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Markets and School Quality

SANTIAGO – Around the world, private schools are booming, especially in developing countries. The Economist reports that in 2010, there were an estimated one million private schools in the developing world, and the figure has since risen quickly. From Latin America to Africa and South Asia, private schools have been moving into communities – mostly poor – where the state has been slow to provide services.

This trend has proven controversial. The marriage of education and markets attracts three main criticisms. The first focuses on distributive justice: if everything – including education – is for sale, those who have more money will buy more of it. Inequality in knowledge (and therefore income) in one generation will be transmitted to the next, perhaps in amplified form.

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This is an important concern, especially given the increasingly skewed income distribution in developed countries. But economists have long understood that the distribution of wealth, as John Stuart Mill put it in his Principles of Political Economy, is “a matter of human institution solely.” In other words, market-based production is one thing; distribution is quite another, and it can be influenced by policy.

Vouchers are one example. Pupils receiving a voucher, such as those used in Sweden or Chile, can obtain as much education as the voucher – not their family’s income – will allow. There are valid criticisms of such schemes, including, as in Chile, that the vouchers may be too small to purchase a quality education; but, at least in principle, vouchers and other forms of financial aid can make a private education, if desired, accessible to all.

A second criticism is that education markets perform poorly. We know from research in the economics of imperfect information that markets run into trouble when what is bought and sold cannot be observed or measured. Education would seem to be rife with such problems.

Pupils, especially young ones, cannot observe a teacher’s pedagogical effort. Parents, especially if short of education themselves, cannot easily evaluate the quality of their children’s schooling. So for-profit schools may deliver low teacher effort and insufficient quality.

Much research has gone into measuring how serious these problems are in practice, and therefore whether private schools perform better or worse than public schools. There are abundant examples, in rich and poor countries alike, of fly-by-night for-profit schools that dupe parents and neglect students (Donald Trump’s sham Trump University being a case in point). But such research is inconclusive for several reasons, not least that public schools face incentive problems of their own, leading to low effort, absenteeism, and frequent strikes.

Moreover, it is difficult to separate statistically the educational value added by the school from the characteristics of the families whose children attend. If motivated families choose private schools, for example, their kids will perform better, but not for any reason having to do with private schooling.

The third criticism is that education can be degraded by being sold and bought. Harvard’s Michael Sandel has argued that there should be limits to markets, and that there are things that money cannot (or should not) be allowed to buy.

We all intuitively know, for example, that hiring someone to act like a friend is not the same as having a friend. Because of the inherent dignity of human beings, modern societies do not allow people to sell themselves, or their children, into slavery. And democracies do not allow citizens to sell their votes, because that would debase elections.

Is education in the same category? Professors (I have long been one) would like to think that we do our job because of our love of learning and teaching, and that our effort and dedication is not something money can easily buy. Critics claim that the commodification of education somehow degrades it.

Parents in poor countries, who have been flocking to private schools, may beg to differ. In Chile today, 53% of all children attend voucher-financed private schools (many of them until recently run for profit), despite the top-up fees they often charge. Parents are willing to make the extra effort simply because the local public schools are not good enough.

Nor is it obvious that education is so different from health care, another essential service where issues of dignity and respect loom large. Private (sometimes for-profit) clinics are common worldwide, yet do not confront the opposition that for-profit schools elicit. Conditional cash transfers are also widely accepted in poor countries, and de facto they involve paying mothers to do such things as send their children to school or take them to clinics to be vaccinated.

A more damning charge is that market incentives change behavior in socially damaging ways. Sandel mentions the much-cited study of Israeli daycare centers where parents, once they faced fines for late pickups, began showing up even later to fetch their kids. The apparent explanation is that parents treated the fines as fees, and did not feel guilty about paying them.

But market incentives may also have the opposite effect, improving motivation or other valuable traits. A 2012 paper examined what happens when students are allowed to choose (presumably better) schools after winning a lottery. It finds that truancy rates go down as soon as students learn about the lottery outcome; and once they move to the new school, their test scores rise significantly.

Contrary to what zealots in either camp claim, neither public nor private schools perform better than the alternative at all times. So it makes sense to consider how to combine the virtues of both systems, instead of simply choosing between them.

In the area of college education, a recent paper by Harvard’s David Deming, Claudia Goldin, and Lawrence Katz concludes that in the US “for-profits appear to be at their best with well-defined programs of short duration that prepare students for a specific occupation.” In other areas, traditional not-for-profit colleges perform better, with higher completion rates and superior labor-market outcomes.

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Finally, despite legitimate concerns about “teaching to the test,” there is evidence that properly designed teacher evaluations can improve incentives and performance in public and private schools alike.

More broadly, recent research makes clear that many factors affecting education outcomes have nothing to do with whether schools are public or private. A recent World Bank report calls on countries to leave behind the “great schooling wars” and adopt a “pragmatic approach” to education reform. That seems like an approach worth trying.