Disclosure-based approach to government's role in higher education

Business Standard has an editorial on a disclosure-based approach to government involvement in higher education:

The All-India Council of Technical Education (AICTE) has decided to approach state governments and ask them to close roughly 150 unapproved institutions. Some of these institutions are undoubtedly dubious (as are many that have received AICTE certification); on the other hand, one of the institutions in the gunsights of the AICTE is the Indian School of Business in Hyderabad, which is arguably India’s best business school. The crude approach of the AICTE brings basic questions about public policy on higher education to the fore. What is the appropriate role for government in higher education?

A major question animating law-makers is the fear of “fly by night” firms who will “run away” with the money of students or short-change them. This is reminiscent of the problems seen in the securities markets, where there are concerns about similar “fly by night” firms who sell securities to “hapless investors” and run away. In the securities markets, the country has seen a shift away from the Controller of Capital Issues—who gave out discretionary permissions to any firm seeking to sell securities—to the modern disclosure-based framework. In this disclosure-based framework, the government only emphasises the importance of accurate information being available to the investor when a decision is made to invest in a security.

A similar approach would work very well in education. In a disclosure-based framework, the focus of the government would be on disclosure. For the rest, the decision about what university a person chooses to go to is best made by that person—and not by the government. The key insight here is that—as with investors—students are not eager to waste money on earning low-quality diplomas. Students are self-interested and work hard on trying to identify good programmes. Their efforts at making a choice can be supported by the government, if it runs a disclosure programme whereby accurate and salient information is made available to prospective students. The great advantage of such a disclosure-based approach lies in the fact that it would eliminate entry barriers in higher education, and make possible a surge of supply through which shortages would ease. Reputed global brands would come into the country to offer educational services. The market for education would shift from the present framework of scarcity and low quality to one with competition and choice.

A healthy debate can take place on exactly what information universities and institutes should be required to disclose. The key decision that the UPA government faces is that of breaking with the established mentality of the ministry of human resource development, which is running a licence-permit raj with steep entry barriers into education, coupled with extensive meddling in the activities of universities. The task of the UPA now is to end the involvement of government in both the licensing of universities and their actual operation, and refashioning the HRD ministry so that it focuses on disclosure by universities in a way that supports the task of students faced with choice. On the securities markets, a small number of investors are cheated every year: they fail to understand the disclosures and make mistakes. In similar fashion, the error rate under a disclosure-based regime in higher education will not be zero. The rationale for a disclosure-based regime is not that it is perfect. The rationale for such a reform lies in observing that it will be much better than the present disaster in Indian higher education.