Market Education

A post by Morbo on the The Carpetbegger Report about one woman's experience with the Washington DC school voucher system got me thinking and commenting, reproduced with some edits here. Reductio may have to weigh in and correct or expand some of my thinking on economics, since I merely play an economist on this blog.

The problem with robotically declaring that the private sector is better at providing all services is that there are some services that society requires whose motivation should not be profit, either because a) it’s difficult to make a profit at the given service, or b) mixing in a profit motive degrades the mission.

Other examples besides eductaion leap to mind. National defense, whatever your opinion of its current incarnation and methods of expenditure, would degrade if motivated by a highest-bidder regional model of applied service. Likewise, the national highway system, critical to country’s commerce, will not be profitably maintained by a private entity, but does benefit society as a whole (even though a well-supported rail system might figure better into a bang-for-the-buck calculation).

The astounding level of waste and inefficiency in American medical care (imagine those thousands of private bureaucrats whose salaries and functions could be consolidated in a single-payer system) is directly attributable to the profit motive. Insurance companies aren’t interested in providing health care, they’re interested in turning a profit for investors. The less service offered for a given price, the higher the profit, a lesson taken to heart when one examines the poor standing of health care in the United States when compared to other nations with universal health care systems. The same incentives and pitfalls apply to educational services.

“Free markets” are not “unregulated markets”. Free markets require regulation to function, to restrain monopoly and monopsonic powers between unequal actors and to help amelioriate the effects of asymmetric information, the importance of the last aspect revealed potently in the Enron collapse. If a critical component of society’s infrastructure such as schools is to be privatized, the only manner in which a truly free market can be assured is to mandate minimal educational standards, probably including a shared curriculum and open admission, to make certain that all competitors start with the proverbial “even playing field”.

I’m not philosphically opposed to private education, even funded by taxpayer money, however, I am oppposed to such programs on the practical grounds that an uneven delivery of service is inevitable without the heavy regulation that would be required to make a truly “free” market, and the inherent inefficiency of delivering a service when part of the funding it receives will be diverted out of the mission and into investor’s pockets, ending up in other sectors of the economy. While the US Postal system is "semi-private", it is still required to place a Post Office or provide a minimal level of service throughout the nation, regardless of whether it is profitable to serve all areas (and it isn't). However, as a society, we believe that it is useful and helpful to other sectors of the economy to provide such a service, so we fund it collectively.

Education, like the postal system, is too vital to leave to whims of irrational investors or to the level-headed short-term calculations of rational marketplace actors. The private sector is brilliant at innovation, but it is wildly inefficient with its massively redundant infrastructures to deliver like services to identical market segments. Does anyone seriously believe that private investors will fund competing efforts to educate the children of poverty? The Washington Post column would indicate a contrary experience.