Economic Nonsense: 47. The state should pay for university education because it benefits society

University education benefits society in several ways.  A skilled, university-educated workforce can boost economic growth and make society richer than it would have been without them.  Less well-off and less well-educated people benefit from this, just as a rising tide lifts all boats.

The experience of going through university generally produces people who are not only educated in their chosen subjects, but who have been exposed to more cultural influences in the process.  Many people would think a society to be a better one if it contained significant numbers of educated and cultured people.  It provides more opportunities for intellectual stimulation and self-development.

All of this is true to some degree, and benefits society as a whole, but there is little doubt that by far the greatest value of a university education accrues to the person who undertakes it.  There is firstly the personal fulfilment that comes from attaining more of one's potential, but there are more material rewards as well.

Possession of a university degree in the UK increases one's employability.  For those in the workforce, aged 18-65, employment among graduates is 87%, as opposed to 70% for non-graduates.  Median salary is higher, too, with graduates on average earning £9,000 more per year than their non-graduate counterparts.  Over a working life this could top £400,000 of extra salary attributable to the degree.  

This constitutes an overwhelming advantage accruing to the individual who undertakes a university degree.  While there are undoubted benefits to society, those gained by the individual are high and measurable.  They make the loans undertaken to finance university, perhaps £36,000 for a 3-year degree, a very good investment indeed.

When people suggest the state should pay for this, they mean taxpayers should.  It seems strange that a person not equipped to benefit from university, someone who leaves school at 16 to become a bricklayer, for example, should be called upon to pay higher taxes so that someone else, already endowed with more academic and intellectual ability, should benefit from what amounts to a ticket to a higher salary for life.  

Some would call this unfair, and suggest that those who gain the most from university education should finance most of its costs.

Economic Nonsense: 33. Things like healthcare and education are too important to be privately provided

Healthcare and education are not only important; they are vital.  Most of us would prefer to live in a society that so organized itself that these services were accessible to all its citizens.  This is not, however, the same as saying that they should be produced and delivered by the state.  

When the state goes into the mass production of services it tends to put them into the political domain, where they can be influenced by ideological or interest groups.  Politicians can manipulate them to secure electoral advantage.  They can be effectively captured by producer groups such as teachers' or healthcare workers' unions, to the detriment the citizens who consume them and the taxpayers who fund them.

When the state does mass-produce services, they tend to be standardized.  It is easier to have a one-size-fits-all output than one that caters for individual preferences and allows a variety of choices.  The private sector, by contrast, tends to find different niches being filled by a variety of producers, allowing consumers to choose the level and quality that suits them.

The state can fund education without producing it by giving people vouchers to cover the education of their child, or by routing the funding to the school of their choice, as is done in Sweden.  This leaves the schools independent and in control of the education they offer.  Healthcare can similarly be financed through insurance or refunds, without the state having to own hospitals and employ nurses.  Again, countries that do this tend to have more variety and choice.

Education in state-run comprehensive schools is not very good.  There are some good ones, but a great number that fail their parents and children by leaving them ill-equipped for life.  Healthcare in state-run hospitals varies hugely in quality, with recurrent exposés of inadequate care or neglect. 

Funding for state-produced schooling and healthcare depends on what politicians think taxpayers will tolerate.  Their output does not depend on what customers want.  Far from being too important to be privately provided, healthcare and education are too important to be publicly provided.

CMRE's Friedman Lecture on school choice

The Centre for Market Reform of Education’s Inaugural Friedman lecture kicked off with success last week amid a plethora of events marking international school choice week. Sir Julian Le Grand delivered the lecture ‘School choice matures: lessons for policy makers’ as educationalists of all spheres, from teachers to campaigners, posed questions and examined how best to reform education systems and advocate educational freedom.

Increasing the diversification of producers and external pressure on public services, the Social Policy and Economics Professor described, would improve the quality of education. School choice is the crucial cause of both of these. Chaining people to their local schools by means of catchment-allocation alongside the state’s one-size-fits-all approach is failing. People would prefer the pressure of markets - with parents and children choosing the institutions and preferred teaching methods - as opposed to perpetual pressure from politicians imposing targets. 

Public perceptions of profit-making and the belief that school choice is a 'middle class thing’ were distinguished as impediments to the truth that proponents of the freedom to choose have on their side: creating an environment conducive to competition, and thus advancement in schooling provision, requires that options within the reach of the wealthy and middle classes are available to the poorest sectors of society also. Precisely why, Professor Julian Le Grand said, the poor benefit most from school choice.

You can listen to an audio recording of last week’s lecture and find CMRE's detailed publications on school choice, incentivising quality and educational inequality here.

School choice: first evidence to prove long-term benefits

A report released this month by Victor Lavy of CESifo is the first evidence of its kind to prove the long-term social and economic benefits of school choice. Up until now, research conducted has explored life outcomes resulting from varying teachers' quality, schools' quality, classroom sizes and other school programs. Yet to be unravelled was the impact of school choice later on in life and how the effects of different types of post-secondary schooling, varying by quality, persist beyond attainment and standardised test scores. Adult employment, earnings and dependency on welfare are all examined in primary school students offered free school choice in the junction of transition to secondary school to determine which educational interventions best achieve the desirable long-term outcomes.  Remarkably, students who had choice at primary school are 4.7 percentage points more likely to enroll in post secondary schooling, and to complete almost an additional quarter year of college schooling in comparison to controlled students. Further to this success was an estimated 5-7 percentage points increase in average annual earnings among treated students at ages 28-30. This is explained by the improvement in academic outcomes resulting from the school choice program and post-secondary schooling attainment which are highly correlated to labour market earnings. Most surprising in the findings was that school choice led to reductions in health or mental disability rates at age 30 and to a decline in eligibility and recipiency of 3 disability welfare allowances.

Lessons learned from this study - which was conducted in Israel - can be easily applied to other educational settings due to different countries having very comparable and similar high-stakes exit exams. The school choice program also has similar features to related programs in the US, in Europe and in other OECD countries. As a result, variants of this school choice program have the potential to be implemented in developed countries across the world.

A great advantage of this study is that it is also the first of its kind to present evidence that can easily be acted upon directly via policy. Whereas most related studies have looked at long-term outcomes of measures not easily manipulated by policy like teachers' and schools' quality.

All the evidence now suggests that allowing children and their parents to choose freely at age 13 which secondary school they will attend, not only improves sharply their high school outcomes six years later, but also influences their path to post-secondary schooling, enhances their earnings over a decade and a half later and reduces their dependency on the public welfare system. These results are important because the school choice experiment targeted a disadvantaged population in some of the more deprived parts of Tel Aviv. This is now the most potent contribution of late to the critical question surrounding what educational interventions are conducive to the best possible life outcomes. Now the empirical evidence provided by the paper creates a fuller picture of the individual and social returns from these interventions, and will equip educators and governments with the information required to make the most informed decisions as to which educational programs constitute the most beneficial use of limited school resources.

With increasingly prominent advocates of free school choice and more evidence exhibiting its merits, we can hope to see it embodied in policy in the near future. Standing in the way, unfortunately,  are politicians and educationalists with an unfaltering dedication to the taxpayer-funded state-monopoly of learning. Opponents of school choice are not home with freedom. For if you had the freedom to choose how to be educated, you would not choose their way.

Celebrating the success of the free school system

This is a welcome success in the free school system that we should celebrate:

The government’s flagship free schools programme has been dealt a blow with the announcement that a third school is to close after a damning Ofsted report found that leadership, teaching, pupil behaviour and achievement were all “inadequate”, the lowest possible rating.

Durham Free School, which has a Christian ethos and opened in September 2013, has had its funding agreement terminated after being put in special measures by the schools watchdog, Ofsted, after an inspection in November.

It follows the closure of the Discovery New School in east Sussex, which was forced to shut last year because of poor standards, and the partial closure of Al Madinah in Derby, the country’s first Muslim free school, which had to close its secondary school after a critical Ofsted report.

No, we haven't gone mad. We really are using the failure of a school or three to celebrate the success of the system. Because this is actually the point of said system. People get to try out new things. Some of those new things will succeed, others will not. But this is exactly what we desire to happen. To have people try new things so as to see what will succeed and what will not.

This is also the defining feature of this capitalism/free market hybrid that should be the prevailing ethos of our society. That failure quickly becomes obvious and thus fails and fails fast. All experimentation will produce failures and without experimentation there will be no advances. So, we desire a system that experiments and one that quickly identifies those inevitable failures, closes them down and gets on with another round of experimentation.

TYhis is just what the free school system does: it's therefore a success story that a failure has been spotted and dealt with. Because that's the damn point.

Single sex schooling: three recent papers

Nearly all state schools are co-educational, but most independent schools are single sex. Three academic papers I came across in the last few months suggest that the education authorities might have something to learn from the private sector—all three find that randomly switching people to single-sex education leads to substantial improvements in their outcomes. The first, Lee et al. (2014) looks at random assignment of Korean youths to middle schools, comparing single sex classes in coed schools with coed classes in coed schools and single-sex classes in single-sex schools.

Male students attending single-sex schools outperform their counterparts in mixed-gender classes by 0.15 of a standard deviation. The significant impact of single-sex schools on male students’ achievement are not driven by classroom gender composition, but largely accounted for by increases in student effort and study-time. We find little evidence that classroom or school gender composition affect the outcomes of female students.

The second, Lu & Anderson (2015) looks more closely, at the effect in Chinese middle schools of being randomly assigned to sit next to others of the same gender. Contrary to the Korean paper, they find that girls do better if they sit near girls, but there is no effect on boys from who they sit near.

We exploit random seat assignment in a Chinese middle school to estimate how the gender of neighboring students affects a student’s academic achievement. We find that being surrounded by five females rather than five males increases a female’s test scores by 0.2–0.3 standard deviations but has no significant effects on a male’s test scores.

The third, Booth et al. (2013) looks at universities in the US, and does a true random experiment, again finding an effect on women but none on men.

We examine the effect of single‐sex classes on the pass rates, grades, and  course choices of students in a coeducational university. We randomly  assign students to all‐female, all‐male, and coed classes and, therefore, get  around the selection issues present in other studies on single‐sex  education. We find that one hour a week of single‐sex education benefits females: females are 7.5% more likely to pass their first year courses and score 10% higher in their required second year classes than their peers attending coeducational classes. We find no effect of single‐sex education on the subsequent probability that a female will take technical classes and there is no effect of single‐sex education for males.

Now these three studies are hardly conclusive—there's a big literature out there. And one of the things we really know well is that improving education is hard. Most of the quality of private schools is in their students, teachers, facilities and parents. But perhaps it's no coincidence that private schools are mostly single sex, and perhaps a system with more parental choice would tend toward a system with different genders in different classes or different schools.

Getting educated - like it's the 21st century

Innovative independent institutions are for those who can afford it and the rest will make do with the stagnant state school system: a status quo forthcoming generations should accept no more. An education revolution is on the horizon and Scotland, following its anticlimactic devolution of education, could lead the change. Solutions to the present state have existed for decades and – if actualised – promise to reinvent the way schooling is viewed for good. The rise of ideas meriting attention must coincide with resolved political leadership to eliminate inertia impeding the education model's evolution.

Shuffling taxpayers’ money back and forth between priorities has left us at a dead-end off the path to progress. Free university tuition fees for the wealthiest in Scotland are funded by taxes from the pockets of school-leavers who have gone straight into the job market. College places - the stepping stone to higher education for many young people - have suffered drastic decline after a sudden culling of courses. The Scottish government now funds free school meals for every child, regardless of need, until Primary 3. Meanwhile the poorest are taxed on almost half their income.

Politicians with the guts to be radical in education are scarce but an alternative to spending more money is necessary. Improving the quality of state schools from the heart of government has failed, and when not completely, has failed to achieve anywhere near the success possible if the public had the freedom to choose their schools. This includes, most importantly, having the pick of the private sector’s offerings. The idea is straightforward: individuals choose the best educational options available to them with their own interests in mind. A demand for the best quality schools that inevitably ensues is met on the supply side by a multiplication of the best schools and practices. The poorest schools and outdated methods become null and void, unwanted, and die out faster.

Placing choice in the hands of those the decision affects generally does not fail to deliver the goods. Products, services and technology once only enjoyed by the wealthy are now widespread and accessible for the common man. But education has not evolved like everything else. So rare are independent schools that most of the existing tiny private sector is branded elitist. And so self-deprecating are we encouraged to react to our great educational institutions that the recurring “Should private schools be banned?” debate is taken seriously and considered the only radical option. One day, these leading independent schools, though it will require us to be radical in the opposite direction, could be accessible to the average person too.

School vouchers is the practical policy in which this school choice could take shape. The voucher would be a means of subsidising the child as the consumer; instead of subsidising the state’s provision as happens now. Accountability and efficiency have so far been lost while politicians spend other people’s money on other people’s education. Each voucher would represent the cost of the state educating the child. Of course there are then many ways the policy can be created to cater to various factors and income backgrounds. First proposed by Milton Friedman all the way back in the 1960s, school vouchers have featured in UK Party manifestos but have never come to fruition here.

The mantra of Scotland's current leadership advocates their goal of a fairer Scotland we are all supposed to be striving towards. These are mere words. True fairness is the enhancing of the freedom to choose on the part of everybody. And as it stands this process is not happening. Implementing choice in policy is absolutely imperative as it will not just be conducive to overall improvement of education but it is a tool to innovate and evolve - the key to advancement.

Free Education? Don’t make the situation worse!

We love to moan about the system – how it conditions our thought, places expectations upon us, is inflexible and ill-suited to the modern context etc. – and that moaning isn’t limited purely to students. Free education sounds wonderful but, in reality, a subsidised higher education sector works against students’ best interests. The increasing supply of universities, places, graduates, qualifications etc. continuously devalue educational qualifications. With the exception of courses that have a significant vocational content such as Medicine, Engineering, Nursing, Teaching and Natural Sciences, many graduates will find their course’s academic content mostly unnecessary for the line of work they plan to enter. Unfortunately, an oversupply of graduates means that many firms advertise relatively well-compensated occupations as being exclusively ‘grad jobs’. This serves to reinforce the perception that you actually need a degree to even be capable of doing these jobs when, in actuality, it’s just that so many people currently have degrees that it’s pointless applying if you don’t. The necessary skills are better taught outside of a university.

What about all those who would essentially be coerced into going to university because, with free education and the increased supply of graduates, they’d have even less of a chance out there without a degree than they do now? What about those who left education earlier and whose relatively meagre qualifications are further devalued because of more graduates in the labour market? Funnily enough, the income inequality that education subsidies purport to alleviate would only increase. The training required to get a ‘good job’ (and, therefore, to fill them) would simply be lengthened due to qualifications’ devaluation. Normative signposting for how best to spend time is a subtle deprivation of civil liberty.

What is education? Why do we value one form of learning over another? Why stop at higher education? Why not subsidise gap years to Southeast Asia where people ‘discover themselves’? Subsidising one form of education almost always forcefully elevates it to a normatively superior perceived status; this perpetuates social structures, labour market characteristics, outcomes etc. since this normative dimension of legal institutions works to resist our attempts to reinvent social structures and deviating from the accepted norm. Does society really need to pay to offer free behavioural conditioning and thereby limit its own evolution? Free education protests are (mostly) unintended expressions of backward, socially destructive and misery-perpetuating conservatism veiled in social liberalism via equal opportunities and rights rhetoric.

There's bad ideas and then there's really bad ideas

And this idea of a Royal College of Teaching falls into the category of really bad ideas:

This time it is from Labour’s Tristram Hunt, in his plan to introduce teacher licensing. The implication is that teachers cannot look after their own standards so the state will have to set them, and police them.

Increasing centralisation: no, that's not what we think the economy needs.

But a solution to this gradual erosion of teacher autonomy, dignity and professionalism may be at hand. For the last two years, teachers and educationalists have been looking at how they might set up a ‘Royal College of Teaching’.

And that's worse. For what it does is centralise how things are taught into the control of the one group of people we don't in fact want to have control of that. That is, the educationalists who have messed up the system already.

As Hayek pointed out, knowledge is local. Yes, that foes mean that we don't want the politicians telling teachers how to do their jobs in detail. We want headteachers, people with actual experience of teaching, to be telling teachers how to do teaching. But not only don't we want politicians describing the details, we also don't want the so-called experts in educational methodologies telling teachers how to teach. Nor the sort of bureaucrats and educationalists who would flock to a centralised body like a Royal College of Teaching. What we want is as above: headteachers working with their teachers to work out what works best in their particular circumstances.

Another way to put this is that centralised control under the politicians would be undesirable: but centralised control under the "experts" with no outside influences would be even worse. After all, who do you think is responsible for the current mess in British teaching? Teachers, or those who have been educating teachers for the past 50 years and who would inevitably be those running the new College?

No, a very bad idea indeed.

Increasing access to private education will add billions to growth

• The UK’s average annual growth rate between 1960 and 2007 would have been almost 1 percentage point higher had it matched the Netherlands' long-term level of independent school enrolment since 1960. This in turn means that UK GDP per capita would have been over £5,800 higher in 2007 than it was.

• Better education boosts economic growth; improving students’ international test scores by 10% raises a country's average annual growth rate by 0.85 percentage points.

• UK GDP per capita would have been almost £5,300 higher in 2007 had it performed as well as Taiwan since the mid-twentieth century.

Britain could add billions of pounds to long-term economic growth if it increased access to private education, a new report released today (Tuesday July 29th) by the free-market Adam Smith Institute has found.

The report, “Incentive to Invest: How education affects economic growth”, illustrates how higher educational achievement boosts long-term economic growth, and the important role of private schooling in this process.

Through the use of existing research and new quantitative evidence, the author of the report, Gabriel Heller Sahlgren, establishes that test scores are closely related to growth. Lifting achievement by 10% hikes a country’s average annual growth by 0.85 percentage points.

Furthermore, the report illustrates how competition from independent schools has proven successful in generating higher international test scores, while also driving costs down. Sending 20 percentage points more 15 year olds to independent schools would raise growth by 0.4pp—or about a sixth—via its positive effect on educational achievement.

Based on his findings, Heller Sahlgren calls for the government to radically reform education policy by encouraging more privatisation and competition in the education sector.

Had the UK matched the Netherlands’ long-term level of independent school enrolment since 1960, its GDP per capita would be over £5,800 higher today, the report argues. At a time when policymakers are trying to cement and broaden the economic recovery, the report suggests that expansion of access to private schooling would be an attractive component of a long-term growth strategy.

Commenting on the report, its author Gabriel Heller Sahlgren said:

My research shows that a focus on increasing the number of pupils taking higher qualifications is misguided. There’s in fact no robust impact of average schooling years in the population on economic growth on average.

On the other hand, education quality, proxied by international test scores, has a consistent and strong effect on growth. According to my calculations, the UK’s real GDP per capita in 2007 would have been over £5,000 higher had we performed on par with Taiwan since the mid-20th century. So the dividend of improving children’s attainment is large indeed.

Yet there are different ways to do achieve this. Unlike expensive resource-driven education reforms, which are rarely cost effective, a good option is to raise the level of independent school competition, which other research shows both increases international test scores as well as decreases costs.

According to my calculations, the indirect economic benefit, via higher achievement, of increasing the number of pupils in independent schools to the Netherlands’ level would be a 0.92 percentage point higher long run GDP per capita growth rate. The government should therefore continue their market-based reforms on education and expand choice as widely as possible.

Sam Bowman, Research Director of the Institute, said:

This report shows that we need greater access to private schooling for all pupils regardless of background, not just to improve the welfare of the children themselves but to boost the UK’s overall standard of living and long-term economic growth.

Expanded access to private education through school vouchers and a revival of the assisted places scheme may be an easy, low cost way for the government to boost growth by improving the human capital of British workers. The results may take some time to materialize but studies like this show just how valuable a long-term strategy for expanding access to private schools could be.

Click here to read “Incentive to Invest: How education affects economic growth”.

For further comments or to arrange an interview, contact Kate Andrews, Communications Manager, at kate@old.adamsmith.org / 07584 778207.