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In Africa, SA is the only country with a diverse and differentiated higher education system. In a 2016 ranking of universities in emerging economies, The Times Higher Education Supplement places three SA universities in the top 12 (UCT 4th, Wits 6th and Stellenbosch 11th). China has five in the top 12; Taiwan has two; Brazil and Russia have only one each; and India and the rest of Africa did not have one university in this ranking.

This positive evaluation of the SA system is based largely on the postgraduate level, which in SA constitutes about 16% of the total higher education system (compared to less than 5% in the rest of Africa).

By contrast, the SA undergraduate system is characterised by low participation (20%). Participation rates represent the proportion of those aged 18-24 in higher education. The system also has high attrition rates (only 30% of contact students graduated in the minimum time and 53% after six years), as well as insufficient capacity for adequate skills production.

Despite a dramatic increase in black student enrolments (more than 70% of total enrolments in 2013), their participation rates have hardly changed. In 1995 this was just under 10% and by 2013 it was just over 10%. For whites the rate had changed from just over 60% to just under 60%. For participation to contribute to skills development and equity redress, participation in tertiary, not only university, education will have to double.

The Global Competitiveness Index shows a remarkable association between stage of economic development and participation rate. Factor-driven (mining and agriculture) economies have participation rates below 15% – in Africa only Mauritius (40%), Botswana (25%) and SA (20%) are above 15%. In efficiency-driven economies (more emphasis on services such as tourism and financial) the participation rate is 30%-50% while for the innovation and knowledge economy-driven economies, the rate is over 70%. But in SA, participation, and more importantly success, is hampered by a number of factors, including slow supply of adequately qualified matriculants, an inefficient undergraduate system, limited university infrastructure and capacity, and the elephant in the room until 2015: underfunding.

There are different ways to determine underfunding. A rather crude but internationally used comparison is government contribution to higher education as a percentage of GDP. International research literature argues that since higher education is very expensive globally, there is no such thing as "free" higher education. Rather, the question is: "Who pays what, when?" This sets up a complex policy dilemma since the effect of government investment in higher education depends on the distribution of private and public benefits. This raises another difficult policy choice: "Who benefits from which kinds of payment system?"

All fee regimes are a "trilemma of trade-offs" involving public investment, enrolment (participation rate) and private costs. The trade-offs are influenced by what different political groupings think the role of higher education is and which constituencies’ interests are dominant, and vary from country to country.

Three examples of highly developed systems are Australia, the US and Finland. Australia has a participation rate of around 80%, but spends only 1.3% of GDP on higher education. It also has high fees but arguably the world’s most progressive graduate tax system where students only pay back after starting to work. The US, with only 1.4% government investment, also has a high participation rate (over 70%) but with high fees with loans — previously bank loans (with high debt recovery but steep administrative costs), and now increasingly a federal student financial aid scheme. However, there is more money in university loan schemes than in housing mortgages, which some predict could cause the next financial crash.

Finland, like the other Nordic countries, is characterised by equality, high employment rates and high taxes (50%). It has high government investment in higher education (over 2% of GDP), high participation rates (above 80%) and no fees.

Trends in developing countries vary. Brazil has low government investment (around 1% of GDP) but offers free higher education in public universities. However, these enrol less than 25% of the students, with 75% enrolled in (mostly low-quality, nonresearch) private universities. While high enrolment pushes the participation rate in private universities to over 40%, in public institutions is below 15%.

Cuba and China have high government investment in higher education, though their rationales and outcomes differ. Cuba views higher education as part of an equalising strategy and government invest s over 4% of GDP. Yet , by 2000, the participation rate was still only 25% and, apart from medical training, Cuba’s university system is not renowned for new knowledge production.

Arguably, China has had the most successful strategy from among its emerging economy peers. After Tiananmen Square, government embarked on the fastest expansion of higher education in history. The main principles were: high tuition fees to increase investment in higher education and to spur consumption; large-scale loan systems to help poor students; and increased scale of scholarship in a group of world-class universities. The strategy combines high government investment (3% and aiming for 4%), with huge enrolment expansion (participation rate now over 40%) as well as high private costs — but with financial assistance from regional credit banks where the middle class invest above commercial bank rates, and the poor borrow for periods between 10 and 15 years.

At 0.7%, SA has one of the lowest GDP expenditures in higher education. However, the 2015/2016 university bailouts have almost certainly pushed SA to the 1% mark. Though government funding for universities increased from R16bn in 2000 to R21bn in 2013, the percentage of the overall budget decreased from 49% to 40% (and for some institutions to just above 30%). Third-stream income (research, endowments, contracts) also increased, though its percentage of the budget (27%) stayed the same. So the universities filled the gap with student fees, which rose annually by around 10%.

Does investment in higher education increase access and reduce inequality?

For economist Thomas Piketty, the best way to reduce inequality and increase the overall growth of the economy is to invest in education and technology, but where and how the money is invested is crucial.

Harry Patrinos, in his World Bank study of 130 countries, makes three important policy points in this regard:

• Private returns from higher education [that is, benefits to the individual graduates] are high (and in SA the highest in the world);

• Globally (and presumably even more so in SA), the high returns will fuel a demand for tertiary education and governments will need to consider appropriate policies for financing this demand; and

qIn an environment of high returns to university education, any lowering of private costs means the general taxpayer effectively pays for the education of the rich.

This, and the international literature, confirms the findings from a prominent SA economist that free higher education for all is a regressive policy that privileges the affluent middle class and the rich.

As higher education systems in Africa expanded, provision of free higher education has become increasingly expensive and unaffordable, compounded by a sustained decline in economic growth. Since only a small elite (less than 10% of those aged 18-24) has been absorbed by the free public universities, Africa (like most of Latin America) developed a dual system of free public education for the elite, and low-quality private colleges (calling themselves universities) for the poor.

The major problem for the poor in SA is not that they cannot afford higher education, but that fewer than 5% of the poor qualify for entry into universities, while for the 5% whose parents earn over R600,000/year, the percentage who qualify to enter university is over 50% (10 times more than for the poor). For financial aid, a very important group is those who qualify (attain exemption) but do not attend. The highest exemption without attending is decile 8, the "missing middle" (see graph).

In answer to the (incorrectly framed) question addressed by the fees commission — namely, is free higher education feasible? — on October 5 finance minister Pravin Gordhan said that while "free higher education for the poor was on the table ... for now government cannot afford free higher education for all". The commission has become a distraction and a delaying mechanism.

Gordhan and higher education & training minister Blade Nzimande must act decisively. Nzimande’s announcement about fees for 2017 confirmed the principle of fees and introduced a clear, differentiated approach to fee payment within three bands: the poor, below R120,000; a very wide middle class between R120,000 and R600,000; and the affluent middle class/rich.

So government is promising free higher education for the poor and to pay the proposed (8%) fee increase for the middle class. Only those from families with incomes above R600,000 will pay fees, which means only about 30% of the undergraduate student population will pay for the increase.

The issue is not whether there is enough money for free higher education; it is whether free higher education as a policy — in an unequal, developing country with low economic growth — will have the desired outcomes in terms of participation and inequality.

SA has the world’s highest inequality index (Gini-coefficient 0.68) and the highest private returns to tertiary education internationally. Free higher education will widen, not reduce, inequality. This is because the low participation rate (now 20%), combined with free tuition, will immediately restrict the expansion of places.

It will be the children of the new political and business elite, who have significant social, cultural and economic capital from Model C and private schools, who will succeed in school and gain access to tertiary education.

Like the rest of Africa, SA has limited (zero) growth and an unequal and inefficient school system; installing a free university system on top of that will only solidify and expand inequality.

Finally, the lack of an increase in participation rates will increase the high-level skills shortage, curbing economic growth, while the unequal participation rates between black and white will remain.

A longer-term solution for SA could be, like a number of international systems, to move towards a progressive graduate tax system, which Universities SA supports in its submission to the fees commission. The advantages of these systems include no or minimal fees; that poor and rich are treated the same; and that differentiation comes after graduation when those who earn high salaries pay more and quicker, and those who earn lower salaries pay less and over a longer period.

The conditions for such graduate tax systems are high graduation rates, high graduate employment, good tax collection and that taxes must not be stolen. SA satisfies the second and third of these conditions. The biggest drawbacks are that barely 50% of the undergraduate students graduate, as well as the raiding of national treasury.

• Cloete is director of the Centre for Higher Education Trust and extraordinary professor at the universities of Western Cape, Oslo and Stellenbosch