Does government intervention in education really work?
How would the education sector change if governments were no longer involved?
By Markandeya Karthik
John Locke posited that the purpose of education was to produce an individual with a “sound mind in a sound body so as to better serve his country.” Government intervention in the education sector intends to achieve this by making the pursuit of education more accessible for all, enabling the acquisition of knowledge by all strata of the population, regardless of their economic status, resulting in the creation of responsible citizens as assets who can contribute to the betterment of the global society. Increasingly, evidence in economics suggests a positive return to education, especially in developing countries.
Education relates to the acquisition of knowledge, skills, values, and beliefs. Formal education is generally composed of pre-school, primary school, secondary school, and university - the combination of these stages is referred to as the education sector.
Education is an integral element of society given its nature as a merit good. This means that the consumption of a “unit” of education by a student is likely to not only benefit the student, but can also reap positive quantifiable external effects in the long-run. These effects are characterized by economic returns — education enables the development of students as valuable assets to society through being productive and effective members of the workforce, which contribute to the GDP growth and development of a nation — and social returns — a good education can enable students to become environmentally and socially conscious. Thus, education can be considered a positive externality of consumption. This is represented by the diagram below, which is a simple academic illustration of the market for education.
Figure 1: The market for education with optimal prices and quantities
In the above diagram, Qopt represents the optimum level of consumption of education from society’s point of view, whilst Q1 represents the current level of education consumption. Likewise, Popt represents the ideal price of education whilst P1 represents the current price of education. The MSB (marginal social benefit) curve represents the extra benefit to society for every additional unit of education consumed, and the supply curve for education is given by S = MSC (marginal social cost, the cost to society for every additional unit of education consumed) = MPC (marginal private cost, the cost to the individual consumer for the additional unit of education consumed). The demand for education is given by the curve D = MPB (marginal private benefit).
Based on the above diagram, it is clear that in this hypothetical market for education, there is an underconsumption of education as Q1 is less than Qopt. To this end, governments are incentivized to intervene in the education sector in order to make it more accessible for large swathes of the population. Improving education accessibility can yield a greater value of the aforementioned positive external effects, and can avoid the market failure that is caused by an underconsumption of education.
There are a plethora of ways that the government chooses to increase the level of education consumption. If a government has a surplus or a large fiscal reserve, they can create public schools which are fully run by the government. This system is present in several countries, where local/public schools are publicly run and funded by the government. A government can also apply subsidies on school fees, school facilities (allowing schools to spend less on facilities, thus reducing school fees), and teacher training programs or salaries. Caput schools in Hong Kong are an example of this - these are private and public schools that are partly subsidized by the government.
Since government intervention in education varies from country to country, this essay will examine the potential effects of the government reducing involvement in the education system through the main current forms of government intervention; namely, fully run public schools and subsidized schools.
First, consider government intervention in the education sector through public schools. Public schools are schools which are funded completely, or nearly completely, by the government. Government intervention in the education sector through public schooling is not uncommon. The United States, The United Kingdom, Canada, and Scandinavian nations are all countries that have a prominent public school system. Public schools are widely regarded as the most affordable components of the education sector, but despite their affordability, public schools have numerous drawbacks which detract from their effectiveness and quality of education provided.
According to the law of demand, lower prices lead to a greater quantity demanded, which can explain the considerable excess demand for places at public schools over other alternatives. Given this, the issue of overcrowding in public schools arises. Overcrowding in public schools is a significant issue - over 22% of public schools in the United States are overcrowded (i.e. operating at least 5% beyond their maximum capacity). Overcrowding disturbs the student-teacher ratio at schools, hindering the quality of education. The measures taken to address overcrowding are inefficient. In the United States, federal education policy and proposals for classroom reform first need to be approved by the 50 state departments of education. Approved proposals are then sent to local school districts who subsequently alter the proposals to suit their own needs, before finally sharing the proposals with public schools in the districts. The inefficiency of the process and the excessive time taken to create change in the education sector is a disincentive for governments to improve the quality of their public schools. Additionally, the opportunity cost for governments to continuously invest large sums of money into education expansion over issues of social, political, or economic importance is high. Aside from overcrowding, facilities in public schools are also outdated, under-used, or malfunctioning due to a lack of government funding. In the United States, states and localities “cut capital spending for elementary and secondary schools nationally” by nearly $21 billion, or 26%, between fiscal years 2008 and 2016, after adjusting for inflation.
If the government was to pull out of the education sector by cutting support for public schools, existing public schools would need to be able to fund their operations using an external source - which would likely be a private educational body.
Rational private bodies with the incentive of profit maximization would be able to acquire public schools and charge higher prices for students. With the average middle-income family in the United States making $50,000 a year, and the average private school tuition being approximately $9,000 dollars, the switch from public to private schooling is plausible for the vast majority of middle-income families.
Charging higher prices will allow schools to invest in better facilities, staffing, and even expand and improve classrooms - the process for school expansion will no longer be pegged to excessive red-tape and inefficient bureaucratic processes. Private schools may also be better able to hire and retain better teachers by offering competitive salaries and benefits, and such inputs are critical to improvement in school outcomes. An added benefit would be creativity and innovation. Private organizations who acquire the schools will be specialists in education as opposed to the government. This means that the education sector could witness new, innovative endeavors given the access to modern technology, infrastructure and funding private organizations have, actively increasing the marginal social benefit of education. In addition to this, prices may fall in the long-run - the technology needed to keep schools up-to-date is minimal, there aren’t economies of scale in the education sector, where a single firm dominates the market, and competition will exist in the new market which is composed of private schools, which will force each school to lower prices in order to attract more students. This could make private education more accessible in the long-term.
Another mechanism by which the public system education sector could be affected if government intervention was eliminated would be through curriculum. Public schools often tend to have fixed curricula, that are - in order to minimize costs - centred around subjects that require little expenditure to teach (history, mathematics, languages, writing etc.). The specialization and funding of private institutions can allow more flexible curricula which place less emphasis on the standard textbook style of teaching and enable students to experiment with technology and resources, incorporating novel subjects such as computer science and music theory.
Now consider government intervention in the education sector through subsidies. Government subsidies on education are aimed at reducing the cost of education and making it more accessible. The case of subsidized schools is represented in the simple academic illustration below (for simplicity, the diagram assumes that subsidies are applied on a per-unit basis on school fees).
The decrease in consumption arises as education becomes inaccessible due to higher prices. It can be empirically represented by a fall in student enrolment rates, which directly impacts the rate of graduation in schools.
The education system will also be impacted to varying degrees based on the type of country in question. The majority of the previously mentioned impacts are likely to take place in developed countries, where education is considered a necessity and an integral part of society, and a multitude of alternatives to government run education are readily available. However, there are certain exceptions.
As established previously, a scenario where the government is no longer involved in the education sector would necessitate that a third party, likely with profit motives, takes the government’s place in education provision. This external party is likely to enter the education sector if there is a suitable demand for education, and an ability to charge high prices without diluting this demand. This is not the case in many developing countries, as discussed below.
The cost of education is one of the largest barriers to education accessibility for students in developing countries, and external funding for education in developing countries is 4 percent lower than it was in 2009, and is decreasing at an alarming rate. This makes government provided education in developing countries unique, because it offers students sufficient education at low, or even no costs - Malawi abolished school fees in 1994, Uganda in 1997 and Mozambique in 2003. If the government pulls out of the education sector in the developing world, private entities who will attempt to take its place will find that most students will be unable to afford the high tuition fees, and there will therefore be a lack of demand for education. This is especially likely considering the social narratives in developing countries which place emphasis on children entering the workforce early to earn a stable income rather than pursuing an education, or the high rates of “brain drain” where well educated individuals leave the country to pursue higher education abroad, making private universities in developing countries unprofitable. This disincentivizes any firms from entering the education market, meaning that the education sector in developing countries will only consist of pre-established private schools and universities that cater to the upper class of the countries.
Current government intervention in the education sector through public schooling and subsidies is aimed at making education accessible and affordable for the masses. A removal of government intervention in the education sector would mean an alternative private entity providing education, which can drive up prices and reduce the quantity demanded for education, but can also enhance the quality of education provided through improved facilities, staffing, and innovation. However, the risk of a fall in education rates runs high in the developing world, where private education providers may be disincentivized from entering the market due to their inability to charge higher prices without losing demand. To achieve the benefits of a private sector education, the government can exit the education sector but should still oversee it in order to ensure fairness, respond to emergencies, and avoid the monopolization of the market.
This article was a finalist in the 2021 Global John Locke Economics Essay competition