The Educational Octopus

First Published: 2012-03-30

Our Educational System Needs Free-Market Reforms

First published in The Freeman, a publication by the Foundation for Economic Education and is posted here with their kind permission. Subscribe to The Freeman. Visit Dr. Mark J. Perry’s blog, Carpe Diem.

Every politically controlled educational system will inculcate the doctrine of state supremacy sooner or later. . . . Once that doctrine has been accepted, it becomes an almost superhuman task to break the stranglehold of the political power over the life of the citizen. It has had his body, property and mind in its clutches from infancy. An octopus would sooner release its prey. A tax-supported, compulsory educational system is the complete model of the totalitarian state. –Isabel Paterson, The God of the Machine (1943)

What would you conclude about the quality of product or service X under the following circumstances?

  1. The employees of Airline X and their families are offered free airline tickets as an employee benefit. The employees refuse to travel with their families on Airline X and instead pay full fare on Airline Y when flying.
  2. The employees of Automaker X are offered a company car at a substantial discount and they instead buy a car at full price from Automaker Y.
  3. Employees at Health Clinic X and their families are offered medical care at no additional cost as a benefit and yet most employees of Clinic X pay out-of-pocket for medical services at Clinic Y.

In each case, the employees’ willingness to pay full price for a competitor’s product or service and forgo their employer’s product or service at a reduced price (or no cost) makes a strong statement about the low quality of X. What makes the inferior quality of X even more obvious is that the employees at Firm X, since they work in the industry, would have better information about product (service) X and product (service) Y than the average person.

What then should we conclude about the quality of public education in the United States given the following facts? Public school teachers send their own children to private schools at a rate more than twice the national average–22 percent of public educators’ children are in private schools compared to the national average of 10 percent.

In large cities across the United States, more that a quarter of public school teachers’ children are attending private schools–50 percent in Milwaukee, 46 percent in Chicago, 44 percent in New Orleans, 36 percent in Memphis, and 30 percent in Baltimore and San Francisco.

In New York City, as of 1988, no member of the Board of Education and no citywide elected official had children enrolled in a public school.

Public school teachers are giving public education a failing grade by their disproportionate patronization of private education when it comes to the education of their own children. The sharp decline in SAT scores over the last 30 years confirms that the quality of public education is deteriorating. SAT scores (a measure of the academic ability of high school seniors) were fairly stable between World War II and the early 1960s, averaging about 978. Starting in the early 1960s, SAT scores steadily declined and reached a low of 890 in 1980. Since then, SAT scores have risen slightly to the current average of about 900. Numerous other tests of the education abilities of high school seniors by independent groups (National Assessment of Educational Progress, National Endowment for the Humanities, and the International Association for the Evaluation of Education) have also shown a serious decline in the quality of public education over the last 30 years.

Increased Costs

Accompanying the decline in the quality of public education has been a dramatic increase in the cost of public education. Since World War II, real spending per public school student has increased 40 percent each decade, and has gone from about $1,000 per student in 1945 to over $5,000 per student in 1990 measured in constant dollars.

Rising teacher salaries have contributed to the increased cost of education, rising from $12,000 to $35,000 in real dollars between 1945 and 1990, about twice the growth rate of average national incomes. And public school teachers’ benefits have increased even faster than their salaries. From 1975 to 1985, teacher salaries rose by 10 percent in real terms, but real fringe benefits doubled. Benefits now contribute an additional 25 percent to teachers’ average after-tax income. The increases in teachers’ salaries and fringe benefits have largely coincided with the increased unionization of teachers, 90 percent of whom are now in teacher unions.

Teachers’ salaries are not the real problem, though. The largest contribution to the increased costs of public education has come from the growth in the administrative sector of public schools. Administrative employment has grown far faster than instructional employment and has significantly increased educational expenditures to finance an expanding administrative bureaucracy. For example, between 1960 and 1984, the number of nonclassroom personnel grew almost 600 percent, nearly ten times the growth rate of classroom teachers. The number of nonteaching, administrative employees (46 percent of total) is now almost equal to the number of classroom teachers (54 percent of total) and continues to grow.

Consider the following cases of bloated public school administration. The Chicago Board of Education, which has 3,300 employees, is larger than the entire Japanese Ministry of Education. The New York City public schools system has 250 timesas many administrators as the New York Catholic school system (6,000 administrators in public school system versus 24 in Catholic school system), even though New York public schools have only four times as many students as the Catholic schools.

Administrative costs have exploded since World War II as the number of school districts has declined, from over 100,000 districts in 1945 to fewer than 16,000 in 1980. As school districts have consolidated and grown in size, they have become increasingly bloated–more top-heavy, more bureaucratic, more centralized, less efficient–and more costly to administer.

Doomed to Failure

American public schools are failing miserably. They suffer from the same underlying structural flaws that make all socialist programs eventually fail–protection from competition and insulation from failure. Socialism is a defective theory, and any system based on socialist principles will fail, whether it is an entire economy or a single program. Socialism failed in East Germany and the Soviet Union and it is failing in the American public education.

Since public schools have (1) an effective monopoly on education and (2) the government as their source of funding, public education is insulated from competitive market forces. Undisciplined by profit and loss accounting, public schools have no incentive either to operate efficiently or to cater to their customers. In contrast to private firms which are forced to serve the needs of their customers or go out of business, public schools can ignore their customers because they are protected from failing by the deep pockets of the American taxpayers.

In fact, operating efficiently and cutting costs undermine and sabotage the agenda of the entrenched public education bureaucracy, because operating efficiently will lead to a reduced budget. Perverse incentives are in place to guarantee failure–the worse public education is, the more money and resources will be budgeted to try to solve the education “problem.” Given the political framework, it makes sense for the educational establishment to deliver an inferior educational product as a way to attract increasingly larger budgets. In contrast to the private sector where resources are constantly being directed towards the most efficient and profitable enterprises, the public sector diverts resources towards the least effective, most inefficient programs.

In regard to public education, we have seen collectivism in action–a failing, inefficient bureaucracy getting more and more resources–more money, higher salaries, more benefits, more employment. And as public schools become increasingly bureaucratic and politically oriented, they become more and more responsive to the political process and engage in rent-seeking activities to protect their monopoly status. Because the main sources of educational funding are state and federal governments, political constituencies–politicians, teachers’ unions, political parties, and lobbyists–become more important to educators than parents and students. The attention and focus of education is directed away from local concerns towards the political process at the state and federal level.

In addition to the monetary expense of public education, we need also to account for the role that public education has played in the costly erosion of our personal freedom and the costly expansion of Big Government during this century. In the same way that political disincentives discourage educational efficiency, public school educators also have strong disincentives to teach students to think clearly, logically, and independently about economic and political issues. Clear economic thinking and an appreciation of private enterprise would be counterproductive to an agenda of increased funding of public education. If students and parents developed clear, independent thinking as part of public education, they would become increasingly intolerant of inefficient state-run bureaucracies like public schools. They might even demand an end to the public education monopoly.

The diversion of public funds toward an expanding public sector is made much easier if students are subtly influenced from an early age to be tolerant of government solutions and programs. Government schools therefore have flourished and expanded, along with a general expansion of government at all levels, largely because public schools have failed to educate students on the proper role of limited government as set forth in the U.S. Constitution. Since the early part of this century, the size of the federal government has gradually increased, and is now at a historically unprecedented level. From the birth of the nation in 1776 until the early 1930s, government spending at the federal level never exceeded 3 percent of national income except during periods of war. Since the 1930s, spending by the federal government has steadily increased and has now reached 30 percent of national income. State and local government spending has also increased, from 7 percent of national income in 1930 to 12 percent in the 1990s. When we take into account the further burden of complying with government regulations and time spent filing tax forms (5.4 billion man hours), the total cost of government to society is more than 50 percent of national income. The average American now works from January 1 until July 10 every year to pay for the total cost of government.

The failure of public schools to educate students effectively has contributed to the increasing role of government over the last 60 years. The expansion of the public sector and the “stranglehold of the political power over the life of the citizen” has largely coincided with the increased bureaucratization, politicization, and unionization of public education. It may have been impossible for government to expand so rapidly over the last 60 years without a public education system to subtly desensitize students to the growth of the state and the erosion of personal freedom.

As Leonard Read of The Foundation for Economic Education pointed out years ago, people will never give up their freedoms all at once. However, they will be rather indifferent about losing their freedom gradually over time, as we have seen happen in this century. To explain this phenomenon, Read used the analogy of boiling a frog in a kettle of water. If you boil the water first and try to throw the frog in the kettle, it will immediately jump out as soon as it lands on the water. However, if you put the frog in a kettle of cold water and heat the water up slowly, the frog will slowly cook to death before it realizes what is happening.

Likewise, the growth of the welfare state and the erosion of freedom have happened so gradually over the last 60 years that most people have not even realized that it has happened. As a society, we would never have allowed federal government spending to expand from 3 percent to 30 percent of national income in one year, but we have tolerated that expansion of government over a 60-year period. Part of the reason we allowed this to happen is that we became immune in public schools to the gradual loss of freedom and accompanying growth in the government. The doctrine of state supremacy is subtly woven into the inculcation of students by statist, unionized, civil servant teachers who have incentives to perpetuate and expand the role of the state and public education.

We need to break the “stranglehold of political power” over our educational system by introducing parental choice, competition, and market solutions in education. Contrary to public opinion, education was largely supplied by the private sector from the 1700s until the first few decades of the 1900s. Schools were small, local, and private, and were forced by competition to be responsive to students and parents.

The private sector would deliver world-class, first-rate, superior education in America once the stranglehold of the “educational octopus” is broken. Innovation and experimentation in education would be encouraged in a competitive educational marketplace. Parents would have the same diverse choice in the educational marketplace that they now have when arranging for music lessons, karate instruction, or swimming lessons. In a competitive educational environment, private schools and public schools would be forced to serve the public interest or they would go out of business. Consumer sovereignty would reign once again in the educational marketplace. Costs would decline and quality would improve.

Through education and training we develop skills and abilities to improve our human capital, which is our investment in the future. The productive capacity and standard of living of a country depends on the quality of human capital available. Therefore, there is no more important responsibility than the education of our children since this is our investment in the most important resource of all–human capital.

There is no surer way to guarantee that our children continue to receive an inferior education than to continue educating 90 percent of our children in the public school system. Education is far too important a responsibility to leave in the hands of a government bureaucracy whose monopoly status allows it to be insensitive and unaccountable to parents and students.

Public education is a bad investment in human capital. We need to break the stranglehold of the “educational octopus” before it is too late.

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