Markets and education*

Markets and education*

Hugo Ñopo 13 octubre 2015 Comments


One characteristic  of our times is our faith in the market as a mechanism to allocate goods and services. The drive of competition induces innovation, continuous improvement, and efficient use of resources. All of this, result in advances in productivity. With these arguments, the State reduced its active participation in the markets in recent decades. The results have been positive in many areas.

The fervor led to believe that more and more areas of social exchange could benefit from the markets arrival, especially those areas where the state has done a terrible job. Education is an example. But here is where faith and fervor can be misleading. To improve education from a market perspective is to ignore that educational service has many particularities. The common service is very different from the one where transactions can be done in free competition.

Following Friedman, lets take a common service, a restaurant, and compare it with the educational service:

To improve education from a market perspective is to ignore that the educational service has many particularities. It is very different from a common service where transactions can be done in free competition. Following Friedman, let´s take a common service: a restaurant. Now, let´s compare it with the educational service.

First, information about quality is limited. Customers can easily learn about the quality of the restaurants. The characteristics that make a good restaurant are known (quality of ingredients, hygiene, environment, etc). Something different happens with education. Part of the quality can be observed and measured (learning of language and mathematics, for example), but there is a large and important part that is not easy to measure (all the other learning that matters for life: emotional skills, values, and attitudes). Given this, there is a consensus among educators: to reduce the quality of education to the results of standardized tests is dangerous for society. Besides this, there is an important element of equity: disadvantaged households (poor and uneducated parents) are the least able to properly interpret the information on quality.

Secondly, the results come after decisions. When a customer leaves a restaurant, he or she has a pretty good idea of the quality of service received. In education, this does not happen, because the times are different. One part of the quality is revealed immediately, but the other half (perhaps the most important one) is revealed in the future. If a school didn’t do a good job preparing students to face their academic or professional lives, consumers can identify this when it’s already too late. Looking at it in a positive way, the success of an educational institution is reflected in the success of its alumni. Thus, it is easy to know that good educational investments need a long-term horizon, which is difficult to reconcile with the horizons of investments with profit.

Third, in education, besides the supplier, the consumer is also responsible for the result. To be a good or bad restaurant depends very little on the palates of the customers or their effort to have a good dining experience. The provision of educational services is very different. The efforts of students – and their parents – matter. Besides the effort, there are socio-economic conditions that also have impacts on quality. So, it is very difficult to think that a price mechanism will help allocate resources efficiently. Education is a very different market.

In that vein, other consumers also play a role. For a standard customer of a restaurant (not a high-end one) does not matter if the people sitting at the next table prefer rice and chips, or if they have liberal or conservative ideas. For this costumer, the profile and preferences of other clients are not relevant to their own dining experience. However, in the education service, the result depends on all students. This is what the literature calls “peer effects.” This complexity of the determinants of quality make the price fixing process difficult (if not impossible).

Likewise, this is a one in a life time hired service. There is no learning. In a period of ten years, a customer has faced a dining decision many times. After raising the question “what restaurant should I go to?,” the consumer has gained experience as a decision maker over the years. A customer knows in what factors to think, and their weight to make a decision. At the same time, parents have not made many decisions about schooling options for their child. Hiring education services is often sporadic, and it gives less opportunity for learning about this type of decisions. Parents are more prone to error. And these mistakes are expensive.

A further consideration must be equity. Children from poor households have more difficulty learning than the rest. Educate them is more expensive and that is why a country should allocate more resources in the education of the poor. Markets do exactly the opposite: they assign more educational resources to schools where there is greater ability to pay.

As it can be seen, a market of educational services needs to regulate various aspects of reality to work healthily. The risks of not doing it properly are big. Meanwhile, to think that education systems will improve with more private participation is blind faith. Certainly this is an issue that needs much debate based on reason, not faith.


*This post was originally published in El Comercio on Sept. 25th, 2015.

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