Education--a bad public good?

• Author: Shaw, Jane S.
• Position: Essay

Education is, to a considerable extent, a private good. Purchasers of education benefit directly from what they pay for. Education is often viewed, however, also as a public good, primarily because of its positive spillover effects. In this article, I question that description and go even further, suggesting that given the way education is provided in the United States, it is at least in part a "bad" public good.

For economists, a public good is not simply something that is "good for the public"; it is something that benefits many people, including those who do not pay for it. Learning to read and write helps the individual and in that sense is a private good, but it also provides a public good because it makes people better citizens, acquaintances, and colleagues--contributing to the lives of others, even though they do not pay for those benefits. Advanced education similarly fosters greater productivity and innovation, improving the lives of everyone, not just those who bought the education.

In other words, education has positive externalities whose value is not captured by the person who pays for the education. Because these externalities exist, the argument goes, people tend to act as "free riders," receiving the benefit provided by others without paying for it. Thus, fewer people are willing to provide education than would be willing without such spillovers because they are not rewarded for some of the output they produce. Therefore, according to most economists, education will be undersupplied (Cowen 2007).

A related argument states that if we were to rely on private education only, poor people would never obtain it. Although they would have an incentive to obtain education (for themselves or their children), that private incentive would not ensure that they would get "enough" education to satisfy society's needs.

These arguments lead inevitably to the claim that the government must help to provide education, and, indeed, governments are heavily engaged in supplying this "public good." As David Haddock writes in the introduction to a conference volume on "bad public goods," "When ideal amounts of a good cannot adequately be provided privately, many people, economists and non-economists alike, argue that tax-financed provision should be forthcoming from government. Call that the government-provision rationale" (2007, italics in original). Aided by this government-provision rationale, governments spend hundreds of billions of dollars each year on education in the United States.

The problem with public provision is that the task of ensuring that the government supplies the proper quantity and quality of "public goods" is itself a public good. Haddock cites Gordon Tullock (1971) and Richard Stroup (2000) in making this point. When the government supplies a product, paid for indirectly by taxpayers rather than by the direct recipients of the product, few have an incentive to spend the time and resources to make sure that the government supplies the right quantity and quality. If the theory of public goods is correct, relatively few people are likely to spend time and resources making sure that someone else's education (or health care or justice) is adequate.

In other words, monitoring and controlling a publicly provided good suffer from the same incentive problems that caused the supposed undersupply in the first place. Because very few people will benefit noticeably from, say, saving millions of dollars spread across the nation's millions of taxpayers, only a few people will have a direct interest in monitoring and ensuring good management of public agencies. Their inability to capture major benefits from their efforts is likely to cause their efforts to be undersupplied. As a result, the public good may be provided badly--oversupplied, undersupplied, or poorly supplied. Stroup summarizes this argument by saying that "the root of those problems is precisely the same as that of the free-rider problem associated with private production of public goods" (2000, 485). No one has a strong incentive to make sure that the public good is well provided.

If so, we should expect the provision of poor-quality education, which indeed is what we often see. The theory underlying this article is that incentives to monitor the provision of public goods are lacking, especially when the good is provided through a government agency. Funded through taxation, rather than through voluntary purchases, public entities have monopolistic power--without even the restraint of traditional monopolies, which must obtain their revenues from voluntary purchases. Moreover, the government schools operate largely without competition.

To the extent that competition can be introduced into public provision of a public good, the outcomes should be better. A study by Andrew Coulson of the Cato Institute compares government-run schools and free-market schools in terms of academic achievement, parental satisfaction, and other measures. Coulson finds that when market-based school systems are compared to monopoly-run school systems, "there are 35 statistically significant findings of market-like education systems outperforming government monopoly schooling, and only two findings of the reverse, for a ratio of more than 17 to 1 in favor of free education markets" (2008, 10).

Even with government-supplied products, competition can be critical; Gordon Tullock and his colleagues recommend federalism because it allows competition (Tullock, Seldon, and Brady 2002, 76). In a federal system composed of numerous states, different governments compete with one another to provide services to the consuming public. Although movement is costly, consumers do move from one jurisdiction to another, providing a check on bad government (Tiebout 1956).

Not all education is provided by governments, of course. In particular, higher education (postsecondary education) has many private providers (although most students now attend public universities). Because the market is national and even international, even government universities face competition (the University of Michigan competes with the University of Virginia, for example). But most postsecondary schools are nonprofit and have tax-exempt status.

The nonprofit status of most colleges and universities reflects the assumption that education is a public good, an assumption that goes back at least to the charter of Harvard College, which in 1650 exempted its property from "all civil impositions, taxes, and rates" (Harvard Charter 1650). As Robert E. Martin (2009) has explained comprehensively in The Revenue-to-Cost Spiral in Higher Education, this nonprofit status distorts the schools' incentives. These distortions, however, do not typically come close to the effects of direct public provision.

K-12 Education

In the United States, K-12 public education (increasingly called "P-12" because it now often starts with preschool) takes place primarily within a government system. Its ills have been widely known and discussed for years, especially since 1983, when a federal panel issued a sweeping condemnation of public elementary and high school education called A Nation at Risk (National Commission on Excellence in Education 1983). Nevertheless, the problems persist. U.S. students do not score well on tests in comparison to similar-age youth of other industrialized nations; dropout rates are high; and anecdotes abound of the low skills of many high school graduates (see, for example, National Center for Education Statistics 2007a and n.d.).

K-12 education historically was financed primarily through property taxes and state funding. Since 1965, however, the federal government has gradually become an important source of funding and rule making. In 2007, the federal government spent $147.5 billion on education, according to the U.S. Department of Education (National Center for Education Statistics 2008).

The taxpayer's money is spent through an education bureaucracy involving local, state, and federal levels. Attendance is compulsory, usually until age sixteen or eighteen, and parents have little choice about the school their children attend. They may attempt to exercise choice by moving into one school district rather than another (often paying a high price to do so), but even then they cannot always be assured that their children will attend the neighborhood school. In some school districts, the management can require students to be bused to other schools for a variety of reasons, including overcrowding. In Wake County, North Carolina, for example, it has been the policy for many years to increase the socioeconomic diversity of students in all of the government schools by dispersing students around the county.

Voluntarily chosen "magnet" schools--schools that offer special attractions and accept out-of-district students, usually to encourage racial and ethnic integration--offer some choice, but even these opportunities are limited. An article in the Raleigh News and Observer points out that it is difficult for parents to get their child into the magnet school they want. "It's a lottery, more or less," says Bonnie Rochman (2007).

Given this public monopoly, it is difficult to monitor and improve quality. Although parents can complain, protest, and intervene in specific situations, they have a difficult time "taking their business elsewhere," although some do so. They must pay for the public schools through taxes whether their children attend those schools or not.

Private schools provide an alternative, but parents who patronize these schools essentially pay for education twice. As a result, only about 11 percent of all children attend a private school. Even so, some...