The Politics of Financing Universities

We are currently in the throes of an intellectual and political struggle for the very soul of our future. This struggle is not being fought on the campaign trail for the local government elections, yet when the dust settles, it will probably have a far greater impact on the future of our society than the rough and tumble of who become mayors and councillors. It is a struggle around the financing of higher education, and it is being waged by a variety of stakeholders in the corridors of our universities, in the flamboyance and rhetoric of student politics, and in the submissions to the Presidential Commission on Free Education and the Ministerial Commission on a fee regime. It is often difficult to make sense of this debate given its rhetorical flair, labelling and ideological fervour, but it essentially comprises three strands.

The first makes the case for free higher education and is perhaps most coherently summarised by Rasigan Maharaj, Enver Motala, Leanne Naidoo and Salim Valley in the online journal, The Conversation, and in their submission to the Presidential Commission on Free Education. It is also a view that is articulated more crudely by the EFF and some factions of the ANC. Essentially, this view holds that the costs of free higher education should be underwritten by a tax on the rich. This policy recommendation could be more effective than the one that is advocated by some vice-chancellors who propose a higher fee on rich students to cross subsidise the studies of talented students from poor communities. A tax would be a far more effective way to get the rich to pay, not only because of its administrative efficiencies, but also because it would capture a wider range of the rich, including those whose children are not in higher education in South Africa.

But here is the essential challenge to the free education paradigm. While taxing the rich to underwrite higher education is a far more efficient option in policy terms, is it politically feasible in South Africa at this historical moment? Our scepticism is threefold: First, there is a serious trust deficit in the state which means that the rich are not very keen on increased taxes and will engage in tax avoidance. Second, we are not sure that the state has the political will to implement significant tax increases. Significant sections of the political elite are concerned that it may chase away investment in a world where capital has never been so mobile. Finally, we do not believe that the state can afford a significant tax increase at this historical moment. It may have been more feasible in 2006 when our economy was growing at 5/6%, but we do not believe that a dramatic increase is affordable in an environment where the economy is growing by close to 0% and where there are multiple other legitimate demands on the public purse.

In this context, should higher education executives not be prudent and have a plan B? Some bristle at this suggestion for they assume that it is a means to deflect from the free education option. They raise the panacea of social mobilisation by students, and remind us of what we have often said since the October protests last year; that the students achieved more in 10 days than vice-chancellors achieved in 10 years. This is entirely true and points to the power of social mobilisation. But recognising the power of social mobilisation must not lead one to fetishise it.

Social protests often succeed in changing systemic possibilities when they take the form of short spontaneous bursts, which must then be capitalised upon by astute leaders who use the openings to drive through significant sustainable change. But this requires political nuance and an understanding of trade-offs. What is often not understood about last year’s protests is that while students did indeed succeed in forcing the state to make available resources for a 0% fee increase, the costs of this were born not by political elites, but by marginalised communities whose social support programmes were cut. Unintended consequences can arise from social action. This does not mean that action must not be undertaken, but it does require that social mobilisation must not be fetishised and romanticised. Moreover, it requires social action to be accompanied by a thoughtful activism.

Here is the danger of a misreading of the political moment or an adventurist display of social action. State elites could very well concede the demand, but as on the rest of the continent, they might fail to make available the requisite resources for their populist concession. The net effect will be – as it has been in other African societies – the immediate collapse of quality higher education. We are aware that some have suggested that we must implode higher education, and only then can we rebuild it from the ashes. But such individuals have never built anything worth a damn. Moreover, many of these individuals, who we have come to cynically refer to as ‘members of the Pol Pot brigade’, will not have to pay the costs of the collapse of universities. Too often, they already have their degrees, their children are in private schools, and many carry second passports. The consequences of these choices will ultimately be borne by future generations of students, and society as a whole because of the entrenchment of inequalities that would likely flow from the collapse of public higher education in South Africa.

It is the prospect of this outcome that has galvanized the two other strands in this debate. The first, advocated largely by government officials and even some associated with the Ministerial Commission on a fee regime, makes the case for a CPI increase in university fees. Many of these individuals recognise that costs within universities increase annually beyond CPI. This is often referred to as higher education inflation (HEI). It occurs because a portion of a university’s costs – library books and journals, high level research equipment, collaborative research costs – is heavily dependent on exchange rates. Estimates from Universities South Africa (USAf) and even the Ministerial Commission suggest that HEI is probably 1.7 to 2% higher than CPI. Despite this, and recognising the adverse economic circumstances that we are all embroiled in, these individuals advocate for a compromise which is a straight CPI increase in university fees. They hope to sell this through both a rephrasing of the terminology – referring to the increase as an ‘inflation linked adjustment’ – and a marketing strategy that explains the importance of the fee adjustment for supporting the poor. The hope is that this compromise would avoid a new round of student protests.

However, this concession is unlikely to avoid protests. Social struggles are not a result of rational processes of engagement. They are a product of interests and power, and no rational engagement about evidence is going to prevent protests if that is the intended aim of the core constituency. It should also be remembered that the constituency that has led the student protests is essentially the ‘missing middle’. Research modelling the impact of a CPI increase shows that it would adversely affect the comprehensive and traditional universities in the metropolitan areas, the very institutions where the missing middle is located. It is also worth noting that the Presidential Task Team on short-term solutions at the end of last year prioritised the poor through additional funding for NSFAS, as did the decision by the DHET that all NSFAS students who qualified should be enrolled. This was, of course, legitimate given that the poor have the greatest need. However, again, the impact of this decision fell on the missing middle and on the very institutions where the core constituency of the protest lies. Ultimately, protests can only be averted by political leadership and a willingness to engage in trade-offs, two criteria that have been in short supply in recent months.

Just as importantly, the concession of a CPI increase runs the serious risk of permanently damaging the university system. It should be borne in mind that, in addition to HEI, increased costs at many universities are being driven by decisions to insource vulnerable workers. This has added an additional 3 to 4% percent on these institutions’ expenditure. The net effect is that costs in many of the urban universities are currently increasing at 12%. In this context, a simple CPI increase would be about 6% below real cost increases. The research that models the impact of a CPI increase also shows that if insourcing costs are included, 15 out of a sample of 21 universities would be financially worse off. This suggests that almost two thirds of our universities could be financially impaired, a dramatic blow with severe consequences for the quality of the one functioning higher education system on the continent.

The final strand therefore insists that the fee increase should be HEI at a minimum. This could be done by sharing the obligation, with student fees accounting for a portion (let’s say CPI) and the difference being made up by a separate state grant. The non-negotiable must be that income must not increase below HEI. But how are students to afford this? We may have to use the banking system. Sizwe Nxasana, Chair of NSFAS and the previous CEO of FNB, is working on a model to fund primarily the missing middle by using a mixture of government guarantees, social responsibility bonds and other financing mechanisms to create a new finance vehicle. Similar proposals have been advanced to the presidential commission by Daniel Bradlow and Eddie Webster. This is not the best case scenario for it would entail students graduating with a debt. Moreover, it could further consolidate inequality.

But it does address our immediate challenge, which is to enable access to university education for all who qualify. Essentially, what we would be doing is to address this immediate challenge and agree that all stakeholders live to fight a further battle on another day.  We are in a moment where we have to make a decision between unpalatable choices. We wish that this were not the case, but social change has to happen from within its context, and not a world that we wish existed. Our responsibility is to not avoid making a decision, but to make the decision that is least offensive. This decision need not be permanent. It can simply be a choice to enable both some progress and the continuation of the greater fight.

This is, after all, how most social change happens. Systemic and societal transformations do not happen in a single moment. If anything, they result from the accumulation of smaller social reforms that then collectively transform our society. But this requires political nuance and integrity from our leaders. Without these criteria, we risk unintended consequences that could cripple our societies. Some factions of the current cohort of student activists have accused Mandela and his generation of having sold out and compromised on the principle of socio-economic inclusion. Is it not ironic that they risk doing the same by pursuing maximalist demands that could effectively destroy the very foundation of quality higher education in South Africa? Now, more than ever, there is a need for a thoughtful activism.

Opinion Piece published in the Sunday Times_17-07-16

By Adam Habib and Ahmed Bawa

Habib and Bawa are Chairman and CEO, respectively, of University South Africa