A Modest Proposal? Basic Capital versus Higher Education Subsidies

Stuart White

Jesus College, Oxford

stuart.white@jesus.ox.ac.uk

Presentation for seminar at the Havens Center, University of Wisconsin, September 2009

The questions

Overarching question: Do governments spend money on young adults in ways that correspond, equitably, to the interests which such spending should serve?

Specific question: Is it more just to use the funds we put into education subsidies, in particular higher education subsidies (HES), to pay a basic capital grant to all young adults instead?

What to do for Mr. Bast?

‘‘Something must be done for Mr Bast’: his conditions must be improved without impairing his independence; he must have a free library, or free tennis courts; his rent must be paid in such a way that he did not know it was being paid; it must be made worth his while to join the Territorials; he must be forcibly parted from his uninspiring wife, the money going to her as compensation; he must be assigned a Twin Star, some member of the leisured classes who would watch over him ceaselessly…; he must be given food but no clothes, clothes but no food, a third-return ticket to Venice, without either food or clothes when he arrived. In short, he might be given anything and everything so long as it was not the money itself.

And here Margaret interrupted….‘Give them a chance. Give them money. Don’t dole them out poetry, books

and railway tickets like babies….give people cash for it is the warp of civilization, whatever the woof may be. The imagination ought to play upon money and realize it vividly, for it’s the – second most important thing in the world. It is so slurred over and hushed up, there is so little clear thinking – oh, political economy, of course, but so few of us think clearly about our own private incomes, and admit that independent thoughts are in nine cases out of ten the result of independent means. Money: give Mr Bast money, and don’t bother about his ideals. He’ll pick those up for himself.’

She leant back while the more earnest members of the club began to misconstrue her….’ – E.M. Forster, Howards End, chapter XV

Basic capital

Basic Capital: all citizens (persons) should receive a large capital grant on maturity.

Example: Ackerman and Alstott (1999) propose an $80,000 grant for all US citizens at age 21, financed from wealth/inheritance tax.Note: $80,000 figure reached by asking how much a high quality higher education in the US costs.

UK Child Trust Fund (CTF): all children (born after September 2002) receive a grant at birth, plus additional grant at age 7, which is invested on their behalf and held in trust until 18 when they may use it as they like. Families may contribute into the CTF as well up to £1,200 per year.

For related US policy proposals, see: http://www.newamerica.net/programs/asset_building#

Why basic capital?

Tom Paine on ‘beginning the world’:

‘When a young couple begin the world, the difference is exceedingly great whether they begin the world with nothing or with fifteen pounds apiece. With this aid they could buy a cow, and implements to cultivate a few acres of land; and instead of becoming burdens upon society...would be put in the way of becoming useful and profitable citizens.’ (Paine, 1987 [1797], p.483, italics added.)

Interest in adequate opportunity for ambition formation: an interest one has in one’s early adult years in being able to approach life with ambition (not necessarily in the narrow materialist or positional senses of the term); an interest in being able to meaningfully pose, and act on one’s considered answer to, the question: ‘What do I want to do with my life?’

Why basic capital (ctd.)?

Why do we have an interest in opportunity for ambition formation in early adulthood?

(1) All individuals have a fundamental interest in having an autonomous life; that is, a life in which they have the capacity to frame and revise their conception of the good (Raz, 1987, Rawls, 1993).

(2) Empirical claim: The interest in (1) is strongly affected by the degree to which individuals have opportunity for ambition formation in their early adult years.

(3) Therefore, individuals have a strong interest in having adequate opportunity for ambition formation in their early adult years.

Why basic capital? (ctd.)

But: Why is ownership of capital important to having adequate opportunity for ambition formation in early adulthood?

Distraction effect: Those who lack wealth are consequently too caught up in the battle to keep their financial heads above the water to have the time and energy to reflect on their goals and commitments in the searching way that autonomy involves (Ackerman and Alstott, 1999).

Horizons effect: Those who lack wealth do not have the resources to make ambitious life-projects feasible, and so, to the extent that they do probe their basic goals and commitments, they are tempted to do so in a very circumscribed and unimaginative way (Ackerman and Alstott, 1999).

Why basic capital (ctd.)?

So the argument is:

(1) All individuals have a fundamental interest in having an autonomous life; that is, a life in which they have the capacity to frame and revise their conception of the good.

(2) Empirical claim 1: The interest in (1) is strongly affected by the degree to which individuals have opportunity for ambition formation in their early adult years.

(3) Therefore, individuals have a strong interest in having adequate opportunity for ambition formation in their early adult years.

(4) Empirical claim 2: One condition for satisfying the interest in (3) is that individuals have some capital in their early adult years.

(5) Therefore, individuals have a strong interest in having some capital in their early adult years.

Equity objections to HE subsidies

(1) Academic ability-based inequality in resource commitments in young adulthood: relative to BC, HES leads to young people at the top of the academic ability range getting more resources to launch into adult life than those lower down the academic ability range.

(2) Academic ability-based inequality in opportunity for ambition formation: relative to BC, HES ensures young people at the top of the academic ability range have adequate opportunity to formulate ambition, but does little or nothing in this respect for young people lower down the academic ability range.

(3) Class-based inequality in resource commitments in young adulthood: given that academic ability (at 18) correlates with social class, (1) above implies that, relative to BC, HES leads to (even greater) class-based inequality in resource commitments in young adulthood.

(4) Class-based inequality in opportunity for ambition formation: given that academic ability (at 18) correlates with social class, (2) above implies that, relative to BC, HES leads to (even greater) class-based inequality in adequate opportunity for ambition formation among young adults.

Possible policy responses to the inequities

(1) If we can enact policies which break the correlation between academic ability at 18 and parental social class, then objections 3 and 4 fall.

(2) If we recoup HES through the tax system (e.g., graduate tax) then this can meet objection 1.

(3) But what about objection 2: inequality in having adequate opportunity for ambition formation depending on academic ability? Doesn’t this point towards basic capital?

Defending education subsidies

‘Revised HES’: It is possible to reduce inequalities in resource commitments and/or opportunity for ambition formation by academic ability and social class by complementing HES with generous support for other forms of post-18 education and training (if need be, diverting some resources from HES to these other areas).

The need for further argument(s)

(1) Residual inequity: Revised HES is unlikely to remove inequity fully because some young people lack the ability to make effective use of any further educational opportunity.

(2) So a response to the equity objection is going to have to at least combine revised HES with another consideration or set of considerations - something that is supposed to outweigh the remaining inequity (of revised HES relative to basic capital).

(3) What might these further considerations be?

The individual return argument

The individual return thesis: Public support in early adulthood which takes the form of an education subsidy tends to produce a higher rate of return for the individual enjoying the subsidy than if the subsidies were used to pay every young adult basic capital; this is true (a) where return is understood in a commercial sense and (b) where return is understood in a personal development sense.

Intuition behind the thesis: basic capital is vulnerable to the problem of ‘stakeblowing’ (Ackerman and Alstott, 1999): imprudent or unlucky use of capital leading to low/zero return in commercial or personal development terms.

The individual return argument: although less equitable than basic capital, revised HES is justified paternalistically by the higher individual return from education subsidies compared to basic capital.

Assessing the individual return argument

Objections:

(1) Reverses a general presumption against paternalism (for young adults).

(2) The risk of ‘stakeblowing’ might be reduced through policy design, e.g., appropriate education in schools (Paxton and White, 2006).

(3) Ambiguity of stakeblowing: Apparent stakeblowing can teach lessons: even when people lose their basic capital, e.g., through business failure, they can learn valuable skills along the way that set them in good stead for the future.

Assessing the individual return argument (ctd.)

(4) Ambiguity of stakeblowing: personal development return might be high even if commercial return is low.

(5) Actual returns on HE are in fact very variable: individual return to HE differs markedly according to degree and institution – in the UK, there is a much lower return outside of the ‘Russell Group’ universities. But these are the universities most accessible to children from lower social classes (Keep and Mayhew, 2004). So the HE subsidy approach tends to encourage children from lower social classes to make investments with a likely low rate of return. Could they do better with basic capital?

(6) Main problem with the individual return argument: If we select revised HES over basic capital we thereby deprive some people of resources to support ambition formation. Call this the ‘denied group’. Why should members of the denied group agree to this major loss just because revised HES is better for others who (allegedly) do get some resources under this policy?

The social return argument

The social return thesis: Public support in early adulthood which takes the form of an education subsidy tends to produce a higher rate of return for the wider society than equivalent public support in the form of basic capital; this is true (a) where return is understood in a commercial sense and (b) where return is understood in personal development sense.

The social return argument: although revised HES is less equitable than basic capital in an immediate sense this is justified by the higher social return which we get from revised HES.

Assessing the social return argument

Objections:

(1) Higher social return per se does not necessarily address the interests of the ‘denied group’. Higher social return must be harnessed in such a way as to raise their prospects.

(2) Imagine that the denied group has higher income prospects under revised HES than under basic capital. This still doesn’t necessarily justify revised HES because it is not clear that higher income for members of the denied group justifies the cost to them in terms of reduced opportunity for ambition formation in early adulthood.

Assessing the social return argument

(3) Will there be a higher social return? All the reasons for questioning the individual return thesis apply also to the social return thesis. Social returns seem very variable by subject and institution. Estimated average social rate of return on arts degrees in the UK estimated at zero (Wolf, 2002, p.33, citing Harkness and Machin, 1999).

(4) In addition, conventional estimates of social returns, inferred from individual returns, may be exaggerated. To some extent HE raises individual earnings through signalling not through genuine increases in human capital. Pushing resources into HE could generate social waste if it simply increases the amount of education people need to signal a given level of ability (Wolf, 2002, 2004).

‘...jobs which twenty years ago were done by people who had left school at sixteen or eighteen now go only to new entrants with degrees’ (Wolf, 2002, p.51.)

Conclusion: taking basic capital seriously

I have not shown that basic capital is clearly preferable to education subsidies.

But I think we do have reason to treat basic capital seriously as an alternative to education subsidies.

‘Education, education, education.’ Social democratic strategy became increasingly reduced in the course of the twentieth-century to a focus on education as the key lever for promoting (various kinds of) equality (and ‘marrying’ equality-promotion with efficiency).

‘It’s the distribution of wealth,…’ Should social democratic strategy refocus directly on wealth distribution? The basic capital alternative to education subsidies might be a part of such a change in orientation.

References

Ackerman, Bruce, and Alstott, Anne, The Stakeholder Society (New Haven, Yale University Press, 1999).

------, ‘Macro-Freedom’, in Bruce Ackerman, Anne Alstott and Philippe Van Parijs, Redesigning Distribution: Proposals for a More Egalitarian Capitalism (London, Verso, 2006), pp.209-216.

Grözinger, Gerd, Maschke, Michael, and Offe, Claus, Die Teilhabegesellschaft: Modell eines neuen Wohlfahrtsstaates (Frankfurt/New York, Campus Verlag, 2006).

Harkness, Susan, and Machin, Stephen, Graduate Earnings in Britain, 1974-95 (London, Department for Education and Employment, 1999).

Haveman, Robert, Starting Even: An Equal Opportunity Program to Combat the Nation’s New Poverty (New York, Simon and Schuster, 1988).

Keep, Ewart, and Mayhew, Ken, ‘The Economic and Distributional Implications of Current Policies on Higher Education’, Oxford Review of Economic Policy 20, 2004, pp.298-314.

Kelly, Gavin, and Lissauer, Rachel, Ownership for All (London, Institute for Public Policy Research, 2000).

References (ctd.)

Nissan, David, and Le Grand, Julian, A Capital Idea: Start-Up Grants for Young People (London, Fabian Society, 2000).

Paine, Thomas, Agrarian Justice, in Michael Foot and Isaac Kramnick, eds., The Thomas Paine Reader (Harmondsworth, Penguin, 1987 [1797]), pp.471-489.

Paxton, Will, and White, Stuart, ‘Universal Capital Grants: The Issue of Responsible Use’, in Will Paxton and Stuart White with Dominic Maxwell, eds., The Citizen’s Stake: Exploring the Future of Universal Asset Policies (Bristol, Policy Press, 2006), pp.121-134.

Rawls, John, Political Liberalism (New York, Columbia University Press, 1993).Raz, Joseph, The Morality of Freedom (Oxford, Oxford University Press, 1987).Wolf, Alison, Does Education Matter? (Harmondsworth, Penguin, 2002).------, ‘Education and Economic Performance: Simplistic Theories and their

Policy Consequences’, Oxford Review of Economic Policy 20, 2004, pp.315-333.