Category Archives: Economics

Understanding the role of markets in education

This post continues my attempts to understand how educational economics are shaping our understanding of education. This is a philosophical project in the sense that it’s about concepts – understanding the ones that we use and creating new ones where they are needed.

Previously I’ve written about the difference conceptions of education that arise when beginning from ideologies of either equality or liberty.

I’ve recently been reading What Money Can’t Buy: The Moral Limits of Markets by Michael Sandel (a philosophy professor from Harvard – here’s a good review of it and below is clip showing the main arguments).

My takeaway for understanding the role of markets in education is that there are two main arguments against creating a market in any domain:

  1. Fairness: In a world in which different people have access to different resources, there is an inherent unfairness in creating markets for things that ought to be fundamental rights (as indeed education is under the UN charter of human rights). For example, one might be tempted to make the quality of a child’s education entirely dependent upon the willingness of parents to pay. Many reject such a proposal on the grounds of fairness (and hence the presence of government funded education)
  2. Corruption/degradation: Putting a price on something and making it a market fundamentally changes the way that society values something. For example, giving teachers “performance pay” for improving student results is not a neutral action – it fundamentally changes the relationship between teachers and their work.  In this case it might be seen as degrading the idea (held by many teachers) that they do their work to benefit society and not for achieving a financial reward. In other words, the extrinsic reward (of money) can interfere with existing intrinsic rewards.

These two standpoints help to give us some structure for critiquing economic rationale in education. In the first case creating a market creates unfairness; in the second case creating a market in some way changes the values of society in a way that may (morally) be considered detrimental. This second case is often forgotten due to the challenges that it presents.

Why create markets?

A market is fundamentally a way of being able to exchange something. Creating a market is making it possible to exchange something (usually with money) that wasn’t previously able to be exchanged.

In the current climate of neoliberalism, politicians often look for ways to bring “market logic” into education. The rationale for this are complex and I won’t get into the textbook economic theory more than I have to. Mostly it is about:

  1. Efficiency: Markets are really good at ensuring that things get to the people that most value them at the price that best fits the supplier – however, there are plenty of assumptions made about the market for this statement to remain true.
  2. Competition: Making a market introduces competition and (so goes the theory) then the best suppliers win – where success is determined by giving the consumer what they want at the right price. This of course is far more complex in education than this simple idea accounts for. This is why ideas like “making all schools private to improve competition” make little sense when the nuance is considered.
  3. Regulation: Once there is a price on something then it can be controlled and influenced by (government) policy. For example, once teachers have performance pay linked to standardised tests then the logic goes that it’s a matter of finding the right price to “incentivise” them to work harder. (To be clear, in practice there are many issues with all of this – my point here is just to characterise the arguments and policies that are often made).

Markets in education

Where does all of this get us to? The aim is to provide some clear thinking to get us out of the bind that we in education seem to frequently find ourselves in – having to deal with increasing attempts to create markets and set prices within education.

Some examples from around the world:

  • The cost of private schools
  •  Paying students [in low income areas] to read books or take advanced courses
  • Paying students for their performance (e.g., in standardised tests)
  • Paying teachers for their performance (e.g. in standardised tests)
  • Funding schools according to their performance (e.g., in standardised tests or in truancy rates)
  • Funding universities according to the salaries achieved by their graduates
  • Etc

In every case the advocates of the market solution point us to the ways that efficiency will increase and the way that all parties involved will win from increased funding and choice.

The point of this post is to encourage everyone to consider more deeply the two initial criteria:

  1. Is this change, with all of its economic rationale, fair for all involved?
  2. What are the impacts of this change on the values that society holds about education, and the values of the people involved in education? Are we prepared to accept such degradation (where it exists)?

The former question is frequently addressed in media reports (e.g. this was discussed widely regards the recent HECS/HELP repayment thresholds in Australia). My concern is that the second question is rarely considered, let alone actually treated by politicians as holding weight.

Yet an education system always embodies the moral values of a society. When will we start actually having a conversation around these moral values rather than utilitarian outcomes?

The Educational Economics of School Choice

Ever since Friedman’s work on the educational economics of school choice (Friedman, 1962) the debate has gone round in circles about the merits of a comprehensive public system compared to what is known as a voucher system. It is likely that in some country, somewhere in the world, right now a government is attempting to implement “more competition in the schooling sector” through a voucher system. Is this a good thing?

My fundamental argument in this post is that schooling policy can either work to create a low-friction market or to reduce inequality but not both. I’ll return to this post over time to make improvements as I get a handle on the arguments. My conclusion thus far is that I am strongly opposed to voucher systems based on their tendency to increase inequality.

Some arguments in brief. Schools change slowly. There is a great deal of friction in an educational marketplace (i.e. it is hard to change schools). Critically, human geography (and the social inequality that determines it) makes the idea of choosing schools challenging. There is a strong motivation in a deregulated, competitive market for schools to spend increased amounts of money on advertising (when compared to teaching), to the detriment of all. There are many benefits of schools working in collaboration rather than competition that are lost.

I’m sure there are many more, strong arguments. For now, this is a summary from Dolton (2003) in The Economic Journal:

Opponents of the school choice movement (see Smith and Meier (1995) for example) suggest that it will lead to the destruction of public schools and the increased segregation of schools by race, class and ability and induce greater in- equality. Opponents to the market model suggest that empirical evidence relating to the successes of existing choice-based systems are questionable and that the theories and assumptions that provide intellectual support for choice are abstract and have never been systematically tested. ‘The new market “model” is often not spelt out in detail nor are the assumptions concerning individual and institutional behaviour that would be required to provide the anticipated efficiency gains’, Witte (2000, p. 11). One prominent critique of the public choice also suggests that it ‘will erode the public forums in which decisions with societal consequences can democratically be resolved’,

The central questions in the school choice debate remain: what exactly is meant by school choice; who chooses to select private schools and how do they choose; what do families really know about schools; what are the reasons and rationale for choices; in reality how much choice is there for most families; what happens to the children left behind in the public schools in districts which introduce voucher schemes; how much diversity is there after a voucher scheme is introduced; are parents more satisfied by the market alternative; are parents making rational choices and are market forces leading to improvements in standards?

Empirical evidence which answers these questions can be very negative (see Gorard (1997) for example) suggesting that: schools are basically very similar, families consider very few schools in reality, selection by mortgage/house prices operates powerfully, formal sources of information like league tables are of little consequence and choices are often made long in advance by default. Alternative evidence suggests that the consequences of introducing school choice can lead to positive educational improvements in all schools.

The Dolton article provides an excellent review of the key questions around the issue of implementing voucher schemes. A critical one being the idea that voucher systems presuppose all schools being private. When there is a parallel private and public system then it becomes an issue of “exit and voice” (see Hirschman (1970)):

This problem is that there will not be an effective mechanism for change if the most influential parents choose to ‘exit’ from the state schools to the private schools rather than ‘voice’ their views in an attempt to change the state schools.

The argument that Dolton is making here is that for a competitive market to actually work, there needs to be an accountability – where the needs of consumers (parents) are taken into account by the market (schools). This does not happen in practice.

The key gap in the literature is that models of school choice theory “do not explicitly address the issue of how parents exiting from the public school sector to the private sector will affect outcomes in public schools” (F179)

Paywall link: http://www.jstor.org.ezp01.library.qut.edu.au/stable/3590143

References

Dolton, P. (2003), A review of ‘The Economics of School Choice’, The Economic Journal, Vol. 113, No. 485, Features (Feb., 2003), pp. F167-F179

Friedman, M. (1962), The Role of Government in Education. In Capitalism and Freedom. Chicago: University of Chicago Press.

 

Acknowledgements

Thanks to the community on the economics StackExchange site for help with researching this post, especially the user luchonacho. You can read the full thread here: http://economics.stackexchange.com/questions/16128/is-there-any-work-on-equality-in-a-market-versus-friction/16158#16158

Update and edit:

This theme was recently addressed by Amanda Keddie in an excellent post on the EduResearch Matters blog on Why Australia should not follow Nick Gibb’s advice on how to run our schools.

My comment on her post is reproduced here as it is germane to this discussion:

Thanks Amanda for a well-written post arguing for nuance in this debate around educational reform.

I am writing this comment to take up the thread and argue for a high level of debate around this issue. To my mind there are three levels at which debate tends to occur when it comes to ideas of school privatisation:

1. Ideology: People who talk passionately about educational systems tend to hold one of two ideals. If liberty is your ideal then anything to do with “competition”, “autonomy”, and “choice” is a good thing. If equality is your ideal then anything to do with “social justice”, “opportunity”, and “social mobility” is a good thing. At this level, the debate can go nowhere and cannot attempt to find common ground. (For the record: I favour equality but I recognise that this is simply not as important as liberty for many people in society).

An example of commentary at the level of ideology: “I believe that choice is also a major piece in the puzzle of providing the best education to young Australians” – Senator the Hon. Simon Birmingham

2. Empirical: Sometimes the debate rises to the point that people start throwing around the conclusions of one or other study from the literature. At its worst there is cherrypicking of whichever study best supports ideology. Often there is simply a lack of recognition that education is highly contextual. Something that works in one country with its own culture and educational history may have entirely different outcomes in another country. At its best there is nuanced weighing up of empirical evidence from both sides and attempts to find trends and contradictions.

3. Theoretical: We need debate that attempts to understand why studies produce the outcomes that they do. Debate that leaves ideology at the door and perhaps even moves beyond prior examples to imagining what could be possible. This would involve firstly having a discussion around the objectives for what we want the outcomes for a school system to be. For example: Do we want better international PISA scores (often assumed to be a goal) or do we care more about a reduced disparity between advantaged and disadvantaged (one of many other possible aims)? Is it possible to achieve both without significantly more funding? What do we choose if it must be one or the other?

From a considered understanding of desired outcomes, we can then learn from many the nuanced examples in the literature. The literature around these issues is far more broad than many recognise, spanning many decades and multiple paradigms: applied economics, education, sociology, history, etc. We need to learn from all of it if we want to get arrive at good policy that fits with our own context in Australia.

For example, this is a quote from Dolton (2003, The Economic Journal 113(485)) trying to find the nuance in the debate around “school choice”:

“The central questions in the school choice debate remain: what exactly is meant by school choice; who chooses to select private schools and how do they choose; what do families really know about schools; what are the reasons and rationale for choices; in reality how much choice is there for most families; what happens to the children left behind in the public schools in districts which introduce voucher schemes; how much diversity is there after a voucher scheme is introduced; are parents more satisfied by the market alternative; are parents making rational choices and are market forces leading to improvements in standards?”