Saturday, April 02, 2005

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.

6 Comments:

Anonymous Anonymous said...

imagine those thousands of private bureaucrats whose salaries and functions could be consolidated in a single-payer system

imagine those thousands of private bureauocrats without jobs, living in cars with their spouses and children, dumpster-diving for their evening meal... ah, wouldn't that be marvelous?

4:20 PM  
Anonymous Anonymous said...

imagine those thousands of private bureaucrats whose salaries and functions could be consolidated in a single-payer system

imagine those thousands of private bureauocrats without jobs, living in cars with their spouses and children, dumpster-diving for their evening meal... ah, wouldn't that be marvelous?

4:21 PM  
Anonymous Anonymous said...

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.

you are wrong on this. we do not fund the post office collectively. the post office is completely self-sustaining. no tax monies are used in opening new offices, etc.

4:25 PM  
Blogger Maines said...

One of the biggest problems with the privatization of education is that a fair number of people believe that if they don't have kids in the school system (either because they don't have kids at all, or because their kids are beyond school age) they shouldn't have to pay to support it, and a privatized system would very likely bow to these people, because the greater good served by universal public education (like, oh, people being able to have jobs, rather than panhandling, or going on public assistance, or knocking you over the head for money) doesn't factor into a profit-motivated system.

This has been my objection to voucher systems as well: the people who give a shit about their kids' educations will put their kids (and the money from their vouchers) into better private schools, leaving the public schools even more starved for funds than they are now.* No chance for any of the poor kids whose parents, for whatever reason, don't have the education or motivation to seek a better life for their kids. Meaning a further widening of the gap between the underclass and the not-underclass.

*We've seen this already in the NYC public schools, where parents can request a transfer if their kid's school is deemed to be "failing." Meaning there's no motive for failing schools to improve, because everyone who might motivate improvement is gone, and the kids who do remain in those schools are basically screwed.

4:45 PM  
Blogger Antonius said...

As the owner of a business coming close to be crippled by rising insurance costs, I'm not terribly interested in funding sinecures for people employed in insurance companies when they could be contributing strongly to the economy in other, more productive sectors.

Buggy whip manufacturers went out of business as well, and I don't see anyone shedding any tears that their descendants are producing products and services people actually want.

In the short term , there should definitely be some transition support for any industry that gets nationalized. Perhaps if the United States didn't outspend the entire world in aggregate in "defense" those types of burdens wouldn't loom so large.

8:20 PM  
Blogger Antonius said...

Oh, and anonymous, dead wrong on Post Office funding.

Try Google. It'll help out your research:

http://washingtontimes.com/upi-breaking/20040402-072153-2013r.htm

8:23 PM  

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