My Analysis on the Recent PTPTN Issue in Malaysia

After around 6 months absent due to extreme busyness, I finally have time to rant a little and I select the PTPTN issue as the topic of discussion.

For those who don't know, recently the opposition party of Malaysia (Pakatan Rakyat) suggested the possibility of free tertiary education in Malaysia. The issue has been snowballing ever since with various comments from various parties arised. Most government officials denied such possibility, claiming that this will lead to bankruptcy. Most current tertiary education "undergraduates" welcome the suggestion and even orchestrate an "event" at Dataran Merdeka to show their support towards this suggestion. Besides, many so-called analysts offer their comments on such issue, mostly oppose to this suggestion; and of course we have the public opinion. Public have been somewhat mixed in such issue but from my observation, most oppose the suggestion.

However, almost all analyses (or comments) so far have little credibility as they offer very little evidence or data. The level of objectivity is not up to par, leading to biases in their comment. Undergraduates, due to the concept of "self interest" will undoubtedly support the suggestion while government officials will (for whatever reason) oppose to the suggestion of opposition party. This time they claimed Malaysia will not benefit from this, to and extent that bankruptcy is a possibility if tertiary education is made free.

THE FOLLOWING IS THE ANALYSIS FROM THE AUTHOR AND AUTHOR ALONE. THE ANALYSIS IS BASED ON DATA OBTAINED FROM VARIOUS RELIABLE SOURCES AND ANALYSED USING OBJECTIVE ANALYTICAL TOOLS TO ELIMINATE ALL BIASES INVOLVED. VIEWERS DISCRETION IS ADVICED.

Bear in mind that I only channel the concept of free tertiary education towards the local students in our public universities and college universities. Private colleges and universities are profit oriented, thus impossible for the state to fully subsidise all fees involved.

Lets start with some important statistics. According to official statistics from Ministry of Higher Education (MOHE), we have 82,296 new enrolment into all public universities and college universities (U/CU) undergraduate programme. Averagely, we have almost 80,000 new enrolment every year to our public U/CU undergraduate programme. Mean study fees for each student every year (2 semesters) is RM 2,500.

If such information is considered, it costs Malaysia around RM 200,000,000 (two hundred million) to finance each batch of students. Since most undergraduate courses take about 3 years to finish, roughly estimation for Malaysia to fully finance all public undergraduates is RM 600,000,000 annually (six hundred million).

Six hundred million sounds very high considering we are a developing economy relying on domestic demand to boost our aggregate demand. However, if we reconsider our information so far, six hundred million for 240,000 students (8,000 x 3 years) every year merely means around RM 208 per month. If the benefits (increase in productivity) we obtain from such proposition exceed RM 208 per month, Malaysia should do this.

However, there are three visible problems: first, opportunity cost involve for the six hundred million is significant for the economy with only RM 766 billion annual gross domestic product and almost RM 740 billion gross national income. Investment in infrastructure could yield higher return in the long run for the economy, and even if it doesn't, it will still add significant weight to the RM 208 we talked about earlier.

Second, the capital needed to finance such a proposition required significant commitment from all agents of economy. With a population of 28.25 million, we need around RM 21 per capita to achieve such proposition. Tax is imminent under such event. Additional increament of six hundred million Ringgit into our money supply will result in enormous inflationary pressure to the economy.

Third, the characteristics of public goods, namely nonexcludability and nonrivalrous in consumption for public goods can't be satisfied. Tertiary education in U/CU is both rivaled and excludable services. With that, public can't enjoy this services at free will and utility may not be maximised. Furthermore, requiring public finance for a service that is both rivaled and excludable may not be welcomed by everyone, especially those with less possibility of enjoying it.

Nonetheless, numerically, using a moderate 5 percent opportunity cost rate, RM 30 million should be added into the total costs of this proposition, or RM 125 per capita. This equates RM 333 per capita every month. With such number, per capita "contribution" for every Malaysian would be merely RM 1 higher at around RM 22.

Next, we need to determine the increase in productivity of undergraduate compared to their primary and secondary eduation counterparts. This is not an easy task especially for the case of Malaysia as not much labour market researches focus on such aspect. However, from most researches that I can gather, with some slight ammendments to fit the case of Malaysia, productivity of higher education graduates are around 10-25 percent higher than primary and secondary graduates. Furthermore, the gap is proportionally higher, indicating that the difference in productivity between the 2 groups will grow bigger, supporting this proposition. Free tertiary education might increase the number of graduates in higher education, thus increasing the productivity of labours in general at increasing margin.

10 to 25 percent increase in labour productivity will generate an increament to our gross domestic product by RM 38 billion to RM 96 billion, way above our RM 630 million annual expenditure required to finance such proposition.

So, free tetiary education can really be possible and beneficial to the economy in general. Although such proposition requires significant investment and may result in higher tax rate or public debt level, with such significant growth potential to our economy, it may be a extremely good suggestion.

However, growth in output level, deficit budget and public debt are still main problems of Malaysia economy, increasing the difficulty of such proposition to be implemented. In the short run, the time lag involved may cause ineffectiveness of such implementation.
In the long run, free tertiary education could be one of the catalysts that lift Malaysia towards a high income economy.