In order to avoid the Changi Airport problem, where the foreign partner merely supplies a name, the invitation should be conditional on 100% FDI. MIT-India is only interesting if it's all MIT.

Conservatives argue that poor people can't afford the fees charged by MIT-India, and that the real purpose of socialist education policy is to get votes from SC/ST and OBC voters. But nowhere does this proposal suggest that the existing government universities be closed down. The IITs can continue to offer their 3000 seats at a near-zero cost. Access to education for poor people would not go down owing to MIT-India.

We need to separate public funding and public production. If the State wants a certain group of voters to have watches, it is more efficient for the State to buy watches from a private and competitive industry through an explicit on-budget program, and gift these to the voters of interest. This avoids inducing horrible distortions in the watch industry. In similar fashion, if the State believes that it is important for SC/ST children to go to MIT-India, it should fund their expenditures for attending coaching classes and attending university, while completely staying out of the functioning of MIT-India.

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