For some time now, education has been a top priority for the government. They have been tackling standards in schools and have a target of a 50% participation rate in higher education. Most people agree that school education should be free, but opinion is divided when it comes to higher education. Is the return to the individual greater than that to society or vice versa? Is it the same for all degrees? This is one of the questions that affects funding. Should the individual pay? Or the government? Or should there be a mixture of funding?
The question of university education has become even more of an issue in the current recession, with many seeing a university education as a way of avoiding, what could be, inevitable unemployment. With this increase in demand, there is increasing pressure on the funding: it is simply not fiscally feasible to fund everyone’s university education. As such, business leaders have advised a rise in tuition fees. Students could be charged thousands more and made to face a higher interest rate on any loans. This highly contentious issue is considered in the articles below.
Charge students more, say bosses BBC News (21/9/09)
Middle class university students ‘should pay more’ Telegraph (21/9/09)
Elite universities plan to cut UK student numbers amid funding drop Telegraph (20/9/09)
Fee rise must aid poor students BBC News (27/7/09)
Loans delay for 150,000 students continues Daily Mail (19/9/09)
‘No fee degrees’ university plan BBC News (8/7/09)
‘New market’ in education (podcast) BBC Today Programme (8/7/09)
Bring back tuition fees for middle class students Scotsman (11/9/09)
CBI advises raising university fees to £5,000 a year to tackle funding crisis Guardian (21/9/09)
University ‘way out of recession’ BBC News (8/9/09)
Schools secretary Ed Balls under fire over education cuts Mirror (21/9/09)
Students should pay more – CBI (video) BBC News (21/9/09)
Questions
- Why is education described as a merit good? Explain the characteristics and why it constitutes a market failure.
- Identify any externalities involved in higher education. Do they imply that the free market would led to a level of higher education that is above or below the social optimum?
- List the costs to society of a university education. (Think about opportunity cost).
- What are the arguments for (a) only the individual funding their university education (b) the government funding university education (c) a combination of both?
- Is it a reasonable policy to increase university fees? If so, should students receive loans to cover this increase? If not, what do you think is an alternative option to help this funding crisis?
On 30 August, Japan’s opposition party, the Democratic Party of Japan (DPJ), won a landslide victory in the Japanese election. Although there are signs that the Japanese economy is beginning to pull out of recession (see Green shoots as autumn approaches), deep economic problems remain. Unemployment is at record highs; it has the highest national debt as a proportion of GDP of any of the G8 countries (see OECD Economic Outlook Statistical Annex Tables; consumer spending remains subdued; deflation seems entrenched; exports have slumped; bureaucracy is deeply embedded in government; and it has a rapidly ageing population.
So what is expected of the new government and what can it do? The following articles address these questions.
Japan’s Hatoyama sweeps to power (video) BBC News (31/8/09)
New Japanese government seeks a strategy for growth The Nation (Thailand) (1/9/09)
Japan’s new leader faces tough task Radio Australia (1/9/09)
Hatoyama faces daunting economic task BBC News (31/8/09)
DPJ needs to reinvigorate domestic economy of Japan China View (1/9/09)
Analysts worry DPJ’s policies may be a bane to Japan’s economy Channel NewsAsia (31/8/09)
Hamish McRae: Post election, what do the Japanese really want to do with their country? Independent (1/9/09)
Japan’s Government: Five Ways to Fix the Economy Time (1/9/09)
The vote that changed Japan The Economist (3/9/09)
Questions
- Paint a brief picture of the current state of the Japanese economy.
- What policies are advocated by the new government and what difficulties lie in the way of achieving the policy goals?
- What supply-side policies would you recommend for Japan and why?
There are seven Indian airlines: state-owned Air India and six private carriers. Since the onset of recession they have all been making losses and were considering a one-day ‘strike’ when services would be removed. The aim was to force the Indian government to reduce fuel and airport taxes.
Do the losses suggest that there is overcapacity in the Indian airline market? Does it matter if, during the current recession, some airlines go out of business? Are bankruptcies necessary if the surviving carriers are to be stimulated to make cost savings and are to achieve sufficient economies of scale? Or should governments offer support to struggling airlines? Is oligopoly the best market structure for such an industry and, if so, how can collusion be avoided? The following articles consider these questions.
How many airlines do we need? Business Line (The Hindu) (4/8/09)
Indian airlines call off Aug 18 strike Forbes (3/8/09)
When corporations capture the state Rediff Business (7/8/09) (see middle part of article)
Blaming everyone else Indian Express (3/8/09)
India’s air carriers spin loss riddle Asia Times Online (8/8/09)
A strategic vision for Indian aviation The Economic Times (8/8/09)
Flight to value The Economist (6/8/09)
Federation of Indian Airlines
Questions
- Describe the features of the market structure in which Indian airlines operate.
- Is the Federation of Indian Airlines a cartel?
- Should (a) any; (b) all Indian airlines be given government support, and, if so, what form should the support take? Should Air India be treated differently from the other Indian airlines? Explain your answer.
- Is it in Air India’s long-term interests to embark on a price war with the other Indian airlines?
- Is oligopoly necessarily the optimal market structure for a capital-intensive industry?
Nationalisation has been coming back into fashion lately with the UK bank bail-outs. In other parts of the world though, it has been back in fashion for longer and the articles below look at two recent cases in Latin America: the nationalisation of the Chaco energy company and the renationalisation of Spanish-owned airline, Aerolineas Argentinas (AA).
Bolivia nationalises energy firm BBC News Online (24/1/09)
Argentina renationalises airline BBC News Online (18/12/08)
Questions
- Explain what is meant by nationalisation.
- Discuss the arguments for and against nationalising (a) an airline and (b) an energy firm.
- Assess why nationalisation has become more prominent in the media recently than privatisation.
- Discuss the arguments for and against privatisation.
The Chancellor, Alistair Darling, announced in January that the government wanted three-year pay deals with public-sector workers. He argued that this would help with planning for public-sector finances. But many commentators likened it to the pay freezes and incomes policies of 30 years ago. The articles linked to below from the Guardian look at the similarities between the economic situation now and 30 years ago.
| Questions |
| 1. |
Assess the likely success of a three-year pay deal in keeping the level of public-sector pay under control. |
| 2. |
“The story of the past 32 years is of how three big factors – privatisation, globalisation and curbs on the power of trade unions – have made it far harder for pay bargainers to use low levels of unemployment to win hefty pay awards.”Explain how these factors have changed the balance of power in the labour market. Discuss the extent to which this assertion is true. |
| 3. |
Discuss the extent to which the economic situation in 2008 is similar to that in the 1970s. |