1.1.15 Homo oeconomicus

The term homo oeconomicus is not used by Adam Smith, but he describes the concept and if this concept was better understood, we would have less absurd discussions about it.

(Actually, a manual about economics could be much shorter, if there were no need to correct all the errors and misconceptions floating around.)

The concept of homo oeconomicus is very easy to understand and at the same time, if we look at the newspapers, the less understood. Criticism focus on imperfect information as opposed to the assumed perfect information of the homo oeconomicus and on his selfishness.

This criticism is wrong. First of all, for the functioning of a market economy, it is irrelevant if the market player can take optimal decisions, in this case, perfect information is needed and only the best decision possible under imperfect information.

Selfishness is a relative term. It is well possible that the homo oeconomicus finds it more interesting helping others to move on than to make a lot of money himself. However, in both cases, he achieves his goals by working efficiently.

If we have the choice between a system that works even if people act only in their own interest and a system that relies on some kind of idealism, the first one is preferable. The second one doesn't work. If someone doesn't believe that, he can go to Cuba for a couple of weeks. There, he will find on every wall slogans like "Tenemos que ser como el Che", we have to be like the Che, "Hasta la victoria siempre", until the victory, "estudio, trabajo, fúsil", studies, work, gun and so on, and so on. What the people actually want, are cars, computers, clothes etc. If someone believes that people can be mobilised by "higher goals", he or she has never worked in the public administration. In this case, he or she has to come to Berlin and work for a while in the public administration. That's the best way to get rid of this illusion.

Besides that, a free market economy doesn't impede the people to work for the sake of others. Market economy only means that people serve their interests best by eliminating the scarcities signalled through prices.

It is much easier to create a system that gives the right incentives to eliminate scarcities than to change the mentality of the people.

If people discuss about the homo oeconomicus, they do that always disregarding the context. That's not possible. It's pretty clear that uncontrolled selfishness is not a useful concept. Only in a market economy where selfishness is controlled through competition, the concept of the homo oeconomicus makes sense. Selfishness alone only means to get the maximum of power with a minimum of effort.

Market economy means that power can only be obtained and maintained by better serving the needs of the customers. Any other way to obtain power is punished. The homo oeconomicus can never be discussed outside the context of a free market economy and an intensity of competition sufficiently high.

The failures of the economic systems in the western world are well known to everybody, no need to explain them. That induces many people to criticise the concept of the homo oeconomicus. His greed is made responsible for the problems. Actually, the homo oeconomicus is not the problem. The problem is that in some sectors of the economy there are false incentives, in other words in these sectors, especially the financial sector, the market player have wrong incentives.

However, that has nothing to do with the homo oeconomicus and people don't expect that the situation can be improved by changing the mentality of such persons, that they do something that is against their own interest. What people expect in all the manifestations is a change in the system in order to give them the right incentives. It is a systemic error.

We are not going to discuss this topic now. We will talk about in the chapter about Keynes. Alternatively, the reader can download the little book from the homepage of this website.

Very often a similarity is suggested between the homo oeconomicus and the survival of the fittest in the sense of Charles Darwin, see for instance this article: THE CASE AGAINST HOMO ECONOMICUS. These people didn't get the basic idea. The idea of Charles Darwin is that competitors ELIMINATES each other. They want to eliminate competition. The idea of market economy is to maintain competitivity and if the intensity of the competition is not intense enough, the government has to intervene, see ordoliberalism.

Competivity in a market economy is a means to guarantee that the consumer gets the best product at the best price.

That doesn't mean that the consumer doesn't have the choice to buy only products produced under fair conditions. Concerning clothes, for instance, we have reached a point where everybody can ask himself whether the conditions under clothes are produced still compatible with a civilised world. In this case, people can exert a pressure by buying only products fairly produced. Something at least in Germany more and more people do.

It's not possible to discuss about the homo oeconomicus without a market economy and to discuss the market economy without the homo oeconomicus. Without the homo oeconomicus, in other words without someone who tries to serve the consumer better than his competitors, a market economy doesn't work, but without competitors, the homo oeconomicus will not serve the consumer.

The homo oeconomicus as an entrepreneur is submitted to the most brutal form of democratic selection. If the consumers don't vote for his service or product, he will be eliminated.

Any system that is not controlled by the clear objective of market mechanisms will drift to inefficiency. Who doesn't believe that, can call a service number in a private run company and something similar, if that exist in the public administration. He will realise a difference in any country at any time.

As we have already said, see preliminaries, neoliberalism is not completely wrong concerning the description of the situation. The problem is the solution. The simple logic that everything must be controlled through the market mechanism and what can not be controlled through market mechanism shouldn't be controlled at all, doesn't work. We need other mechanisms as strong as objective as market mechanisms in the areas where these market mechanisms doesn't exist.

Public debate very often is somehow bizarre. One can read every day in some newspapers that Adam Smith defended a kind of savage capitalism on some kind of bellum omnium contra omnes, war of everybody against everybody. However, Adam Smith was not afraid of a savage capitalism. The opposite is true. He was afraid that the entrepreneur will avoid competition at the expense of consumers. That they will form trusts and make agreements on prices.

It is said that the ordoliberalisme is a new economic concept. That's wrong. Ordoliberalism wants the government to maintain a sufficiently high intensity of competitivity. This idea is as old as the green hills of Africa. The difference between Adam Smith and the ordoliberalism is that Adam Smith didn't believe that this is possible and more recent experience showed that actually it is not possible, see monopoly.

Homo oeconomicus means competition, individual initiative, efficiency, critical reflection about economic and technological processes. One never knows what people who criticise the homo oeconomicus propose as an alternative. The opposite of the homo oeconomicus is the public employee. The public employee is a communist. He has a lifetime job; his income doesn't depend on his performance, he is not obliged to care about his customers, he uses resources which didn't belong to him, it is impossible to make him responsible for anything.

What we actually need is a public discussion about the public employee. The homo oeconomicus is a less problematic figure. If someone needs more demonstration material about public employees, he can go to YouTube and put in the words, public employee.

Adam Smith takes the education system, actually the university system, to illustrate general failures of systems which are not controlled by the mechanisms of the market, see also governmental activities.

If a teacher at school or the university is paid entirely by the government, he has almost no incentive to do his job well, but he has an incentive to do only the absolute minimum required. He would get a problem if he is not physically present in his lectures, but there is no need to be there mentally and still less to improve his didactical skills. That means in economics that he or she will tell the same stuff, in the same way, year after year.

The same rules that apply to other subjects apply as well for economics. In order to get a job at the universities, they need to publish papers in "scientific" journals with high impact points. They have therefore an incentive to write discussion papers that have never been discussed.

If the problem is due to a lack of knowledge, it makes sense to control the access to universities by the publishing activities. In the case of economics, social science or humanities the problem is not a lack of knowledge or theory. The problem is the data and the communication of economic theory, see preliminaries. What we therefore need are more concrete projects with a practical impact, something not helpful for an academic career.

The publication and translation of the General Theory of Employment, Interest and Money of Keynes on the internet together with a sentence by sentence explanation would be more helpful than any never discussed discussion paper. For other examples, see preliminaries.

The addresses of never discussed discussion papers are people who write never discussed discussion papers who need some papers they can quote to give the papers a "scientific" look and feel. That's a waste of money and time.

Papers in science are directed to a small group dealing with a certain problem. The wider public can't understand these papers, and there is no need for them to understand these papers. The wider public expects a solution.

The case of economics is different. Economic theory is not complicated, but a democratic decisions process only make sense, if the electorate understands some basic things. Otherwise, they can throw dice as well, see economics and democracy. If economics becomes complicated, it is time to simplify it. Less governmental intervention can do this.

The theory of a free market economy can be described on one page. If the governmental intervention needed to resolve the problems of a market economy is so complex that nobody understands the impact of these interventions, then it is better not to intervene at all. If a democratic control is no longer possible because nobody understands what is going on, then it's better to simplify things.

In public debate, there is a complete confusion of terms. First of all, something that increases the confusion is that people use different terms, although they mean, at least, that is was the authors mean the same thing. Capitalism, neoliberalism and a free market society are the same thing.

If the reader wants to prove that, he can put "What is capitalism", "What is neoliberalism" on Google and he will find thousands of articles on the topic where everything is mixed with everything. This kind of discussion leads to radicalisation. Every theory contains a grain of truth and what is positive and right should be preserved, what is wrong should be eliminated. However, public debate doesn't work like that. We have "packages" of different elements bundled together. It would be better to use the isolated elements to make the bundle that best suits in a concrete situation.

A meaningful definition would be that:

Capitalism: Capitalism refers to a theory that assumes that the capital, the non-consumed part of extra income, which is the result of the surplus-value produced by the workers, is the determinant driving force of history. It assumes an eternal conflict between two classes, the capitalists and the workers.

Neoliberalism: Neoliberalism, as well as the Austrian school, considers governmental intervention as a risk for freedom. A free market economy is considered as "voluntary cooperation" with no coercion. In comparison to classic thinking, for instance, Adam Smith, the focus is not put on efficiency, but on liberty. This is a problem. If two goals are to be achieved, efficiency and personal liberty, then a free market could be preferable even if it is less efficient. It's enough that it guarantees personal freedom.

Free market economy: Free market economy is about efficiency. The focus is not on "voluntary cooperation", as in the neoliberalism, but on control through competitivity.

No need to say that the fact that neoliberals call themselves capitalists, that's the name of the Book of Milton Friedman, 'Capitalism and Freedom', doesn't really help.

(He doesn't mean, as one could assume, that the capitalism as described by Marx is opposed to freedom. He actually means that the free market guarantees freedom.)

All these terms refer to a bundle of concepts more or less well defined. One may wonder why there are terms describing a bundle of concepts. That would make sense if one element of the bundle were so intimately related to the others that by taking away one of them the whole system would fall apart.

However, that's not the case. It is more as in religion. Catholicism, Protestantism, Buddhism, Hinduism and so on are bundles of concepts, which are not closely related to each other. There may be some basic concepts, which we can't take away without compromising the integrity of the system, but there is no close relationship between one element and another. For instance, it wouldn't actually make a big difference if Jesus were put under a tree by his father on a sunny morning and found by Maria or Magdalena. That would even be more plausible.

It is to assume that new terms were created if something is completely new, expressionism, for instance, describes an entirely different aesthetic than Impressionism, or if the differences are considered more important than the elements the two terms have in common. A car, for instance, is not a truck.

There are a lot of risks in creating general terms, and all of them can be observed in economics.

The terms classical and neoclassical theory, for instance, suppose that Adam Smith, David Ricardo and Jean-Baptiste Say share the same concepts concerning capital, money, saving, growth, interest rates, production factors. They do not. Not at all. They have similar ideas, but they are far away from being identical. The discussion would be easier if the term classical theory simply didn't exist. The situation is even worse concerning the term neoclassical theory. A neoclassical theory just doesn't exist. Alfred Marshall and Léon Walras have nothing, absolutely nothing in common. The neoclassical theory is often defined as a "marginal revolution". This marginal revolution never happened, because we find, in different ways, the concept of marginality already in the works of Adam Smith, David Ricardo and Jean-Baptiste Say and even better explained.

Giving a name to a certain bundle of concepts has the same problem than mathematic modelling. It's a decision on what is relevant or irrelevant.

However, actually, the situation is still worse. Maybe the person who created the term in the dark of history knew what he was doing, but it is well possible that in the course of history, terms became meaningless. If we put "neoclassical mainstream" in Google, we get 14,500 results. In most of these articles, the neoclassic theory is not defined by the content but by the method; the heavy use of mathematical modelling. The problem is that Alfred Marshall, the actual inventor of mathematic modelling, is that what we find in textbooks of microeconomics, made almost no use of mathematical modelling in Principles of Economics. It would be clearer if people speak of Marshallian theory, Walrasian theory or Paretian theory. Then it would be clear what they are talking about.

The problem is not that concepts and methods were attributed to authors who affirms the opposite of what is suggested. That would be a mere problem of scientific honesty. The real problem is that public debate becomes more and more meaningless.

A debate about concrete concepts is possible. We can discuss about classical term of capital, the classical concept of money, the role played by interest rates, the function of prices etc. A general debate about classic theory, neoclassic theory, neoliberalism, capitalism, ordoliberalism is not possible because nobody knows what these terms actually mean.

In some textbooks, we find even a macroeconomic neoclassical theory. Everybody has the right to think up a new economic theory, but based on what are considered "neoclassical" authors, Alfred Marshall, Léon Walras, Vilfredo Pareto, Carl Menger a macroeconomic theory is not possible. For all these authors the optimal allocation of resources is a central aspect of their economic theory. Macroeconomics is based on aggregation and at an aggregate level allocation can't be analysed.

Optimal allocation is not about whether labour can substitute capital. Optimal allocation is about the substitution of a concrete machine by a concrete specialised workforce.

The case of Keynes is different. Keynes refutes the classical theory and doesn't distinguish between classic theory and neoclassical theory. However, he defines exactly what he talks about. He talks about the conception of money, types of interest and employment of the classical/neoclassical theory. That's very clear. His book is called General Theory about Employment, Interest and Money and he refutes the classical/neoclassical conception of Employment, Interest and Money. That's the way we should talk about economic problems, see the little book downloadable from the homepage of this website.

That means concretely that Keynes doesn't refute the other concepts of classical thinking. Keynesianism is not the opposite of classical thinking. Keynes refutes only the ideas about capital, the role played by the type of interest and the idea that a free market economy leads to full employment. He doesn't refute the role of prices, the decentral information processing through prices, the importance of entrepreneurs and the necessity of correct incentives.

The concept of competivity as a control mechanism is criticised as well from a more philosophical position. We will return to the subject in the chapter about Adorno. Market economies tend to consider everything under a purely economic aspect. This can lead to the strange situation that earning money is not a mean to obtain a goal, but is a goal on its own.

That what is criticised in this video: Prof. Herman Daly - on Homo Economicus. We can criticise that in economics the means are confused with the goals, but that has nothing to do with the homo oeconmicus. Homo oeconomicus and competition, only together they make sense, are mechanisms of control. Everyone who assumes that public administration, a sector without competition, works better, never actually worked in a public administration or is a public employee and is interested in showing that public administrations are as efficient as private companies.

The argument of Friedrich Hayek, that money is a mean to obtain any goal is theoretically true, but in practise, we have many people who have no other goal than earning money.

Public debates, in general, compares a bundle of concepts with another bundle of concepts. There are millions of debates every day of this type, a more prominent one is this one (from Milton Friedman) we can find on youtube: Milton Friedman - Is Capitalism Humane? It is not very clear what he understands by 'capitalism' (it is to presume from some hints that he means a free market economy), by collectivism, socialism, social market economy, totalitarianism etc. He compares a bundle of concepts related in a somehow associative way with another bundle of concepts related in an associative way.

This kind of associative thinking leads nowhere. This becomes more evident when we discuss about Friedrich Hayek. This kind of associative thinking mixes up everything with everything. Socialism, Fascism, Totalitarianism, Collectivism are all the same thing. Keynesianism, even that we can read and hear sometimes, is a kind of socialism as well.

A useful debate is only possible about concrete concepts. When the allocation through market prices is possible and when it is not feasible. The concept of saving is different in Keynesian theory and in classic/neoclassical theory. Which one is correct? Is the interest rate really the price for money in the sense of a market price? If money is only a veil or, does it have a real impact on the economy?

If the different concepts of the different AUTHORS, not of school, but of concrete AUTHORS, are well understood, we can discuss about the differences.

About vaguely understood bundles glued together by associations we can't discuss, and we cannot even form new bundles, where the false concepts has been eliminated, and the correct ones are preserved.

The problem with the bundles is that the have little to do with reality. Actually, most economic systems can't be described in simple terms like socialism, capitalism, social market economy, neoliberalism, Keynesianism, etc. They have elements from all of these schools. In general the allocation of resources is controlled by the market, the result of the market is redistributed, for different reasons the government intervenes in the economy etc.

It may be an attractive model for mass media to argue with terms charged with emotions. An article with the title "Central banks expropriate savers by printing money" will find more readers than an article with the title "The role of interest rates in long-term investments".

The homo oeconomicus is no useful concept outside a free market economy, where competition controls him. The famous baker in Wealth of Nations is obliged to deliver the best bread at the best price. It is only by the performance that he can improve his situation.

The situation of an academic teacher of economics, another example we find in Wealth of Nations, see a pure literary perspective, is different. These people get paid independently from the performance. The relevance of the topics they talk about in their lectures as well as their didactical skills don't matter. In theory, they sometimes understand the advantage of competition, but in practice and related to themselves, they prefer public financing and lifetime tenure.

[Note: We are not really interested in the failures of the academic education system. The problems of this system will be resolved in the long run because the system is inefficient and will attract competitors. ONE university somewhere in the world is enough to oblige the others to change. In economics, social science in general and humanities it is quite easy to substitute traditional universities by distance learning universities. The interesting point is that academic teaching, especially in economics, is an illustrative example of the fact that any system, which is not controlled by clear and objective mechanisms of control will end up in the wrong way.]

As we already discussed, see preliminaries, there are several methods to control the performance of universities.

1) Every faculty can be obliged to publish data about the professional career of its graduates one year after having finished their studies. Integration in the labour market and how much they earn. The graduates at the other side must be obliged to forward these data in an anonymous way and in case of doubt, there must be the possibility of an independent organisation to verify the data.

This type of system would have several advantages. First of all, it would be possible in an easy and straightforward way to find out which studies leads to well-paid jobs and which studies leads to nowhere. It doesn't make any sense to spend time and money on studies which leads nowhere, economics for instance when it is possible to finance with the same amount of money more profitable studies. Economists understand the problem of optimal allocation of resources in theory, actually, half of the study is about that topic, but for obvious reasons, there are problems when it comes to putting this knowledge into practice.

That obviously only makes sense if poorly performing faculties can be shut down. That doesn't mean that low performance in economic terms leads automatically to a shutdown, but public financing would be based on data. That could help to improve the situation of humanities as well. More innovative faculties, for instance in philosophy, who realise interesting projects with an impact on public discussion can get more money and faculties who just tell the same things they had been telling the last 500 years would be closed. If the reader doesn't understand that and have no ideas what an interesting project could be, he would belong to a faculty that should be shut down. .

Even if this kind of control were not on a personal level, at least, there would be some control.

Right now we have an infinite number of website discussing question like "What can I study?", "How much money can I earn having studied X?", "What are the job perspectives?", "Which is the best university to study X?" and so on. To all these question concrete data what deliver a concrete and precise answer.

That would be much more helpful than the Bologna Process. If the grades are called diploma, master, licence or bachelor is irrelevant. What we really want to know is which system is the most efficient. That requires that they are different. The aim of the Bologna Process is compatibility and comparability. In other words: They want that the studies are similar everywhere. What we need is the exact opposite. They must be different. Only if there are different options, we can find out which one is the best.

In order to compare the profitability of the different studies for the society as a whole, if we suppose that the University are financed by the public, we need to know the costs of every study. That requires a unit cost accounting, something inexistent at the universities. At a theoretical level, economists understand the importance of controlling. They teach it. However, at a more practical level, especially if they are involved themselves, they prefer, for obvious reasons, to ignore these principles.

Unit cost accounting would allow for example to separate the expenditures for investigation from the expenditures related to academic teaching (lectures, correct tests, administrative tasks related to teaching). That never happens. Neoliberals argue that the person who benefits from the study should pay as well for the study. We don't agree with this position, we will return to the topic later, but, in any case, expenditures for investigation should be paid by the public, because, in case of success, the society as whole benefits.

There is a considerable debate in economics about human capital and about the necessary expenditure to produce it. This discussion is, from a mere economic perspective, not possible if we don't know how much a study costs.

The question adressed by Milton Friedman whether tuition fees are more equitable than public financing cannot be answered without data about the costs. If a study costs 5000 dollars and the graduate pays 50,000 dollars more taxes during lifetime, than public financing of universities is big business. If people get for instance enlighted by the insights of Milton Friedman and earn therefore more money, something not very plausible, than a study of economics in Chicago would be very profitable because the transfer of knowledge can be realised in this case almost at no costs. A student can read the books of Milton Friedman. As an ebook, they can get them all for 20 dollars, a little bit cheaper on pdf file. A study is time-consuming, but not expensive.

There are very little data available on the internet. Following this website, State funding for major public research universities per enrolled student, in 2010 each place of study, only the money paid directly to the university, was subsidised with 9,000 dollars. To that must be added the tuition fees, let's say 10,000 dollars. (There is a wide range of tuition fees, so it's impossible to get exact numbers.) That would amount to 19,000 dollars. Studying medicine would, therefore, cost, five years, 95,000 dollars. That's crazy!

Medicine can be studied in some European countries at private universities, for instance in Hungary. The academic degrees obtained in Hungary are valid all over Europe. Medicine is one of the most expensive studies. It costs on a private, profit-oriented, university 67,000 euros (83,000 dollars).

It is to presume that Americans would be better of if they buy big packages of places of study in Hungary and import the doctors they need. Then they can get them for let's say 40,000. The lectures are held in English. It is to assume that American doctors are not really interested in this kind of solution, but the consumer would save a lot of money.

Concerning economics, social science and humanities the best thing the US can do is to shut down all faculties and to send their student abroad. If the US government gives them the 9,000 dollars directly, they can study everywhere.

We see, therefore, that in academic education we have a lot of homo oeconomicus, but without competition, the homo oeconomicus does nothing really useful. Selfishness alone is not a useful concept. Only if competition controls selfishness, it is a useful concept.

From a systemic point of view, the American system is strange. At one side, the government creates a kind monopoly because the government entitles the universities to deliver academic degrees and enforces the monopolistic situation by a shortage of the supply side. That allows universities to keep prices high, very high.

If we have a natural monopoly, for instance in the case of water supply, the government fixes the prices as well. Monopoly and governmental fixed prices is something that can work.

However, a system where the state at one side creates a monopoly and allows the market player to fix the prices, on the other hand, is a system that obviously doesn't work.

There is no fantasy needed to figure out what would happen if the government gives a licence to make bread only to one baker in town and let this baker fix the prices. The price of bread would go through the roof.

Academic education is not really a big deal because the problem will be resolved in the long run. Academic degrees will become less and less relevant, and the informal training will become more and more relevant. In informatics, for instance, companies doesn't really know why someone can resolve the problem and where he or she has learned how to resolve it. They just want to get it resolved.

It is to suppose that the internet today still has a greater impact on the transfer of know-how than all the universities in the world together. In very dynamic sectors, like informatics, it is even doubtful that they can keep pace with the explosion of knowledge. Universities will become more and more irrelevant because their primary function is not the transfer of know how, but delivering academic degrees and these become more and more irrelevant. Actually, they are only needed in the areas where a governmental licence is needed to get access to the job market.

People in favour of tuition fees argue that this is a market solution. People pay for a service, and they get the service they want. That would be true if the customer had the possibility to find out whether the service is worth the money. That's not the case. The quality problem can be resolved by more transparency, see 2). However, there is another one.

Governmental regulations determine the way how this service is delivered and the cost structure. Therefore, that means that the different universities cannot compete with one another over the costs and resides that, it's not in their interest. If one university could prove that the same service can be offered at a lower price, all universities would get less money from the government and nobody would be better of afterwards.

That's a very typical phenomenon. A similar phenomenon is the so-called "December fever". If an administration has not spent all the intended budget, they will do that until the end of the year. Otherwise, they would show that less money is actually needed and they would get less next year.

In old East-Germany, there was a similar problem. No company, socially owned, ever tried to do more than what was expected, because that would have had the effect that next year the planned target would have been increased.

Private companies have to possibilities to make money. Cutting costs or increasing incomes. The first option doesn't work for universities or any public administration. Remains only the second options. Increasing incomes by tuition fees. That's way there are no data available about the cost structure of universities. They are not interested in getting them. They are interested in tuition fees; that way the whole public debate is about tuition fees.

What would happen if universities were completely privatised, wouldn't get any money from the government? In this case,, the costs would be reduced dramatically, in economics to almost zero. We would appear to see thousands of online universities like www.coursera.org. Students would study online for seven semesters and only the last semester, when they had to pass the exams, would be offline. No costs for heating, electricity, cleaning or maintainance. If they pass the same exams as the offline universities, the students get the same academic degree.

It is to presume that the universities as we know them are a disappearing species, most of all because it is not possible to transfer knowledge with this method to underdeveloped countries and second because they cannot keep pace with the explosion of knowledge.

2) The first method to control the academic system is the introduction of control. See above. Then we have concrete data and are not obliged to speculate. Any further discussion, whether the study is profitable for at an individual or social level, whether it is unfair that the society pays for the studies, whether tuition fees are necessary and so on depend on the cost structure and the possibilities to reduce costs. The higher the costs, the less improbable it is that the studies are profitable.

Experience shows that there is a massive resistance on the part of public employees to introduce controlling systems in the public administration. The author worked in this area a couple of years ago. The problem is that public employees are a well organised and compact pressure group. Few politicians dare to resist them. At the other side, we have the students, who pay the bill and are interested in transparency.

Private companies are not competing only with prices, but on quality as well. To know the cost structure would be a big help, but students need information about the quality as well.

If the public finances a university, the public has the right to know what they do. We have a curious situation. There are thousands of pages with detailed information about companies and products, including coffee machines, but very little information about the service offered by universities, although the quality of a university has a greater impact than the quality of coffee machines.

The problem can be resolved if the government obliges universities to publish a detailed description of the study. They can do that a low level, just recording the lectures and putting the video online, or at a high level, making a parallel e-learning course that covers all the topics of the study. If they refuse to do that, perhaps there are other people better suited for the job.

Governments all over the world tried the soft way concerning this issue. That didn't work. It was only in Germany that the production of e-learning platforms was subsidised with 400 million euros in the years 2002 to 2006 without any result.

To cover the whole staff on an e-learning plattform would have another advantage. It would be possible to offer a choice. The students who prefer offline lessons, can go to the offline lessons and pay for them. Students who think that they can make it with the online plattform alone, can save this money. At the end all have to pass the same test.

Public employees will argue that producing e-learning platforms of this kind will be more expensive than offline lessons. Public employees always find an argument that proves why something is not possible, especially when change is not in their interest.

The concrete experience is different. In Germany, for instance, several (!!) universities got 1.5 million of euros to create an e-learning portal to learn languages, something very similar but not as extensive to the one created by the infos24 GmbH, see www.french-online.de, the company behind this website. It took us, the original, German version, 5000 hours to create is, that makes 200 000 euros and some euros to pass it to other languages. The problem is that even with 1.5 million euros the governmental sponsored website never went online.

The costs of an e-learning platform per visitor will be almost zero if several universities cooperate. In any subject. For obvious reasons, universities have as little interest in controlling as they have in e-learning platforms.

E-learning platforms would have other advantages. For all the people who can't go to an offline university, because they have children, they are obliged to work, they are physically challenged etc. an e-learning platform can be an alternative.

There is a third advantage in using more e-learning. Half of the worked of an academic teacher consists of correcting tests. This can be done at least in part, depending on the design of the test, by computers.

It is argued very often that exams designed to be corrected by a computer don't promote critical thinking because the answer must be yes or no. This is in part true. However, anyone who ever corrected 100 exams in a normal mass university knows that the person who corrects the exams look for keywords, he or she doesn't actually read the text.

Books have the problem in that they are restricted because they give background information. They are also limited in that they take into account different learning strategies; they are not interactive and don't offer multimedia and most of all once printed they cannot be changed.

Books are interesting because they allow to make money, especially if the lecture of an academic teacher is based on his book, and students are obliged to buy it.

Besides some highly regulated professions, for instance, medicine, the working life of the people will be more and more characterised by an eternal change of profession. That means that informal learning becomes more and more important, and people have to learn to find the information they need in a specific situation and this kind of information they will find on the internet or nowhere. It would, therefore, be better if they learn at the very beginning of their professional life to use the internet as a means to get the information they need.

If people change their profession several times, the academic degree is worth nothing, and people are not going to pay 100 000 dollars for it. We can read everywhere that profit of human capital decreases the more people get an academic degree. That's wrong. The value of a university degree decreases because it becomes more and more irrelevant, but that doesn't mean the value of human capital decreases. It only means that it is more and more obtained in an informal way.

If universities are not able to adapt themselves to this new situation, actually a well-known situation, they will disappear.

In his video about the topic, see What's Wrong With Our Schools Featuring Milton Friedman, argues in favour of tuition fees. Concerning universities, the second part of the video, he argues that students make more efforts if they for their studies and appreciate it more if the pay for it.

He doesn't give any proof for this assumption, and the thesis is not very plausible. Students invest already a lot in their studies. Moreover, they have an incentive to finish quickly. However, the supplier of the service, the universities, has very little incentive to offer a good service and an academic teacher doesn't get a tenure for his performance in teaching. He gets a tenure if he has published a lot of never discussed discussion papers.

That's like going to a restaurant and paying for the cooking books written by the cook but not for the service of the restaurant. It 's hard to believe that this would work in reality. In the long run, competition would resolve the problem. Only the restaurants would survive where the customers pay for the service in the restaurant.

return to the top of the page ...

1.1.15 Homo oeconomicus

The homo oeconomicus is meaningfull concept only in a market economy