Economic Irrationalism

Education and Public Policy in Australia
by Simon Marginson
Cambridge University Press, 1993.

The stated purpose of Education and Public Policy in Australia is to contest the dominance of economic rationalism in education policy.  Its author argues that under economic rationalism "the market economy is substituted for democratic politics and public planning as the system of production and co-ordination" (p.56).  He equates economic rationalism with "free-market liberalism", especially the views of Friedman and Hayek, which he claims dominate the economics profession in Australia.

The book claims that "economic rationalism has installed a free-market economic agenda at the heart of public education policy" (p.55).  This is an extraordinary claim, especially when the author gives no examples of free-market reforms introduced in Australia.  Instead he quotes the forming of the Department of Employment, Education and Training, "an interventionist and regulatory higher education policy" (p.129) introduced by Dawkins, and the emergence of "corporate managerialism" in the public service which has "brought education under the immediate operational control of ministers [and] created a more centralised and strategic approach" (p.56).  In Chapter 7, competency-based training reform, which emerged from big business and union pressure, is labelled "a new form of economic rationalism in education" (p.144).

These changes have little to do with the policy recommendations of free-market economists, who advocate decentralised decision-making.  When Friedman's reform proposals are considered, it is clear that they have not been embraced in Australia.  Friedman recommends free entry of private schools into the education system, the privatisation of public schools, and the introduction of full-cost fees in higher education and at the school level, or failing that, vouchers.  It is doubtful whether these views dominate even the economics profession in Australia.

Marginson lumps both centralist policies and free-market policies under the heading "economic rationalism", and then proceeds as if the faults of centralist policies are a criticism of free-marker liberalism.  He writes:  "there are limits to the efficacy of policies based on economic rationalism.  Governments (and economists) are nor all-seeing, all-knowing and all-powerful" (p.63).  He draws attention to flaws in the Dawkins approach, such as the assumption that government can determine subject areas that will be in demand.  These criticisms of central planning are exactly those made by free-market economists for years.

PUBLIC SPENDING

Chapter 1 provides an overview of the Australian education system, which selectively presents statistics to allege "in resource terms the inputs are in decline" (p.11) and calls for more government spending on education.  Public expenditure is presented as a proportion of GDP and Marginson laments its fall since the mid-1970s.  He expands on this in a later chapter claiming that Australian education "now faces serious resource problems" (p.83) and compares unfavourably with other developed countries.  In fact, the figures Marginson presents show that Australia's public spending exceeds the OECD average, above countries like Japan and Germany.

What Marginson does not mention is that real expenditure per primary and secondary student increased markedly over the 1980s (by 35 per cent in 1984-85 prices).  In contrast, when Marginson turns to higher education he focuses on the decrease in real expenditure per student over the 1980s and compares per student funding growth in Australia unfavourably to other countries.  He neglects to mention that, by international standards, Australia spends a high proportion of its GDP on higher education.  Over the past five years, government funding (in real terms and as a proportion of GDP) has risen substantially (although not as fast as enrolments).

Of course, claiming that those who spend the most have the best education system is like awarding the Melbourne Cup to the horse that ate the most oats.

Marginson attempts unsuccessfully to refute the consistent empirical finding in the economics literature that there is no relationship between outputs (usually academic achievement as measured by standardised test scores) and inputs (such as expenditure and class sizes) under our current system.  He presents a confusing review of the literature on the relationship between class size and output.  It is never made clear what outcomes are being measured.  Teacher time per pupil and teacher attitude seem to be the "outputs" in two of the studies.

Why have extra resources not improved academic performance under the current system?  One possibility is that the extra resources are wasted -- in employing an excessive number of bureaucrats, for example.  Another possibility is that the resources benefit someone other than parents and students -- teachers, for example.  Since 1970, student-teacher ratios in Australia have fallen by about one-third;  class sizes have not fallen by as much.  Part of the increased staffing levels has been used to reduce teaching loads and to increase leave entitlements.

MISREPRESENTATIONS

The presentation of economic theory in the book is full of misrepresentations.  Marginson presents a distorted caricature of human capital theory, claiming that it measures people in terms of their monetary value and that "the practice of human capital ... began in slavery" (p.31).

Human capital theory recognises that education affects future well-being;  that is, costs are borne now for future gain, and so education is an investment.  The future benefits produced can be pecuniary or non-pecuniary.  One future benefit from education is the enjoyment gained from reading throughout a lifetime.  Economics is not only concerned with pecuniary benefits, but they have been the focus of empirical work because they are more easily measured and quantified.

Human capital is the stock of skills and productive knowledge embodied in people, the present value of past investments in the skills of people, not the value of people themselves.  The theory that people invest in themselves by acquiring skills has nothing to do with slavery.

According to Marginson, economic rationalism insists that "the purposes of education can all be traced back to one overriding rationale -- in this case the development of a productive economy" (p.233).  This is a misrepresentation.  Economists have championed parental choice in a free market.  Parental preferences, they believe, should determine the goals of schools.  Experience suggests that for some parents at least, religious matters will be paramount.  Even in the education reform literature to which Marginson refers, the economists concentrate on factors that will raise academic achievement, not on education's pecuniary benefits.

To investigate the economic value of education is not to claim priority for economic ends, but to say that the economic effects are important.  For better or for worse, many students and parents take a keen interest in the employment opportunities opened up by successive educational qualifications.

Space does not permit a catalogue of the misunderstandings, errors and inconsistencies in the book.  The failure to understand what economists mean by efficiency in the discussion of "productivity policies and eficiency policies" in chapter 5 provides a further example.

Marginson evinces a clear preference for government schools over non-government schools.  The former, he says, are "democratic and egalitarian:  They provide the broadest experience.  The high achievers help the low achievers.  Formally speaking, everyone in public education is equally valued (p.201).  He presents no evidence to back these claims.  It is not clear that the government system does much to promote social mixing or that everyone is equally valued.  In practice, government schooling involves segregation by residential neighhourhood, with the rich neighbourhoods often having the best teachers and the best schools.

It is not even clear that there really is a gain to low-ability students when pooled with high-ability students.  The result could be to increase feelings of worthlessness among the low-ability students and to reduce individual attention from teachers.  The effects on high-ability students must also be considered.  In practice, the result of grouping students of markedly mixed abilities may, depending on the teaching methods employed, be education pitched at the lowest common denominator.  In the sporting arena, streaming by performance is readily accepted.

Marginson reports that a majority of Australian parents "would prefer to enrol their children in private schools" (p.202).  He downplays dissatisfaction with government schools as a reason for parents choosing private schools, by claiming "there is no hard evidence for what used to be frequent claims about public school deficiency in achieving numeracy and literacy" (p.203).  There is, of course, no hard evidence because of teacher union opposition to its collection.  Surveys indicate that private school parents do nominate poor academic quality in government schools as a significant reason for moving their children to the non-government system.

He comes down firmly against the view that freedom is the absence of government restraint, and in favour of the view that "to exercise freedom it is necessary to have the material means to do so" (p.59).  However, on the issue of school choice, Marginson's conception of freedom implies that the legal freedom to attend a private school is not enough, and only the government providing the means to attend a private school for all provides "real freedom".  Under current policies, only the wealthy have the means (and so according to Marginson the freedom) to choose private schooling.  Yet Marginson is against extending this freedom to all through a voucher scheme, something which a long line of free-market liberals, beginning with Milton Friedman, have advocated.

PRODUCTIVITY

Marginson doubts that education raises economic productivity.  According to screening theory, which Marginson employs, the role of education is a sorting device used to categorise people, rather than to develop them.  If the theory is correct, then education expansion merely results in "credential inflation", decreasing the significance of educational qualifications, with little economic benefit.

Empirically resting whether education contributes to productivity is almost impossible, but the view that education only screens individuals according to their pre-existing talents is an extreme one, and implies that schooling teaches no vocationally useful skills.

If his view is true, the case for subsidising education is diminished and the expansion of education may actually harm equality by throwing up more barriers for a poor person to overcome in order to obtain an opportunity demonstrate his ability to do a job.

At first sight, Marginson's view that education expansion has led merely to credentialism seems inconsistent with his commitment to universal participation in higher education.  If everyone were in higher education, wouldn't that result in more credential inflation?  But, according to Marginson, "the problem in the economy-education relation lies in the economy, not in education" (p.134).  He asserts that deregulating industry policy and cutting back the public sector have depressed the demand for educated labour.  Again, no evidence is presented.  In fact, the public sector has been increasing its employment of educated labour, and not too many graduates were employed in car factories and clothing mills.  His recommendation:  "What is needed is a reconstruction of Australian industry, so that high levels of skills in science, technology and engineering become more relevant" (p.134).  So when the central bureaucrats get their skill predictions wrong, it is the rest of the economy that should be changed.

FEES

One of the few actual policy changes Marginson analyses is the reintroduction of fees in higher education, which he passionately opposes.  He claims:  "The case for the return to fees rested on the human capital assumption that education was the direct cause of earnings" (p.182).  But the debate in Federal Cabinet he quotes is all about the equity effects of fees.  Marginson's argument that higher education fees should be abolished could be no better illustration of the rhetoric of equality of opportunity and the reality of middle-class subsidies.  It is a fact that graduates have above-average life-time incomes.  It is also true that those in higher education come from relatively well-off families, whether measured in terms of socio-economic status, wealth or income.  Free higher-education involves a regressive transfer from the average taxpayer to a privileged group.

A more effective way to help the poor would be to target subsidies to them, rather than to give free higher education to all those who qualify.  In particular, subsidies could be redirected to disadvantaged primary or secondary school students, many of whom do not go on to higher education.

It is our current democratic political process that has produced the policies that Marginson disapproves of, such as an obsession with economic ends and cost-cutting.  But a market system caters for diverse viewpoints, including opposition to economic rationalism.  Under a market system, Mr Marginson could choose to send his children to a school that did not engage in cost-cutting or emphasise economic objectives if his views were shared by even a relatively small number of parents.  A market system helps avoid the social conflict that arises in a public system run through the political process.  The market system promotes diversity (a value which Marginson says he supports).  Parents are able to choose between different types of schools;  suppliers have an incentive to seek out and satisfy consumer demands, to match quality to consumer preferences, to respond to diverse needs and to innovate.  Even in Australia's current limited private sector, there is diversity in religious instruction to match diversity in beliefs, which reduces social conflict over religious instruction in public schools.

How would Marginson reform the education system?  He recommends weakening competitive selection:  "Selection is inherently competitive, and competition automatically generates inequalities of outcome.  The best contribution education policy can make to equality of educational outcomes for all social groups is to weaken the selection function, rather than focusing all efforts on trying to make selection fair" (p.243).  Of course, abolishing selection does not result in equal outcomes, it merely hides differences;  nor does it abolish society's demand for the information provided.

Marginson suggests separating academic assessment from selection for work.  He thinks that employers should determine selection for work by competency tests "administered at the point of entry into work (p.250).  This would free the schools, TAFEs and universities "to concentrate more effectively on their other tasks" (p.250).  What if an employer is interested in finding out about a potential employee's academic achievement?  Perhaps some employers may be unwilling to formulate and administer tests themselves, or have found academic achievement a useful indicator in the past.  Marginson recommends the removal of grades from transcripts.

Marginson criticises economic rationalism for being destructive of other educational objectives.  Yet he would abolish the credentialling aspect of university and any benefit employers and students get from that process.  He is not concerned whether credentialling serves any valuable purpose.  He admits that credentials are an incentive for students, but fails to explain how students would be motivated in his reformed system.  Nor does he explain how weakening selection in the education system, and replacing the credentialling function with employer-administered tests, would result in more equal social outcomes or prevent the competition for advantage.

He writes:  "In the democratic framework education is a form of common property, free to be used by all citizens for their own advantage, like common land in medieval times or common air today.  In the market framework education is a form of private property.  People are excluded (p.79).  Of course, the fact is that education is costly to produce, and more education means less of something else.  Some people may prefer less education spending and more health care, arts funding, sports facilities, housing, food or many other alternatives.  All have economic and non-economic benefits and all may be better ways of helping the poor.  Not everyone in a democracy would agree that satiation in education is the best way to spend the community's resources.

Blaming others for the shortcomings of the education system is a common tactic of the education lobby.  Marginson's attempt to incriminate free-market liberalism in the failures of our current highly-centralised, government-run education system is a blatant example.  Reading this book, particularly its destructive policy recommendations, is an exasperating experience.  Rut it does provide a useful compendium of misunderstandings and misrepresentations of economic theory, and an insight into the agenda, tactics and arguments of the education lobby.  Because weak intellectual and empirical foundations do not seem to stop the policy prescriptions derived from them being put into practice in Australia, the book will no doubt provide one more citation for influential educationalists to present as proof that their views are correct.