Earlier in the week, a thinktank called “Onward UK” got some press for a report condemning the proliferation of “Mickey Mouse Degrees” in British universities. You might think (and indeed say, as I did) that a bucket shop policy institute consisting of a recently resigned special advisor and a “Senior Research Fellow” with a lobbyist day job has a bit of brass neck calling anyone else “Mickey Mouse”, and that’s why I’m not linking to the report (although I did finally crack and read it; it’s not terrible quality stuff, but as an example of the genre of policy entrepreneurship it’s an American trend that I don’t want to see embedding in British public life). Instead of getting into an empirical debate, I want to address what I see as a more interesting question; the whole way we think about our creative industries is fundamentally misconceived, because of a sort of methodological individualism that stops us seeing the system as a system.

In skeleton form, the argument is:

1. Lots of students choose to do degrees in creative arts subjects[1]

2a. Most of them don’t get high-paying jobs in the creating industries
2b. Many of them don’t get graduate-premium jobs at all

3. Because of the way the UK’s student debt write-off system works[2], this means that the provision of creative arts degrees gets a taxpayer subsidy

4. This is bad and should stop, either by regulating the provision of degrees or by futzing around with the loan/subsidy system to similar picking-winners effect.

It’s got a certain logic to it, but it suffers from what I’m going to call the “Park Problem”. I set it out (subject to a very compressed word limit) in City AM this week.

Basically, if any policy aimed at solving the alleged problem above would work, it would hit courses in media, film and creative arts at former polytechnics pretty hard. Specifically, you’d bet against the survival of “Communication Arts” at Sheffield Hallam University.

But … congratulations, Minister, you just zapped the course that brought us Nick Park, Aardman Animation, Wallis and Grommit and the media-industry cluster in Bristol.

The thing about the arts industries is that they’re very hits-driven; talking about what happens to the median person going into them is always going to massively underestimate the value of the system as a whole. They share this characteristic with pharmaceuticals and, famously, the oil industry (as the wildcatter proverb has it, “part of the cost of a gusher is the dry holes you drilled”). You can’t tell ex ante which spotty undergraduate is going to turn into a claymation genius and retrospectively justify the last decade of investment. Importantly, nor can they. As far as I can see, if you were to set it up without subsidy, you would most likely get too few people going into the creative arts, as they would rationally decide that they were more likely to be one of the ones that didn’t make it than one of the Nick Parks.

This is really not all that unorthodox; it’s just the application of venture capital thinking to what people are (wrongly in my opinion) analysing as a debt problem. The undergraduate education subsidy system ought to be thought of as one where the government makes loads and loads of smallish VC investments, effectively buying a roughly 30% shareholding for a five figure investment, with diversification across an entire undergraduate cohort every year. If you’re given that sort of an opportunity, then obviously you go for some moonshots, particularly when you’re the government of a country that famously does very well in creative industries compared to its peers[3].

But it’s actually possible to push this line of thinking somewhat further into a general point about arts funding, making use of the fact noted two paragraphs ago that not only is it impossible for an outsider to pick winners, it’s usually very difficult for the artists themselves. Where I think that leads to is the conclusion that when you’re looking at the rate of return on arts subsidies, there is no coherent way to measure ROI at any level more disaggregated than the entire system.

What I mean by this is that it’s not possible to isolate particular parts of the creative industry as “commercial” and look at their funding separately from the “artistic” bits. Some organisations might try to do this as a book-keeping exercise (and obviously, this isn’t a literal impossibility when it comes to things like an annual pantomime). But in fact, the avant-garde is a provider of raw and semi-finished material to the “commercial”. One of the outputs of “productions of Samuel Beckett” is “directors of Bond films”. More importantly than that, one of the important outputs of a thriving fringe theatre scene is an educated and critical audience, which is the hidden crucial competitive advantage that the British media industry enjoys over most of its competitors. There’s a reason why it was in the UK market that Simon Cowell managed, twice, to turn an incredibly generic talent-show concept into a format that conquered the world.

So not only is arts funding a hits-based business (in which part of the cost of the successes is the cost of the flops), it’s also a hits-based business in which it’s not really possible to measure the output, because a lot of the output is the production of intangible assets which only get converted into cash at a later date and with a connection that’s very hard to observe. I think that what this means is a) the overall ROI of creative arts funding is likely to be systematically underestimated by accounting systems which don’t take into account the production of intangible assets and which try to make a commercial/art split. And b) that the only reasonable way to allocate arts funding is by the judgement of informed creative peers.

[1] In general, one might see this as creating a rebuttable presumption that creative arts are succeeding in a marketplace which is competitive and internationally traded, and that this is good. The market for undergraduate education isn’t perfect of course; I have had numerous interesting arguments about whether the information asymmetries are really so great as to undermine this presumption but let’s set them to one side here.

[2] It basically replicates a really crude and badly designed graduate tax, but one which has the massive advantage over a proper graduate tax that it can be levied on foreign students from EEA countries.

[3] I have noted in the past that, whether or not China produces a hundred thousand graduate engineers every year, it remains the case that China has never produced a single decent television game show. Anyone remotely familiar with the concept of comparative advantage can draw the obvious conclusion with respect to whether the UK ought to be directing its talented young people into software engineering or into media studies.

Responding to students’ call for the sacking of John Finnis from Oxford University because of past homophobic writing, I tweeted yesterday that:

If I spend £30,000 on a car I don't expect the salesman to tell me my lifestyle is unacceptable. The idea that universities should be different is a hangover from the days before tuition fees.

This needs expanding. I was not justifying the students’ demand but merely getting at a point made by Fred Hirsch back in 1976. He called it the commercialization effect. If we pay for something we have different standards and expectations than we do if we get it for free*. Motivational crowding out happens. If I’m getting something for nothing I’ll be more tolerant of any, ahem, idiosyncrasies of its suppliers than I would be if I’m spending a fortune on it. You cannot create a market in something and then be surprised when customers exercise consumer sovereignty. Economic change causes cultural change. The cash nexus might well transform what used to be a learning experience into just another paid-for leisure activity – and people on cruises don’t expect to be “challenged” or offended by the waiters,

In this context, what’s surprising is just how tolerant students still are: as Will Davies has said, the idea that they are intolerant snowflakes is a figment of the right’s imagination. This, though, might not be an immutable fact. It might merely be an example of how culture is slow to change in response to economics. Tuition fees are a sufficiently recent innovation that they have not yet crowded out traditional academic social norms about free enquiry. But they might do so eventually.

In this context, there are many issues to consider. Let’s take five.

1. There is, as Aveek Bhattacharya pointed out, a commercial transaction in which people pay to be challenged and even offended – personal training. Isn’t this a parallel for university? Perhaps, but the trainer’s words of admonishment are a form of roleplay: a trainer who was (improbably) sincerely racist or homophobic wouldn’t get much custom. In this sense, there’s a distinction between lecturers using thought experiments (“what’s wrong with homophobia?”) and ones expressing sincere views hostile to some students.

2. Teachers can compartmentalize. The great Andrew Glyn, for example, was never hostile to conservative students despite holding very different political views to them. Perhaps even homophobic teachers can do the same**. The converse is also true here. Lecturers with impeccably PC views in public have not always treated female students as they should: Howard Kirk wasn’t entirely a fictional character.

3. The idea that students should be challenged can easily have a class, race or gender bias in practice. Oxford vice-chancellor Louise Richardson has said that “education is not about being comfortable. I’m interested in making you uncomfortable’. But let’s face it, it is not white public schoolboys who generally feel most uncomfortable at her institution.

4. There are different ways of challenging students. Instinctively, I’m unhappier with homophobia or racism than I am with challenging political or religious views, because the former attack students’ sense of themselves whereas the latter do not or shouldn’t: your or religious political beliefs should not be constitutive of your identity in the way your race, sexuality or gender are. But is my instinct correct? Is this distinction tenable? Adam Wagner recently tweeted that he feels “almost physically hurt” when liberal ideas are challenged. That suggests it mightn’t be. But this opens a slippery slope I don’t like at all: if we’re intolerant of racism, why shouldn’t we be intolerant too of conservatism?

5. What type of market is that in higher education? Some interlocutors have suggested that if students don’t like homophobic lecturers they should leave. This seems silly to me. Education is a bundle of good and bad teachers, so walking out because of one bad egg is impractical, to say nothing of the difficulty of change courses. Voice is a perfectly reasonable alternative to exit.

There are no easy answers here. My point is that in introducing tuition fees, governments threatened to change the very nature of universities. Those who attack “snowflake” students and who assert traditional ideas of academic freedom are guilty of ignoring basic economic realities about motivational crowding out and the commercialization effect. It might be that the strongest, and under-appreciated, argument for abolishing tuition fees is that doing is a way to protect the traditional concept of the university.

* I mean at the point of use. Students have in the past paid for their education out of taxes on their enhanced earnings.

** Finnis is retired: I’m not much interested in his particular case.