Market failure in education: The education that is not provided

Last week, I dealt with the  all-important issue of education.  I made the superfluous argument that without education, all the talk about innovation, competitiveness, knowledge-based economy and productivity remains but political rhetoric aimed just to deceive.  The next day, the same subject matter was taken up by an editorial in one of the nation’s  dailies.   I said the argument on the essentiality of education is superfluous above simply because it is almost a self-evident truth.   To further illustrate, just 10 years ago in 2006, the most valuable companies were companies like Exxonmobil ($363b), GE ($349b), Microsoft ($279b), Citigroup (231b), BP ($226b) and Royal Dutch Shell ($204b).  But 10 years later in 2016, the most valuable companies are Apple ($571b), Alphabet – the mother company of Google ($531b), Microsoft ($446b), Amazon ($362b), ExxonMobil ($356b) and Facebook ($356b).   The very interesting thing about this is that some of this companies were just starting in 2006 and that they are all, except ExxonMobil, “platform-based” companies.   I call it the challenge of “thinglessness” – the internet of things.  What it takes to play in this age of thinglessness are clearly not being taught in most of our schools as currently constituted.

We are increasingly getting aware that traditional schooling is increasingly becoming redolent and unhelpful.  Thanks to the disruptive effect of information and communication technologies, formalized education appears to be stuck in the past.   I recently conducted a random opinion survey of MBA students in my business intelligence class and their response is largely that previous education hadn’t given them sufficient preparation for their tasks at work.  Most people will agree that  without on-the-job training, much of what they did in school wouldn’t amount to much.   Of course, we are not ignorant of the fact that a large portion of education inculcates generalists skills such as in numeracy, literacy and communication.   But a huge bulk of what is currently taught in schools is not so relevant and many students have come to repudiate their education as contributing little to their careers.    This is especially the case with public education.  Our public education system has become almost obsolete.  Unfortunately, its managers still think it is business as usual.  Basic pedagogy has remained the same monotonous rote learning system that is aimed at mere regurgitation of information that eventually succeed in educating students out of creativity.  In this week’s edition of Bongonomics, we want to make the case that education should be completely privatized.

Public education system has fared so badly, like every other thing the government has done in Nigeria. The fate of our public educational institutions – tertiary, secondary, and primary – is not any different from that of NEPA, NITEL or even NNPC.  Corruption, incompetence, and mediocrity have always defined the workings of these institutions.   In the particular case of the educational system, the decay has been gradual but unrelenting.   In the colonial and immediate post colonial period, things weren’t that bad with our educational system.  There was still a modicum of competitiveness such that majority of students who went abroad in search of education were more often than not, those who failed the highly competitive university entrance examinations unlike today, where the reverse has become the case.  During the period also, quite a number of international  scholars and world renowned academics could be found in various institutions of higher learning in Nigeria.   Recruitment  process and compensation were respectively rigorous and internationally competitive.  Only the best and the brightest had a chance to be employed as lecturers.  But  today, our educational system has largely transformed into a microcosm of the Nigerian state – rent-seeking, patronage-based, clientelist, incompetent, autocratic, corrupt, feudal, occultic and a mongrelization of the intellectual life.   Staff recruitment is no longer based on merit and student admissions suffer all manner of corrupt practices.     From primary to tertiary, public education in Nigeria has become a plague that parents try to avoid at all cost and by all means.   Only those handicapped by low income can endure the mediocrity.   The consequence is unmitigated educational migration.  If you go through the returns on utilization of funds sold to customers, published in the newspapers by banks, you will be shocked at the hemorrhage inflicted on the nation’s economy by capital flight used in the payment of school fees abroad.

Public education is the biggest culprit in the corruption debacle in Nigeria.  Its mode of governance is such that negates the economic principle of efficiency.   As long as the larger portion of funding requirements are met from direct government allocation, there is a serious moral hazard situation.  Given that funding does not depend on performance, there is no incentive for public education managers to enforce excellence.  This is the reason why no serious performance evaluation occurs in public education system.

Given the failure of public education system in Nigeria, why should education not be entirely privatized?  By the way, whose ultimate responsibility is it to provide education?

Plato in his The Republic, thought that education is too important to be left in the hands of profit seeking, free market agents and restricted the education of the youth to government alone.  This position appears to find theoretical backing in neoclassical economics’ theory of public goods.   Public goods are goods whose consumption does not limit another person’s consumption and for which it is impossible to exclude other consumers.  Take street lighting for example.  It doesn’t matter who provides a street light, anyone using the street will enjoy the light and as long as the street is not a private one, no one can be barred from enjoying (consuming) the light.  Because of this, public goods such as street lighting have a quality that economists describe as “externality” – they inadvertently pass on some costs or benefits to others  (“bystanders”).   Put simply, externality refers to unintended consequences and it can be either positive or negative.  A positive externality is one that has beneficial, unintended consequence, whereas a negative one has harmful, unintended consequences.   Public goods have externality effects – like the street light situation described above.  Education, as a public good, equally has a positive externality effect.

Under the market system, goods with negative externality tend to be overproduced by the free market system and those with positive externality tend to be underproduced.  When goods with bad effects are overproduced, government steps in with pigouvian tax to eliminate the excess production.   Conversely, government subsidizes the production of goods with positive externality to ensure that the socially optimal quantity of such goods is produced.  According to the public goods theory, the competitive market system of private, profit-seeking individuals and firms will overproduce the good with a negative externality (since some of the costs are shifted to bystanders and therefore, not fully internalized), whereas  the good with a positive externality will be underproduced (since some of benefits cannot be captured or internalized by the producers).  As such, the socially optimal level of the public good will not be produced by the market system of profit-seeking individuals.
There goes the theoretical underpinnings of neoclassical economics theory of public goods.  But we disagree with this theory.    The Austrian school of economics in the tradition of Mises and Hayek also disagree.  To start with,  education doesn’t have to be identified with schooling.  Education is something that occurs anywhere and over the course of human evolution.  During the hunter-gatherer epoch, education comprised of skills and attitudes that enabled individuals to succeed and survive in the quest to gather enough food.   Livelihood patterns determined what was regarded as proper education.  In the modern age of industrial labor, certain skills, habits and attitudes that aided the survival of previous generations are now deemed undeserving and unproductive.  Schools emerged to inculcate habits and traits that industrialists found useful in their business.  The 16th centuries marked the beginning of schooling in the west.  According to Peter Gray, a famous education psychologist and author of Free to Learn,  employers in industry saw schooling as a way to create better workers. To them, the most crucial lessons were punctuality, following directions, tolerance for long hours of tedious work, and a minimal ability to read and write. From their point of view (though they may not have put it this way), the duller the subjects taught in schools the better.
So, the emphasis on public ownership of education is to ensure that education is not “commoditized.”   But if we understand the distinction between education and school we gave above, then there is nothing wrong with schools being commoditized.  As long as the market will ensure that good schools emerge, then that’s well and good.

Again, Schooling, as different from education, isn’t inherently a public good.  Early schools were privately owned.  Contrary to the argument of neoclassical economists that education is a public good that ought to be provided by the state, there is nothing about education that prevents its provision by the market.   Especially, when we look at education as school and schooling, we are led to the insight that there is nothing different between it and other products or services: education is a combination of land, labour, and capital goods directed at a particular objective – instruction in academic subjects and related matters demanded by a class of consumers, primarily parents.
Education also does not have the characteristics of a “public good”.  One person’s consumption of a given education does limit another person’s consumption, and of course, nonpayers can effectively be excluded.   So, in the case of education, public good’s key qualities of non-rivalrousness (use of the good does not limit what another can use) and non-excludability (there is no way to keep others off) are clearly violated.   Also the case for positive-externality that is employed to justify government or public provision of education is one of those abstract and utopic economic principles that can never be proven.  Nobody can decide to buy a lower amount of education just because the society is going to benefit from his education without paying him for the spill-over.  That is plainly a ridiculous reasoning.
The argument that private, high quality education is too expensive and therefore unaffordable to the general population and thereby necessitating public provision is also baseless.   A free market that has flooded the society with cheap cars, radios, television sets, houses, household electronics and all manner of goods and services can definitely produce good education for a mass society.   What is needed is availability, competition and entrepreneurship.    Government’s direct monopoly of subsidized schooling clearly crowds out investment in private schools.
Government pretends to know what education is and what methods work.   Surely, they do know some things.  But given the speed of revolution in the world of knowledge in our age, it would be too presumptuous for government to dwell on what it thinks to know about education.   Otherwise, it would become like the nineteenth-century American Patent Office official who said the office should be closed because everything useful had been invented.
We note that the world of disruptions has become an open-ended system of complexity.  Nobody can know what can be learned tomorrow.  Nobody knows for certain what sort of jobs will be available in the future nor the particular skills that would be required in such jobs.  It would therefore be delusional for government to keep doing things the same way it had always done as if the world system remains fixed.    Although the world has changed, our educational systems seem to have been stuck in antiquity.
The only way education can respond to the challenges of a disruptive society is to switch to a complex adaptive system that prioritizes entrepreneurship.    Private educational entrepreneurs, who are disciplined by the demands of the market are more likely to create such adaptive systems.   Since we don’t know today all we may learn about educational methods and objectives tomorrow and also,  we do know that our educational curriculum does not provide relevant knowledge and skills in students, we need educational entrepreneurs to address this disconnection.   But government domination of education assures that the entrepreneurial innovation and creativity we are accustomed to in, say, the computer industry will be missing from education.    As Sheldon Richman, the author of Separating School and State: How to Liberate America’s Families, argues, there is no good substitute for decentralized, spontaneous entrepreneurial process that full privatization of education would stimulate.
Our conclusion is that government should fully privatize education.  In a privatized, market system of education, competition will certainly drive down costs to parents and guardians and ensure quality and relevance of content.  The current system of government direct ownership of educational institutions leads to pernicious incentive problems that make incompetence and mediocrity attractive.
We state that funding should not be limited to Federal and State universities to the exclusion of private universities.  This is clearly a case of expropriation where taxpayers are excluded from the benefits accruing from their taxes.  This is not only unjustifiable, but we think it is also immoral and unethical.   It is a violation of taxpayers’ fundamental rights.  It creates an inefficient system of unproductive and uncompetitive academic system.   I am surprised that no private educational institution has challenged this in court!
If we are to be serious about building innovation, competitiveness and productivity in our economy, the first and necessary step is to privatize education at all levels.  Let funding be based on transparently competitive processes, encompassing all educational institutions.  This is the case in so many countries with good educational outcomes like Sweden, Finland, Japan and South Korea.   Let the market sanitize the educational system!   Otherwise, we would be ridiculing ourselves in talking about innovation and competitiveness.

 

Bongo Adi