James Rolph Edwards
In the post World War II period advancing economic theory and accumulating evidence indicated that socialized (i.e., government owned and operated) industries were less efficient than their private counterparts, as a natural consequence of inherent internal incentives and the lack of external competitive pressures./1/ The collapse of the Soviet Socialist empire since 1989 and the massive denationalization wave that swept Britain, Western Europe, New Zealand and other parts of the world in the 1980s, following decades of experience with the operation of nationalized industries, have added the judgment of history to this evaluation. In the U.S., where government never went in much for open nationalization, preferring a policy of federal and state regulation of business, the same lesson was learned by the deregulation of transport industries in the late 1970s and early 1980s./2/ Those industries have since operated much more efficiently./3/
There is one industry, however, which has remained largely socialized everywhere: Education. Though some private sector competition is allowed in nations such as the U.S., tax subsidization prices 90 percent of students or more into the state owned and operated K-12 schools, colleges and Universities. One has to wonder why this came to be public policy and remains so, when careful comparison shows the same disparity in efficiency and quality between public and private provision of education as is normally found in other industries./4/
Some economists use what are termed "externality" arguments to justify such policy . Milton Friedman and others have argued, for example, that education, both lower and higher, not only makes its recipients more productive and employable, raising their incomes, but generates other benefits for society by making them more cultured, pleasant people to be around. They may even pass on some of their knowledge to others gratis. If the social benefits of education thus exceed the purely private benefits obtained (which are compensated in higher incomes) then purely private educational investment decisions, based as they are only on consideration of the purely private gains, will result in underinvestment. In that case a subsidy is justified to raise the amount of education to a more socially efficient level./5/
But then, I was in High School in the late 1950s, and watched them pass the thugs, hoodlums, social misfits, hedonists, alcoholics, and gang members from grade to grade year after year without concern over whether they could even read, much less earn passing marks. And I went to college in the 1960s, where I saw the same type of students become hairy, foul-mouthed, drug-using radicals through indoctrination by their English and social science professors with the ignorant pseudoscientific rantings of Karl Marx, Herbert Marcuse, B.F. Skinner, Paul Ehrlich, et aI. Thereafter many of them were quickly hired (as soon as they came back from Canada) by their old professors to indoctrinate succeeding generations of students. I have never since believed that there were net external benefits from state provided education, higher or lower. It is no accident that nobody has ever tried to quantify such theorized beneficial externalities, instead of merely asserting their existence.
Another important externality argument focuses on the fact that parents' investments in their own education tend to raise the opportunities and lifetime incomes of their children. Since intergenerational contracts cannot be formed, and parents may be largely uncompensated for such intergenerational benefits, the externality may result in underinvestment in human capital, requiring a state subsidy for correction. Surprisingly, however, in empirically testing this view, using data on 1455 individuals from the Michigan income dynamics study, Edward Lazear found virtually no educational underinvestment for whites, and only a 2.3 year average underinvestment for blacks. He concluded that no education subsidy for whites was justified on this basis./6/ In addition, Lazear made it clear that even the small amounts of educational underinvestment he found were overestimates if, in their human capital investment decisions, parents took the intergenerational spillovers into account, investing with intent to also make their children better off.
Recently a different form of investment argument, developed by Professor Barry Bluestone at The University of Massachusetts at Boston, has become the rage among professors at public colleges and universities, who are ever eager to justify their status as Civil servants./7/ Professor Bluestone used Census data to estimate the average expected incremental addition to lifetime earnings of students pursuing college education (both undergraduate and graduate) for the 1991 entering class at UMass Boston, in contrast with those of people who stop at a high school education. Then he estimated the additional state income and sales tax revenue generated over their lifetimes by those college students who would likely remain instate after leaving the university. Last, he estimated the state subsidy, per student and total, for the students in that class.
The idea was to compare the present value of the additional revenue paid to the state over their lives by college students remaining instate with their education subsidy (with an adjustment for "export" income flowing through the university in the form of grants, contracts, tuition, fees, etc.) in order to estimate the return on the state's investment in the higher education for those students. As it turned out, the average student at that institution stayed about three years and in total the 1991 class would generate an expected incremental present value of lifetime increased tax revenues for the state of $53.6 million, from a total state higher education subsidy estimated at only $34.1 million. Thus, according to Professor Bluestone, Massachusetts would earn $1.57 for each dollar of higher education investment. He computed this to be equivalent to a bond or mutual fund interest rate of 8.9 percent, which is a very good return on the state investment indeed.
Let us suppose that similar results would be obtained from similar studies of state educational institutions (both higher and lower) elsewhere. We would still have to ask ourselves a hard question about the form of this argument: is it really the proper social justification for public provision of education that it makes money for the state? Is the function of public education really to subsidize other state programs and expenditures? Is that why we do it? What about the idea (however flawed, as we now know) and ideal of increasing people's knowledge, understanding, and civility, of raising their productivity and making us individually and collectively more prosperous? All such notions seem absent from Bluestone's argument, or are they?
Note that all of the arguments considered previously presumed to show that a purely free market in education would provide an inadequate amount, and that the point of state subsidization and provision was to increase the quantity of education. Bluestone's argument actually makes an extreme assumption of this kind. Since Bluestone attributes every penny of the incremental lifetime earnings (and associated state tax payments) of public higher education students to the state subsidy, it is clear that he implicitly presumes that, absent that subsidy, none of those students would attend college. That assumption is obviously false, and hence Professor Bluestone's computation of the rate of return on state subsidization is a gross overestimate.
Absent the higher education subsidy, and with correspondingly lower tax rates, state residents would have higher disposable incomes. It is certainly true that families with college age members would not, as a direct consequence of the tax and subsidy reduction, have their disposable incomes increased by the full amount of the per student subsidy (else those without such members would not be subsidizing them). But there are indirect effects to be considered. At lower marginal tax rates, the rate of return to work, saving and capital investment of all kinds--including human capital (educational) investment--is increased, which raises economic activity and incomes. Consequently a significant fraction of those who, in the presence of the taxation and subsidy, would attend public institutions of higher learning, in absence of the subsidy would simply attend private institutions instead, which would be larger in number in accordance with the higher demand. What proportion? That is, to what extent does state subsidization of higher education simply crowd out and replace private provision?
Guesses can be made. My own experience, from having taught at the University where I did my graduate work and at two other public institutions of higher learning now, is that about 25 percent of the students in principles level courses are totally unable (or unwilling) to assimilate genuine college level material. My suspicion is that these are precisely the students added by the state subsidy. Some data seem to support this perception, in magnitude if not in detail. Sam Peltzeman, from data on the college and university system in California, found that, absent state subsidization of higher education, between two-thirds and three-quarters of the students in public institutions would shift to private ones. Indeed, the proportion would be higher if students shifting to out of state private institutions were included. In essence, the subsidy transfers income upward on net from lower and middle class families to upper middle and upper class families that would have sent their children to college anyway./8/
There is no claim more central to the mythos of public education than that state subsidization, ownership, and operation of schools and compulsory attendance are all necessary because private provision to voluntary consumers would leave significant numbers of students unable to obtain education. The apparent falsity of this claim as regards higher education makes one wonder about lower education. What kind of evidence really exists--particularly historical information--to support that view? Did public education really arise and take its present form in historically necessary response to such private sector educational inadequacies?
E.G. West cast light on such issues as these in a study of the rise and development of the public education system in early 19th century New York state./9/ West was particularly concerned to explain the historical development of three characteristics of modern public education, that of being universal, free (that is, subsidized at full cost so that the marginal cost to parents is zero), and compulsory. The state authorized five Commissioners to prepare a report on whether the establishment of state subsidized common schools was needed. The 1811 report of the commissioners contained a factual element and a normative argument. The facts reported by the Commissioners were that education was already widespread, to the point that it was inadequately provided only in the rural areas of the state. The normative argument that the Commissioners employed was that education was necessary in a democracy, since it can only function well with intelligent, informed and educated voters.
West notes that the facts presented justified only a marginal state intervention, at most. That is, if education was inadequately provided only in rural areas, a state subsidy was justified only in such areas (in addition, though West did not say so, no justification for state ownership or operation of schools was provided, since offer of a subsidy would encourage the creation of additional private schools where needed)./10/ But instead, the Commissioners advocated uniform provision of common schools throughout the state. In response, the legislature acted the next year, 1812, to appropriate and distribute funds among school districts created by three authorized Commissioners, in proportion to the number of students in each. An 1814 amendment required each town to raise and contribute tax monies equal to its distributive share of the school funds. The per student subsidy, however, did not cover the full cost per student, and the remainder was presented to the parents as a rate bill (fee).
In the original law, the subsidy was not restricted to state operated schools. Religious charity schools were also eligible, and many new ones were created, which competed successfully for students with the state run schools. In an early indication of their dislike of competition and associated monopolistic orientation, the state school teachers quickly and successfully lobbied the legislature for a change in the law directing the subsidy solely to secular schools. This makes the deliberate substitution of public provision of education in place of private provision, as a motive at least on a par with increasing the quantity of available education, apparent at an early point. It is certainly true that attendance increased over time, though West does not give us population growth numbers for comparison. According to West the annual reports of the superintendents after 1812 show steady growth of districts organized, and the 1821 report shows 342,000 students between five and sixteen years of age being taught out of a total state population of 380,000 such children. That is 90 percent, and therefore, as West remarks, by this time schooling was already essentially universal even though it was neither free (except to the very poor, who were exempted from the rate bills) nor compulsory.
The period from 1840 to 1850 is known as the period of the "Free School" campaign for elimination of the rate bills, which actually began in the teachers' institutes around 1843. The teachers argued that education should be universal as a matter of right, that a free school system would, by providing moral education, prevent crime, and that it would overcome poverty. Like any good propagandists, the teachers apparently played on public ignorance, in this case of the facts that education was aIready essentially universal, and aIready available to the poor. Never did they attempt to demonstrate that educational availability was inadequate, or that private education was inferior to that of the common schools.
In 1849 the New York legislature responded to the interest group pressure of the teachers by abolishing the rate bills and covering the full cost of public education. Public pressure, however, in the form of parental protest, resulted in repeal of the 1849 Act in 1851, and restoration of the rate bills. Many--perhaps most--parents actually preferred the rate bills to full cost subsidization because it allowed them options. As long as the rate bills covered a significant portion of their children's education, that outlay could be recovered and applied at a private school if they found the state schools unsatisfactory. Indeed, between 1832 and 1847 private school attendance in New York increased by 74 percent while public school attendance increased by less than 51 percent. Thus, the real reason the public school teachers agitated for "free" public schools was to reduce the competition from private schools, and thereby accumulate monopoly power to educate and indoctrinate children.
As it turned out, the teachers essentially won, despite the 1851 repeal of the 1849 Act. The rate bills were restored at so low a level by the 1851 law that very little of the cost of a student's education could be saved by a parent and applied to private school by pulling a student out of a common school, and the growth of private schooling was effectively checked. In 1867 organized teacher and administrator groups got the legislature to finally abolish the rate bills. The last steps for the teachers and administrators were to get the legislature to institute compulsory attendance laws, creating an educational monopoly that did not even allow its customers the option of not purchasing its product, and to require students to attend within their districts, so that not even public schools were in competition with each other.
Crucial lessons emerge from this history. First, assuming the facts claimed by the Commissioners in 1811 were correct, no rationale existed from the first for more than a rural area education subsidy. Even at that time the nearly universal desire of parents to see their children educated was resulting in adequate provision in urban areas, by the commissioner's own report. And given what we now know about the course of real income and transportation costs over the 19th century, justification for even a rural subsidy would have rapidly diminished. Just as clearly, however, even a partial subsidy intended as temporary would have been dangerous, since it would have created a public school employee's lobby with a strong incentive to expand and crowd out private education.
Second, none of the characteristic features of public education as we have come to know it beyond a minimal subsidy originated in New York state to solve a perceived problem of inadequate amount or quality of private education. Uniform provision of common schools including the urban areas was instituted even though it was clearly unnecessary from the first. Both "free" education (full cost subsidization) and compulsory attendance were instituted after education was already essentially universal, as part of a war on private schools and on parents by a public education establishment intent on attaining a governmentally enforced monopoly. The logic of these events as strategic political actions given the end desired by public school employees provides strong indication that the same forces operated to generate the same institutional elements in the other states./11/
The effects of such a monopoly are easily analyzed through basic economic theory, and explain observable characteristics of modern public education. A private sector monopoly over provision of some good, even if it has a governmental franchise to prevent entry of competitors, has to restrict its output to raise price to a profit maximizing level, since the customers pay for the product as they purchase it, and will reduce their consumption at the margin as the price rises. The public education monopoly, however, does not need to do this. It has special powers over demand through compulsory attendance laws, and through tax financed, full cost subsidization to make the marginal cost to customers zero, imposing part of the cost on people without education age children.
One easily predicted effect of such a bureaucratically operated, tax financed monopoly, is that, lacking a group of owners with both authority to direct operations and incomes dependent on the magnitude of a residual between costs and revenues, it will have little incentive to hold costs down. Thus the disparity observed between public school and private school per pupil education costs noted by Coleman and others. Such inflated costs tend to show up in higher prices for educational inputs, particularly teacher and administrator salaries. Predictably, recent data shows that public schools teachers make 28 percent more on average than their private sector counterparts./12/ As long as a significant portion of public school revenue came from parental fees, pressure existed to limit such cost raising salary increases in the public schools, since fee increases to cover such salary increases would motivate parents to switch to private schools. Thus, in part, the hatred by public school teachers and administrators of private schools, of parental choice, and of even partial fee finance for public schools.
A second predicted effect of monopoly provision of a good is that the monopolist has reduced incentive to satisfy its customers since they have few other options. This may result in literal decline in the quality of the good, or, in the best case, where other factors are operating to improve quality, it will improve more slowly than it would under competitive conditions. Effective competition from private independent providers of education results in marginal innovation in teaching methods and content. Those that turn out ex post to be beneficial will attract customers and revenues to the firms providing them and will be copied by competitors. Bad innovations will cause the education firms providing them to be eliminated from the market, with only localized harm generated. This process would improve quality over time.
Where education is effectively monopolized by the state, innovations may occur, but at a slower rate, and they are often instituted on whole systems rather than marginally. In addition, little or no incentive exists to correct mistakes since no loss in attendance or funding occurs. Thus whole generations can be and have been lost to public educational insanities such as "Iook-say" reading and the new math. Even public school teachers themselves have been unable to deny the decline in public educational quality since student scores on standardized achievement tests began declining in the third quarter of the 20th century./13/
For reasons just explained, private sector competition places limits on content in public education, and the desire to avoid this may have been the largest single motive for public school teachers and administrators to work for monopoly status. A brilliant young economist named John Lott, who is well known in Montana circles because he worked for several years at MSU-Bozeman, has argued that public education everywhere has emerged from a specific intent by government officials and collectivist intellectuals to indoctrinate the young with statist views as a means of reducing voter resistance over time to political income transfers./14/ That the use of American public education for indoctrination purposes was intended from the first is indicated by Horace Mann's statement that "great care must be taken to inform and regulate the will of the people." Discussions over the use of public education to inculcate children with various views and attitudes have always permeated the literature of the education profession.
Many scholars have recognized the indoctrination potential of a public education monopoly. Marxists Samual Bowles and Herbert Gintis have argued that public education arose to provide socialization of the work force with the discipline and subservient attitudes that they assert were required by the emerging capitalist factory system./15/ Lott correctly points out that this fails to explain why public education arose in other political and economic systems. Indeed, the pervasive use of state education in Socialist nations to indoctrinate populaces with Socialist attitudes is a matter of historical record. Bowles' and Gintis's arguments seem little more than an effort to detract attention from this by accusing their enemies of doing the same thing. Besides, on its face, it makes no sense to create a socialist institution for generating acceptance of a capitalist ideology and society, since such an institution will do no such thing. Far better from a capitalist perspective to have a competitive educational system in which views will be diverse, but many providers, as businessmen themselves, will favor the system of private ownership of productive assets and voluntary exchange in free markets.
Whether or not providing statist, collectivist indoctrination was initially a prime motive of the public school teachers and administrators, as Lott argues, it is certainly true that such indoctrination has become a crucial element of public education. On a theoretical basis, it seems inherent. Public education will attract few aspiring teachers of anti-statist inclination, and nearly everybody it employs will feel motivated to justify its existence as a socialist institution, to themselves and to others. Moreover, philosophic consistency will not allow education to be treated as an exceptional case. Nearly everyone's children will be and have been taught that all social and economic problems arise in a private sector ruled by greed and corruption, and that government intervention and control is invariably both necessary and benevolently intended to solve them. Pressures both overt and covert toward conformity with such views will be brought to bear on any public teachers with limited government perspectives. This also filters many of them out of the system quite naturally. The experience of Lott himself at Bozeman provides a lucid example of how those who express such views may be treated./16/
Empirical evidence supports these suspicions. Comparisons of ideologal attitudes across occupations show public school teachers and professors to be further and more consistently left-wing than any other occupational group in the U.S./17/ Among other ways, this shows up in a strong left-statist bias in textual materials. Such bias has been massively documented by Herbert London./18/ Strong leftist bias in high school civics materials, to the point of gross historical distortion, has also been shown by Thomas DiLorenzo./19/ DiLorenzo points out that every state requires at least one high-school course in civics or American government, and that course materials are screened and censored by government education officials. He then cogently asks how likely it is that an agent of the government will approve a text that is critical of that same government.
The propaganda is wearing thin, however. The educational system increasingly fails to educate. Experience with endlessly expanding federal and state intervention, command and control accumulates, and as the economy increasingly struggles, it becomes harder to deny the causal connection. Increasing sex education in the schools is associated with increasing--not decreasing--teenage sexual activity and pregnancy (making more people dependent on the state, and further expanding income transfers) and public schools are often criminal war zones (contradicting arguments repeated from its inception that public education would reduce crime). Many people, including some educators, are beginning to realize that the first and worst mistake in all this was the institutionalization of a socialized education system, and are desperately seeking to restore some form of the competitive system that was our initial inheritance.
Thomas E. Borcherding, et al., "Comparing the Efficiency of Private and Public Production: The Evidence from Five Countries," Zeitschrift fur Nationalokonomie 42, suppl. 2 (1982): 127-156.[Back]
The Classical Liberal (i.e., individualist, limited government) ideology upon which this nation was founded was still strong in the last portion of the 19th century, and was hostile to overt Socialism. The effect of this was to deflect the strategy of the left, as Socialist ideas were imported into this country from Europe and took root in the intelligentsia, towards piecemeal institutionalization of the Socialist program under other names. It must be understood clearly that ownership consists essentially of the right to determine the use of assets, and that governmental regulation, reducing private decision-making authority, is a partial taking. Therefore, a policy of ever increasing regulation is a policy of incremental nationalization of private assets. On the taking aspect of regulation see Richard Epstein, Takings: Private Property and the Power of Eminent Domain (Cambridge Mass: Harvard University Press, 1985). Epstien's influential book has shocked the legal and political professions by drawing their attention to the fact that the Constitution clearly requires that governments make just compensation for takings of private property. Even partial compliance with this Constitution requirement would place severe limits on federal and state power to regulate.[Back]
Paul MacAvoy, Industry Regulation and the Performance of the American Economy (New York: W. W. Norton & Co., 1992): 63-74.[Back]
James S. Coleman, et al., High School Achievement: Public, Catholic, and Private Schools Compared (New York: Basic Books, 1982).[Back]
Milton Friedman, "The Role of Government in Education," in Economics and the Public Interest, ed. Robert Solow (New Brunswick New Jersey: Rutgers University Press, 1955): 123-153.[Back]
Edward Lazear, "Intergenerational Externalities," Canadian Journal of Economics 16 (1983): 212-228.[Back]
Barry Bluestone, "UMass-Boston: An Economic Impact Analysis," available from the Office of the Chancellor, University of Massachusetts at Boston. For a short report on this study see Barry Bluestone, "States may be Making a Healthy Profit on their Public Colleges and Universities," Chronicle of Higher Education (6 October 1992): A52.[Back]
Sam Peltzman, "The Effect of Government Subsidies-In-Kind on Private Expenditures: The Cost of Higher Education," Journal of Political Economy 81 (January/February 1973): 1-27.[Back]
E.G. West, "The Political Economy of American Public School Legislation," Journal of Law and Economics 10 (1967): 101-128.[Back]
West is here actually being overly kind to the argument of the state's Commissioners. In saying that education was inadequately provided in rural areas, the Commissioners can only have meant that children in those areas attended school in smaller proportions and perhaps for fewer years on average than did children in urban areas of the state. But with lower family incomes and higher costs of obtaining education (particularly transport costs) in rural areas, a lower level of educational investment would be optimal and efficient. Absent significant, demonstrated externalities, no underinvestment in education is shown by mere demonstration that the level of attendance is lower in rural than in urban areas.[Back]
See, for example, Albert Fishlow, "The American Common School Revival: Fact or Fancy," in Industrialization in Two Systems: Essays in Honor of Alexander Gershenkron, ed. Henry Rosovsky (New York: John Wiley and Sons, 1966). In this study of the common school movement in early New England, Fishlow found that its primary effect was to shift students away from private schools into the public schools without adding significantly to the percentage of students being educated.[Back]
John R. Lott Jr., "Why is Education Publicly Provided? A Critical Survey," Cato Journal 7 (Fall 1987): 475-501, particularly p. 492.[Back]
Colleges and universities in the U.S. have lagged behind the decline in K-12 education precisely because student fees still constitute a significant fraction of the per-student cost of attending most public institutions of higher learning, and because students are not required to attend colleges within their area. Hence public higher education institutions face much more severe competition from each other and from private colleges and universities than do the K-12 schools.[Back]
Lott, Ibid. The emergence of public education is the lynchpin in understanding the demise of the Classical Liberal, limited government ideology on which the Constitution was based. Even astute economic historians such as Higgs, seeking to understand this ideological transformation, seem to have missed this point. See Robert Higgs, Crisis and Leviathan: Critical Episodes in the Growth of American Government (New York: Oxford University Press, 1987).[Back]
Samual Bowles and Herbert Gintis, Schooling in Capitalist America: Educational Reform and the Contradictions of American Life (New York: Basic Books, 1976).[Back]
John R. Lott Jr., "Academic Freedom at a Public University," The Freeman (March 1990): 112-115.[Back]
See, for example, Everett Carll Ladd Jr. and Seymour Martin Lipsett, The Divided Academy: Professors and Politics (New York: McGraw-Hill, 1975): 115-118. The one social science profession moving in the opposite direction is Economics. Nearly half of the Nobel Prize winners in economics in the last thirty years have been self-confessed Classical Liberals. But economics departments in public universities have to survive in a larger, inherently statist educational culture.[Back]
Herbert I. London, Why are they Lying to our Children? (New York: Stein and Day, 1984).[Back]
Thomas J. DiLorenzo, "The Civics Lie," The Free Market 10 (August 1992): 6 and 8.[Back]