In a compelling analysis of Ontario's post-secondary education landscape, economist Matthew Lau presents a stark critique of current government policies, advocating for a radical shift toward market-driven competition among universities. Drawing inspiration from renowned economist Thomas Sowell's observations about the rarity of university failures despite performance issues, Lau argues that guaranteed government funding creates a dysfunctional system that ultimately harms students, taxpayers, and quality institutions alike.
The Funding Dilemma in Ontario's University System
Lau highlights the substantial financial commitment from the Ontario government, which currently allocates $13 billion annually to the post-secondary sector—an amount equivalent to nearly half of what the province collects in corporate taxes. This massive investment has recently been supplemented by an additional $6.4 billion in funding over four years, creating what Lau describes as a "socialist" approach to higher education financing.
The Impact of Tuition Controls on University Operations
The economist points to Ontario's seven-year tuition freeze as a primary contributor to universities' financial dependence on government support. Even with the recent lifting of the freeze, institutions remain constrained by caps limiting annual increases to the lower of two percent or the three-year average inflation rate. This regulatory framework, according to Lau, prevents universities from adjusting their pricing to reflect the quality of education they provide.
"Good universities are harmed by tuition controls that prevent them from reaping the financial benefits of delivering a higher quality of education," Lau asserts. He draws parallels to other industries, noting that just as top-performing restaurants, manufacturers, and technology companies would suffer under socialist systems that limit their ability to profit from improved services, well-operated universities face similar disadvantages under current policies.
The Consequences of a Government-Funded Model
How Students Are Affected
While students might benefit initially from lower out-of-pocket expenses through taxpayer-funded education, Lau argues they ultimately suffer in a system that doesn't properly reward quality. "A system that punishes good universities and rewards bad ones does not help students," he contends. More critically, when universities receive more funding from government than from students, their priorities shift from serving students to pleasing politicians who control the purse strings.
The Taxpayer Burden
Lau presents a fundamental economic argument against government funding for universities, comparing it to corporate subsidies. "If an activity is not worthwhile, meaning its costs exceed its benefits, it should not be encouraged through subsidies," he explains. "But if something is worthwhile, it does not need a subsidy." This principle applies equally to educational investments as it does to business ventures, with Lau suggesting that worthwhile educational pursuits should be able to secure funding through traditional market mechanisms rather than taxpayer support.
A Call for Competitive Reform
The economist's solution involves eliminating tuition controls entirely and allowing universities to compete freely in the educational marketplace. This approach would enable quality institutions to charge appropriately for their services while potentially allowing underperforming universities to fail—a natural market correction that Lau believes would benefit the entire system.
Lau's perspective challenges conventional wisdom about higher education funding, suggesting that the current model creates perverse incentives that maintain mediocrity while stifling excellence. By shifting toward a more competitive framework, he argues Ontario could create a university system that better serves students, respects taxpayer dollars, and rewards institutions that deliver genuine educational value.
