Market Ideas in Education. When Things Go Wrong.

Can you have something for nothing?

In economic resource terms, pretty much never.  Yet people keep on trying.  For example, conservatives want teachers to teach just because of their devotion to children, conservatives want schools not to need budgets, and conservatives expect that cutting teachers' pension benefits will have no negative consequences to the ease with which we can find good teachers.

What's fascinating about that example is the contrast with, say, financial markets, where nobody expects people to work just because they like their jobs so much and where good pay is obviously utterly and completely deserved because the markets say so.  That  teaching is an occupation with quite a few women in it while finance is regarded as testosterone-fueled may matter for those conservative ideas.

When is a little knowledge very dangerous?

A good example is taking Economics101 (a basic micro course), learning about the model of competitive markets (which applies to very few real-world markets), and then deciding that all sorts of things (not covered in Econ101) which do not lend themselves to market provision should be turned over to the cruel and reckless claws of anarchy-markets.  Because of the appealingly simple models in that course!  I come across people on the net all the time who think they know economics because of one course they have taken.  That little knowledge is dangerous, especially when it is viewed as the entirety of all economic theory applying to markets.

Consider the popular conservative idea that schools should be turned over to the "free markets" everywhere.  Those who support that should ask themselves why basic education has so very seldom been offered by profit-making firms, why, instead, it has almost always been constructed on a not-for-profit basis.  There are economic reasons for these institutional characteristics, and though technological change may increase the ability of for-profit solutions to work in education, the essential characteristics of the product which education offers have not changed, and those characteristics make for-profit solutions rather bad ones.

What are those essential characteristics?



1.  The buyer of the product (the student) is not only the customer but one crucial part of the inputs into the production process.  What the student has, in terms of family background, income level, psychological and social support structures, talents, skills and ability to learn; all those have a crucial effect on the final product.

The participation of the students and their characteristics in the production process means, first, that the producers (the teachers) have a lot less power over determining the final quality of the product than would be the case in, say, cheese production, and, second, that the education firms (the schools) can manipulate the outcome of the process by picking the students carefully, by avoiding the students who look like more trouble than worth.  By cream-skimming.

A market solution for education (where the productivity of a school is determined by the students' graduation figures) will have schools fighting each other not to take certain students at all.  If some schools are left as publicly run, as in the proposed conservative market models in the US, those schools, outside the market, are expected to take the students nobody else wants to take.  You can already tell which schools then would have the very worst graduation figures.  Those would be the public schools, but their apparently poor outcomes would have nothing to do with the greatness of the market-based solution.

2.  The most central aspect of the characteristics of education, as a product, is the difficulty of measuring it.  That is the reason why the reputation of schools matters so much.  Because that reputation is a proxy figure for how well the students from the school have done over a long period of time, a proxy figure for what the students actually have learned.

But the school's reputation is just a proxy, and so are all those standardized tests the US has been pushing for several years now.  It is difficult to conclusively measure the output of many years of schooling for a particular student, and this is why any proxy measure we pick has the ability to distort the findings.  If schools are rewarded for their performance in standardized testing, the schools will teach to the test, even if the test doesn't measure, say, the students' ability to learn on their own later in life or the students' ability to make a convincing argument or search data for the solution of a problem.

It is this basic measurement problem which has favored not-for-profit solutions in the past and which still favor them.  Because the proxy outcome measures can be gamed by the firms, and all the incentives are to game them in the for-profit context.

3.  Finally, when you go out to buy cheese you have a pretty good idea about what you wish to buy and you probably can tell if the cheese you see in the store looks edible and matches the specifications you have in mind.  When you go out to buy an education from, say, an Internet university, your initial knowledge basis is much weaker.  You may not know if what you are planning to buy is correct for you, you may not know if the university you consider is capable of producing what you desire, you may not know which courses you really need.  And you are usually expected to pay a lot more money in one sum than is the case with something like cheese.

Though these attributes in themselves don't make market solutions impossible, they should serve as alarm bells.  Education is somewhat removed from the type of commodities which the markets sells efficiently, and the essential characteristics of education create a situation where for-profit firms have great incentives to cheat, in ways which are hard to spot except with the passage of time.