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The optimal university tuition fees: Critical role of average variable cost

The moral foundation of education

Available statistics show that ASUU strikes have been vicious and cyclical. In fact, absence of strike in a calendar year is abnormal thus making the abnormality the norm. For instance, ASUU has gone on strikes for roughly 5 years (1560 days) cumulatively since 1999.

On the number of strikes, the Obasanjo regime accounted for roughly 540 days representing 35%, Yar’ Adua regime accounted for approximately 30 days representing 0.2%, Jonathan regime-390 days representing 25% and Buhari regime-600 days approximately accounting for 40% in 24 years.

Unfortunately, the reasons for the strikes are also vicious and cyclical, that is, unresolved recurring issues as contained in the 2009 Agreement and recently the 2019 Agreement and Resolutions.

Nigeria’s fiscal position is consistently bedevilled with squeezed funding sources due to dwindling domestic resources mobilization and global uncertainties, as the government is unable to build the needed resilience for transformational recovery.

For instance, the 2013 budget deficit of approximately 10 trillion naira is twice the 2015 budget of roughly 5 trillion naira with current debt stock of about 67 trillion naira including the CBN ways and means. This makes it more and more difficult for the government to honour and implement the resolutions over the years. This shows that the solution to quality university education is impossible with only public finances.

In economics when a product is a luxury and considering the private benefits to the societal benefits, the price system becomes the most efficient allocation of resources to avoid the tragedy of the common. University education is a luxury and should be treated the same way luxury products are treated.

Primary and secondary education especially basic education is a necessity as the societal benefits outweigh the private benefits, thus should be treated as social good hence the need for full government involvement to ascertain social inclusion and eradicate poverty. This implies that government constrained budgetary resources should be diverted from university education to provide globally acceptable basic education in terms of quality and access.

The supply curve of a product starts from where price equates the marginal cost curve with the average variable cost curve. This implies that the average variable cost, which is the cost per unit of production, must be equal to the price of the product to ascertain quality supply of the product. However, if the price of the product is below the average variable cost then subsidy is required to sustain quality.

Also, the marginal product of labour (efficiency and productivity) must be equal to real wage which is part of the components of average variable cost to determine the minimum price for efficient allocation. This means that for productivity and efficiency to be sustained, real wages must equate to the marginal product of labour. If real wage falls below marginal product, expect efficiency and productivity to be altered and invariably quality of the product to dwindle overtime instead of improving. This is the case with Nigeria’s university education.

In such a situation, the government must provide grants to sustain quality and such grants must be able to bridge the gap. Otherwise, real wages and infrastructures of the system have to suffer to subsidize the gap. The resultant effect is incessant strikes and dwindling quality of the products (graduates) over time as productivity declines significantly. In the real world, the aftermath effect is proliferation of substandard products and lowering of regulatory policies to meet demand.

The above discussion shows that for a luxury product like university education, tuition fees must be equal to average variable cost. Available records show that private universities tuition fees average N1 Million across Nigeria. This is sometimes below the average variable cost as evidenced from the fact that most of these private universities are barely making profits or finding it difficult to pay salaries or the infrastructures are still below global standard.

This is better compared to public universities, especially federal universities where tuition fees average fifty thousand naira-a significant distance from the average variable cost. A question was asked recently that if tuition fee to study medicine is fifty thousand naira in a Nigerian university but ten thousand pounds in the UK, who would you allow to insert an injection on you between these two graduates? Late Awolowo said if you think education is cheap, try ignorance.

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This explains the continued infrastructural decay, poor remunerations and significantly declining quality of graduates as the gap between tuition and average variable cost is subsidized by these three main menaces. It is economically unwise to continuously call for the government to provide infrastructures in the universities to global standard and improve welfare packages with the required productivity and research without automatic adjustment to the tuition fees to equate the average variable cost.

I know the worrying question is, what about the vulnerable, poor households? We have consistently remained in the same vicious circle owing to the vulnerable household argument. A well-known proverb says, you cannot continue to rehearse madness without putting it into use. When we are able to provide globally competitive university education, productivity will be engendered across sectors especially the manufacturing sector; sustained growth and transformation become feasible then the number of vulnerable, poor decline significantly.

In the light of the above, I recommend TETFUND to be made an education bank with boards appointed from both the private and public sectors as representatives and university autonomy should be fully granted for each university to determine their tuition fees based on their unique average variable costs. Each university should then determine a competitive real wage conditioned on each university’s marginal productivity of labour.

Eregha is a professor of Economics,Pan-Atlantic University can be reached via [email protected], +2348052350021