Monday, November 17, 2008


Reproduced from my old blog


It seems that there is much rowing about university fees at present. Interestingly, someone I know well once said to me that the government's whole justification for top up fees is ridiculous. The argument we hear from government ministers is that top up fees are the fairer way to fund higher education than general taxation is, because general taxation would force poor people to pay for education their children is not recieving, and which generally goes to benefit the non-poor. My associate said that this must be wrong because such an argument would justify privatising the entire education industry.

Quite! Yes, well libertarians have been using that argument for decades for precisely that purpose. Yes, it does justify privatising the education industry, and most other parts of the so-called public sector. What is interesting, though, is why should the fact that the logic of the argument justifies policies that my associate (and the Labour party) don't want to accept make that logic false? It doesn't make the argument any less true at all. If funding higher education through general taxation forces poor families to pay for the education of non-poor children, without delivering any benefits to the non-university going (or even non-existent) kids of poor households, then such an arrangement is hardly fair. Pointing out that other state services are unfair on precisely the same grounds is not good reason to suddenly start thinking that it is fair after all!

Anarchist communist author, Colin Ward, made precisely the same argument in his classic Anarchy in Action

Today, as the educational budgets of both rich and poor nations get more and more gigantic, we would add a further criticism of the role of the state as educator throughout the world: the affront to the idea of social justice. An immense effort by well intentioned reformers has gone into the attempt to manipulate the education system to provide equality of opportunity, but this has simply resulted in a theoretical and illusory equal start in a competition to become more and more unequal. The greater the sums of money that are poured into the education industries of the world, the smaller the benefit to the people at the bottom of the educational, occupational and social hierarchy. The universal education system turns out to be yet another way in which the poor subsidise the rich. Everett Reimer, for instance, remarking that schools an almost perfectly regressive form of taxation, notes that the children of the poorest one-tenth of the population in the United States cost the public in schooling $2,500 each over a lifetime, while the children of the richest one-tenth cost about $35,000. "assuming that one-third of this is private expenditure, the richest one-tenth still gets ten times as much as the poorest one tenth." In his suppressed UNESCO report of 1970 Michael Huberman reached the same conclusion for the majority of countries in the world. IN Britain, ignoring completely the university aspect, we spend twice as much on the secondary school life of a grammar-school sixth former as on a secondary modern school-leaver, while, if we do include university expenditure, we spend as much on an undergraduate in one year as on a normal schoolchild throughout his life. "While the highest social group benefit seventeen times as much as the lowest group from the expenditure on our universities, they only contribute five times as much revenue." We must thus conclude that one significant role of the state education system is to perpetuate social and economic injustice.

There are, of course, arguments against this view point. One of them is that the rich pay more in taxes, so whilst they get more in public funds spent on taxes, they also pay into them, more. This is possible, but not massively likely. The the non-poor do not pay enormously more tax than the poor do, since income tax cannot collect that much and indirect taxes fall very much on the poor.

Another argument against it that is popular in government circles is that education benefits the whole of society. This is a popular argument in favour of public funding of schooling. It may been seen as an argument against the idea that public funding of schooling is a regressive taxation on the grounds that those that hold this position believe that there are enormous external benefits of education that do not solely go to the consumer, but go to eveyone. Hence, even if the non-poor do get more education than the poor, the poor may benefit.

This argument says that society as a whole benefits from generations of well educated school leavers, most obviously because of the increased productivity they can bring. Of course, the only reason, economically speaking, as to why this might be a case for state intervention (and a very weak one at that) is if this external benefit is so great that it encourages people to free-ride it and so not bear any of the costs. In this case, a person, seeing how much he benefits if everybody else goes to school, realises that he benefits substantially, even if he doesn't go to school himself, and so has no incentive to go. The result of people thinking like this, though, is that nobody goes to school, and so that generation of well educated school children does not appear and neither do any of its benefits. Classic prisoners' dilemma game.

The trouble is that this theory is a crock! Is it really plausible to suggest that I might be much better off not going to school than going, so long as everybody else goes? Is the cost of my paying for my own education? or anybody else doing so voluntarily for me) really more than the additional benefit I would reach if I didn't sit on my butt waiting for the benefits of that generation of well-educated kids to come roling round to me? Of course not. So, no free-rider problem, no lack of demand for education due to major positive externalities, and so no reason to assume that the market would undersupply schooling. David Friedman has one of the best on-line articles regarding education that I have seen. He discusses this very same "a-good-education-system-benefits-society-as-a-whole-and-not-just-student-or-pupils" argument:

It is said that since education increases human productivity, by educating my child I increase the wealth of the whole society, making all of us better off. One obvious problem with this argument is that, if correct, it applies to a lot of things other than education. Physical capital also increases productivity; does it follow that all investments ought to be subsidized? Better transportation allows workers to spend more time working and less time commuting; should we subsidize the production of cars? The argument suggests that everything worth doing ought to be subsidized-leaving us with the puzzle of what we are to tax in order to raise the money for the subsidies.

What is wrong with this argument is that it misses is the way in which the price system already allocates "social benefits" to those who produce them. Building a factory may increase the wealth of my society-but most (in the limit of perfect competition, all) of the increase goes to the investors whose capital paid for the factory. If I use a car instead of a bus to commute, the savings in time is added either to my leisure or my income. If education makes me a more productive worker, my income will be higher as a result. That is why top law schools are able to sell schooling to willing customers at a price of about twenty thousand dollars a year.

Schooling-like a new car-produces non-market benefits as well. But these too go mostly to the student, enabled by education to appreciate more of the riches of the culture he lives in. There may be effects on other people as well, but they are typically small compared to the benefits to the student, and their sign is not always clear. When my child becomes an expert in Shakespeare and quantum mechanics one result may be to enlighten and entertain her friends, but another may be to make them feel stupid. In just the same way, the beauty of my new car may produce the pleasures of aesthetic appreciation or the pains of envy in those who watch me drive it down the street. To base the design of our institutions for schooling on the uncertain effect on such third parties rather than the direct effect on the schooled makes no more sense than to base the design of cars on their value to everyone except the owner.

Murray Rothbard has written,

While in a free private school market most children would undoubtedly attend schools near their homes, the present system compels a monopoly of one school per district, and thereby coerces uniformity throughout each area. Children who, for whatever reason, would prefer to attend a school in another district are prohibited from doing so. The result is enforced geographic homogeneity, and it also means that the character of each school is completely dependent on its residential neighborhood. It is then inevita­ble that public schools, instead of being totally uniform, will be uniform within each district, and the composition of pupils, the financing of each school, and the quality of education will come to depend upon the values, the wealth, and the tax base, of each geographical area. The fact that wealthy school districts will have costlier and higher-quality teaching, higher teaching salaries, and better working conditions than the poorer districts, then becomes inevitable. Teachers will regard the better schools as the superior teaching posts, and the better teachers will gravitate to the better school districts, while the poorer ones must remain in the lower-income areas. Hence, the operation of district public schools inevi­tably results in the negation of the very egalitarian goal which is sup­posed to be a major aim of the public school system in the first place.

Moreover, if the residential areas are racially segregated, as they often tend to be, the result of a compulsory geographical monopoly is the compulsory racial segregation of the public schools. Those parents who prefer integrated schooling have to come up against the geographical monopoly system...

The geographical nature of the public school system has also led to a coerced pattern of residential segregation, in income and consequently in race, throughout the country and particularly in the suburbs. As everyone knows, the United States since World War II has seen an expansion of population, not in the inner central cities, but in the sur­rounding suburban areas. As new and younger families have moved to the suburbs, by far the largest and growing burden of local budgets has been to pay for the public schools, which have to accommodate a young population with a relatively high proportion of children per cap­ita. These schools invariably have been financed from growing property taxation, which largely falls on the suburban residences. This means that the wealthier the suburban family, and the more expensive its home, the greater will be its tax contribution for the local school. Hence, as the burden of school taxes increases steadily, the suburbanites try desperately to encourage an inflow of wealthy residents and expensive homes, and to discourage an inflow of poorer citizens. There is, in short, a break-even point of the price of a house beyond which a new family in a new house will more than pay for its children's education in its property taxes. Families in homes below that cost level will not pay enough in property taxes to finance their children's education and hence will throw a greater tax burden on the existing population of the suburb. Realizing this, suburbs have generally adopted rigorous zoning laws which pro­hibit the erection of housing below a minimum cost level—and thereby freeze out any inflow of poorer citizens. Since the proportion of Negro poor is far greater than white poor, this effectively also bars Negroes from joining the move to the suburbs. And since in recent years there has been an increasing shift of jobs and industry from the central city to the suburbs as well, the result is an increasing pressure of unemploy­ment on the Negroes—a pressure which is bound to intensify as the job shift accelerates. The abolition of the public schools, and therefore of the school burden–property tax linkage, would go a long way toward removing zoning restrictions and ending the suburb as an upper middle-class-white preserve.

Rothbard was writing in the context of the US, but his arguments apply equally well. The UK has similar monopolistic "school district" arrangements, in that secondary schools give priority to those people that live within their catchment areas, and only if there are spaces left do they give them to people that live outside these areas. So again, there is good reason to believe that state interference in education benefits the non-poor at the expense of the poor.

Spending more on education means spending less on other things. People who say that enough is not being spent on education therefore imply that too much is being spent on other things, and that spending on jobs and investment in the areas of the economy producing those other things should be cut. OK, socialists sometimes say, "sure, cut the money spent on bombs and war in Iraq," but this money came at the expense of other things too. Less had to be spent employing people in other industries, and less had to be spent investing in other industries, so that either the arms or the education industry could be funded. I am happy with this - it is inevitable that resources cannot be used to produce every good, but will be allocated to some areas of the economy and away from others. However, the question, at least for a utilitarian, is surely "are resources being used in the most valuable way - are we allocating resources to where they are most valued, and away from where they are valued the least?" This is a question that the defendent of increased state funding for education needs to answer. Is the increased funding to education worth all the lost goods, lower incomes, lost wages, and decreased investment elsewhere? And how do you know.

The definitely not libertarian (he was a student of Marxist GA Cohen) philosopher Jonathon Wolff, in his An Introduction to Political Philosophy, writes

Suppose that a certain good - garlic, say - costs a certain price: 50 pence per bulb. Then a respected scientist publishes a report indicating that consuming a bulb of garlic a day wards off cancer and heart disease. Accordingly, demand for garlic soars. Garlic retailers sell out rapidly, and prices spiral. Huge profits are made in the garlic industry.

The prospect of such profits will prompt new producers to enter the garlic market. Supply begins to rise, and as it does the price falls again, until a new equilibrium is established. Eventually demand equals supply at a price where garlic producers achieve the same profit levels as are available elsewhere in the economy.

This banal example of economic life shows the remarkable powers of markets. First, the price system is a way of transmitting information. The fact that the price of a good rises indicates that the good is in short supply; if the price falls then it is oversupplied. Second, the profit motive gives people a reason to respond to that information. If prices rise in a sector because of increasing demand, this normally means that larger than average profits are to be made, and so0 new producers rush in. If prices fall, because of falling demand, generally profits will fall, and so some firms will leave the industry. IN both cases the equilibrium will eventually be established, where the rate of profit for the industry is roughly equivalent to the average rate of profit for the economy as a whole.

These are the key features of the market: it signals information, and it gives people an incentive to respond to that iunformation by changing production patterns. Nor should we forget the importance of competition in driving down prices, and driving up quality. In combination these factors lead to the consequence that, broadly, in markets people (with money) get what they want from other people.

Many theorists accept that the market can distribute goods to individuals in a way in which no planned economy could match. If I want a certain good and if I have the money I can go and buy it. I can express my preferences in my purchasing behaviour, and others try to make as much profit as they can by responding to them. In the planned economy there are two problems. How will the planner know what I want? It might be common knowledge that people like ice cream, and need socks, but how can the planner know that I prefer vanilla ice cream to chocolate, or plain socks to patterned ones? And why should the planner take the trouble to make sure I get what I want? Real planned economies have been plagued by chronic shortages of some goods, such as winter tights, over-production of others such as low-grade vodka, and a depressing lack of quality and variety in those goods that are available. In order to run an economy as efficiently as the free market, the planner needs a level of omniscience, omnipotence, and benevolence rarely attributed to mere human beings.

If the demand for schooling in a free market rises, then profits to be made from supplying this increased demand also rise. These increased profits attract new suppliers, these suppliers will need labour, land and capital, but since their demand for such would increase, incomes to be made from working in the education industry, or investing in it will rise, attracting new people into it. Obviously, these new increases will come from elsewhere in the economy, but since people would be buying more education, they would be buying less of other things, this causing a drop in demand for those other things, and so fewer profits and less incentive to provide them. The fact that they choose to do this proves that they value increased schooling more than they value other uses of their money, which means that the resources being allocated to education and away from elsewhere are being allocated to where they are most valued and away from where they are less valued. Without the price mechanism, the state has no means of knowing whether its investment in education is more valuable than the resources and jobs and investments it is destroying elsewhere, or less.

Wolff said that their were exceptions to the general superiority of free markets, in the case of market failures. Examples he gave were of positive externalities. I don't agree that such cases justify, either on utilitarian grounds or on grounds of justice, state interference, but that is irrelevent, since we have already seen, with the quote from David Friedman, that these examples of market failure do not apply in the case of education, which is almost a pure private good, with no free-rider problem.

Since firms in the free market are under pressure from competition, they have every incentive to make sure they deliver the greatest benefits to their customers, utilising the least amount of resources. This inbuilt mechanism protecting against wasteage means that education providers in a free market have every incentive to keep their costs as low as they can. A nationalised education system has no such features, since it doesn't have to compete for its revenue to cover its costs, nor actually work to please those that use it, in order to obtain this revenue. Local Education Authorities's tend to absorb any additional funds for schools, and workers in the industry present powerful special interest groups.

And just as Mars prefers to price its chocolates as close to cost as it can and get lots of customers, rather than price them extraordinarily highly and hope that rich people with extreme sweet teeth will cover the company's entire costs, firms in the education industry will tend to price their services within reach of as many people as possible. After all, the car industry doesn't only provide gold plated cars for billionaires.

Of course, many people will talk about the nineteenth century, and people not getting any education before it was compulsory and tax funded. However, firstly, in the early nineteenth century, newspaper sales were very high, conservative were worried about radical literature falling into the hands of the poor (so they imposed the stamp duty, and taxed paper), and so literacy was actually quite high and widespread.

Secondly, one of the most important and prolific writers on the histroy of education before and after compulsion and public funding, EG West, wrote,

Contrary to popular belief, the supply of schooling in Britain between 1800 and 1840 was relatively substantial prior to any government intervention, although it depended almost completely on private funds. At this time, moreover, the largest contributors to education revenue were working parents and the second largest was the Church. Of course, there was less education per child than today, just as there was less of everything else, because the national income was so much smaller. I have calculated, nevertheless, that the percentage of the net national income spent on day-schooling of children of all ages in England in 1833 was approximately 1 percent. By 1920, when schooling had become “free” and compulsory by special statute, the proportion had fallen to 0.7 percent.

As West says, there wasn't universal education, because the national income was too small to provide this. However, his writing seems to suggest that as productivity increased through out the nineteenth century, so consumption of education increased.

This matches contemporary views. According to UNESCO, in developing countries in 1926, 75% of the population were illiterate. In 1948 this had fallen to 52%, and by 1970 it had fallen to 20%. Between 1965 and 1998, the average income of the world's citizen almost doubled, from $2,497, to $4,839. However, this didn't come about through the richest nations multiplying their incomes. During the same period, the the average income in the richest one-fifth of the world's population increased from $8,315 to $$14,623, which is by almost 75%. The average income in the poorest one-fifth, though, more than doubled, from $551 to $1,137. So consumption of education increases as prosperity increases, and so it increases as productivity increases.

So, state education redsitributes money from the poor to the non-poor, misallocates funds, can't plan the provision of the good, relative to other goods, or relative to altranative forms of the good properly without a price mechanism to relveal demand. It is aburden on poor families, and on everybody else, and we would be better off without it.


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