Free Market vs. Government, Part 3

In the last part of this series, I wondered whether the government would still warrant a role in education if everyone was rich. The main argument for continued government involvement was that some parents would spend their money on things other than their children's education even if they were rich. Sadly, I tend to agree with this observation.

One approach to dealing with this issue (as well as the fact that everyone is not rich) is for the government to pay a certain sum of money to a school for every child that it educates. The amount of money would be the amount necessary to get a decent basic education, and would probably take the local cost of living into account. Schools would be run by private companies according to whatever principles and curricula they choose (within reason), and would be able to charge whatever they like.

For example, if a school wanted to teach the basics and hire average teachers, it could charge parents little or nothing because it receives tax dollars for every child. However, if a school wanted to hire industry experts to teach their classes, it would charge more because of the extra expense involved. The additional amount could be paid for directly by the parents or by charities wanting to provide scholarships.

Because the government would simply be funding schools and not running them, private companies would have an incentive to compete and innovate to attract customers.

This scheme is similar to the well-known school voucher scheme, except that most voucher schemes assume that there are both public schools and private schools. I would prefer that all schools were private, and that they competed against each other in the marketplace rather than against government-run facilities.

A well-known proponent of this approach to funding education was Milton Friedman, the most influential economist of the 20th century. 

Comments

[Radovan Janecek]

Something like this works in Czech. But the results are not very good. Schools in crowded locations like Prague are overloaded - thus have lots of money. They know they will have lots of new kids every year so the motivation for having 'more customers' is missing. Schools at country side - no matter how good they are - struggle because there are few new kids. One would say that this will only create new opportunities for new schools in Prague - but this is not hapenning.

[Graham Glass]

Hi Radovan,

Thanks for the comment; I'm always interested in hearing about how other countries operate their education systems!

A couple of questions for you:

- when you say there are just a few kids in the countryside, what kind of numbers are you talking about - 5, 100, 1000?

- in a free marketplace, customers are often switch from one vendor to another that offers better value for money. in prague, is there no incentive for businessesto create new schools or expand existing ones? as an analogy, people buy cars every year, but car manufacturers are always trying to improve so that you buy from them instead of from a competitor.

cheers,
Graham