Earlier this week, Tom Bewick reviewed the Social Market Foundation’s latest report on how to reform the funding of adult skills provision. While some of his criticism is fair, he sets the bar too high, while proposing solutions that are fraught with the same problems as the existing system.
In our recent paper Britain’s Got Talent: unlocking the demand for skills we argue that handing training funds direct to individuals is liable to result in their choosing courses primarily for enjoyment and interest, rather than because the skills will result in employment or higher subsequent pay.
There are two points to note about this. First, by arguing that this is a ‘waste’ of government money, we are not saying that enjoyment of learning is not a valuable thing. It’s hugely valuable. And students will simply not stick their courses if you make them learn higher order differential equations from a blackboard. That said, the primary justification for government funding of skills is that they boost earning power, employability and workforce productivity. Since these goals are also what learners themselves want, we need a system that delivers these outcomes rather than wasting learners’ time and short-changing taxpayers.
Second, the reason people default to picking courses they’d like to do – rather than the ones that impart saleable skills – is that it’s very hard for any of us to get a clear sense of what current and future employers want. It appears common in the skills sector to assume that individuals are endowed with perfect information and foresight about the value of skills in the future labour market. This is implausible: the labour market is infinitely complex and very hard to navigate.
After all we’ve learnt in the financial crisis – where it turned out that we were catastrophically wrong to assume that people knew what they were getting into when trading complex financial instruments – it’s ironic that many seem still to believe that rational economic man and woman are alive and well, and taking up vocational training. There are better descriptions of how people approach such decisions. Much more relevant work from the field of behavioural psychology tells us that when faced with a difficult question – ‘what course will improve my chances of getting a good job?’ – we humans tend to prefer to answer a slightly easier one – ‘which course will I enjoy the most?’
So Tom’s preference for individual learner accounts is likely to suffer from the same problems that have confronted past systems where the user dictates provision. Similar direct funding for businesses would perpetuate the problems seen with Train to Gain. Our proposals are new precisely because they recognise that skills provision needs to be determined by coordinating employers and trainees. Naively hoping that homo economicus will identify the right course won’t cut it, particularly in today’s fast-changing economy. For the same reason, Tom is entirely right to suggest that higher education providers should be subject to similar incentives.
Finally, on the specifics, Tom raises some valid challenges to the practicalities of paying by results. But we propose solutions to these. He’s wrong to say that when someone scores a goal in football, it’s easy to know who to credit with the goal: there are at least 10 other ‘externalities’ in his team who set up the goal. But that doesn’t mean that we can’t identify the best strikers. The right analogy is with a full season of the Premier League, rather than an isolated goal. If the striker plays with different teammates and different teams, and keeps putting the ball in the net, then it’s very clear who’s adding the value. That is, after all, why Fernando Torres costs £50m. Averaging the performance of thousands of students from each provider can screen out those students who are either lucky or exceptional.
Tom is right is to point out the difficulties of implementing such a system in practice. As we concede in the paper, this is the big challenge. But the problem with skills funding down the years has not been that we all agreed on the destination for policy but found the practicalities difficult. Rather it’s been that a proper understanding of how people and employers behave in the market for skills has been absent. Simplistic economic thinking has resulted in wasteful use of resources, and undeveloped potential, and command and control from Whitehall. If we can agree on the right destination, the practical challenges aren’t insurmountable. That is where the debate should now be.