"CEOs can't wait to read Sunny Bindra's articles every week."

What happens when you can’t trust educational qualifications?

There have been widespread reports of cheating in Kenya’s public examinations again this year. As there are in most years. The problem of papers being leaked and sold seems to be rife. In addition, can we trust the certificates being churned out by our educational institutions any more? So many are suspect, being sold by staff members or forged by syndicates.

I wondered out loud on Twitter the other day: what happens in a market when you can’t trust the educational qualifications brought to you by job applicants? One answer I received stood out: refer to the market for lemons.

“The Market For Lemons” is one of my favourite papers from the days I was studying economics in London. It was penned by George Akerlof, who later picked up a Nobel Prize for his insight. The “lemons” referred to are second-hand cars that are defective or of poor quality. Mr Akerlof wondered why used cars suffer such a big fall in price compared to new ones; even those that are just a few months old can only be sold at significant discounts relative to brand-new ones.

His insight was that it is all to do with asymmetric information. Put simply, buyers cannot easily tell whether a given used car is any good, or whether they have a lemon on their hands. The seller, having the history of the car’s behaviour and servicing, knows much more. A buyer operating in the dark will tend to assume a significant possibility that a car he is considering is a lemon, and will therefore offer less money for it.

Sellers of good cars will be confronted by low prices, and will withdraw from the market. Rather than sell their good cars at bad prices, they will be forced to keep driving them. The withdrawal of good cars reduces the average quality of cars on the market, causing buyers to revise downward their expectations for any given car even further. This, in turn, motivates the owners of even moderately good cars not to sell, and so on.

Can you see what will happen here? Sellers of good cars will stay away from the market; sellers of bad cars will flood it; prices of cars actually sold will be low, as will be their average quality.

Now substitute “job applicants” for cars, and understand the problem we’re facing in Kenya.

If you’re an employer who can’t trust the credentials of the candidates in front of you, what will you do? Offer lower salaries than usual, on the assumption that the chances of landing a dud are significant. And if you’re a candidate who worked hard and got great grades, what will you find? Continuing suspicion, and low salary offers. Poor candidates will flood the market; good ones will try other markets (like foreign ones, or self-employment) that recognize their true worth.

The bad drives out the good, in other words.

This is why it is so important to stamp out cheating in any economy. Not just in examinations or in used cars, but in everything. If credentials can’t be trusted and cheaters thrive, there is a huge drag on the economy. Extra verification costs have to be incurred; and high quality is discouraged. And that’s without even considering the biggest cost of all: the moral decline of society.

Everything starts with education. Education is the single biggest factor that will determine whether we become a proper developed economy, or just a pretend one. If we can’t impose strict standards of probity on our educational institutions, we won’t be able to impose it anywhere.

Any society worth its salt must protect the people who work hard, who do things the right way, who learn things properly and to the right standard. Without them, we have nothing.

Buy Sunny Bindra's book
here »

Share or comment on this article