Saturday, June 09, 2007

More competition & accountability needed among private schools

Increased receipts from the Commonwealth have bolstered the coffers of Victoria’s public schools but these schools have increased their fees – in many cases dramatically. There is nothing wrong with the public sector paying a part of these costs but the funds should be used carefully.

The Age editorializes:
One example from several is Scotch College. Since 2000, it has raised its fees annually by an average of 8 per cent to more than $19,000 this year. Its funding from Canberra has more than doubled to $3.68 million this year. Some increases are more akin to explosions: Mentone Grammar fees have increased almost 80 per cent from $10,230 for year 12 in 2000 to $18,166 this year. Commonwealth grants have risen $760,000 to almost $3 million.
Much of the extra resources appear to have been spent of capital works that appear to be at least in part monuments to principals and school boards. For the most part these capital works are paid for without incurring significant debt. Hence the current cohorts of students cross-subsidize the costs of other cohorts. It would be much farer to keep fees lower and to spread the cost of capital works across the various cohorts of students who use these facilities by debt-financing such works.

The schools themselves often under-invest in scholastic programs while spending huge amounts on sports facilities, unneeded performing arts centers and so on.

In many cases private schools operate as sales-maximizing local monopolies which account to nobody – not to the public sector, not to shareholders and certainly not to parents. More competition in this sector is required to keep fees down and to achieve cost efficiency by reining in frivolous expenditures. School boards need to be directly elected by and responsible to fee-paying parents.


Joshua Gans said...

Harry, you don't believe in the market! What is this going to do to your conservative credentials?

What do we care what private schools spend their money on? The only issue is this: are they getting a subsidy per student less than the cost of educating that student in the public sector. I think that they are. So long as they educate that student -- in this case, to the satisfaction of parents -- who cares what their fees are.

And what is the evidence that they are local monopolies? Hardly seems plausible. If private school fees are high it is because parents are willing to pay them rather than a free public option. Can't think of a more market based mechanism than that.

Slim said...

More competition in the sector to keep fees down? Given how long it takes to start up an independent school I think that would be an ineffectual instrument for correcting these excesses.

I'm sure the main reason fees have escalated is because the sector is a seller's market. Which begs the question why is public funding needed at all? The least we should do is return to a resource index based system of public funds for private schools, especially for funding for 'capital' works.

Sinclair Davidson said...

Picking up on Joshua's comment, my back-of-the-envelope calculation is that the total subsidy is (on average) $4,000 less for students at private schools than at public schools. So parents are paying the $4,000 gap and for the buildings.

hc said...

Joshua, There is not much of a free market here and strong evidence of local monopolies - the excess demands and waiting lists show this.

And the schools themselves don't have shareholders except in the most narrow sense - they are unaccountable. It is in no way the private firm model.

There are huge fixed costs of setting up schools as Slim points out. Hence not a lot of new entry even though demands are strong.

Your second para I agree with up to the final sentence. That I have sent all 3 of my kids to private schools does not mean they are beyond criticism. It means that, even with the criiticism I prefer them to the public schools.

But instead of 'innovation centres', new sports grounds and unnecessary performance centres how about investing something in junior school mathematics curricula and teaching. Our current programs are sub-thirds-worldd standard.

Without reform and increased competition I broadly support Slim's proposals for a 'needs based' system - at least with respect to funding capital works.

hc said...

Sinclair, I recognise that subsidies support public schools and have posted on that in this blog here:

The current post has to do with recognising that expenditures are not being well directed, that neither shareholders nor parents influence such expenditures.

Sinclair Davidson said...

"School boards need to be directly elected by and responsible to fee-paying parents."

I agree - but I'm not sure that they aren't already. Universities should be the same, Councils should be elected by alumni.

But I'm not sure more competition is the solution to this problem. Private schools already face competition from a zero-price sector, tax-payer funded, public schools.

I'm also not convinced that increased government regulation is the solution either. The States already own the comprition so their regulation will be biased, and the Federal government has shown itself to be completely incapable of introducing sensible and simple regulations. This comes back to Joshua's initial point - from the public prespective it's cheaper to educate students through the private sector than the public sector and as long as they get educated (or at least schooled) who cares what happens after that?

I saw your previous article on Deveny - that's when I did the calculations. The Age is still sitting on my op-ed reply.

chrisl said...

Harry, An Off Topic question. Are there any free market economists who actually work in the free market? i.e for themselves
Or are they all employed by the publicsector/large corporations?

hc said...

Chrisl, There would be quite a few in private consultanies and a few in larger firms. In the US there are (I think) far more economists working in industry. But yes my guess is most economists who work as economists are in the public sector.

It is not so strange. Australia is just energing from being a highly regulated sector.

Anonymous said...

The problem is that private schools are engaged in an arms race of ever more elaborate sports facilities, campuses in China, performing arts centres etc. The more subsidies they get, the bigger the arms build up. But even with the subsidies they still have to put up their fees by 9% per year to pay for it all.

This implies that fees will double in real terms in 11 years. Whether the market can sustain this remains very much to be seen.

Curiously, there is a gap in the market for private school education that doesn't seem to be filled, and that is for schools with high quality teaching but without the super-expensive sports facilities etc.

This type of school would be medium priced. You'd think there'd be a large market for education which costs $5-10K per year instead of the now standard $20K (and counting), but it doesn't seem to be there.