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Education as if Economics Mattered

Shanta Devarajan's picture

Children outside school. Bangladesh Education in developing countries is facing problems at all levels:

At the primary level, despite gains in enrollment, the quality is appallingly low.  In Tanzania and India, some 20-30 percent of students in 6th grade could not read at the 2nd grade level. Not surprising since in these countries, teachers in public primary schools are absent 25 percent of the time.  When present, they are in-class teaching only 20 percent of the time.

At the secondary level, the performance of students from the Middle East and North Africa  in international tests such as TIMS is significantly below the developing country average.

At the tertiary level, universities are chronically underfunded and not training students for jobs that the market is demanding - reminiscent of the Woody Allen line, "The food in this restaurant is terrible and the portions are too small."

All of these problems have a common root. Education is largely a private good. Most, if not all, the benefits of education accrue to the individual in terms of their being able to earn a higher wage as a result of being educated. I say "largely" a private good because we believe that there are also externalities associated with education, that society as a whole benefits from having a literate and numerate population. Unfortunately, the empirical evidence of these externalities is rather thin. (Most of the people who believe in the externality are university professors, which led Bob Lucas to remark that, if we were aluminum siding salesmen, we would claim that aluminum siding had externalities.) Even the empirical evidence suggests that the externality does not dwarf the private benefit from education. In short, education is more like food and clothing than like street lighting and national defense.
Yet, governments in developing countries assume education is a public good. They finance it out of public funds.  In most cases, education is also provided by public sector employees. By ignoring the private-good element of education, governments have contributed to the problems with education. When teachers are paid by the government, they become accountable to the government, and not to the students or their parents. But if education is a private good, the provider should be accountable to the customer.  This lack of accountability leads to teacher absenteeism. Parents, even poor ones, show that education is a private good by sending their kids to private schools, often bypassing the free public school nearby.  In urban areas in Africa and South Asia, about half the children are now in private schools. In Punjab, Pakistan, parents in rural areas pay about $3 a month to give their children a private education. The large and pervasive phenomenon of tutoring in countries like Egypt is another demonstration of the private demand for quality education.
Worse, public teachers have become a lobby that tries to protect their rents in the system. In many countries, teachers run the election campaigns for local politicians who, when elected, give the teachers a job from which they can be absent.  In Uttar Pradesh, India, about 20 percent of the state legislators are either current or former teachers. In Latin America, teachers have been known to protest attempts at improving learning outcomes by strengthening their accountability to the client.
The system seems to be stuck in a low-level equilibrium. Despite ASER's five years of testing and publicizing student learning outcomes in India, learning outcomes have been declining. In countries such as Sri Lanka that have succeeded in achieving high enrollment rates (something the public good model can deliver), it is difficult to shift to a private-good model to improve learning outcomes.
Note that the argument for public financing and provision of education is often made in terms of helping poor people. But it is the poor who are losing out on quality education. The rich will educate their children no matter what--because education is a private good.
The diagnosis of higher education is different because it costs about educating a student at university costs about 200 times what it costs at the primary level. When government provides higher education for free, it creates a huge rent (the different between private benefits and private costs) that is of interest to rich and poor alike. The rich are able to capture these rents by sending their kids to private secondary schools that prepare them to take exams to enter university. The result is that most university students come from the top quintile of the income distribution. In  Africa, 47 percent come from the top decile.
Meanwhile, the quality of university education suffers because, when students don't pay, they are less demanding about what they learn (and there is less pressure to recoup the costs in the  labor market). In fact, it can be worse, where in some countries, the universities become prey to political parties. Some years ago in Bangladesh, each political party had captured a different university.  
Again, the system is resistant to change. Current students don't want to lose their rents. I once arrived in Dakar to give some lectures at the university only to discover that the students had gone on strike (they assured me it had nothing to do with my anticipated lectures). The issue was that the students would no longer have their own dorm room--they would have to share. The rector turned to me and said, "Shanta, you used to teach at Harvard, the richest university in the world. Do the students there have their own dorm rooms?" The answer was, for the most part, "no."
What can be done?
There are two ways to approach this sorry situation.  The first, which I will call the "polite approach," is to continue pretending that education is a public good, and try to improve service delivery by strengthening accountability in the public sector.  Efforts such as getting teachers to take date-stamped photographs with students in return for a bonus or hiring teachers on performance-based contracts are steps in this direction. Information campaigns about the importance of quality education could also make politicians more accountable to citizens.  Some of these approaches have been shown to work in randomized control trials, but scaling up has been a challenge. In other cases, even the control trials have failed to produce results or even backfired.
The second, "less polite" approach is to acknowledge that education is a private good and regulate education markets. Like other markets, education markets have lots of distortions, including information asymmetries (parents don't know the quality of the school), some schools may have monopoly power, equity considerations, etc. By allowing private schools to develop by themselves, we have allowed these distortions to persist. Yet, we can regulate these markets. We could require private schools to register, and make information about their quality transparent. We can monitor and formalize private tutoring. And we should regulate the quality of private and public universities to prevent political capture.
By not acknowledging that education is a private good, we are in the worst of both worlds. Public education is failing, and so people are turning to private markets.  But these markets are unregulated.  And the losers, as usual, are the poor.


Submitted by Balu on

Interesting.. Education can solve many problems – and I personally believe that India could have progressed much better if we were half this population - something that could have been achieved if it has put focus on education soon after independence. Better late than never. Even now, there is much to gain by focusing on education – polite approach or less polite approach – Action is the need of this hour.

Submitted by Shanta on

Balu, thanks for your comment. In fact, India has been focusing on education over the past decade or so. My concern though is that it has been the polite approach, which has yielded very little in terms of quality. So it may be time to shift to the less polite approach especially given, as you say, the large number of young people who will be entering the labor force soon.

Submitted by Camara Alhassane on

Education is the main problem which explain the situation of unemployment of young in developing countries and the weakness of income. I agree with the former solution about improving the quality of education. Because in developing countries (Saharan African countries), most of poor don't have a sufficient income to buy the private services of education . In addition with the weakness (corruption etc...) of institutions in these countries, it would be more difficult to create a regulated market for private education.

Submitted by Shanta on

Thanks for your comments, Camara. On your last point, if institutions are too weak to regulate a private market for education, why do we think they are strong enough to deliver quality education in the public sector? Sometimes, regulation requires less monitoring and enforcement than public service delivery. Of course, the possibility of political capture is there in both cases, so we must design the systems to minimize this. Note also that, whether we like it or not, a private market for education already exists, so the point is how we can make it more effective, especially for poor people.

Submitted by JFG on

It is quite true that education is a private good due to the individual benefits that come from its investment (time, supply and transportation costs, and most certainly stress). However, the long term and aggregate benefit of producing an educated population is reflected on a county’s productivity growth, GDP growth, and indeed other vital externalities. The main problem seems to be the structural weaknesses of public education regarding infrastructure, lack of technology, and lack of adequate teachers and their indifference towards students’ progress. Wouldn’t you argue that education is for the most part public and that governments should have a more “private” approach to it? An approach that would tackle the public structural problem while at the same time providing public funding for a private education would be a voucher system. This way poor students can be provided a private level education without incurring the unattainable costs of a private institution. What do you think would be the implications of this voucher system regarding public spending as compared to the current ineffective public school system?

Submitted by Shanta on

JFG, thanks for your questions and comments. First, the impact of education on GDP and productivity is not evidence of an externality. The increase in productivity is captured by the individual who was educated. It's only when the education of one person increases the productivity of another person that there is an externality. As I said in the post, there is some evidence of this, but the size of that externality is not bigger than the private benefit.

On your second point about vouchers, this is precisely the situation when we need to regulate these markets. A voucher system is a subsidy to the private sector. When we introduce vouchers, all sorts of private providers crop up (to make use of the subsidy). But there is very little research (much less policy actions) on the market structure and behavior of these providers. Yet, it is this behavior that will determine whether vouchers lead to better learning outcomes for schoolchildren.

Submitted by Annabella on

Human capital does have externalities - i am better off with an educated spouse , educated neighbors and colleagues. There is more knowledge and progress for everyone. But you are right that the educated person will, on average, internalize most of the benefits through higher wages and happiness.

What you argue is also true for health care, isn't it? It is mostly a private good. But governments spend a lot on it and the WHO has announced a goal of providing it free of charge by 2030 to all poor who cannot pay. While more and more public funds are diverted to health care for the already ill, services to prevent spread of diseases are more and more underfinanced.

Very small public goods investments in prevention and prepared disease control authorities could have nipped in the bud the now raging ebola outbreak in West Africa . But the investments were not done. They will never be done if history is our guide. Look at cholera in Haiti. Donors will just build more hospitals and clinics there, staffed with mostly absent government health care workers.

So I believe that The World Bank should impose conditionality on countries that do not provide basic public goods to prevent rising disease burdens in the future. The first use of public money should be public goods, goods which can be provided only by government and that give the largest benefit to the country.

According to the World Bank, it is not access to health care, but rather educating girls that is the most efficient and effective way to improve population health status (health of the girls and their families and communities). Girls' education is then in large part a public good because the girls and their families do not get ill and so do not need the health care services that all governments consider increasingly to be their responsibility.

Submitted by Shanta on

Annabella, you're absolutely right that there is a similar problem in health care, where governments under-spend on genuine public goods or goods with externalities! such as immunization, and therefore over-spend on private goods such as clinical and curative care. I'm not sure World Bank conditionality will solve the problem (or any other problem for that matter), but it's certainly worth highlighting the extent to which government spending patterns are biased in favor of the non-poor.

On your second point about the externality associated with girls' education, to the extent that the main beneficiaries are the young woman's children, the beneficiaries are within the same household, although not the same individual. It's also interesting to note that this effect does not seem to depend on the quality of education but simply on the girls' being enrolled in school. There is some work on Bangladesh that shows that a girl's having completed secondary school has a significant, negative effect on child mortality, even if the quality of that education was poor. This only strengthens the point that the learning benefit of education is largely a private good.

Submitted by Helenka on

I think the point about girls's education being a public good was made because health care costs are being increasingly socialized. If the girl's children get sick, it's no longer her household's problem but the government's problem.

Governments are to provide access to quality health care by 2030 to everyone , and without financial payments from those who are poor.

The World Bank already has developed conditionality (measurement and reporting system) for this universal health care agenda and will preferentially help countries that accept reaching these targets (universal access and free health care for the poor by 2030). Countries that will be seeking to improve prevention of disease through public health measures will therefore be lower priority for World Bank assistance in health. This drive by the World Bank to socialize health care costs also makes girls' education (regardless of quality, apparently) a public good.

Submitted by Shanta on

Helenka, I think there is some difference of definition here. A public good is a good that is both non-rival (my consuming it does not prevent you from consuming it--think of national defense) and non-excludable (I cannot restrict your entering and consuming it). None of the characteristics of girls education make it a public good in this definition. There is an externality associated with girls education, as we have been discussing. But that externality is independent of whether there is a government policy to provide free health care or not. I think what you have in mind is what economists call second-best effects. That is, when there is a distortion in another market (in this case the market for health care), then increasing girls' education may reduce the size of that distortion. That is certainly a possibility, but the question that needs to be asked is: if there is a distortion in the market for health care, why not fix it directly, rather than try to fix it indirectly?

Submitted by Helenka on

I agee with the definition. The socialization of health care (as opposed to provision of public health goods like prevention of contagion) means that the taxpayer is on the hook for financing its supply. Reducing the demand for health care by schooling for girls lowers the burden on taxpayers ("the public") and so is a public good in that institutional set-up . That's what I meant - that the public has an interest in reducing the demand for health care, since they have to pay for much of it , and increasingly so under the universal health care agenda. This agenda is now a given...

Submitted by Rob Yates on

Universal Health Coverage doesn't just include curative health services but preventive services too (as well as palliative and rehabilitative services). So in helping countries achieve UHC the Bank and other donors will not be encouraging countries reallocate their public financing from PHC services to hospital services. Take a look at the UNSDSN Health Thematic Paper for more on this.

Submitted by Andy Brock on

A dichotomy like this is surely too simple ? The returns referred to are different for different countries at different stages of development. So education may have greater social returns for a poor country than a rich one. The effectiveness of the investment by government is often the crucial difference.

Submitted by Shanta on

Andy, the private and social returns to education definitely do vary across countries (and over time within countries), but that doesn't mean the dichotomy between private and social returns is too simple. Indeed, it is fundamental, in order for us to be able to measure the two rates of return and, more importantly, design public policy accordingly. The problem is that we have not asked the question, "what is the private rate of return relative to the social rate?" And our public policies are structured as if all of the returns were social and none private. Yet people in developing countries, including poor people, behave as if it's the reverse. It is this disconnect that we need to rectify.

Submitted by Steven Klees on

Education As If People Mattered

Steven J. Klees
University of Maryland

Shanta Devarajan is known for his antipathy to public education, in general, and teachers, in particular. His recent blog, Education as if Economics Mattered, on the World Bank website, should therefore come as no surprise. In it, he argues that education, at all levels, is a “private good” and it is best to eliminate government funded schools and let the private sector provide, subject to some government regulation.

This argument reflects a poor understanding of economics. A private good is, by definition, a good that can be efficiently provided by a private market because it does not have any externalities, public good dimensions, impact on economic growth, information asymmetries, monopoly power, imperfect capital markets, etc. For 50 years, since the advent of human capital theory in the early 1960s, literally hundreds, perhaps thousands, of mainstream economists have argued that education has these features in spades. Even higher education, according to a major World Bank study (done with UNESCO) in 2000, was argued to have such major externalities that one could no longer trust rates of return based on individual income effects and that the Bank had been wrong to recommend against public investment in higher education.

Shanta argues for the privatization of education with only minimal recognition of how economically inefficient that would be. And his only recognition of the major inequalities that this would yield is a throwaway comment about “equity considerations.” Perhaps the most significant public policy investment that tempers the inherent inequalities of our market system is public education. While public education is very unequal in a myriad of ways, privatization will make education much, much, more unequal.

I was surprised that Shanta argued that “universities are chronically under-funded.” This is true. But Shanta does not acknowledge that the major cause for under-funding is the World Bank which has recommended cutting public funding for higher education for decades, as it has for all education and most government activities as part of its privatization agenda.

And, as usual, Shanta blames the brunt of education’s very real problems on teachers and proposes coercive and demeaning “solutions” that any professional, e.g., World Bank staff, would be aghast at if it were applied to them. Teacher absenteeism is the result of the abysmally low salaries teachers are paid, again, in part, a result of Bank policy. I was recently working in Uganda where primary and secondary teacher salaries were below the poverty line, yet a Bank study argued they were too high.

We need an education policy that focuses on the needs of children and teachers. Successful educational systems treat students and teachers well, hold them in high esteem, and provide equal opportunities through public education.

Submitted by Shanta on

Steven, While I welcome comments on this blog post, I wish you had read the post more carefully, because I think there is quite a lot of common ground. First, just because something is a private good, it doesn't follow that a private market will provide it efficiently. There can be a lot of distortions in the market for private goods. That is why we have, for instance, safety inspection of restaurants. Secondly, I too believe there are externalities associated with education, but there are also huge private benefits (as reflected by the behavior of poor people, who bypass free public schools and send their children to fee-paying private schools). In a situation where a good has both private benefits and an externality, economic theory tells us that the solution is to subsidize the good (where the size of the subsidy is the difference between social and private marginal benefits) and have the private sector provide it. This is what several countries have tried to do with voucher schemes. But even in this case, we should study and regulate the private market that provides the service because, as mentioned above, it can be subject to distortions. Finally, rather than a throwaway comment, equity is central to this argument. Poor people are the ones who are losing out from the publicly-funded, publicly-provided education system (the rich are either educating their kids in private schools, or capturing the rents from free tertiary education). We have to make the system work for poor people, which is why I favor giving them the means and ability to hold service providers accountable. Shanta

Submitted by Helenka on

Not all university students are equally costly. You write: "The diagnosis of higher education is different because it costs about educating a student at university costs about 200 times what it costs at the primary level. "

An English or even economics student costs far less to educate than someone in natural sciences or experimental physics. There are VERY costly equipments and laboratories. The English major just needs some pencils and paper... The English professors are in abundant supply compared to the ones in sciences, so they have lower salaries.

Submitted by Shanta on

Helenka, you're right that the average figure I was citing masks a huge variation in the cost of educating university students across various disciplines. But this variation raises several questions. Should universities charge different fees for different disciplines, depending on the costs of educating the students? (You might then get even more under-employed English professors). Or should you charge more for engineering and business studies, say, because they have higher earning potential after graduation? These are tricky issues that many universities grapple with. My sense though is that, in the end, they decide to charge a uniform fee across disciplines. Shanta

Submitted by Jan Zilinsky on

Interestingly, the existing proposals go in the opposite direction. Some policy makers want to charge students LESS if they choose a major with the largest private benefit:

Submitted by Jagdeep Chhokar on

"Yet, we can regulate these markets." Who is this "we"? The politicians? In whose interest will they "regulate these markets"?

Submitted by Shanta on

Jagdeep, a good question. If governments are doing so badly at delivering education, why can we expect them to do any better at regulating education markets? First, I think this is an empirical question, which we should investigate. I'm sure that unregulated markets (which is the current situation) is worse than some regulation, although I agree that regulation may also be subject to political capture. Secondly, regulation may economize on government's scarce resources--managerial capacity--in a way that provision doesn't. It may be easier to write contracts and enforce them than to manage a large labor force of schoolteachers. Also, remember that with markets, parents and students (as "customers") are also plays a role in enforcing accountability.

Submitted by Sylvain Aubry on

This is a very interesting post on a hugely important area. There'd be a lot to comment. Let me just point out to two things.

First, your whole piece is based on the assertion, which you get rid of in one paragraph, that education is "largely" a private good. I don't know whether there is a lack of evidence to show that it is a public good, and I'm sure many empirical researchers - from both the economics and from other fields would dispute that. But then you give the counter-argument to your argument: most governments (and not only in the developing world - in fact, I would say that this is mostly the case in the developed world) assume education is a public good. It may be that it is so obvious that no one even bothers looking for evidence. The public being made of a sum of private entities, if the private entities improve, it is clear that the public will hugely benefit. In fact, the public and the private are so inter-linked, that I'm even wondering what the point is in making such a distinction, and trying to know whether education is 40% a public good or 60% a private good, or conversely, or anything else. Fact is that education benefits so hugely to a society, that societies have, to a huge extent, decided that it was a public matter.

Secondly, the kind of discussion you're having, is mostly based on consequentialist arguments. This is what the title of your post involves (economics matters...), but you regrettably don't mention any more this limit in the post itself. Maximising the value per what-children-learn is a valid approach, but it's not the only one. Thinking about what we consider as education, what is education, what place do we want education to take in our societies, etc., are as valid entry points, which we need to equally consider.

And for those crucial choices - privatising education? making it a private good? -, hearing the voice of the people is essential. You also forget to mention that in most parts of the world, collective choices of people, wherever they were given a choice, has been to keep education a public good. Should your arguments about it being a wrong choice, in terms of economics, even be right, it is not all what matters.

For more information on other approaches, worth looking at other empirical arguments from a more social justice perspective, but more holistically, worth lookin at,, and

All best,

Submitted by Shanta on

Sylvan, thanks for those thoughtful comments. First, by a public good, I mean a good that is both non-rival and non-excludable. Education does not have these characteristics. Yet, societies behave as if education is a public good (under this definition) by financing and providing it for free to everybody. This is the appropriate policy for genuine public goods like national defense. Education, on the other hand, has a large private-good element (in the sense that the benefits accrue to the individual), although--as I suggested--there are externalities associated with education. The appropriate policy for such goods is for the government to subsidize education and allow the private sector to provide it. But the problem here is that the resulting education "markets" may have many distortions, in which case--like with other markets with distortions--governments should regulate them. In the current situation, these markets are cropping up organically (reinforcing the point about the private-good element in education) and, instead of regulating them, governments are either ignoring them or trying (unsuccessfully) to make the flawed "education-as-a-public-good" model work better. And the losers are the poor children, for whom education is critical to escaping poverty.

This brings me to your second point. While I agree that there may be more to education than getting children to learn, I hope you will agree that the latter is fundamental, and if we are failing at that, something needs to be done.

Submitted by Sylvain Aubry on

Thanks for your response.
I agree that education has a private dimension, i.e. that a private one is education, the private one does get a private benefit out of it. But I'm sure you'll agree that education also has a large public dimension. If the private members of a society are not education, they may be more violent, less productive, participate in a less informed way in elections, etc. - the list is long, and I'm sure you know it better than I do. These are all consequences that have a huge impact on society. Now I don't know whether the ratio of public/private in education is 60/40, 90/10, or 50/50, but again, I wonder whether this is relevant at all. What is certain is that the public dimension of education is so high (at least in absolute, and in my view, relatively as well), that it fully makes sense that societies take their decisions in their hands and decide to provide free primary education - and don't leave such a crucial part of society (as crucial as is an army, police, etc.) to the market.
Besides, there is no clear evidence to prove that it would be more efficient.

But this is for the consequentialist argument. There are also plently of principled-based arguments to support a public, free, mandatory education system, not least rights-based arguments. Of course, all arguments have to be wieghed, considered together. But similarly as making a principle based argument in favour of public education should not be considered alone, getting children to learn cannot be considered out of the context and other arguments that are made (plus, I don't see why children would learn more in private than in public schools, but that brings us back to the discussion above...). Yet, you don't mention any of those other arguments and necessary nuances (for the least) they bring to the debate. I know it's a short blog post, but I think it may still be careful about not presenting the economist argument as being the absolute one.

Submitted by Shanta on

Sylvain, on your first point, I think we are saying the same thing. Education has both a private good element and an externality, which is why it should not be left to the market. The economic solution to such goods is for the state to subsidize the good, but leave provision to the market. I was suggesting that these markets should be regulated because they could be distorted (even if the private good element of education is high).

But education is not a public good in the sense of its being non-rival and non-excludable. The practice of the state's providing goods free of charge applies only to these pure public goods. That is why I was questioning why governments intervene in education as if it were a public good, whereas they should intervene as if it were a private good with externalities.

On your second point about principle-based arguments that support free, mandatory education, I would support them if they actually delivered quality education especially to poor people. The problem is that the current system is not delivering to poor people. And the reason may be that we are delivering as if it were a public good something that is really a private good with externalities.

Submitted by Mohga Kamal-Yanni on

Why should we privatise education?

There are several important reasons to make education private and for the state to wash its hands from providing education. The author referred to some but let me make a quick shortlist:
1. Teachers in public schools are lazy and have high level of absenteeism. Some people may say that teachers behave in that way because they have low salaries, inadequate training and no motivation or career prospects. But really, why do they want money and career? They better look for private schools or just serve their communities for free. Let’s not bother about reasons for bad teaching that require massive reforms in the educational systems including decent public financing. Let’s blame teachers for the failure of the system
2. Parents- even poor people have a say in the private schools. Really? My experience is that parents pay but have no say in how the school is run. Oh yes they can change schools and thus force quality. Well! this may be the case for upper class people choosing between top 5 stars schools. Poor and even middle class do not have this choice simply because all the schools they can afford are of similar quality
3. Take Egypt as an example of people going for private education. The writer says that people chose to go to private teachers because of the bad state schools. Actually the norm is that kids in both state and private schools take private lessons. The only difference is that kids are free not to attend private schools every day, sometimes even in for a month or a whole year! This is not a joke. I personally know non-rich kids whose parents pay the fees of the private school and even the fees for the bus, but miss the whole year of their A level so that they can spend their day going for private lessons. In Egypt, the cost of health and education are a huge burden on parents who would take on more jobs, borrow money and live in debt to afford education.
4. Quality of private schools is better than public schools: unfortunately the evidence works against that. The majority of the top performers in Egypt’ A level this year and I dare say every year come from state schools. Two of my young friends are studying to be pharmacists; one in a state university and the other in a private university (she didn’t have high marks in her A level to join the state university and was lucky to have a relative abroad who was pays for her education). The girls agree that the state university teaches wider range of subjects and require higher standards of achievement in exams. In the private university, they study less subjects and it is easy to attain high marks. Obviously the private university want to attract more students every year by making their results more glamorous.
5. Education is a private good? Does that mean that it is OK if 90% of society decided not to send their kids to school, or just be satisfied with their kids able to read and write? Can somebody explain to me how the society will get its future doctors, engineers, IT people, scientists, managers, entrepreneurs, planners, ministers?

Thanks to my government’ commitment to free public education, my poor family was able to send me not only to primary but up to tertiary education, and now I can write to defend the right of all kids for free, high-quality education.

Submitted by Shanta on

Mogha, thank you for those thoughtful comments and questions. To be clear, I was not advocating that education should be privatized, nor that the state should wash its hands from education. I was saying that the way the state intervenes in education should be aligned with the rationale for public intervention which, in this case, is one of externality rather than education being non-rival and non-excludable (I.e. A public good). And the reason I am concerned is that poor people are the ones losing out on the current education system. Nevertheless, let me address some of your points.

1. No one said teachers were lazy. The absenteeism rate is a fact. I agree that the reason is that the education system is dysfunctional and in need of reforms. That said, the evidence points to the fact that it is not low salaries per se that are driving teacher absenteeism, but the way in which teachers are paid and held accountable. For instance, when teachers are paid on contract (so that their pay is dependent on performance), absenteeism is less and learning outcomes higher (controlling for teacher qualifications, etc.). We also find that, on average, teachers in private schools are paid less and absenteeism is lower.

2. Your point about parents' in poor areas not having a choice is precisely why I was advocating that these markets need to be regulated. There is asymmetric information (parents don't know the quality of the school but the school does). We find that publishing information about schools' performance (in an accessible manner) can enforce some improvement in school quality.

3. The point about private lessons was an illustration of the clear demand for quality education in the face of a free public education system. Your illustration of students skipping school to attend the private lessons only reinforces the point. These private lessons are also hugely regressive.

4. I agree that the free public university is often of the highest quality. But this is precisely the reason why rich people send their children to prestigious secondary schools and succeed in getting them admitted to these universities. The share of students at these universities from the richest quintile is usually around 80 percent.

5. Because education is largely a private good, people are sending their children to schools and making sure they can read and write. That is why poor parents send their kids to fee-paying private schools, even if there is a free public school in the area. Society will get its engineers and doctors because students have an incentive to study and become doctors and engineers; we need to make sure the education system provides them with that education.

Submitted by Max Gasteen on

Great, thought-provoking piece. Two and half questions.

First, under your second "impolite" option, would the poor be stuck with lower quality schools that they could afford? First and a half, what are the implications for transmission of poverty and for inequality?

Second, what is the rationale for why governments should subsidize education under this regulated education market?

And a final comment, realizing that this is a think piece rather than a policy recommendation. The politics of education reform are such that, as you've pointed out in previous blogs, the poor are stuck in a low-level equilibrium of dire service delivery- so how do you shift it from one state to another? Too many folk benefit from the status quo.

Submitted by Shanta on

Max, good questions. On the first, it is because the poor could get stuck with low-quality schools that these markets should be regulated. There is asymmetric information in these markets (parents don't know the quality of the school as well as the school does), and there are ways of regulating such markets (transparency of information about quality, etc) to avoid the low-level equilibrium.

On the second, the rationale for subsidizing education is the externality associated with education. That externality exists whether or not you regulated the market. The rationale for regulating the market is that, even with the subsidy, the education market may be distorted (for reasons of asymmetric information and others).

Your last point is, of course, the crucial one. I'm hoping that debates like this can at least help us make progress in dislodging the low-level equilibrium and get poor people the quality education they are due.

Submitted by Max gasteen on

Thanks Shanta. Loving the discussion on this post. In your original post you said that the evidence that there are positive externalities is pretty thin. But in your response to my question as to why govts should subsidize education for the poorest, you say this is because of the social returns to education. Could you elaborate a bit more? Specifically how do you know the social returns to education are large enough to justify such a huge public subsidy? Perhaps there's a more normative reason for suggesting govts ensure all citizens can access a quality education i.e. fairness.

Submitted by Shanta on

Max, I too am learning from this discussion. There are two, separate justifications for a subsidy to education. One is the externality. The rationale here is efficiency (I am better off if you're educated, and vice-versa, so a private market will lead to a socially suboptimal level of education). This subsidy should go to everybody, rich and poor. The secondjustificaition is equity. The rationale here is that education is one of the most powerful ways of escaping poverty, but poor people may lack the means to send their children to school. Even if education were free, the opportunity cost of sending kids to school may be too high. But we should be careful about this subsidy. The state is intervening in an intra-household decision and requiring that the subsidy be used for education only. Why not give the household a cash transfer and let them decide on spending it on education, health, etc.? While there are arguments in favor of an education subsidy targeted at the poor, those arguments should be articulated, and assessed, before going ahead with the policy. The arguments usually have to do with imperfect capital markets (so households can't borrow to finance their children's education) or the fact that parents can't get their children to commit to taking care of them in old age, and so there will be a suboptimal investment in children's education. There are responses to these arguments (for instance, if there are imperfections in the capital market, you should fix these, rather than subsidize education). But on balance there are enough compelling arguments that I would say a subsidy to encourage poor people to send their kids to school is justified. Remember, though, that this begs the question of who should supply the education, which in my view is the bigger issue. If, by the subsidy, we are forcing poor children to get a low-quality education, we are not doing the best we can.

Submitted by Mohga Kamal-Yanni on

Please try to read my comments again – for example first point questioning why teachers must be paid (any sane person would agree with what I am saying there?) Also please re-read my last sentence. Then you will get my real point of view.

Submitted by Shanta on

Mogha, I re-read your comment and agree that teachers must be paid, but I hope you also agree (since the evidence points this out) that the way teachers are paid (fixed salary versus performance-based pay) makes a difference. On your last point, again, I share your goal of all children, especially those from poor backgrounds, getting a quality education. But I don't see why students from rich backgrounds should also benefit from free education (thereby taking resources away from poor people). Shanta

Submitted by Katie Malouf Bous on

The debate about whether education is a private or a public good is, at best, unhelpful. The benefits of education for both individuals and societies are clearly immense, and the interplay between the two, impossible to separate. As Sylvain rightly points out, does it really matter whether one is greater than the other? Societies have overwhelmingly decided the public benefits of education are substantial enough to merit public action.
What’s more, when large segments of the population are too poor to pay for education, does it really matter whether economic theory believes the individual or the state should pay? (Should the poor be denied the “private good” of education?) This debate is, more than anything, a clever way of re-framing a much older debate about the relative merits of public and private sector involvement in education.
Your blog calls attention to several of the most critical and troubling problems facing the education sector: low education quality, poor learning outcomes, exclusion of the poorest children, teacher absenteeism, weak accountability to parents and communities, elite capture of education resources. You conclude on the basis of these challenges that “public education is failing” (and that private education doesn’t suffer from the same problems). But you have it the wrong way around. We – governments, donors, policy-makers, citizens – have too often failed public education!
The problems you have identified are the symptoms of years of underinvestment and neglect of public education systems. In the global push to expand access to basic education in the 2000’s, many governments failed to invest adequate resources beyond just seats in classrooms, including adequate numbers of trained teachers, relevant education materials, and reforms to make schools more accountable and responsive to their communities. The proliferation of private schools is also a symptom of this lack of investment, not evidence that parents somehow prefer paying for private schools.
In fact, the evidence base in favor of private schools as a solution to these systemic challenges is remarkably weak. A recent review ( found little evidence to support the idea that private schools can reach the poor geographically, nor evidence that the poor can afford them, that they are more accountable, or that they have positive effects on the overall education system. Although the same review found better learning outcomes and teaching quality in private schools, it acknowledges that private schools are often only marginally better than public schools, particularly when you exclude the elite private institutions that are out of reach for the vast majority of students.
The legitimate problems in public schools should not be used as a reason to abandon our public education systems; instead they should be fixed! Much more research, analysis and funding must go into answering the more pressing question in education: what can we do to improve public education systems so that they deliver high-quality, relevant education to all children, especially the poor and marginalized?
These questions must be urgently addressed, and the World Bank should be playing a leadership role by throwing its substantial research and analytical capacity into finding the answers – as well as providing financial support for building public systems. It is deeply disappointing to see its energy devoted to such unhelpful and polemical discussions. We should expect more constructive engagement from the Bank on an issue so critical to achieving its goals of ending poverty and promoting shared prosperity by 2030.

Submitted by Shanta on

Katie, The issue is not how much of education is a private good and how much is an externality. As long as there is some private benefit to quality education, providing it for free to everybody by providers who are only accountable to the government is neither an efficient nor an equitable solution. This is why governments don't provide food and clothing free and control their supply. Because there is a private benefit to education, you would want the beneficiary to have a say in the delivery of the service. Instead, what we have now is a primary education system that delivers--in principle to everybody--low-quality education (with the rich, and increasingly the poor, opting for private provision); and a higher education system that, because of resource constraints, rations places in university that are overwhelmingly captured by the non-poor. That is the sense in which the model of government-financed and -provided education (with little or no ability of the beneficiary to influence service delivery) has failed. The question is how to improve the system. It's clear that simply increasing resources, without changing the institutional arrangements so that students and parents can have greater voice will not solve the problem. In the 2004 World Development Report, and subsequent work, we explored and assessed ways of strengthening students' ability to hold providers and politicians accountable. The results have been mixed. In the meantime, the private sector has grown, sometimes in response to policies such as vouchers that aim to increase accountability, and sometimes through the sheer desire of parents to give their children a quality education. But these private markets are not perfect; they have many distortions that could lead to inefficient and inequitable outcomes. That is why I was calling for more analytical work and policy action in regulating these markets. Shanta

Submitted by Syed Iqbal Ahmad on

The accountability in education is accepted as the key. However, not all the benefits of education go to the individual, the state and communities also share the bounty in the form of higher tax revenue and peace/tolerance respectively.
The solution offered is incomplete. The regulation of education has not been elaborated and the community participation has been ignored. Free technical/higher education is definitely ends in student lethargy, political takeover of educational institutions, teachers ineptness etc.

Submitted by Tosin on

Who pays for this "private good"? Parents? But they are not the primary beneficiaries, it's society that gains from having you and me learn properly in school. I think. But perhaps we can link school fees to future employers or tax future earnings? C'mon, it's a public good.

Submitted by Shanta on

Tosin: Education has two benefits. There is a private benefit, which is the higher earnings that the recipient enjoys from being educated. This should be borne by the recipient (or his or her family), unless they can't afford it in which case government should give them cash with which to buy this benefit. But there is an additional benefit, which is that society gains from having a numerate and literate population. This social benefit should be borne by the state. Note that this is in addition to the private benefit, so that it should be a subsidy, rather than the state's paying the whole cost of education. Also, this subsidy should go to everybody, regardless of their income, since it is society as a whole that benefits. Shanta

Submitted by ashwin on

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