Why IIPM is significant for Indian education?

Mercatus is interested in the long term perspective of the IIPM event and what the future holds in store?

Till quite recently, we have had government regulations responsible for the quality of product in the market of education. As government regulations usually are, they gore to detail the input aspect of the product with little input for the output quality. And, as the market developed, we had a few institutions who chose to stay out of the regulatory net, for various reasons. It could be because these regulations did little to influence the quality of the product, and therefore mattered little to discerning consumers. But they came with heavy regulatory costs and hence inhibited innovation on part of the institution. On the other hand, you had the institutions who could not meet the regulatory requirements for providing higher education and at the same time wanted to take advantage of an open market. The quality of these institutions vary from the famous Indian School of Business to the infamous Indian Institute of Planning and Management (the by now famous case of Arindam-IIPM-IBM) whose reputation is extremely dubious according to reliable sources.

For a while, the higher education market has been in this transition stage where there has been lack of quality; lack of information regarding quality and where some institutions have chosen to stay out of the regulatory net. But, as in any market, there is a crying need for a signal of quality.

Advertisements do not adduce reliable evidence, as especially was found in the case of IIPM. The solution to get reliable information is to have it from a reliable sources, and all the better, if there are competing sources of information. When it comes to quality, more information is never a problem! Again it is important for the producer of information of a product to be dependent (in terms of profit) to the consumer. For if the information-producer is dependent on the product-producer then the incentives do not align and the consumer stands to get misled or cheated. So if the Times of India produces ads for IIPM, there is little incentive in the arrangement to produce the truth for a consumer like me. Anyways, the purpose of an advertisement is in providing information and not evidence.

On the contrary, if I pay X to provide me reliable information on IIPM, X has more incentive to offer me the correct information. And if you have Y competing with X to provide info on IIPM, then the consumer has all the more chances of having more reliable info. In fact, in a competitive market X has every incentive to "de-inform" customers of a particular institution if it is misleading customers. Why? Because X's capital asset (as a media organisation and on whose word you rely) is in its reputation. Customers will buy unreliable media only till a threshold, after that it is kaput!

So you find that Outlook withdrew the business school rating of IIPM. See news article here
In fact, you there are claims that Hindustan Times brought out the news and not ToI because of the advertising spend in ToI by IIPM. See, the more newspapers, the more the competition!

With the lowered transaction costs of information sharing through the internet, it needed only a journalistic endeavour by Rashmi of JAM magazine. See, JAM has incentives to provide correct info to consumers because their existence is to a large extent dependent on it.

Now, the outcry may be to have tougher regulations for education institutions.

Mercatus intends you to take a different view! Based on previous elaboration, rating agencies for education institutions can provide the appropriate required info. For details, look up here
The more the rating agencies, the merrier!

The problem with taking a particular example of failure of IIPM as an example of failure of markets in education is in the neglect of two issues.

First, private institutions may be of four types. (1)Not trying for quality, not trying for profit (the has-been ones); (2)Not trying for quality, trying for profit (IIPM?); (3)Trying for quality, not trying for profit (some philanthropic ones); (4)Trying for quality, trying for profit (NIIT type). I exclude government institutions because I am yet to see any punished by a government regulation!

Government regulations affect 2 positively only if you are assuming a incorruptible government, but they come down heavily on 4 while at the same time bringing excess baggage for 3 and making life easier for 1. Do your analysis now!

Now rating agencies on the other hand will bring out clear information on 1 and 2 types and making them distinct for the 3 and 4 types.

Second, regulations in the long run deter innovation of the product and only increase the cost of production. And neither they give suitable information on quality for they only look at the input. It is like looking at water and regulating that you cannot drink it; but what I want to do is to produce electricity.

At a juncture in a developing education market (the present situation) if you do not resort to government regulations and instead facilitate rating agencies, more IIPMs will be ferreted out. The reason that there are IIPMs out there (imagine pimps in a seedy red-light area) is because there is a demand for management education because it offers a signal of satisfactory employment (management job). And pimps operate and profit greatly in a "low-information" market! The key to a "low-information" market is more information through rating agencies and not more control through regulation agencies. Because regulation agencies are notorious for controlling entry of competitive agencies, and the more the competition, the more the information is out there for us.

So what we are witnessing is just a scene of a script. More such agencies will be discovered, some government, some private! And there are more such lurking under government regulations (look at the varsities in Delhi, UP and Bihar)! Media markets and rating agencies will only help us uncover and discover them! All Mercatus implores you is to take a long-term perspective!