Economics is fun, part 8: Speculators
Madsen takes on speculators this week. Or, rather, people who object to speculators. As Madsen explains, when you think about what speculators do on an individual level, they seem rather reasonable — and, indeed, valuable to the rest of us. Speculators are a form of insurers. They don't gamble any more than your car insurer does, but they absorb risk so you don't have to worry about it. It's all a form of specialization and trade.
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Do students need a union?
Pretty much every university student must be at least passingly familiar with their student union. Although the quality of such establishments – and it is as establishments that they are most widely known on campus – varies enormously from place to place, let nobody think that I want to get rid of the student union in its familiar, homely on-campus sense.
But do students really need the other aspects of a union? I mean, they’re called trades unions for a reason, and the student-college relationship is fundamentally different to the employee-employer one.
The relationship between a business and its employees is that the business buys labour with wages. In this relationship the business is the consumer, not the worker – hence the term ‘labour market’. As I argued in my Young Writer on Liberty submission, trade unions parallel business cartels by seeking to restrict supply of a good (labour) in order to inflate prices (wages).
The student-college relationship differs from this in that it is the student, not the college, that is the consumer. We purchase a university education, including access to teachers, libraries and online material, from a university via our tuition fees. This would suggest that what students need is not a ‘union’ but a ‘Which?’-style consumer champion.
Is this distinction important? Or am I simply playing around with semantics?
During my time at the University of Manchester I got quite well-acquainted with the workings of the fairly large executive council of the student union. I found that these positions could be divided between the useful - those that focused on students’ relationship with the university, each other, oversaw events and societies or government welfare – and the big-budget playthings of political poseurs.
On the one hand, it is certainly true that the work of the former – the welfare, student societies and academic-related officers – could be carried out as effectively under the auspices of a ‘union’ as anything else. On the other, in my view many of the problems in the ‘student movement’ – another awful term – stem from the casting of student interests in the trades union mould.
For example, student leaders fundamentally misinterpret the nature of student problems – and the solutions to those problems – by viewing the issue through the prism of labour relations rather than consumer relations: for example, supporting lecturer strikes and other measures out of ‘solidarity’ when they are not in the interests of current students as consumers of education.
As I argued in the Manchester student paper, the idea of a student ‘strike’ having any discernible impact on a university is absurd because students pay universities once a year and aren’t willing to get kicked out for non-payment. What then is the student equivalent of a withdrawal of labour?
A total waste of money, that’s what.
Why not a "John Lewis" education sector, Mr Clegg?
According to the Deputy Prime Minister, employee-owned companies such as John Lewis tend to perform better than other companies. This is hardly news, as the majority of successful companies around the world have been using employee share ownership schemes for decades to help attract, incentivise and retain key staff. However, Clegg's desire to promote and encourage more companies to follow their lead, raises an intriguing question - if employee-owned companies tend to perform better, why not employee-owned schools? Why not extend the idea of 'responsible capitalism' into education? As teachers play such an important role in children's schooling, then any incentives which can encourage teachers to perform better, clearly have enormous potential to do good.
This idea is not as far-fetched as some may think. For example, in 2000 Richard Vedder (Distinguished Professor of Economics at Ohio University), published a short publication titled "Can Teachers Own Their Own Schools?", in which he presents a bold plan to allow teachers to become the owners of schools, thereby acquiring an attractive financial stake in the education process. His proposal draws inspiration from Margaret Thatcher's privatization of government council housing, privatization reforms in Latin America, and the E.S.O.P. (Employee Stock Ownership Plan) movement in the United States and he concludes that if teachers could become shareholders in different chains of for-profit schools then this would help to foster "vibrant school communities with increased parental involvement and the innovation and efficiency essential to produce educational excellence".
Unfortunately in the UK the Deputy Primate Minister still wants to discriminate against, discourage and restrict all for-profit companies from investing in education, which means that the sector as a whole will be denied the benefits of having employee owned schools. It is also important to note that this is only one of numerous different benefits which for-profit companies could bring to the education table, if only politicians such as Nick Clegg would give them a fair and equal chance. Nick Clegg's on-going approach to education does not represent 'responsible capitalism', but deeply 'irresponsible government'.
New at AdamSmith.org: Does the profit motive hurt school quality?
Opponents of the idea that schools should be owned and operated by businesses for profit often claim that such can only come at the expense of quality. Until relatively recently, advocates of the model have had to base their argument on case study evidence, mainly of the performance of proprietorially owned chains. However, system-wide studies are now beginning to emerge and it is worth bringing these to wider attention.
In the US, the most noteworthy study of the for-profit effect has been undertaken by Hill and Welsh, who used school-level data to compare for-profit and non-profit charter schools in Michigan. A four year panel of data was constructed (2001-02 to 2004-05) , with all Michigan charter schools which had students taking either the required 4th and/or the 8th grade state level math exam, referred to as MEAP scores (Michigan Educational Assessment program), included in the analysis. A random effects model was employed, controlling for student and district characteristics. The results were published as ‘For-profit versus not-for-profit charter schools: an examination of Michigan test scores’ (Education Economics, 2008), with the authors concluding that they could find no evidence to suggest that the type of ownership of a charter school (profit or not‐for‐profit) affects the delivery of education services either way.
New at AdamSmith.org: Why private schools have a moral duty not to support government schools
According to Anthony Seldon, head of Wellington College, Berkshire, fee-paying private schools have a “moral duty” to help run failing government schools in deprived areas. However private schools are right to question the wisdom of this approach.
First, it is important to remember that the government initially intervened in education in the late 19th century to help support the growth and development of education in deprived areas. However, instead of subsidizing parents and allowing them to choose between a variety of different schools, previous governments directed all public subsidies towards its own free schools, whilst neglecting and ignoring all private alternatives. This subsequently forced the closure of thousands of private and voluntary schools leaving only a small number of private schools to cater for families on a higher income.
That higher education bubble you've been hearing about
Talk of the higher education bubble is all the rage these days, especially in the US. I'm convinced we've got one here too, for slightly different reasons, but this graphic of US degrees really puts the idea that more graduates equal a better economy into perspective. There's nothing wrong with a "degree that doesn't pay", but there's no economic case for government subsidy for visual and performing arts degrees (US data):
Read the article I got it from for more.