Universities have been expanding worldwide. This reflects the combined impact of supply and demand factors.
Technology has enabled an expansion of education services at a cheaper price.
The most notable development is the provision of online-based tuition, which is only a fraction of the cost of the brick and mortar-based learning.
On the other hand, the expansion of the knowledge/service-based economy has placed greater emphasis on acquiring skills, thereby boosting the demand for tertiary education.
People familiar with any introductory course in economics will quickly realise that these factors determine a rightward shift in the supply and demand curves respectively, resulting in a higher equilibrium quantity of lecturing services.
The business case for more university services is thus clear. Whereas, traditionally, tertiary education has been seen as a public good, requiring taxpayers’ money, there are increasing options to turn education into a profitable business.
But what makes a good university? Just like when a new restaurant opens, it does not necessarily mean it will be good and it will succeed.
The role of universities has been well explored by economists. The first role which comes to people’s mind is that of creating human capital. Viewed along these lines, a university is there to supply the knowledge, both specific and general, necessary to enable someone to acquire skills. Take, for example, a surgeon, s/he cannot start performing surgery before the necessary knowledge has been grasped.
Does a university have to be located in an attractive location?
Accordingly, the best human capital can be gained if the lecturers are experts in their respective area of specialisation, if they have the right skills to disseminate such knowledge and if they have close enough links with the working world in order to be able to bridge any gap between theory and practice.
This also presupposes that all the relevant educational material, in terms of books, journals as well as online resources, are readily available.
The human capital theory is not the only possible explanation why people attend university. There are a number of jobs where it is possible to reach the same outcome without ever having studied at tertiary level, such, as for example, a salesperson or an office manager.
Indeed, the other theory which explains the popularity of universities involves signalling.
According to this theoretical framework, people invest in costly education – not necessarily financial but primarily in terms of the required effort – in order to showcase their potential to prospective employers.
Viewed along these lines, the quality of a university depends on the quality of the signal its students can convey.
In practical terms, the signal will be strong if the university gets a reputation of maintaining very challenging standards.
A degree obtained from a university with little credentials would be practically worthless because it cannot distinguish between the productive and the unproductive person.
Another important quality of a university is the networking opportunities it offers to students.
There is a higher probability that at selection stage people end up choosing those who attended the same class at university because people can judge the quality of the applicant based on at least four years face-to-face experience rather than just on what is written in a CV.
The quality of a university can also be judged by the quality of the students who study there, as shown by the successes they achieve after they have graduated.
Does a university have to be located in an attractive location? This could be relevant if there is a connection between the quality of the environment and the attainment of human capital, or with the cost of acquiring the education signal, or the networking opportunities that are available.
This interesting issue merits to be addressed in a dissertation.
Malcolm Bray is an economist.