Desires and realities in the field of education

As the great economist Frederic Bastiat said, in economics, some effects are visible and others remain invisible; the more positive the results seem to be from a public policy, the more severe the effects that seem to be invisible to the naked eye. This is certainly true for the field of education, which, economically speaking, is a service like any other. In this presentation, I will examine what the goals set for education are and what the results actually are.

First of all, we need to see what regulatory framework the different educational levels in Bulgaria are placed in. The constitution (Art. 53) states that:

“(1) Everyone has the right to education.

(2) School education up to the age of 16 is compulsory.

(3) Primary and secondary education in state and municipal schools is free of charge. Under conditions determined by law, education in higher state schools is free of charge.”

The Ministry of Education and Science (MES) is responsible for this goal, which finances primary, secondary and tertiary schools; [1] decides what should be taught, how and when this happens; determines which textbooks are appropriate; formulates the requirements and examinations for completing each level of education; and regulates the conditions under which an educational institution can be called a “university” or a “school”. In short, education is an over-regulated activity that cannot be carried out outside the strict framework of the MES (at least not against an official certificate that the students have made some effort or that they are familiar with certain subjects), into which all school-age children are admitted.

This regulation is justified (implicitly or explicitly) by the desire to achieve certain results. Now we will consider what the regulators, and often many people, want, and what happens in practice:

"Free" education

This, at least at first glance, sounds like a good wish: education is free so that more people can become educated and, accordingly, more productive. For this reason, the Ministry of Education pays money per student.

In practice, however, education is not “free.” Someone else pays for the provision of the service, in this case all taxpayers. So what is visible is the provision of some education; but what is not visible are all the other goods and services, including better education, that could have been produced if the money had not been taken from taxpayers, but were not. This, of course, includes the education that could have been produced by private institutions, but was not. In other words, behind the cost of free education lies at least as great a loss to the economy. I would argue that this loss is even greater than the net value of the funds spent on education, because: 1) this money is not spent according to the needs and preferences of the people who earned it (i.e. we have the production of something that many of the payers do not need at all); 2) without a pricing mechanism, civil servants are “blind” to the needs of the users of the service (children and their parents), but on the other hand have a strong incentive to benefit themselves, since by presumption the Ministry of Education cannot go bankrupt (as we will see below). Regarding the first point, you can listen to my lectures “ Economics of Education” and “ Alternative Education: Types of Schools, Financing and World Practices”.

Second, advertising something as “free” opens the door wide open for fraud at all levels of the system. As economist Milton Friedman said, when individuals spend other people’s money on something for which they are not personally responsible or have no personal interest, they are most often just wasting it or spending it in a way that benefits themselves, regardless of the losses to everyone else. While we don’t often hear about such frauds and uncontrolled draining of money, there have been at least three shocking cases of wasteful spending since the beginning of the year. In the first case, the Classical High School in Sofia received 2.2 million leva to renovate a building it doesn’t use. In the second, taxpayers are funding the staff of a school in Pordim that is teaching “dead souls” – students on paper who have never attended the classrooms, but who are described as attending so that teachers and administration can receive the funds for them. Sofia University also falls into the category of waste, purchasing food for its cafeteria at prices significantly higher than the agreed upon (in some cases, the products were purchased at twice the price), as well as branded alcohol for several thousand leva, without the higher education institution having a restaurant or serving alcohol in its cafeterias.

Inefficient spending of funds is not limited to unnecessary public procurement and the maintenance of schools that do not teach anyone. This category also includes the army of civil servants at every level – national, regional, municipal. It is assumed that the role of these civil servants is to ensure that the educational process proceeds normally and according to plan. In reality, however, their role in the education of students is, to put it mildly, controversial – it can certainly proceed without thousands of civil servants taking care of it. There is another point here: the costs of maintaining and operating this entire administration remain hidden from the payers (i.e., taxpayers). Thus, in practice, it can multiply without any restrictions, supposedly in the name of quality education for children. This phenomenon is observed all over the world. The case of economist Larry Lindsey, who in the 1980s conducted a study on the size of the educational bureaucracy in the state of New York, is interesting. After many phone calls, he was able to obtain information that the number of clerks and support staff in the public schools and the administration at the state level was 3,000. He calculated that, given the number of children served by the network of private Catholic schools, the administration there must number about 1,500-2,000 people. In one phone call, he found out that in fact, 23 administrators were responsible for overseeing the operation of Catholic schools in the state.

But whatever benevolence their role may be disguised as, the bureaucrats are just one thing: a largely unproductive clique whose support is siphoned off money that could have gone to more useful things from the consumer's perspective.

But while some people may accept the argument that a state-regulated education system is doing serious damage to the economy (and, as we will see below, to its own consumers – children), they would still exclaim: “Yes, but if the state didn’t fund schools, who could afford to send their children to school?!” First, if private schools were not required to follow national educational standards, perhaps more children would attend them, despite the seemingly free state institutions. Second, if people were not taxed to finance the education system, they would have more money to send their children to private schools. Third, reality itself shows that even in countries that are significantly poorer than Bulgaria, people prefer private schools because the quality of teaching is higher. Such examples are found in rural areas of China, India, and even Nigeria, where entrepreneurs often operate on the edge of the law and under threat of closure by education inspectors in order to provide a cheap and quality service to their customers (often representatives of the poorer classes), as well as to make a profit. [2] There is no reason to believe that similar educational businesses will not develop here in the absence of regulations.

In order for everyone to be educated, education must be strictly regulated.

Сигурно всички можем да си представим каква вълна на недоволство би се изляла, ако в следствие на държавните регулации имахме право да си закупим само 1 модел автомобил. Или ако в магазините имаше само по един вид от всяка дреха. Вероятно ситуацията би била още по-тежка, ако имаше регулации на прическите, каквито съществуват в Северна Корея. Учудващо, рядко (макар че вече има все повече изключения) хората се противопоставят на административната уравниловка – дотолкова, доколкото „общи стандарти за всички“ не могат да бъдат нищо друго – в образованието.

What is evident in this case is that the state, represented by the Ministry of Education and Science, is concerned about the standard of teaching. It is assumed that through strict regulations (through which the educational process is administered down to the smallest detail, including the arrangement of lessons in the curriculum throughout the year) they will at least guarantee that all children receive an equal education and will be able to cover some minimum of theoretical knowledge on which to build their practical skills. What is not evident is that the system of state-set standards and micromanagement is failing completely and, what is worse, is leading to negative consequences for the students themselves – the very people for whom it was created in the first place. Logically, it is not difficult to reach this conclusion. Students, like all other people, differ from each other. They have different desires, values, goals, abilities. It is absurd to expect that putting them into a matrix or mold that is the same for everyone will bring good results. Of course, we cannot expect every child to be interested in every subject and to have a desire to study it. This is even more true when we consider the fact that the child must show this interest for a certain period of time; i.e. when the Ministry of Education decides. The situation of students is also worsened by the fact that each of them must study specific subjects by force: the child will either study or be punished with a low grade. If his lack of interest in the specific subject is prolonged, he will receive an even heavier punishment – he will repeat the school year.

In drawing up these requirements, the regulators seem to have completely missed the essence of the educational process. Its fundamental goal should not be to teach a specific behavior of obedience, which if absent is punished. The goal of the educational process is to acquire knowledge and skills. Punishments, coercion, leveling and obedience, which are characteristic of barracks, actually achieve the opposite effect when applied to the education of young people. They are much more likely to repel them from the subject and from learning than to motivate them to gain more knowledge. For example, although adolescents study literature for 12 years (assuming that they attend primary, secondary and secondary school), according to data from the National Statistical Institute, only slightly more than half (51.7%) of those aged 25-35 have read one or more books in the last year, with the rest of the interviewees indicating that they have not read a single one. This is a 2 percentage point drop from the previous reading habits survey from 2007, when 53.7% of respondents indicated that they had read one or more books in the same time period. Even if we do not go to extremes such as “hate”, it is clear that under this system, students are incentivized to study simply for the sake of getting good grades, rather than for the purpose of developing lasting knowledge and curiosity about the subject.

Another empirical expression of the problems with education can be found in the PISA ranking [3]. The results of the study speak eloquently about exactly how catastrophically mandatory educational requirements and forced equalization fail. The ninth-graders covered by the study traditionally perform below average compared to their peers. Moreover, only 14% of Bulgarian students have coped with the three tasks that show that they think logically, reasonedly and abstractly and have functional literacy (i.e. can understand the meaning of a text, table or graph). In other words, state education produces functionally illiterate people on a conveyor belt.

In addition to the side effects already mentioned, strict regulations (where the Ministry of Education and Science single-handedly sets the rules), combined with seemingly “free” education, give rise to the well-known economic effect of crowding out. This means that state intervention in the sector eliminates or minimizes private initiative in it. From the consumer’s perspective, the “crowding out” manifests itself as even less choice and variety. Not to mention that the regulations of the Ministry of Education and Science also apply to private schools; i.e. children cannot get a radically better product anyway.

We need more educated people, including more college graduates.

According to the European Union's Europe 2020 strategy, 40% of the population between the ages of 30 and 34 should have a higher education by 2020. The idea behind this is extremely simple. It is assumed that the more graduates there are, the faster and stronger the local economy will develop. But here again, invisible effects repeatedly eliminate the supposed benefits of good wishes.

First, it is not true that more graduates will create greater economic prosperity. The causal relationship is exactly the opposite: more economic growth allows for an increase in the number of educated people. Let us imagine a hypothetical economy in which there is not much savings and capital (i.e., manufactured goods) and which is mainly supported by agriculture. Suddenly, the prime ministers of many other more advanced countries decide that they should use their taxpayers' money to improve the literacy rate in our hypothetical country. Thus, more and more schools and universities begin to appear, and every young person in it can attend them. Of course, before long the number of bachelors and masters graduates skyrockets. But since nothing else changes, the savings and productive capacity of the economy remain at about the same levels. In this case, where will the new graduates work? Yes, perhaps a small number of them will still start some kind of highly skilled work. But for the rest, there will be no jobs. They will most likely have to be employed in agriculture, where their high qualifications will not lead to an equivalent increase in their productivity, since with or without them they will still have to work with the same machines that their unskilled colleagues work with. In other words, the money spent on investing in the “human capital” of our small country (as Gary Becker and Theodore Schultz define the development of an individual’s abilities) has largely simply gone to waste.

Second, as I said, increasing the number of people with higher education sounds good. But what is not seen is that such a policy will play a bad joke on the very young people whose well-being it is supposed to improve. Let's take, for example, the management major. It is assumed that more people with higher education in this major are positive for the economy, as well as for themselves. It is assumed that with this major they will be more productive and will have more income. Therefore, it is subsidized, and each individual student pays only a small part of the cost of their education in the form of university fees. As economic theory suggests, as the price of a diploma falls, demand increases and the number of students increases. Since universities actually have no incentive to reduce the number of students, because if they do, they will lose their subsidy, all or a large part of the students graduate. If the existing doctrine is correct, there would be nothing wrong with this. But in reality, exactly the opposite happens. The large number of management bachelors on the job market simply means that the price of their services will fall. This is because supply exceeds demand – the market is flooded with management bachelors – and we should not forget that due to the lower cost of education, it will be acquired by more young people than would otherwise apply. In the real world, these bachelors will have to work for a lower salary than they would otherwise receive. Moreover – many of them will not find a job in their specialty. As a result, they will most likely have to work in something for which they need less qualifications and for which they did not study; this is seen every day.

What I tried to show with this short lecture is that the arguments that are often raised in support of state intervention in the field of education are actually untenable. At the same time, we have a counterpoint to the status quo – systems in which there is no state intervention produce much better results than regulated ones. Moreover – although they sound good and noble, in reality they often have negative side effects precisely on the people whose well-being they are supposed to guarantee. As you can see, we do not need either strictly observed common educational standards, lowered by a body like the Ministry of Education and Science (i.e., de facto equalization), or funding for the various educational institutions and the considerable administration. I will end with a quote from the great economist Ludwig von Mises: “This is the only solution: the state, the government, the laws should not in any way take care of schools and education. Public funds should not be used for such purposes. The upbringing and education of youth should be left entirely to parents and private organizations.”

[1] Municipal schools are also financed from the budgets of municipalities, but this is not of key importance from the economic point of view.

[2] An exceptionally qualitative study of these private practices can be found in: James Tooley, The Beautiful Tree.

[3] The PISA exams can be used as an indicator of how well an educational model is doing relatively well, but not as a benchmark for comparing different educational models. This is because from an economic perspective, the rankings do not give us much information, since the forms of organizing education are in reality almost entirely subject to state interventionism. In this line of thought, we do not have a real comparison between a model of completely private education versus a model(s) of government-regulated education. If that were the case, it would be much easier to see the advantages and disadvantages of different forms of organizing the educational process. But when we have a comparison only between state and public education, from an economic perspective this is a false dichotomy; it is the educational equivalent of comparing Lada and Zhigula without taking into account the cars that existed beyond the Berlin Wall. In this scenario, results that show the Lada to be the better car do not give us reason to state that the Lada is the best car in general and that all manufacturing countries should strive to achieve this "perfection" because outside the scope of the comparison, there are far better cars that we simply "don't see" due to the limitations of the study.

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