Market, state and trust


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THE accountability of institutions of higher education is an inherently tricky subject for a number of reasons. The first and most obvious question is to whom should these institutions be accountable? To whom should they have to justify their activities? Who should set the standards for them? The second set of questions is: No matter who holds them accountable, what standards should one bring to bear upon these institutions? What are the expectations that those who hold these institutions accountable should bring to bear upon them? How is the legitimacy of these expectations to be ascertained?

One short answer is that institutions should be accountable to those groups that support them or those whose lives they are fundamentally going to affect. But this general principle hardly reveals much. Indeed, the difficulties of how to think of accountability can be illustrated by a small anecdote. As an undergraduate at Oxford, I was the student representative on the politics sub-faculty of the university. Our mandate was simply to voice concerns students might have about various courses relating to politics. In an institution where the structure of courses had congealed over decades, this was at best a marginal exercise. But the prospect of eavesdropping on conversations amongst the famous and articulate faculty was, in its own way, thrilling for an undergraduate.

On one occasion, my colleague student representative and I expressed the view that certain restrictions on the combination of courses students were allowed to take were arbitrary (for instance, if you were doing PPE, you could not simultaneously choose to do ‘Philosophy of Mind’ and ‘Politics of Developing Countries’). Since most of these restrictions were for logistical rather than academic reasons, the faculty was generally sympathetic to our concerns. But my colleague, in demanding these changes, made a stirring speech about how the university should respond to the demands of the market more and honour the wishes of the students, who after all were the university’s ‘customers’.


At this point in the proceedings an old don, known for his conservative views, literally jumped out of his chair and looked sternly at both of us and said something like, ‘I don’t like the use of market metaphors at all with respect to university matters. But if you must use them, may I advise that you, the students, are not the customers, but the product.’ As if this repartee wasn’t crushing enough, another faculty member immediately muttered, ‘Product for whose consumption?’

In other words it is not easy to settle the two questions raised above: who should hold universities accountable and to what aspirations and norms? This debate is made even more complicated by the fact that the background conditions which enable accountability to operate are absent under Indian conditions. There are, broadly speaking, three attitudes one can take towards accountability: market, state or trust, each offering different institutional forms.

Rather than go into detailed proposals about the different ways of using the market, the state or trust as a mechanism of accountability, I argue below that the background conditions that make each of these possible are at the moment not available in India. Instead of the mechanisms of the market, state and trust emerging, we are seeing pathological manifestations of each form. The state can rightly point to the way in which the market is not producing excellence, the market can point to the way in which the state has failed, and there is no trust in trust. The real challenge at the moment is to get clarity on the background conditions under which accountability mechanisms of various sorts can operate.


The market: One can imagine a simple principle governing institutions – if someone is willing to pay to go to those institutions and someone is willing to employ the students of those institutions at rates that justify the investment made in going there, the institution is being held accountable. Sure, there might be problems about who can gain access to such an institution, but one might institute scholarship schemes to get around that limitation. But whether it is worth giving students attending those institutions a scholarship will itself be determined by the expected returns on going to that institution.

For a number of types of institutions, vocational and management institutes in particular, this principle is not a bad first cut. If the market is willing to absorb these students, or pay for other activities that go on there, who should object? But even the operation of this simple principle is not as easy at it appears. For one, it assumes easy entry norms into the education market; if the supply of institutions is artificially constrained through licensing or other barriers, the market will not function.


This, arguably, has been the case with some aspects of private education in India. A number of very bad institutions can thrive because they are not subject to adequate competition. In what country in the world does the creation of a university catering to undergraduates require fresh legislation each time? In what country do regulatory bodies apply a ‘one size fits all’ approach to all institutions? Instead of holding institutions accountable through transparency and competition, we often confuse accountability with control. But perversely, the thrust of our regulatory regime is to diminish rather than increase the supply of education.

This happens in many ways. At the most elementary level, if a good is in short supply, putting price controls does not necessarily solve the problem. Fees caps may help one to feel good that students are not being exploited. But they do little to overcome the conditions that enable educational institutions to exploit in the first place; they do not increase the supply of education. There is absolutely no doubt that an ideal education system should be needs blind. Any student should get into an appropriate institution independently of capacity to pay. This requires all kinds of measures by way of scholarships, loans, cross subsidies, direct transfers to students. But fees caps diminish supply of education more than they help the poor. And as supply increases average prices will come down. The acute problem of students not being able to afford education can be addressed only by empowering students directly, not by curbing the autonomy of institutions.


It is somewhat extraordinary that in a sector starved of proper investment, all kinds of forces are conniving to block the entry of foreign universities into India. They want these investments to be made in partnership with Indian institutions – in short not assign them any autonomy. There is outright hypocrisy in these restrictions on foreign investment in higher education. It is acceptable for those who can secede from the system through finance or talent to get an education abroad, but not for foreign institutions to provide education to those who remain in India. Why? Which sections of society does the current arrangement benefit? But all that market accountability needs is what markets in general need: as much information as possible. Who are the students these institutions admit? Where do its students typically end up? The assumption is that if we give enough information to empower those who need to make decisions and remove artificial bottlenecks, they will themselves hold institutions accountable.

Often the principle of competition can enhance quality. If universities, for instance, are competing for the best and the brightest, both amongst students and faculty, institutional quality may go up. But this kind of competition works only if there is a prestige attached to attracting the best and the brightest, and if a university thinks its reputation matters to its future vitality and growth. There is, however, an underlying background assumption to this: that universities think of themselves as having an identity, sustained over time, and that this is an identity in which its constituent parts, faculty and students, participate to some degree.

One of the peculiarities of the Indian university system is that in most universities, faculty and students do not have even a minimal sense that their own future depends upon the well-being of the university as a whole. There are several reasons for this. There is a vicious cycle where institutional quality deteriorates to the point where it fails to elicit any serious allegiance at all: if one was at Patna University, the only thing one might want to do is escape it. But the structure of universities: their large average size, their dispersed character, the fact that faculty have no control over whom they admit or what they teach, the fact that absolutely nothing hangs on a university’s reputation, simply means that this principle of competition simply does not operate within the Indian system.


In many instances, an incentive system within the university, often exemplified by automatic promotions, corroded the sense of aspiration of the university as a whole. What is known as Indiresan’s law, ‘First rate people appoint first rate people, second rate people appoint third rate people’, became the guiding principle of many universities. The identity of the faculty was not vested in making the university as a whole better, but in ensuring that they mastered the equilibrium of university politics rather than project the university outside. With a handful of exceptions, most universities do not measure themselves by their achievements in attracting the best. It is no accident that almost no university has had a proper discussion on how it wants to position itself in the next few years, much less what it will take to enhance its stature. This is all, in some ways, familiar to anyone who has looked at Indian universities over the last three decades.

But the point bears repeating: if we don’t have a university system, where universities (even in the state system) are competing to enhance their reputations, we have divested ourself of one crucial mechanism by which quality is enhanced, since competition does not work if universities don’t have a sense of themselves as institutions in the first place. In many ways, the competition principle in education works less on money and more on pride, but if pride in the institution does not impinge upon the lives and identities of those who inhabit them, competition is meaningless. Competition as a mechanism of accountability requires that it be allowed, and that it matter, not just in monetary terms.


Of course competition as a mechanism of accountability has serious limitations, especially in higher education. For one, a market may provide only information about an institutions’ relative success; it does not give information on how to improve. Second, there is a sense in which competition can make institutions too ‘other directed’; they take their cue from what others are doing rather than defining their own goals. This sort of ‘competition’ can paradoxically lead to homogenization (television is a good example of this, with everyone aiming at the median viewer). A lot depends upon the possibilities of occupying different niches; nevertheless, competition can sometimes pressurize institutions in the wrong direction. Third, competition can sometimes generate externalities – for instance, bidding wars over talent and prestige can, under certain conditions, raise costs of running institutions inordinately. Fourth, while to some degree the link between market worth and quality is direct, in much of what goes on in universities, the benefits are more indirect; indeed some would argue that their raison d’etre should be to think long term rather than respond to current pressures that competition inevitably generates. So while market and competition are good approaches to producing certain forms of accountability, they may not yield all the quality enhancement results desired.


The state: The state is clearly an important stakeholder in higher education, and can play a prominent role in regulating education and especially creating access. But the difficulties with the state’s role as a regulator are familiar. The state can, as has happened with the Indian state, become the locus of rent seeking; it can itself be governed by people whose general mediocrity and competence to regulate makes the regulator the problem rather than the solution; and finally, the state can itself impose extraneous conditions upon the institutions it seeks to regulate. Rather than preserving competition between institutions, giving institutions the freedom to experiment and align incentive, the state can make control itself its own raison d’etre. A full blown account of the state as a regulator in this field would require a longer essay, but it is worth pointing out that the state can be a more effective regulator only when it works in a manner consistent with competition and choice rather than stifling them. So here are a few examples of the way in which the state as regulator could achieve its own objective better.

First, India is one of the few countries in the world where the University Grants Commission acts as a grant giving body, an entry regulator, curriculum designer, and accreditation czar, all rolled into one. These functions must be parcelled out to different agencies. The UGC ought to confine itself merely to allocating grants to government institutions. Second, the state should not do what it does not have the capacity to do and should certainly not acquire monopoly rights. For instance, our accreditation system is a mess, in part because the state has insufficient capacity to accredit institutions. Instead of having just one NAAC, the state ought to be licensing a number of agencies, public and private to carry out accreditation if necessary.


Third, the problem is not just that we have a license permit-raj, but that our mode of regulation is inspection. Take the way we regulate professional degrees. Even in these spheres, we do not regulate at the right points. The public is interested that a lawyer or a doctor is minimally qualified. Is this quality better ensured by a creaky accreditation process for institutions? Or by really rigorous testing of the product? We have concentrated all our energies on regulating institutions by interfering in everything, from their admissions policies to the amount of land they can possess, but not done the obvious thing: have stringent licensing requirements in these professions, by testing individuals on the output side.

It will be far easier to devise and monitor high quality tests for professionals than inspect each institution. Such a process will be fairer as well. It will test individuals which, given really wide variations within institutions, is really important. It will enable professionals to better set standards for their own professions. And it ensures that the entire burden of quality control does not fall on an accreditation process. Obviously, strict tests for licensing individual professionals will not do away with all the imperatives to monitor institutions. But it will tackle the core objective of regulation better, by shifting focus from the number of rooms an institution has to the quality of their output. The state might here authorize professional associations to do this.

Fourth, take the vexed issue of access. In all likelihood the state will achieve better results if instead of micromanaging admissions policies, it created market power amongst marginalized groups. All available data suggest that income is the best predictor of ones chances of access to higher education. In fact access variation by income is much greater than by caste. So the real issue is creating income for potential college going students. This is not as difficult to do as usually imagined. Imagine what would happen if there were a couple of hundred thousand students from marginalized groups a year armed with generous scholarships, which they were free to take to any institution. This would automatically create incentives for institutions to cater to them. While access is an important issue, the general point here is that the state can work best when it seeks to empower and create choice, not control and regulate.


Trust: The third mechanism of accountability is not so much incentives, or bureaucratic oversight. Trust is fundamentally an appeal to something that has gone out of fashion: a sense of personal and professional responsibility, a sense that men and women are governed by a sense of striving and honour. We are today too cynical to even imagine how this sense of self was a valuable resource in producing duty and excellence alike. Indeed, there is evidence to suggest that an over-reliance on incentives and punishments can corrode the very motivations that sustain excellence in the first place.

Being beholden to a bureaucracy is not a substitute for an academic culture sustained on some degree of honour and conscience. True, there will always be free riders, always those who cheat. But we ought to recognize that in our zeal to regulate the last potential cheat, we can sap the sentiments of honour and trust on which any system has to rely. I actually think the real price of statism is the deep corrosion of internally generated motives, self-reliance, and a sense of vocation, in the best sense of the term. The romance of education and research has no substitute.


It is fair to argue that across the world, the best institutions are run by not-for-profit trusts, where the assumption is that extraneous considerations like profit do not determine the objective of the institutions. These institutions are shielded both from pressures of the state and the short term imperatives of commercialization. India too has a proliferation of trust run institutions outside the state system, and these are some of our best run institutions. But again, the regulatory restrictions on trusts, such as investment and saving requirements, are such that they favour trusts that are governed by short term goals over trusts that can strategize for the long haul. Is our regulatory structure penalising institutions that will not come to the field of education in the absence of the right kinds of incentives?

But the issue of trust does not merely refer to ‘trusts’ in a financial sense. I think fundamentally no system of higher education can succeed if it does not trust its professionals and stakeholders. But there is also a deeper sense in which we have corroded trust: the culture of instrumentalism in our times, where every idea is measured on the scale of money or power, riches or domination. Worse, once mere identity saps the animating energy out of our system, it will be very difficult to create and sustain excellence. How do we recover trust since trust cannot be created? The only answer is the radical gesture of assuming it: giving the freedom so that each can acquire a sense of their possibilities. The real tragedy of the debate over higher education is that it is marred by such an utter cynicism and instrumentalism that, in all likelihood, market, state or trust will all fail.


I cannot help thinking of George Eliot’s lamentation about debased moral currencies: ‘That is what I call debasing of moral currency: lowering the value of every inspiring fact or traditions so that it will command less and less of the spiritual products, the generous motives which sustain the charm and elevation of our social existence – the something besides bread by which man saves his soul alive. The bread winner… may demand more greenbacks for his day’s work; and so get the needful quantum of food, but let the moral currency be emptied of its value – let a greedy buffoonery debase all historic beauty, majesty and pathos, and the more you heap up desecrated symbols, the greater will be the lack of ennobling emotions, which subdue the tyranny of suffering and make ambition one with social virtue.’1

If education is fundamentally about creating ambition and making it one with social virtue, it will not survive without the infusion of high idealism that can halt the tides of a corrosive cynicism.



1. George Eliot, Selected Essays, Poems and Other Writings edited by A.S. Byatt and Nicholas Warren, Penguin Books, London, p. 440.