Tag: Education

21st August 2010

Inoculating India against the mental disease of socialism

We teach children hygiene to protect them against bacteria. But we don't teach them economics to protect them against mankind's worst mental disease: socialism.

In a democracy, voters choose amongst various policies on offer. In order to make good judgments, they must be enabled to understand the basics of economics. Else they'll fail to distinguish between good and bad policies, and thus between good and bad political parties. It is therefore not sufficient for children in India to be taught Engish, mathematics, science, geography, history and one Indian language. It is essential that they are taught basic economics, by which I mean non-mathematical micro-economics (not macro-economics – they don't need to know anything about GDP and such things). Such basic education should be imparted in year 7 and 8 when the child is able to sense his or her needs and make generalisations.

Unfortunately, today even our smartest children – e.g. doctors, engineers, and lawyers, are economic illiterates. Their thinking on policy is absolutely confused, as confused as the actual illiterate (indeed often worse). Economics is the most counter-intuitive discipline, and requires some amazing mental gymnastics in order to understand its principles. Indeed, I would argue that most professional economists (particularly macro-economists) don't understand economics, either).

If we try to apply our illiterate intuition to matters of economic policy, we will be quickly led astray – to socialism! Socialism is thus the disease of ignorance. Unfortunately, since almost no one in India understands economics (perhaps 1 out of 100,000?), Indians tend to vote with their 'instinct', not through their head. Therefore they vote for socialists, thus unwittingly destroying their own nation.

Given the abysmal level of basic economics education in India, finding good political leaders is virtually impossible. Even if such leaders are somehow found, persuading the economics illiterate electorate (both illiterate and educated) is next to impossible. And so India will continue its precipitous slide towards anarchy. I do remain an optimist, though, given that the internet now permits the liberals to radiate their message to India.

Once every child in India understands how the price system operates, India will be saved. Our children will then also understand how international trade works and how centralised planning (a crucial part of socialism) is the greatest folly. They will then readily appreciate how mercantalism (e.g. swadeshi) is self-destructive. Once our children understand such basic things, India will become immune to the more dangerous forms of socialism. There may still remain some fuzzy welfare socialists – as there are in the West – but at least the main disease, of socialism, would have been eradicated.

Such education, to be imparted in years 7 and 8 in school, should make use of Hayek's foundational logic of information being local. I have tried to explain this in chapter 3 of BFN, which could well form the basis of the school coursework.

But our educationists themselves don't have a clue about economics, so they don't see its value, and hence won't implement this proposal. Our leaders like Sonia Gandhi are semi-literates who are blind to all logic including fundamental economics. And the BJP types are so confused that it is not worth mentioning their name. In other words, we face the classic chicken-egg problem: HOW can we educate children in economics without first forming a liberal government? And WHY will the voters want a liberal government if they don't understand economics? I'm hoping that FTI will find sufficient leaders in the coming years to break this vicious cycle.

27th March 2010

Topsy turvy higher education system in India

One of the reasons why it is so hard to find Indians who understand policy is that the disciplines of law and politics are looked down upon in India. In India the best children go into engineering and medicine after school, leaving the third best students to study law and politics.

In Australia, on the other hand, the most difficult course to get into (I'm using the University of Melbourne as a proxy – see data below) is law. Thereafter comes veterinary science (for some unknown reason!) and medicine. Both these are easier to get into than law! Engineering comes well below medicine.

The way of thinking of doctors and engineers, however, is completely contrary to the way societies work (indeed, the way they themselves, as humans, work). It is impossible to understand society without understanding human incentives – and that is the one thing that engineers and doctors are never taught. This topsy-turvy prioritisation of higher education in India, in my view, is one important reason for the failure of otherwise brilliant Indians to understand good regulation and policy making (Nandan Nilekani seems to be an exception). The so-called brightest brains in India are simply not able to understand economic or political theory!

"ENTER" SCORES FOR ENTRY TO UNIVERSITY OF MELBOURNE

(data from http://www.vtac.edu.au/ where not specifically cited; figures are percentiles)

Law: 99.45 in 2006

Veterinary Science: 99.10 (see this)

Biomedicine (general medicine): 97.9

Media and Communication: 95.7

Commerce: 94.8

Engineering: 91.75 in 2001 (84.7 in 2010)

Arts (general): 89

Science: 89.05 (see here) in 2010

Environments: 85.15

Education: 82.9 in 2001

15th September 2009

A liberal policy position on higher education

This article was published in the September 2009 issue of Freedom First.

Liberals generally agree that a government has little justification to deal with matters beyond its (first-order) core functions of defence, police and justice. However, most liberals do make a provision for a government to provide infrastructure and reasonable equal opportunity (second-order core functions), subject to the government doing only to the minimal extent necessary to achieve basic objectives in these areas.

If we agree that these areas establish the boundaries of the role of a government, then there is no scope for government funding of higher education, apart from regulating the sector to prevent fraud. Indeed, tertiary education institutions are fishing nets to ‘catch’ the society’s most talented. Students attending these institutions will, almost invariably, become wealthier than the average taxpayer. Subsidising them would amount to deliberately increasing inequality in society. And there are no natural rights for anyone to be provided higher education by the state, just as no one can demand that every tennis player should be given an ‘equal opportunity’ to play in the Wimbledon.

Privatisation, but good regulation

The government must therefore completely exit higher education. Institutions owned by government should be sold off broadly on the pattern of school privatisation discussed in the July 2009 issue of Freedom First, and converted into for-profit corporations with their shares traded on the stock market. With that, the tax revenues saved from higher education could be diverted to the maintenance of law and order and provision of good school education: areas which are in deplorable condition in India today.

But selling off IITs, IIMs, medical colleges and other government-owned tertiary institutes (including vocational) does not mean de-regulation. Apart from accreditation to prevent fraud, some steps must be taken to assure standards (but not to set standards – a task that must be left to the sector to resolve). Such accredited tertiary education institutions would have full operational independence, with the ability to set their own salary and scholarship structures to attract distinguished academics and talented students. They would set their own fees and determine the type, quality and mix of courses to offer. As a result, only that much higher education will be provided as the market needs and is willing to bear.

What about meritorious but poor students?

The issue of funding poor, meritorious students to attend these courses can be easily managed on the pattern of the HECS scheme in Australia (noting that HECS has imperfections that will need to be overcome). Under this model, any Indian citizen admitted to an accredited institution could apply for and get a low interest loan from the government for an amount sufficient to pay their fees as well as cost of living and books. This low interest rate loan (at a rate about one per cent higher than the variable Reserve Bank rate to meet transaction costs) would be repayable over, say, 15 years. Repayment would be through the income tax system after the concerned student gets a job and starts earning an amount greater than, say, three times the poverty line.

As a result, all meritorious students in India could easily pursue higher education and repay the fees when they start earning a sufficient income. Much of this can be outsourced to the private sector, and private competition in the loans market can be encouraged, thus ultimately allowing the government to exit this area completely.

Preventing non-repayment of loans

What if upon completing their studies some students leave India permanently, not repaying the loan? (In a way this has already happened with engineering and medical students who have simply left India. A comparable education in USA would have cost $100,000 at least). The way out of this would be two fold. One, agreements could be made with countries with similar schemes, to ensure that these educational loans are repaid.

At the least, a system to monitor departing students can be established whereby students leaving India even temporarily would need to furnish a bank guarantee equivalent to the amount of their outstanding loan plus the present value of costs incurred by taxpayers on their school education. Such a bank guarantee would be forfeited should they fail to return within a stipulated time. Students not carrying proof of such a guarantee would be turned back at the immigration check. Of course, this will require linking the loan system with the tax and immigration systems through a well-organised national ID and database.

Raising funds for these loans

How should the government raise the funds needed to issue these student loans? In brief, from the market. This is not as hard as it may sound, since most tertiary-educated workers will earn well, making it relatively easy to recover loans through the tax system. A rolling debt model would be followed. Government-guaranteed bonds (underpinned by these future tax system repayments) can be issued for the amount of student loans expected to be made. Prudent investors and banks will readily buy these risk-free bonds.

These bonds can be retired after ten years using repayments from students most of whom would by then have started working. Not all bond repayments will be met from student loan repayments alone, given potential mismatches of timing between student earnings and the redemption of the bonds and so some fine-tuning of the loan cycles would be needed. In addition, the residual costs of administering this programme, including the difference in interest costs between the effective rate of bonds and the

Bank rate, and a write-off for defaults, will need to be charged to the taxpayer, amounting to a (small) subsidy for higher education. This subsidy can be arguably justified as an unavoidable cost to fund meritorious poor to study as well as – for those who take a utilitarian approach and believe that higher education generates positive externalities – to facilitate innovation in society. But these arguments are vague and problematic, and the government should endeavour to get out of this as soon as practicable.

Common objections to such a system

Won’t this system lead to astronomical fee levels? No, because of competition in the sector. Students will generally prefer quality education at the lowest possible cost, forcing the fees down. Even the best universities will need to attract high quality students to retain their reputation, and they will have to bid for them through discounts. Will the liberal arts be ousted from the teaching agenda in this free market? Not really. Good private sector corporations recognize the commercial value of a liberal education. Arts graduates often do better in modern businesses than technical graduates because innovation, entrepreneurship, leadership, people management and strategic thinking have little to do with technical skills. Therefore the market won’t kill off philosophy, noting that there will be increasing opportunities for philanthropists to fund such disciplines.

I believe that if such a system is implemented, India will get at least a hundred universities of the standard of Harvard University in a few decades.

Freedom Team of India

The Freedom Team of India (http://freedomteam.in/), now registered as a Trust, would have opened its bank account by the time this article is published, allowing you to contribute to its efforts even if you can’t join it as a member. [Note: this bank account has not yet been opened] In a few months the member category called Freedom Partner will be operationalised. Watch this space!

ADDENDUM

Barun Mitra's article on education First.

ADD

16th July 2009

Educating our children: A free market in schools

(This article of mine was published in the July 2009 issue of Freedom First.)

In the May 2009 issue of Freedom First I suggested that in addition to ensuring defence, internal security and justice, the free society must commit to equality of opportunity (EO). Delivering EO requires removing discriminatory obstacles to achieving public office, ensuring a good universal school education system, and guaranteeing a social minimum.

School education as a key element of equal opportunity

No child’s future should be jeopardized because its parents happen to be poor. We must guarantee good school education (including vocational training, where appropriate) to all children who want to study to year 12 (or age 18). Twelve years of education has now become a minimum given the complexity of technology that must be mastered in order to become a productive member of society. Such education will generate an enormous economic dividend for India through positive externalities including social capital formation.

In this article I outline how we can successfully deliver high quality school education at a relatively modest cost to the taxpayer (details are available in my book, Breaking Free of Nehru, Anthem Press, 2008).

A fully privatised school system

Children from rural areas or slums cannot even dream of equal opportunity today. These luckless children are destined for a lifetime of failure by the inefficiencies and corruption entrenched in our government school sector. The best these children can hope for is to get some patchy education in government schools where such schools exist (many government schools are found only on paper, or teachers are paid without attending school).

But why does a government need to operate schools? Managing a school is a hands-on exercise, much like managing a business, and governments are terrible at managing anything that must deliver value. Government officials and teachers have little or no incentive to deliver world-class education at the lowest possible cost. In comparison, the private sector can only survive if it delivers value for money. Therefore, parents who can afford it, prefer to send their children to private schools.

Governments are also unusually soft on their own failures. A Director of School Education in a state government will demand stringent standards from private schools even as he ignores the shoddy education provided by the government’s own schools. Governments should therefore not directly manage schools. However, they could regulate school standards, noting that self-regulation by a body of experts is the preferred way for such a task.

As a first step, our governments should stop building, owning, and maintaining schools. That would include an end to the appointment of lakhs of school teachers, an activity that is a source of great corruption and favouritism. School assets (bundled with a long-term lease on the school’s land) should be auctioned to educational consortiums that are at least partially owned by local teachers and residents. I have suggested a transitional mechanism for this in my book that will protect existing teachers.

This will immediately ensure that the incentives of school managers are better aligned to the needs of the local community. Further, the lands and buildings belonging to schools will also be much better maintained and utilised.

Customised vouchers for each child

Privatisation is only the first part of this model. Parental choice is the other part. School education vouchers would be issued by the government for each child and mailed out to parents. Children of poor parents would be issued high-value vouchers. Rich parents will not get any vouchers. The lower economic classes may get vouchers, depending on how much it costs to deliver good education. All parents would thus be empowered to send their children to almost any school they want to. All they would need to do is to pay a top-up amount over and above the value of the voucher.

Under the current model, government schools receive funds unrelated to the size or nature of their enrolment(s) or educational outcome(s). In the new model, they would get money based on a reimbursement of vouchers. They would therefore need to enrol as many children as they can. They will have to go out and literally beg the poorer parents – such as the parents of child labourers – to send their children to school. Where necessary, schools would provide a breakfast for these children: anything to ensure that parents agree to send their children to school. Enrolment rates would therefore shoot through the roof.

Second, schools would need to ensure that the children they have enrolled achieve the required educational standards. Only then will they be able to invoice the government against these vouchers. The more the number of children these schools enrol and pass out at an agreed, independently tested standard, the more the money they will receive.

Note that through high-value vouchers for poor parents, schools in economically backward areas will be able to afford high salaries for teachers and potentially attract even better teachers than schools in wealthy urban areas. Good schools would thus emerge in rural areas and slums for the first time in India’s history. This would dramatically increase both the quality of education and competition in the school market. Very little central planning or quality control will be needed as the market will sort out good schools from the bad. (A self-regulating body of school experts would help.)

Above all, the preferences of parents in selecting the right school for their children will be honoured, and who can be a greater well wisher of a child than its parents?

Raising money for the vouchers

It is true that defence, police, and justice must take first priority for any government. However, universal high quality school education must receive a high priority as well. The system outlined above will not cost too much because the current funds allocated to tertiary education would be shifted entirely to school education. In the tertiary education sector, students would be asked to pay their fees through loans issued by the government (I’ll talk more about this topic in a separate article).

Second, funds needed beyond that could be raised through capital markets as a long-term investment loan. This should be easy, given that there is nothing in any society that yields higher returns on investment than good school education. Third, schools will be permitted to use their land and buildings for commercial purposes after school hours, thus using their assets more productively and keeping the fees in check.

A free market in schools of the sort described above is guaranteed to deliver high quality education – as guaranteed to succeed as India’s current socialist method is guaranteed to fail. There is an open and shut case for change.

Freedom Team of India

Sadly, this simple and effective model will remain a pipedream since ruling politicians in India currently use the school education system almost purely to ‘mint money’ for themselves. Education is simply not their goal. Money making is. To implement such a system liberals will need a mandate from the people of India to form an ethical, liberal government. The Freedom Team of India (http://freedomteam.in) is pushing ahead in that direction. I would encourage you to find out more about the Team.

Addendum

A new RCT look at educational vouchers From Matthew M. Chingos and Paul E. Peterson (pdf):

In the first study using a randomized experiment to measure the impact of school vouchers on college enrollment, we examine the college-going behavior through 2011 of students who participated in a voucher experiment as elementary school students in the late 1990s. We find no overall impacts on college enrollments but we do find large, statistically significant positive impacts on the college going of African American students who participated in the study. Our estimates indicate that using a voucher to attend private school increased the overall college enrollment rate among African Americans by 24 percent.

Private Schooling In India: Results from a Randomized Trial
by Alex Tabarrok on February 5, 2014

THERE IS NOT THE SLIGHTEST CASE TO HAVE A SINGLE GOVERNMENT SCHOOL

"private schools achieved equal or better outcomes at one-third the cost"

ADDENDUM

More evidence that all schools should be free schools