Wednesday, April 01, 1992

The Recruitment and Training of Teachers

THERE has been increasing concern in Australia about the quality of teacher education programs and the capacities of typical trainees.  Many figures in public life, including politicians from both major parties, have decried low entrance requirements in teacher training institutions.  They have also acknowledged the difficult conditions under which many teachers work.  But relatively few people outside teaching are familiar with the underlying weaknesses in training and working conditions responsible for our failure to interest the most capable students in teaching as a career.

We cannot hope to improve schooling substantially unless we are prepared to recruit and train teachers in radically different ways.  Trainees themselves report that much of their training time is spent on "busy work" which fails to meet their own needs as learners, or to prepare them for the realities of the most difficult classrooms;  and many teacher educators agree with them.  In the selection process for both trainees and supervisors, in program structures, in course content for pre-service training, and in methods of evaluating entire programs, there are formidable weaknesses which must be addressed.

Research on the qualifications of teachers working in central curriculum areas reveals huge gaps in their knowledge base.  A national study of History teaching, completed in 1990 under the auspices of the Australian Curriculum Development Centre, found that 85 per cent of History teachers claimed to have taught a subject area in which they were not formally prepared.  A major problem, according to the study, was that material covered in undergraduate programs was either scanty or not appropriate for prospective teachers.  To research unfamiliar areas which they were expected to teach, many were relying on student texts and hand-outs from colleagues. (1)

On the qualifications of Year 12 teachers in the subjects they teach, figures released by the Australian College of Education reveal a sizeable problem.  20.4 per cent who teach senior History have completed only one or two years of tertiary history study.  For the Sciences, the percentage with only one or two years of tertiary credit is 25.5;  for Mathematics, it is 22;  for the Social Sciences, 19.6;  17.8 per cent in Social Science teaching;  17.6 in Science;  19.3 in History;  and 28.8 in Foreign Languages have not studied these subjects at the tertiary level.  On average in these subjects, fewer than 11 per cent are honours graduates. (2)

As a result of a high resignation rate, over 41 per cent of our public school teaching force has less than three years' experience in the classroom -- an extraordinary waste of resources and a searing comment on methods of selection. (3)  According to a report on teaching recruitment published by the National Board of Employment, Education and Training in 1991, only 5.5 per cent of 1987 Year 9, 10, and 11 students interviewed saw teaching as an attractive career;  and 32 per cent of the staff responsible for them in Years 9 and 10 warned them against becoming teachers.  Females -- who, the report said, take up most teaching jobs -- are being lured away into business, science and technology. (4)

Over 30 years ago, in an essay entitled "The Crisis in Education", the distinguished historian Hannah Arendt said that in education, "responsibility for the world takes the form of authority."  After pointing out that "the authority of the educator and the qualifications of the teacher are not the same thing," she remarked that although a measure of qualification is indispensable for authority, the highest possible qualification "can never by itself beget authority."  The teacher's qualification, she continued, "consists in knowing the world and being able to instruct others about it, but his authority rests on his assumption of responsibility for that world." (5)

The increasingly common cry that teachers lack authority is at bottom a consequence of the failure of teacher training institutions to assume appropriate responsibility for the persons in their charge.  To be taken seriously again, teacher educators will have to reconsider the meaning of the term "vocation", and its connection with the idea that teaching, suitably anchored in a sound knowledge base, is a craft which can be taught.


ATTRACTING BETTER TEACHERS

RAISING SELECTION REQUIREMENTS

HSC and Tertiary Entrance Scores

When The Sydney Morning Herald announced early in 1990 that students were being admitted to teacher training programs with HSC aggregates of 210, well under the median score, there was an immediate hue and cry.  In March of 1991, the Leader of the Labor Party in New South Wales, Bob Carr, told a national conference of teachers that Newcastle University had lowered its entry mark to 220.  In the same year the Rusden campus of the Victoria College of Education accepted a student with a score of 201. (6)  Unfortunately, practices of this sort are neither new nor uncommon.

Teacher Education in Australia, a report published in 1990 by the National Board of Education, Employment and Training, concluded that the quality of student intake was "probably the most serious problem encountered during the working party's enquiries."  Later in the year a study of 30,000 students by the Department of Employment, Education and Training found that education faculties had the highest proportion of first-year students with very low tertiary entrance scores.  Fifty-four per cent of first-year education students were from the lowest group of tertiary entrants. (7)

Throughout Australia, students are being admitted to teacher training programs with HSC scores, on average, 100 to 160 marks lower than those required for Medicine, Law, Commerce, and Chemical or Electrical Engineering.  They enter Arts and Science programs, which provide an alternative three years of pre-service coursework for four-year-trained teachers, with scores 80 to 150 marks lower.  In the case of Tertiary Entrance (TE) scores, the gap is even greater:  as many as 280 marks can separate prospective teachers and doctors. (8)

In view of the enormous responsibility shouldered by teachers for the intellectual and personal development of children, it is clear that steps must be taken to ensure that the academic qualifications of aspiring teachers do not continue to lag so far behind those of other professions.  Even if we are faced with a temporary shortage of qualified new people, minimal HSC and TE requirements will have to be raised.  In Germany, where they are much higher than Australia's, many more students want to become teachers than can be accommodated;  and the attrition rate among new staff is much lower than ours. (9)


Standards of Literacy and Numeracy

One large worry resulting from entrance requirements as low as they are at present is that many students who undertake teacher training have major problems in literacy and numeracy.  Sixty per cent of the future teachers tested in basic mathematics at the University of Canberra last year failed.  Many could not multiply 0.3 by 10 or 0.5 by 0.5. (10)  Studies in Western Australia, South Australia, and New South Wales have shown that trainees often have equal difficulty punctuating simple sentences, using standard English diction correctly, and writing coherent paragraphs. (11)  A majority read only what they are required to in order to complete their coursework.  Yet most are allowed to graduate.

The related questions "How will teachers with problems as fundamental as these supervise their own pupils' work in English and Mathematics?" and "How will teachers who are not habitual readers be able to encourage children to read?" have not been seriously tackled in teacher training institutions.  Although some colleges offer remedial instruction to trainees whose writing is gravely inadequate, there are at present no national or State policies or entrance requirements governing minimal standards of literacy and numeracy in beginning students, as there are overseas.


Professional Attitudes and Behaviour

It has long been recognised that although a high academic standard is desirable in incoming teachers, appropriate values and traits of character are equally essential.  Only in the latter part of this century, however, has a concerted effort been made to select teachers on the basis of their attitudes towards children and learning, and not simply their minimal academic qualifications.  In both America and England, mature-aged university graduates with a suitable commitment to teaching are now being encouraged to enter the classroom through alternative certification programs.

Unfortunately, the conventional selection criteria upon which traditional Teacher Education has relied from the start -- namely, passing grades, nicely expressed sentiments in interviews about broad professional aspirations, and passable performances during teaching practice in agreeable suburban schools -- have almost no value in predicting the suitability of candidates for teaching.  Neither do conventional, exhaustive summaries of agreeable personal traits (e.g. humour, enthusiasm, creativity, warmth) or desirable actions which educational psychologists list for aspiring teachers (the list used in Wisconsin runs to 227 items!).

Statistically, the best means discovered so far of predicting success in difficult schools is the selection interview developed by Professor Martin Haberman at the University of Wisconsin-Milwaukee over a 30-year period.  Now in use in a majority of American States, this interview discloses basic approaches to teaching and learning in prospective teachers, and distinguishes successfully between suitable and unsuitable candidates.  Its questions concentrate on teacher behaviours, or functions, which reveal underlying attitudes to education.  Answers reliably signal probable teaching failure or success in the most difficult schools.

Although no interview yet devised for aspiring teachers includes questions which assess their stamina and organisational ability, the Haberman interview has the great virtue of covering other key areas of teacher competence responsible for classroom success:  discipline, planning, personal relations, creativity, teaming, and self-analysis.  For three decades marked by major educational and social change, its predictive value has remained constant:  close to 100 per cent accurate.  Already, a small number of Australians have undertaken interview training with Professor Haberman and his staff so that the interview can be introduced here.  It would obviously be desirable for our teacher selection procedures to bear a clear and obvious relation to behaviour and attitudes which are known to generate teaching success. (12)


IMPROVING WORKING CONDITIONS

At present, many teachers are required to do more than can reasonably be expected of them in schools.  They are asked to be counsellors, social workers, and surrogate parents;  to perform extra-curricular duties during lunch or after school;  to discipline students too rebellious for other adults to manage;  to attend countless meetings with parents and other teachers;  to spend hours at home grading papers and preparing lessons;  to redesign courses;  and to keep up with current professional developments, including a mountain of literature.  As a result, the incidence of stress-related illness in school staff is very high.

Even if, as recent research has shown, (13) many Australian teachers in first appointments are reasonably happy, the chief factors influencing their happiness (solid staff support and good relations with pupils) do not keep them in the classroom for the whole, or a significant proportion, of their working lives. (14)  Other considerations, in the end, count for more.  Their professional standing is low compared with that of other tertiary graduates.  Their salaries do not begin to match those of other professional groups or of teachers in other parts of the world, notably Germany.  They must live with the knowledge that there is a "values gap" between schools and local communities.  And, all too frequently, they receive very little recognition for their accomplishments or on-the-job support for their efforts.

On top of this, promotional opportunities for teachers are limited, and can be unfairly affected by political considerations.  Under the Advanced Skills Teacher, Grade 1 Award in Victoria, for example, teachers do not have to be seen in the classroom by anyone or "know" anything in particular except "current government education policy".  Yet, at the behest of militant unions and the more politically radical ministry groups, they must develop "social justice strategies" -- for example, "action plans" designed specifically to aid "women". (15)  Whether they treat individual pupils sensitively and knowledgeably in their ordinary, daily contacts with them may have no bearing on their professional advancement.

Overseas, where concern has long been voiced about working conditions inimical to sound teaching, a number of innovative reforms have been proposed.  A controversial proposal of the recently formed National Board for Professional Teaching Standards in the United States is a certificate of merit with rigorous requirements for improving teachers' professional and financial status.  Another controversial proposal -- put forward recently in the New Zealand report Better Teachers -- is that for positions difficult to fill, in "hardship" locations or in subject fields with salaries much lower than those offered by industry, differential pay rates should be offered.

Along similar, but less controversial lines, the idea that teachers should be encouraged by combined financial and leadership opportunities to meet major shortages, has been taken up in several Australian States.  Education Departments have appointed "leading" teachers, or "mentors", whose classroom performances have been carefully monitored, to senior, better-paid positions in difficult schools.  Since 1991 in New South Wales, "locality allowances" -- giving teachers transfer and medical benefits, housing subsidies, increased opportunities for professional development, and longer holidays -- have been attached to teaching positions in remote areas. (16)

What is clear about our situation is that we won't wean top students away from the other professions unless appropriate professional values replace "politically correct" ones, and unless teachers reclaim the status they once had.  Throughout the country there will have to be fairer on-the-job expectations, more varied and just leadership opportunities, more flexible standards governing promotion, salary reforms, allowances, and bonuses. (17)  Although it is too soon to know whether such incentives will work over the long term, in the short term they are attracting considerable interest.

A major reason German schools are doing so well is that good salaries and on-the-job incentives directly related to teaching capacity and leadership have made teaching attractive to able tertiary graduates.  If more Australian teachers enjoyed comparable rewards, wider opportunities to frame school policy along educationally sound lines, more challenging supervisory work with aspiring teachers, and a greater chance to enjoy the fruits of daily teamwork and consultation, as teachers in the better German comprehensives do, it is likely that more top students would consider teaching as a career.

 RECOMMENDATIONS 

Attracting Better Teachers

Teacher training institutions need to raise entrance requirements, as some are now doing, to attract students with HSC scores of 325 or above.

But HSC scores alone should not determine selection into teaching.  Teacher training institutions should admit only those candidates whose standard of written literacy and numeracy is acceptable, and whose attitudes towards teaching, disclosed in a rigorous interview (preferably, the Haberman Selection Interview), are suitably professional.

Throughout Australia, there should be more attractive incentives for teachers.  Among the possibilities requiring fuller exploration, and already being implemented overseas or in some Australian States, are special certification procedures recognising the work of outstanding teachers;  rapid promotional, leadership, and policy-making opportunities for able practitioners;  salary reforms, with job-related responsibilities attached to differential pay levels;  and improved transfer provision, greater in-service opportunities, and financial or other bonuses for teachers working in remote areas or particularly difficult schools.


THE STRUCTURE OF PRE-SERVICE PROGRAMS

Around the world, existing teacher training institutions are seen as credential factories which do not prepare students for the realities of ordinary classrooms.  Informally, our own best trainees have said for years that they have been bored silly by their program of study -- especially Education courses;  and they have commented wryly on the difference between academic requirements for awards in Education and the major disciplines.  Huge gaps exist between theory and practice in training institutions;  and the programs of study do not adequately prepare trainees for the range of difficult problems commonly found in schools.

In 1990 a study of newly recruited teachers in Victoria, Queensland, and the ACT commissioned by an AEC Working Party on Teacher Education found that only 39 per cent considered themselves adequately prepared in the area of subject knowledge.  Sixty per cent indicated the need for more practical training in their pre-service years. (18)


CURRENT PRIMARY DEGREE PROGRAMS

In Primary B.Ed. programs, a central limitation is that trainees spend, on average, less than 50 per cent of their time working on their teaching subjects.  The bulk of their time is divided between lightweight electives with a sociological or recreational focus (e.g. "Family Studies" or "Physical Activity and Lifestyle") and Education courses concerned neither with cognitive development nor the systematic development of teaching skills (e.g. "The Socio-Cultural Context of Education").  Typically, first- and second-year students take courses in pedagogy which are not directly tied to curriculum subjects.  Third-year students are often involved in designing the curriculum in core areas which they have barely studied.

What the time allocation for primary teaching subjects means in practice is that a core curriculum area as vital as English occupies only 10 per cent of the course.  English is further subdivided into five or six subjects -- Reading, Writing, Language, Children's Literature, Drama, and ESL (English as a Second Language) -- which get no more than two per cent each of allocated time.  Science gets eight per cent;  Maths, seven per cent;  and Social Science (History, Geography, Commerce, and Economics), seven per cent.  This is pitifully inadequate. (19)

In 1989 the Discipline Review of Teacher Education in Mathematics and Science, written by a committee chaired by Graeme Speedy and published by the Department of Employment, Education and Training, reported that primary students in Maths and Science expressed anxiety about "their own knowledge in these areas and their competence to teach them." (20)  Speedy and his colleagues also found that Science "in primary schools in Australia is a particular problem in that it is not recognised as having a major contribution to make to the education of children." (21)  Clearly, there is a connection between poor teaching preparation and later neglect of Science in our primary classrooms.  A recent study has shown that in Victorian primary schools only four per cent of classroom time is spent on Science. (22)

In other core subjects, a similar problem exists.  At best, in current primary B.Ed. programs, students are introduced to key subject areas, and to topics commonly pursued within them in schools.  They do not acquire a solid knowledge of a single curriculum area.  Contrary to what is sometimes believed, teachers have to be very knowledgeable to teach well even at a simple level.  Unless their knowledge base is secure, they have major difficulty seeing their subject in perspective, focusing on essential matter, explaining new concepts well, and formulating or answering questions clearly.

There is a ludicrous gap between what State syllabuses say should be done in primary schools and what can conceivably be accomplished, given the time allotted to core subjects in teacher education programs.  The problem is exacerbated by the fact that trainees spend, on average, only four to six weeks per year in schools.  The actual, as opposed to the stated, goal of four years of study is that teachers should learn how to teach on the job.  Many can't, and don't.


NEEDED CHANGES IN PRIMARY DEGREE PROGRAMS

So that primary trainees have a proper foundation for working on the curriculum subjects taught in schools, they require a broad liberal arts base which includes coursework in child development and language (particularly reading and writing) taught by specialists.  Rather than studying watered-down versions of essential disciplines (e.g. Educational Philosophy, Educational Psychology and History of Education), they need to work within the disciplines themselves in ways suited to their capacities and responsibilities.

In view of the amalgamations that have recently taken place between universities and CAEs, changing the curriculum in such an apparently radical way could readily be done.  But such a change would require solid planning by academics with a sound grasp of both the essentials of their subject and their bearing on schooling.  And it would require teacher educators to respond much more seriously than they have yet done to program criticisms offered by their students and by teachers in the Arts and Sciences.

If, instead of Education courses, pre-service programs contained a solid liberal arts component complemented by components on the primary curriculum subjects and cognitive growth in children, lecturers with a sound knowledge of schools and children could be much more fully involved than they are at present both in teaching core subjects with a school focus and in coaching prospective teachers in schools.  Subjects like Literature, History, Biology, or Mathematics, approached in ways suitable to prospective primary teachers, could be taught by experts.

As well as serving an obvious educational function, such an arrangement could save schools a great deal of money, since teacher educators could be paid for their work in schools by their training institutions.  It would have the additional advantage of enabling trainees to forego lightweight electives and spend much more time teaching in schools under the supervision of a wider range of able and experienced supervisors.

 RECOMMENDATIONS 

PRIMARY DEGREE PROGRAMS

The current primary B.Ed. course structure -- which allows trainees to spend, on average, less than 50 per cent of their time on their teaching subjects and on the discipline-specific skills needed to teach them -- requires a major overhaul.

If Education courses (e.g. Sociology of Education, Philosophy of Education) were dropped, and if study of the common learning areas were combined with work on child development and language (especially reading and writing), trainees could receive the broad general education needed in their chosen profession.

Teaching Practice in schools, under the supervision of outstanding teachers and teacher educators, should be a much larger component of Degree programs than it currently is.  This could happen if current financial arrangements for practice teaching supervision were altered.


SECONDARY DEGREE PROGRAMS

Although secondary B.Ed. students devote more time to their teaching subjects than do primary students, they are given too few courses in them, too many lightweight electives and Education courses, and far too little basic grounding in related subject areas.  Often, aspiring Science teachers with a major in, for instance, Biology have done little or no tertiary work in the other sciences.  Similarly, the program of study completed by graduates who are expected to teach English to senior pupils contains such huge gaps -- e.g. centuries of poetry -- that the perspective underlying a sound approach to literature is missing.

One reason why the time allocation for core subjects is so important is that trainees often have mediocre school records in the subjects they propose to teach.  Most three- or four-year teacher training programs do not require tertiary entrance scores at the higher levels of proficiency in English or Mathematics.  Admittedly, college and university departments warn new B.Ed. students that unless they have done well in the most demanding, rather than the easiest, English or Maths units, they will have difficulty passing a tertiary course in, respectively, the Humanities or the Sciences.  Yet many with poor credentials manage to scrape through anyway.

Because secondary core subjects are subdivided even more thoroughly than primary ones, mastering each subject in the time allocated to it is especially problematic.  Students preparing to teach English, for example, normally have to study Language, Literature, Drama, and Teaching Method for each of their first three years.  In Method courses, as well as being given help in teaching Language, Literature, and Drama, they work on the English syllabus, ESL, Children's Literature, Special Education, and Remedial Reading.

At best, therefore, the understanding of subject area content acquired by trainees is patchy;  and because it is, their pedagogical skills are normally shaky indeed.  Since many choose not to read in their leisure time, their knowledge base is riddled with holes.


NEEDED CHANGES IN SECONDARY DEGREE PROGRAMS

Although in every teaching area the secondary B.Ed. program provides some solid work in aspects of the subject to be taught, a much more thorough training is needed.  If that training were available, students transferring from B.Ed. to B.A. or B.Sc. programs might be awarded two academic credits for two years' work in, for example, Science, Mathematics, History, or English Literature, instead of the one academic credit more usually given.

Education courses and undemanding electives should be replaced by work in the subjects to be taught and in related subjects -- e.g. Philosophy, Social Psychology.  As in altered primary programs, teaching practice should be more extensive, and more carefully supervised by teacher educators as well as school staff.

 RECOMMENDATIONS 

SECONDARY DEGREE PROGRAMS

Major changes in course structure are needed to give secondary trainees the solid knowledge of their teaching subjects required in schools.

Education courses and undemanding electives should be replaced by:  (1) more thorough work in the students' teaching subjects, and in related subjects (e.g. Philosophy, Language and Cognition), (2) more solid method work in every pertinent aspect of each teaching subject, and (3) more extensive supervised teaching in schools.


PRIMARY AND SECONDARY Dip.Ed. PROGRAMS

When students undertake a one-year (full-time) or two-year (part-time) Dip.Ed. course after completing a first degree at university, it is usually assumed that they will know enough about their teaching subjects not to require additional work in them.  This assumption is false.  As Neville Webb of the University of Sydney has pointed out, "Graduates often find that their undergraduate studies bear little relation to the content that they are required to teach in schools." (23)

Ordinarily, Dip.Ed. students are given some solid work at university in two core subject areas before embarking on a year's teacher training -- an improvement over the situation of B.Ed. students.  But, typically, university Pass degree courses are full of gaps in the subject areas required by school teaching.  Science graduates expected to teach high school Physics and Chemistry often have "no background in one of these subjects since their school days." (24)

An additional problem is that many of the weaker Pass students, who are unable to get jobs outside teaching, go into Dip.Ed. programs as a last resort.  Present entrance requirements throughout Australia for the Dip.Ed. stipulate a Pass degree and nothing more.  Students with conceded or bare passes (25) in the subjects they propose to teach are admitted without question;  and once they are admitted, most get through the course.  The failure rate in Dip.Ed. programs in many institutions is remarkably low.

In primary Dip.Ed. programs, difficulties engendered by insufficient knowledge of subject matter or poor academic records can be particularly acute. (26)  Present teacher training structures don't give trainees the broad familiarity with each teaching subject, the range of classroom materials suitable for them, or the imaginative ways of teaching them, which they need.  Capable primary students can of course acquire from their training useful information and skills in areas they know little about;  but most have to pick up essential knowledge through trial and error when they are teaching full-time.

The most obvious way of remedying basic deficiencies in our graduates' knowledge of their teaching subjects, and of the Liberal Arts more generally, is to restructure their entire courses of study.  In their undergraduate B.A or B.Sc. programs, Arts and Science courses for aspiring secondary teachers could be offered along with courses intended for all students of the Liberal Arts.  In the Dip.Ed. program, inessential Education courses could be replaced by courses in child development, language, and pedagogy;  and all practical training could be done in schools under the supervision of outstanding teachers and teacher educators.

For trainees with a strong interest in learning-disabled pupils, special programs of instruction should be set up along lines already established in the better university programs here and overseas (a more detailed discussion of the programs required for learning-disabled pupils is found in Chapter 4).  Although our traditional training institutions offer work in Special Education, many do not begin to provide courses that are thorough enough.  More full-time programs of at least a year's duration, following first-degree courses, would help solve an Australian problem which, by international standards, has received inadequate attention.

 RECOMMENDATIONS 

B.A./B.Sc. plus Dip.Ed.

Entrance requirements for the Dip.Ed. program should be more rigorous, so that students with conceded passes in their proposed teaching subjects are not admitted.  Graduates should possess at least one Credit in the major secondary teaching subject they propose to teach, and at least two Credits in the primary teaching subjects covered by their program.

The structure of the first degree/end-on Dip.Ed. program should be reorganised so that trainees receive a sounder, more unified and thorough academic preparation, more useful pre-service training in pedagogy, language work, and child development, and more intensive supervised work in schools.  For suitable candidates, programs in Special Education of at least a year's duration should be introduced more widely.


METHODOLOGY IN TEACHER TRAINING PROGRAMS

At every level of formal education there are three methods of teaching and learning, each of which has clearly defined aims. (27)  They are:

  • Didactic instruction, which involves teacher talk and the use of textbooks.  It is designed to create an organised body of knowledge.
  • Coaching, which is one-to-one instruction or small group tutoring in the basic skills of learning -- i.e. reading, writing, speaking, listening, observing, calculating, measuring, estimating, designing, performing in the expressive arts, problem-solving, and exercising critical judgment.  By means of questions, explanations, and practical assistance, able practitioners help pupils to acquire theoretical and practical expertise in the major curriculum areas.
  • Socratic discussion, which is purposeful, analytical conversation about ideas and values.  Its object is to illuminate perennially important issues raised in high quality imaginative and discursive literature.

Since teacher educators are rarely if ever observed in the classroom, the extent to which they rely on each of these methods of teaching is not known.  Staff who come to class unprepared, or leave the room while students complete tutorial exercises, or regularly give to students the full responsibility for running "seminars" or small group work, develop reputations for laziness but do not risk demotion or job loss.  And those who are habitually responsible for deadly boring lectures repeat their errors for years, undeterred.


THE DOMINANCE OF THE LECTURE

Despite the absence of research on methods of instruction in teacher training programs, reliable reports suggest that the dominant method by far, around the world, is the formal lecture.  This is disturbing, not simply because it is well known that a diet of lectures produces passivity in students and fails to produce imaginative and flexible thinkers, (28) but because prospective teachers need teaching models to emulate.  The lecturing model is the least suitable one for them, for a reason that should be, but has never been, clear to the organisers of teacher training programs:  in schools, formal lecturing is inappropriate.

What happens to the vast majority of Teacher Education graduates, as John Goodlad's influential A Place Called School has shown, (29) is that they devote 85 per cent of their classroom time -- far too much, Goodlad says -- to informal lecturing:  i.e., teacher talk.  The obvious reason for this is that people cannot do what they have not been taught to do.  Prospective teachers who have been trained primarily or exclusively through teacher narration, description, explanation, and demonstration rely heavily on these forms of talk themselves.  When their performances are inspiring, they of course promote further, individual inquiry.  But teacher talk cannot foster the spontaneous, habitual, active give and take among a group of learners long recommended for schools.  Other instructional methods are needed for that.

In vocational areas directly and habitually concerned with human conduct, expertise which depends upon maturity and imagination, and which therefore requires training in the collaborative modes of instruction which inspire personal, relational growth, is needed.  In vocations whose focus is much more abstract, impersonal, and technical, other forms of training are appropriate.  Since so much of the work done by school teachers has to be highly personal and individual because of the developmental needs of children, it follows logically that trainee teachers should be instructed in ways which prepare them for habitual classroom interaction.

More and more, in countries with a serious interest in the Humanities as well as the Sciences, schooling has been organised along lines which encourage a high degree of personal collaboration, as well as didactic instruction and solitary reflection.  Increasingly, educators with expertise in cognition are pointing out that strong educational achievement depends upon balanced human development.  The reasoning skills required by computer programming and the study of poetry are very different, as are the problem-solving abilities demanded in defence research and infant school teaching.  The blossoming of these skills presupposes substantially different modes of formal study -- each one valuable, and all of them, in their total effect, responsible for full cognitive growth.

"Covering" a great deal of educational ground is important at the higher educational levels, particularly in curriculum areas which require a very full and complex information base;  hence in subjects like Mathematics, Computer Programming, Economics, or Chemistry, lecturing (balanced by some tutorial work) is suitable.  But analysing ideas in depth, especially in Humanities subjects which require careful deliberation in handling issues and values, is equally important;  thus in disciplines like Literature or Philosophy, regular small group work and discussion involving all students (balanced by some lecturing) are essential.  Large classes are legitimate for lectures;  but for more collaborative forms of instruction, they are nearly useless.

Already many amalgamated tertiary institutions responsible for teacher training are suffering under program changes, engendered by Commonwealth funding and enrolment policies, which have done away with all manageable groups of 25 or 30 students and generated, instead, groups of 300.  This is a form of lunacy.  Prospective teachers need regular tutorial work -- not an exclusive diet of lectures.


MORE APPROPRIATE TEACHING METHODS

Socratic Discussion

The term "Socratic discussion" derives from Socrates' habit of conducting dialogues in the streets of Athens with anyone willing to engage with him in the pursuit of truth.  Its nearest contemporary Australian equivalent is the well-run tutorial:  an essential program component for prospective teachers.  For an extended period -- anywhere from 20 minutes to two hours -- teacher and pupils explore a single large issue, having first read assigned material substantial enough to promote solid analytical classroom talk.  At every level of formal education, starting with kindergarten, this mode of instruction fosters highly active learning.

The aim of Socratic discussion is to illuminate the subject at hand by means of a leading question which leads to further questions and exploration.  There is never a single "right" solution to the large problem posed, even though, at many junctures, there will be correct or incorrect answers (e.g. the question "What, exactly, does Plato say about the difference between the pleasant and the good?" has a correct answer which pupils can locate in the text).  If the topic is of permanent interest, it will almost certainly inspire a variety of thoughtful reactions rather than a single definitive response.

Good discussion leaders do not commend every opinion expressed, or permit interminable digressions.  They encourage everybody to participate, to think before bursting into speech, to pursue the implications of their own remarks, to produce evidence in support of their views, and to alter opinions which are demonstrably unsound.  The habitual process of sharing ideas and refining them in an orderly and encouraging setting not only gives students a grasp of basic analytical procedures;  it promotes a matter-of-fact reasonableness in handling conflict or oddity, and it builds tolerance for differences in point of view.


Coaching

In every educational setting, coaching is designed to give students essential skills.  Among the skills needed by trainee teachers are the ability to ask good questions;  give clear directions;  set up experiments;  explain new concepts;  select interesting and appropriate material for study;  generate interest in the task at hand;  talk easily with children about their work;  comment helpfully on pupils' writing;  devise stimulating and reliable assignments, tests, and essay questions;  assess written work;  solve problems of all sorts;  prevent disruption and interference;  and make critical judgments in a host of situations.

Unfortunately, our present teacher education structures do not require prospective teachers to master specific skills of this kind.  Because influential educationists believe in the importance of courses which are not content-specific, untold hours of training which should be devoted to pedagogical work in specific disciplines are almost totally wasted on general skills acquisition.  In effect, trainees are told that if they master broad problem-solving techniques, they will be equipped to handle children.  But when they are required to teach Music or Sport or Science in schools, they quickly discover that the skills required aren't interchangeable.  It takes subject-specific work and, often, a great deal of assistance from able staff, to play a recorder, make jewellery, solve a problem in calculus, interpret a poem, or grade a test question on World War II.

The fact that teacher trainees are not usually given thorough, systematic instruction in evaluating, commenting on, and grading student work is particularly disturbing in the light of current assessment trends in most States.  Because of the increased role of "continuing assessment" in schools, primary and secondary;  the weight given to portfolios in the senior years of school, especially in Victoria;  such new requirements for teachers as the preparation of literacy and numeracy "profiles" for all pupils (e.g. in Western Australia and Victoria);  and continuing resistance to national and international testing (discussed in greater detail in Chapter 3), the need for ensuring that prospective teachers are highly skilled assessors is pressing. (30)

Only rarely, in existing teacher training programs, is sufficient time devoted to instruction in the systematic acquisition of essential subject-related teaching skills, with student teachers helping one another as well as being helped by the teacher educator in charge.  And almost no time is set aside for instruction in the skills teachers need to handle unruly pupils, autocratic administrators, angry parents, or unco-operative colleagues.  The common difficulties faced by professionals every day in school, in and out of the classroom, are put in the too-hard basket or left to chance.  Traditional training institutions work on the assumption that it is sufficient for trainees to know something about the skills expected in schools -- they don't actually need to possess these skills before being licensed.

Trainees fortunate enough to work under able teachers during practice teaching periods are often given useful advice about how to handle difficult children, colleagues, or parents.  But systematic teaching of the skills needed to handle commonplace difficulties effectively is not given to all prospective teachers, either in teacher training institutions or in the schools used for teaching practice.  And trainees are not in schools for long enough periods to acquire essential skills.  Radical reforms in method are therefore called for in order to prepare prospective teachers adequately for the jobs they are expected to do.

 RECOMMENDATIONS 

MORE APPROPRIATE INSTRUCTION FOR PROSPECTIVE TEACHERS

Socratic discussion, whose goal is to create a sounder understanding of ideas and values through the analysis of significant imaginative and discursive writing, should be a central activity in the pedagogy component of teacher education programs.  Trainees should experience many first-rate Socratic seminars, and be expected to lead them successfully, so that they can carry on successful discussions in schools.

So that prospective teachers can coach children in such basic skills of learning as reading, writing, problem-solving, and making critical judgments, and so that they are confident about the levels of mastery which they themselves possess, their training must include discipline-specific, closely supervised coaching in all the basic skills of learning and teaching.  The bulk of the coaching program should be implemented in schools, but under-graduate or pre-service work in the subjects to be taught should include coaching/tutorial practice.

Trainees must be taught the skills required for handling the typical conflicts which occur in schools, both within and outside the classroom, so that they can manage these conflicts in a professional manner before they are licensed to teach.  Essential groundwork in these areas can be covered in method work undertaken while supervised teaching is being completed.


ALTERNATIVE ROUTES INTO TEACHING

For some years, in Australia and overseas, authorities responsible for hiring teachers have experimented with alternative means of licensing new staff, especially those dissatisfied with their current work or anxious to rejoin the work-force after a protracted absence.  Some of those means -- notably, six-week crash courses on subjects in which trainees have not majored at tertiary institutions -- are dubious indeed.  But others, such as year-long apprenticeships/internships under the supervision of master teachers, or probationary internships overseen by department heads and heads of school (long in operation in non-government schools), have worked successfully for some time.

In America, through special retraining programs begun at major universities such as Harvard, mature adults working in areas suffering from an under-supply of teachers -- e.g. Mathematics and Science -- have been encouraged to enter teaching.  In the better traditional courses for people seeking mid-career changes, trainees spend a semester on coursework and a semester as teaching interns.  The emphasis in retraining programs of this type is on preparing people to teach in disadvantaged areas.  Setting up networks, involving the university and local city schools, has been a cornerstone of reform effort. (31)

Of the more innovative overseas programs which could serve as useful models for Australia, Professor Martin Haberman's is attracting the most interest.  University graduates who pass his rigorous selection interview, having already satisfied State academic requirements for aspiring teachers, undertake paid internships in tough inner city schools under the supervision of outstanding teacher-coaches who have themselves been carefully chosen and interviewed.  The vast majority are successful, and remain in schools like the ones in which they receive their training.


THE A.C.P. IN HOUSTON

The largest, and by reputation the best, Alternative Certification Program (ACP) in the United States has been mounted by the Houston Independent School District (HISD), which is responsible for 200,000 -- mainly black and Hispanic -- pupils.  Twenty per cent of the city's teachers are now going through its program.  In 1991 1,200 students, many of them of mature age, applied for 200 new ACP places;  so those who were admitted received outstanding ratings on the Haberman interview.

Before they begin their internships, students accepted into HISD's training course are given six intensive weeks of pre-assignment training, including observation periods in schools complemented by obligatory written work on what has been observed.  Once they begin teaching full-time, with pay, they complete a 10-week evening course at the HISD regional centre.  Covering topics designed to prepare them for standard school tasks, outside as well as within the classroom, these sessions give them survival skills rarely provided in traditional teacher education programs.

In addition, all students admitted into Houston's ACP program must successfully complete two semester courses in specified subject areas at one of the State universities.  Primary trainees work on Reading/Language and Child Development;  secondary trainees work on Reading/Language and Assessment in the subject area which they teach;  ESL trainees work on Reading/Language in the subject area which they teach, and on Instructional Design in the second language used.  For those who train in Special Education, special instruction is provided.  When HISD's candidates receive their teaching degrees, they are well-equipped to stimulate and encourage children with varied histories, but especially histories of failure.

Staff connected with traditional teacher education, instead of opposing the HISD program and its graduates as they did initially, are now involved in its implementation;  for the excellence of ACP in action is not in doubt.  So that every aspect of relevant professional development is suitably covered, the requirements agreed upon by ACP leaders in other parts of the State and the country are compared with those set by Texas bodies awarding credentials and university teacher education programs.  Additional checks of program quality are provided at national conferences, supported by the US Department of Education.

Employment arrangements for ACP administrators can vary greatly, and constitute an agreeable job incentive.  People who supervise interns and design some or all of their coursework can be employed jointly by universities and school districts, or separately by either, with varying degrees of responsibility and temporal commitment.  Because of the wide range of work that needs to be done, all of it requiring expertise, a comparable range of rewards exists.  As well as offering financial benefits, involvement in ACP training can provide leadership opportunities and forms of personal satisfaction for outstanding teachers unavailable in conventional teacher training programs or conventional schools. (32)


IMPLICATIONS OF THE A.C.P. FOR AUSTRALIA

At present Australia has no means of offering capable university graduates without teaching credentials a reliable entry into teaching.  Nor are there any teacher training programs which give excellent, paid, on-the-job training and pertinent coursework in pedagogy and child development to aspiring teachers who possess a good knowledge of the subjects they want to teach.

A great advantage of introducing an ACP in Australia is that, like its counterparts in the US and the UK, it would enable us to attract into teaching qualified graduates who have worked in other professional areas or been out of the work-force for years.  Mature adults who are unable to undertake traditional training programs would have a trustworthy way of becoming qualified teachers.

In action, an Australian Alternative Certification Program modelled on Houston's would be able to demonstrate the advantages of (1) well-supervised paid internships, and (2) concurrent coursework which prepares aspiring teachers to work effectively with all children, but especially difficult ones, by giving them the pedagogical and the interpersonal skills needed to create genuinely stimulating school environments.

Ideally, ACP concurrent coursework offered here would be taught, as HISD's is, by star teachers and star teacher educators.  It would include solid work in the teaching of reading and writing, child development, and assessment, and substantial practice in Socratic teaching and coaching.  School supervision, like Houston's, would ensure that networks of able teachers, school heads, and teacher educators were closely involved.  Licensing would depend upon the successful completion of a year's program of study (internship plus coursework) approved by appropriate State accreditation bodies.

Although Australian teacher educators, teachers, and administrators have not been surveyed on the subject of Alternative Teacher Education, grass roots support for a good, reliable alternative to the Dip.Ed. program has existed for years.  And we need more able teachers than we now have to work for substantial periods in difficult urban, or remote rural, schools.  The Haberman interview, which small but increasing numbers of Australians are expressing an interest in being trained to use, is particularly good at predicting teacher suitability for these schools.

 RECOMMENDATIONS 

There should be a dual licensing system in Australia to accommodate the graduates of traditional and alternative teacher training programs.

Alternative Certification Programs (ACPs) should be instituted here, as they have been overseas, for tertiary graduates with a sound knowledge base and high scores on the Haberman interview (or its equivalent).

As an alternative to Dip.Ed. work, year-long paid internships under the supervision of outstanding teacher-coaches should be set up.  Interns should undertake approximately one night of coursework per week in pedagogy (incorporating Socratic teaching and coaching), language work, child development (where appropriate), and basic school survival skills.

This coursework should be approved by accrediting bodies in much the same way that Dip.Ed. coursework has been approved over the years.



ENDNOTES

1.  This study, carried out by Dr Murray Print and described in the Melbourne Sunday Times on 22 July 1990, found particularly large gaps in history teachers' knowledge of Pacific, State/local, Renaissance/Reformation, South American and British Commonwealth history.  According to Dr Print, teachers were not as concerned about problems in their lack of knowledge as were teacher educators.

2.  Australian College of Education survey figures cited in "Calculations", Education Monitor, Autumn 1991.

3Ibid.

4.  These facts about "Student Images of Teaching:  Factors Affecting Recruitment" were published in the Melbourne Herald-Sun, 29 May 1991.

5.  See Hannah Arendt, "The Crisis of Education", Between Past and Future, Faber, 1961, p. 189.

6.  On 23 July 1991, the Melbourne Herald-Sun said that the median HSC mark for entry into the Rusden branch of the Victoria College of Education was 229 out of a possible 410.  At Melbourne University in the same year the cut-off for Medicine was 368;  for Arts, 347;  and for Agriculture, 279.  At La Trobe, 261 was the minimum required for Nursing.

7.  Luke Slattery reported these facts in The Age, 18 December 1990.

8.  The Tertiary Entrance scores cited here refer to Queensland.  More detailed information about admissions policies can be found in Susan Moore, Teacher Training:  Entrance Requirements, Education Study Paper No. 21, September 1990.

9.  "The Best Schools in the World", The Bulletin with Newsweek, 3 December 1991.

10.  See Lauchlan Chipman's discussion of this test in the Melbourne Herald-Sun, 29 May 1991.

11.  See further Moore, Education Study Paper No. 21, op. cit.  According to The Australian, 24 September 1988, 40 per cent of graduates failed to pass an undemanding literacy test at the University of Western Australia in 1988.

12.  A much more detailed discussion of the Haberman Selection Interview can be found in Susan Moore's "A Beacon for Teaching:  Houston's Alternative Certification Program", Education Monitor, Autumn 1992.

13.  See especially Watson, Hatton, Squires, and Soliman's "School Staffing and the Quality of Education:  Teacher Adjustment and Satisfaction", Teaching and Teacher Education, Vol. 7 No. 1, 1991, pp. 63-77.

14.  Australian College of Education figures ("Calculations", Education Monitor, Autumn 1991) show that 4.3 per cent of state school teachers remain for over 15 years;  for Catholic schools, the percentage is 4.27;  for other non-government schools, 7.34.

15.  See Geoffrey Barker's article on the AST1 award in the Melbourne Age, 25 July 1991.

16.  On the subject of "locality allowances", Geoff Baldwin of the NSW Ministry has been very helpful.

17.  Worth mentioning in this connection is the widely publicised salary-leadership package introduced two years ago at a major independent school by its new headmaster.  See R.D. Townsend's "The Restructuring of Salaries at Sydney Grammar", Education Monitor, Autumn 1990.

18.  "The Provision of Professional Development in a Devolving Education System", Research Services, Department of Education, Queensland, 1991, cited in National Overview.  The problem is not confined to Australia.  In America, a recent study of teacher attitudes and job satisfaction, published by Emily Feistritzer of the National Center for Education Information in Washington DC, reports that well over half of the teachers interviewed considered their initial academic preparation inadequate.  The vast majority felt that they did not know enough about their teaching subjects, or subject areas closely related to them, to perform well in the classroom.  See C. Emily Feistritzer, "Conflicting Reports Concerning Teachers", Network News and Views, November 1990.

19.  For a more detailed discussion of the amount of time spent on teaching subjects and on other courses, see Susan Moore, Teacher Training:  How Students in Primary Courses Spend Their Time, Education Study Paper No. 18, May 1990.

20.  See Discipline Review of Teacher Education in Mathematics and Science, Volume 1:  Report and Recommendations, Department of Employment, Education and Training, AGPS, October 1989.

21Ibid.

22.  See Curriculum Provision, Victorian Ministry of Education and Training, State Board of Education, 1991.

23.  See Neville Webb, "The Effect of the Movement of Teacher Education from CAEs to Universities", Australian College of Education Special Interest Article, March 1991.

24Ibid.

25.  A conceded pass is awarded on condition that the student not repeat the subject at a higher level.

26.  In Alternative Teacher Certification programs in the United States, notably the best ones like Houston's, trainees are not eligible for admission to primary programs unless they have done a year's work in Reading, three semesters of English, and at least one semester each of Maths and Science.

27.  This definition of the three basic modes of teaching and learning is provided in Mortimer J. Adler's The Paideia Proposal, Macmillan, 1982.

28.  These negative effects of lecturing are particularly marked in Japan, as is well known.  See further Susan Moore, "Does Class Size Matter?" Education Monitor, Spring 1989, reprinted in Network News and Views, November 1989.

29.  Reports on the percentage of American class time given to teacher talk regularly refer to Goodlad.  See, for example, Tommy Tomlinson's Class Size and Public Policy:  Politics and Panaceas, United States Department of Education, March 1988.

30.  In the newer and better alternative certification programs set up in America, secondary trainees are expected to take at least one semester course in Assessment alone;  for the complexities of handling varieties of student work are well understood.

31.  For a more detailed discussion of mid-career and other retraining programs in American inner city schools, see the Alumni Bulletin of the Harvard Graduate School of Education, Spring/Summer 1991.

32.  The information about Houston's Alternative Certification Program contained in this report is also provided, but in greater detail, in Susan Moore's "A Beacon for Teaching", op. cit.

Introduction

CONTENTS

Introduction

  1. The Recruitment and Training of Teachers
    • ATTRACTING BETTER TEACHERS
    • THE STRUCTURE OF PRE-SERVICE PROGRAMS
    • METHODOLOGY IN TEACHER TRAINING PROGRAMS
    • ALTERNATIVE ROUTES INTO TEACHING
  2. Curriculum:  Essential Knowledge
    • A CORE CURRICULUM
    • CULTURAL LITERACY
    • TECHNOLOGY AND CIVILISATION
    • PROCESS VERSUS CONTENT
    • THE TYRANNY OF RELEVANCE
    • THE POLITICISATION OF SCHOOL COURSES
  3. Assessment:  Equity and Accountability
    • BASIC SKILLS TESTS
    • GENERAL KNOWLEDGE TESTING
    • EXAMINATIONS IN CORE SUBJECTS
    • NEW ASSESSMENT PROCEDURES IN VICTORIA:  THE VCE
  4. School Structures:  Devolution and Diversity
    • CHANGES IN MANAGEMENT
    • SCHOOL CHOICE
    • GREATER FLEXIBILITY FOR TEACHERS AND PUPILS
    • PROGRAMS FOR THE POST-COMPULSORY YEARS


INTRODUCTION

THE quality of Australian schooling concerns us.  Although dozens of documents on such key matters as the recruitment and training of teachers, the curriculum, assessment, and school management have been produced by national and State bodies, major problems in each area remain.  That is why we have written this report.  It is time real, not cosmetic, solutions to long-standing educational worries were offered to Australians in a language which neither obscures nor evades their underlying causes.

Educational research on adult literacy has shown that a large number of adults -- 68 per cent in a sample recently tested -- cannot handle ideas or arguments at the level of a standard newspaper editorial. (1)  Employers complain that high school graduates lack higher order thinking skills, flexibility, discipline, numeracy, and the ability to communicate satisfactorily in speech and writing. (2)  Parental dissatisfaction with the public school system has caused a steady drift to private schools. (3)  To avoid immediate unemployment, more students are staying on in school after Year 10, but without adequate motivation or interest in available programs.

A failure to solve problems like these springs from a basic confusion of aims.  Believing schools to be vehicles for transforming society, reformers have altered school programs in inappropriately programmatic ways.  Focusing on short-term instrumental goals, they have organised a curriculum around current political and social issues and rigidly defined vocational or "life" skills instead of concentrating on the acquisition of essential knowledge, a concept which is elaborated in Chapter 2.

If the ultimate goal of schooling is to help all people to become educated, then schools must expose pupils to the large world of learning and provide clear guidelines for exploring it.  So that children are equipped to be responsible citizens and capable workers, and so that they can lead decent and fulfilling lives, they need to be given a general -- i.e. liberal -- education which will sharpen their minds, motivate them to engage actively in learning, and help them to adapt to rapidly changing circumstances.

Our aim is to facilitate liberal learning for all pupils by presenting a broad overview of our school situation, indicating the essential issues requiring attention, and suggesting immediate remedies for large, unresolved problems.  A great deal of research buttresses our arguments.  But instead of providing an exhaustive account of Australian educational needs, we describe key areas which require thorough scrutiny.

In each chapter we refer to events occurring in every Australian State and in overseas countries.  Debate about education policy in Australia has often been insular:  there is a lack of awareness of major developments overseas from which we might learn.  As a result of the international conferences, our discussions with educational reformers and policy-makers here and abroad, and our subscriptions to Australian and overseas journals and magazines, our awareness of the global context in which a report on Australian education belongs is acute.  Whenever developments abroad have seemed directly pertinent or useful to the Australian situation, we have said so.


MAJOR CULTURAL WORRIES IN THE 1990s

Exciting developments are taking place in schools throughout the world.  Pupils are acquiring knowledge undreamt of when their parents were in school.  At the same time, however, there is widespread discontent about levels of cultural literacy in English-speaking countries.  Like their peers in North America, the UK, and New Zealand, Australian children engage in sport, watch television and videos, listen to rock music, and play computer or arcade games in their spare time.  For many, reading is not a first or regular choice.

Partly because of the great expansion of information during the past half-century, the experience of rapid social change, the weakening of traditional forms of authority, and the preoccupation of the media with the present, children have been encouraged to feel that approaches to the future should be divorced from a knowledge of the past.  The experience of earlier periods in human history has come to be seen as irrelevant to young people and their teachers, as our chapter on curriculum explains.

In response to the prevailing passion for relevance, thinkers in all the academic disciplines have agreed that students need a broad cultural and historical perspective.  Overseas, Michael Oakeshott (philosophy), Hannah Arendt (history), Michael Polanyi (chemistry), Edward Shils (sociology), and Northrop Frye (literature) have recommended, for all pupils, a thorough grounding in the Liberal Arts.  Yet all too often prospective teachers do not encounter their views;  hence, children never do either.

In Australia there are also educators -- many of them not immediately responsible for teacher training or school program development -- who have decried the absence in our schools of educational programs and practices which promote sound and lasting intellectual and moral values.  Like the authors of the influential American report, A Nation At Risk (1983), they have stressed the importance of self-discipline and hard work in the pursuit of excellence, and they have lamented the slackness apparent in many areas of education.


BARRIERS TO REFORM

Excellence in Australian schools has been frustrated by bureaucracy and centrally-imposed uniformity, a theme developed in Chapter 4.  Schools need to be flexible and autonomous enough to respond sympathetically to the diverse talents, aspirations and needs of pupils, staff and the surrounding community.  With this in mind, our final chapter surveys innovative developments in school organisation both in Australia and overseas.

A further barrier to educational improvement in Australia has been the role of anti-intellectual political reformers in a position to influence the daily lives of schools.  In the name of greater equity, freedom and relevance, they have altered the curriculum in ways which have promoted a levelling down instead of the increased opportunity sought. (4)  For years, the proponents of equal outcomes for all students, anti-élitism, and courses of study focused on the here and now have enjoyed such a stranglehold on school programs that voices calling for sound and broad achievement have been unable to effect significant change.

Education has not escaped the pervasive influence of special interest groups whose focus has not been on educational quality.  Curriculum changes have been initiated by lobbyists pursuing narrow goals.  Powerful teachers' unions have prevented any comparative data about school performance from being released;  and they have blocked the flexibility in awards and conditions which would allow better rewards and incentives for good teachers.  Succumbing to the demands of interest groups, governments have invested ever increasing amounts of money into education without evidence of resulting improvements in quality. (5)

In school classes, among the more striking effects of policies imposed for ideological, rather than educational, reasons are an emphasis on unguided library "research" on current issues;  a focus on "doing one's own thing", and on the "process" of learning, no matter what is "done" or "learned";  a belief that values need to be "clarified", not examined in specific historical contexts;  and the conviction that all pupils need to know is where to acquire information -- they don't actually have to possess it.  The idea that there is such a thing as essential knowledge has been dismissed, without argument or debate, as a form of élitism.

In late 1990, in an attempt to find out whether our average 14-year-olds have a passable knowledge of world geography, Australian history, civics, current events, mathematics, and the expressive arts, an educationist gave groups of them a test which was subsequently published in The Australian.  Fewer than 20 per cent could locate Belgium and Switzerland on a map of Europe or Taiwan on a map of the Pacific region, or identify the two men who immediately preceded Bob Hawke as Prime Minister of Australia, or name the professional areas (art, business, music, politics, sport, or writing) associated with Simon Crean, Arthur Streeton, or François Mitterrand.

These results reinforce those arising from a 1989 survey of knowledge about Australia, and conducted among a sample of Victorian government and non-government schools.  Only 48 per cent of respondents to that survey could locate Canberra on a map;  only 36 per cent could name three members of the Australian Government;  and only 25 per cent could identify the two houses in the Commonwealth Parliament.

More recently, a survey conducted in February this year to mark Ideas for Australia Week, organised by Donald Horne, found that only eight per cent of 200 first- and second-year university students could name an internationally acclaimed Australian scientist or list three countries surrounding Vietnam.  Twenty-five per cent could not identify the largest river system in their country, only one per cent could name three famous 19th-century Australian women, and few could think of well-known Australian painters besides Pro Hart (who appears on a popular television advertisement) or Ken Done.(6)

There can be debate about the particulars of tests like these, but the results suggest that there are large and significant areas of learning omitted from school programs.  Since inessential studies -- for example, "media" work on the success of television ads or soap operas -- are given prime time in many schools, pointed queries about our curriculum priorities are in order.

Why, parents are entitled to ask, do students know so little about such fundamentally important matters as the difference between democracies and dictatorships, and the effects of this difference on 20th century history and culture?  And why aren't children encouraged to read more diverse literature from infant school onwards?  How can they enter the work-force without a secure knowledge base?


EDUCATIONAL QUALITY:  SOME USEFUL POINTERS

The desire of ordinary Australians for educational quality and breadth cannot be ignored indefinitely.  It matters enormously whether teaching staffs honour such basic principles of school policy as:

  • the impartial pursuit of truth;
  • the transmission of knowledge of major human achievements;
  • the conferring of a fundamental understanding of basic human rights and the responsibilities of citizenship;
  • the fostering of individual talent;
  • fair and objective assessment, including external testing and a willingness to distinguish clearly between competent, outstanding, and unsatisfactory student performance;
  • the maintenance of order and discipline;
  • the provision of career opportunities.

When these principles are violated under the influence of a political agenda, adults who care about educational accomplishment, and who value a balanced emphasis on knowledge for its own sake and knowledge that is socially useful, understandably question the size of the investment in the system.

Unfortunately, the loose trends of a quarter-century are unlikely to be reversed unless radical changes are made in teacher training.  Of the reforms recommended in this report, none are more important than those discussed in Chapter 1, "The Recruitment and Training of Teachers".  For upon wiser teacher selection and training practices, the success of all other basic change depends.

To restore the idea of essential learning, to make real the concept of cultural literacy, and to transmit lasting values, we must attract into teaching students of the highest calibre.  Almost everyone acknowledges that we are at present failing dismally to do this.  Teacher educators themselves are stating, more and more freely, that we won't lift our standards sufficiently unless the structure and content of teacher education programs, and selection procedures for prospective teachers, are significantly altered.

At present, the gap between what ordinary schools demand and the skills imparted in traditional teacher education programs is glaring.  Another major worry for people considering teaching as a vocation is the fact that on-the-job incentives, compared with those available in other professions -- e.g., salaries, leadership opportunities, support networks -- have been so paltry for so long.  In view of the resistance to serious study now so prevalent in schools everywhere, teachers need rewards commensurate with the mental, emotional, and physical strains certain to be theirs both in and out of class.

Almost all outstanding graduates of the best alternative teacher certification and in-service programs abroad announce that full-time teaching has brought them immeasurable rewards.  But in the schools in which they are trained and in which they settle into teaching, such graduates are given skills and support structures of striking quality.  In Australia there are no training opportunities for teachers remotely comparable to the best ones in Hamburg or Cologne, Houston or Milwaukee;  yet there need to be.


A FINAL WORD OF EXPLANATION

For the sake of manageability, our discussion of schooling has been divided into four interlocking chapters.  Each chapter covers an area of educational concern which we regard as critically important:  The Recruitment and Training of Teachers;  Curriculum;  Assessment;  and School Structures.  After describing large continuing educational issues in each area, and giving them a cultural context, we suggest manageable approaches to all of them.

We recognise that a major effort will be needed to institute these reforms, but we nonetheless believe that significant change can be effected.  On the basic principles which should guide education, there is probably more agreement in the community than on virtually any other area of public policy.  Whatever their ethnic, racial, political, or social differences, parents want their children to be literate and numerate, to possess a sound general knowledge, to understand their rights and obligations as citizens, and to have self-discipline and a positive attitude to work.  They want reliable information about their children's academic performance;  they want schools which are responsive to the particular educational needs and talents of their children;  and they want teachers they can trust and respect.  Now is the time for effecting reforms based on these concerns.



ENDNOTES

1.  See Rosie Wickert, No Single Measure:  A Survey of Australian Adult Illiteracy, Sydney College of Advanced Education, 1986.

2.  See, for example, Education and Industry:  Developing a Partnership.  A Report on Employers' Views of the Victorian Education System, Employers' Education Consortium of Victoria, March 1989.  See also "A Business Perspective", Education Examined:  Curriculum and Assessment in the 1990s, Current Issues, 1990.

3.  Geoffrey Partington, "Why Parents are Choosing Independent Schools", Education Monitor, Autumn 1990.

4.  A representative example of the thinking of reformers of this stamp can be found in the speech "Vision for the Future" by the then-Minister for Education in Victoria, Joan Kirner, delivered at the Primary Principals' Conference at Mannix College on 29 November 1988.

5.  Between 1975/76 and 1988/89 in Victoria, expenditure per pupil increased from $3,388 to $4,372 (29 per cent in real terms).  The ACER Report, Literacy and Numeracy in Victorian Schools:  1988 found that, in general, minimum standards of literacy and numeracy among Victorian 10-year-olds and 14-year-olds had not improved between 1975 and 1988.

6.  Results of this survey were discussed in The Sydney Morning Herald, 6 February 1992.

Tuesday, March 10, 1992

Privatisation:  lessons from public utilities

FOREWORD

Privatisation, the transferring of property rights (generally in major utilities) from government to private hands, is now being recognised by governments across the political spectrum in many parts of the world as a practical way of reducing waste, inefficiency and economic loss to the community.

Despite growing concern about the need for Australia to improve its economic performance, there are ominous signs that it is being left behind in a fast-changing world.  After its long history of good fortune, ossified attitudes and structures of privilege are not dislodged easily.

Those with a vested interest in opposing privatisation -- career and status-conscious administrators, feather-bedded employees, suppliers and users of subsidised services and other special client groups and beneficiaries -- remain major obstacles to reform, even as Australia's long-term economic malaise continues to deepen and it becomes increasingly plain that changes must be made.  We have the odd spectacle today of government monopolies spending large budgets on television advertising to defend their performances, and by implication their privileged, protected positions.

It is tempting for politicians to protect obvious advantages for a few voters even if it means greater but diffuse and less obvious economic harm for many.

The community at large which stands to gain from privatisation is not, election results indicate, opposed to it at the polling booth, but more than vague or glib political rhetoric is still needed to establish its credentials.  It must be seen as being immediately realistic, workable and effective.

In this study Richard Wood goes beyond rhetoric to examine the effects of privatisation with detail and economic rigour.  He examines the performance of some major public utilities and the unacknowledged motives that may be behind some of their policies.  His conclusions are realistic rather than Utopian, and the lessons he draws make important reading for those with an interest in political and economic decision-making, and in the future of Australia's economy.

Hal Colebatch


INTRODUCTION

Examining the output, employment, prices and wages policies of publicly-owned utility industries (such as those which supply electricity, telecommunications, postal services, natural gas, rail transport, and so on) provides insights into both possible gains from privatising government-owned enterprises, and some trade-offs involved in choosing different methods of doing so.

In this paper, we first review some of the evidence on the operation and management of public utilities with particular emphasis on electricity supply and telecommunications.  We then argue that the common elements in the policies of various state-owned industries arise from the fact that they are organised along similar institutional lines.

In particular, we focus on the incentives inherent in organising production in government-owned monopolies.  The incentives faced by management and employees in a government-owned monopoly are then contrasted with those in a privately-owned firm operating in a competitive market.  Using these insights, we are able to elaborate on some potential gains from privatisation.  The discussion also highlights some possible difficulties with privatisation, and demonstrates that the gain cannot be expected to be independent of the chosen method of privatisation.

Since we are interested in analysing the effects of institutional arrangements per se, we do not base our argument on assumptions of systematic differences in the attitudes, personalities or abilities of politicians, bureaucrats or private sector workers or managers.  This is not to say that individuals don't matter.  Neither is it suggested that there are no altruistic politicians, or dedicated bureaucrats.  Rather, we argue that incentives point in other directions, and that not only does this explain much about the general features (1) of the behaviour of government monopolies and private firms, but suggests that the only reasonable approach to an evaluation of the consequences of different institutional arrangements is one which focuses on incentives.


PART 1
CASE STUDIES OF PUBLIC UTILITY OPERATIONS

This section summarises some important features of the operation of two publicly-owned utility industries in Australia.  It is based on research done at the Centre of Policy Studies and shall be used in the next section as a bench-mark against which theories of the operation of publicly-owned utilities can be judged.

In a report prepared for the Victorian Government, (2) staff at the Centre of Policy Studies made a simplified model of the State Electricity Commission of Victoria grid to obtain an idea of the costs of supplying incremental or marginal units of electricity to customers in Victoria in different "representative locations" and different "representative periods" of the year (See figure 1).

Figure 1:  The concept of marginal cost


It is important for consumers to know these costs if resources are to be used to our greatest benefit.  If consumers underestimate the cost of obtaining access to electricity they will tend to overuse it.  Conversely, if prices exceed marginal costs, consumers could use more electricity at a cost to the community which falls short of the benefit to consumers.

An important issue to consider in the context of providing goods like electricity and telephone service is that many of the facilities are jointly provided for more than one consumer.  For example, consumers wishing to use the telephone or electricity transmission system at one time of the day can use the same facilities provided to consumers at another time.  Also, a major transmission link operating with excess capacity will simultaneously serve a group of consumers.

Given that it is costly to expand capacity, it would not be efficient to ensure congestion never occurs, or, in other words, to ensure that the marginal benefit of access capacity was always and everywhere zero and thus below its marginal cost.  To ensure efficient use of community resources, it is important that prices charged at times or in locations where current facilities are congested reflect the marginal costs of expanding capacity or excluding other consumers from using the facility.

On the other hand, at "off-peak" times or locations, efficient prices will be lower since capacity is then essentially a "free good" (it has to be more than required by off-peak consumers in order to satisfy peak demand -- see figure 2).

Figure 2:  Peak and off-peak marginal costs with discrete sized units


Further, marginal operating costs are likely to be higher in peak periods when gas turbines, oil-fired plants, or older, less efficient, plants are used to produce electricity.

While the Centre of Policy Studies model produced approximate estimates of the marginal costs of electricity supply in Victoria, it showed divergences between SECV tariffs and marginal costs and some important determinants of SECV costs.

The most important observation is that marginal costs of electricity generation and high voltage transmission vary by location and time much more than do tariffs.  Further, while low voltage distribution, metering and billing costs vary by customer classification, the variation could not be large enough to account for the differences in tariffs by customer category:  tariffs do not appear to be closely related to marginal costs.

While it might be possible for consumers to be categorised and charged different prices so that the average revenue raised from a given category of customers approximated the average costs of supplying that category, the actual tariffs charged by the SECV are not closely related to such categorised average costs.  For example, the cost of electricity used for industrial, commercial and general lighting is much higher than marginal costs at any time.  Even if tariffs were related to average costs, so that, for example, consumers in a particular group who made heavy demands on the system when it is operating at peak capacity were charged a higher average price, the prices would still be inappropriate.  Total demand may be constrained in periods when costs are greatest, but no individual consumer would have an incentive to shift his demand through time.

Similarly, many tariffs charged by the SECV (and other Australian electricity supply authorities) are "block-declining".  The larger the quantity of electricity purchased, the lower is the price charged for an additional unit.

One might be able to justify block-declining tariffs, and higher prices for customers with few alternatives to electricity as an energy source (and thus a lower sensitivity or elasticity of demand to price increases), as a relatively efficient means for raising revenue to cover losses in an industry with large economies of scale.  In such an industry, marginal costs will be below average costs so that efficient pricing (prices equal to marginal costs) would not raise sufficient revenue to cover total costs (average cost times output -- See figure 3).

Figure 3:  Costs under economies of scale


Costs can be covered with least sacrifice of efficiency by charging highest prices to consumers who are least sensitive, thereby reducing demand below the efficient level by the smallest amount (See figure 4).

Figure 4:  Prices under economies of scale


However, we believe this is not the explanation of SECV tariffs.  Firstly, the tariff structure is too different from the pattern of marginal cost variation over time, and the differences between prices and marginal costs are too great, for the tariffs to represent an efficiency-maximising deviation from marginal cost pricing.  Secondly, our experiments with the model of the SECV grid suggested that the system was being operated in a region of decreasing returns to scale.  As one would expect, there is little evidence of economies of scale (in the relevant operating range) in the generation of electricity.  On the other hand, there are likely to be economies of scale in the distribution network.  Overall, it seemed to us that marginal cost pricing, given the current pattern and level of demand, could very well raise sufficient revenue to cover costs.  However, this assessment is qualified by the fact that the pattern of demand, and hence marginal and total costs, would be altered by the introduction of marginal cost pricing.

We argue further that block-declining tariffs actually used not only do not represent an efficiency-maximising attempt to cover total cost, but in fact lead to efficiency losses compared to marginal cost pricing.  The theoretically ideal block-declining tariffs would have all consumers paying the same price for the last unit of electricity consumed.  In fact, different consumers are charged a different price for the same product supplied at the same cost.  For example, the average commercial customer of the SECV, purchasing electricity for uses other than lighting, would not consume beyond the second step of his block-declining tariff, whose price is more than double the price paid by other consumers.  By charging different prices for the same product, the tariff produces inefficiencies since electricity is not consumed where its marginal benefits are greatest, or conserved where the benefit falls short of the cost.

Figure 5:  Price discrimination to raise total demand


While it appears that high tariffs for customers with a low elasticity of demand have little to do with efficiency, it is probably not coincidental that they are a good means of raising revenue to subsidise consumers whose demand is more sensitive to price, so expanding overall demand for electricity.  Similarly, while the SECV offers some very limited off-peak tariffs for some commercial and industrial customers, these appear to be designed to "fill in the valleys" in the weekly and daily patterns of demand more than to "lop off the peaks".  In short, the deviation from marginal cost pricing represented in the current tariffs serves to increase the demand for capacity in the system.

The subsidy to rural customers of the SECV embodied in the current tariffs might be thought more directly the result of political influence on SECV policy.  While the political influence of rural consumers is probably relevant, as we shall see, such a tariff differential may also operate to increase the geographical extent of the distribution of large quantities of electricity.  Hence, it may not be inimical to the interests of SECV bureaucrats and engineers.  Furthermore, maintenance of cross-subsidies to rural customers gives politicians a good reason for supporting the state-wide monopoly of the SECV and, for this reason alone, would be an attractive strategic policy for SECV bureaucrats.

Other features of SECV operations as well as pricing policy are of interest.  For example, why does the SECV not offer more specialised contracts allowing for interruptibility or the repurchase of excess privately-generated power at its marginal value to the system?  Such contracts would facilitate better management;  their under-utilisation suggests economising on system capacity is not important to the management.  The use of brown-outs or black-outs instead of interruptible supply contracts appears to raise the (political as well as economic) cost of shortages of capacity, leading to a greater demand for reserve capacity than would otherwise be the case.

Some commentators on the SECV (and other public electricity supply authorities in Australia) claim there is extreme over-manning in both the construction and operation of power stations compared with foreign and privately-owned Australian plants using a similar technology.  The Australian public utilities also appear to have less incentive to reduce construction costs than do private firms undertaking comparable projects.  Maintenance of SECV power stations appears to be worse than maintenance of the privately-owned station at Anglesea.  Finally, the workforces in public electricity authorities appear to be organised into strong and militant trade unions which have often met little resistance from their government employer to their demands.

If we examine the pricing and production decisions of Telecom Australia, (3) we can see similarities to the policies of the SECV discussed above.  First, the tariffs do not appear to be closely related to marginal costs.  While there is some variation in trunk charges (4) by time, this would not match the variation in marginal costs. (5)  As with the SECV this would tend to raise the demand for system capacity.  An offsetting factor in the case of Telecom is that the revenue raised from trunk calls as a whole appears to exceed the costs of providing the service.  While some of this may come from off-peak trunk charges being considerably in excess of off-peak trunk costs, it is also possible that peak trunk charges could exceed costs.  The complicating factor is that peak trunk calls are likely to be made principally by businesses and hence the elasticity of demand may be much lower for this group of customers.  The twin aims of subsidising the demand for capacity and raising most revenue from customers with the lowest elasticity of demand would in this instance come into conflict.

On the other hand, there is no doubt that rural connections to the network are subsidised.  As in the case of the electricity industry, we shall argue that this cross-subsidy no doubt owes much to political influence.  Nevertheless, Telecom management and employees probably are not opposed to its tendency to expand the geographical extent (and possibly labour intensity) of Telecom's operations.

Another similarity between Telecom and the SECV is the use of non-price as opposed to price rationing.  In the SECV, non-price rationing takes the form of increased black-outs and brown-outs, a less stable supply and less prompt service in rural areas;  and the lack of flexible contracts (with interruptibility or buy-back provisions for example).  In Telecom, we find variations in the quality of service and speed with which maintenance is performed, as well as queues for connections.

An interesting difference between Telecom and the State electricity authorities is that competition with Telecom is explicitly prohibited by legislation, whereas only in some states of Australia is it necessary to get the permission of the electricity authority before power can be privately generated.  This differing legal situation may be related to differences in the economic structure of the two industries.  In the electricity industry, only in the power distribution grid is there a reasonable presumption of large economies of scale (or natural monopoly).

However, with government ownership of the grid, private generation can be discouraged by paying a very low price for electricity supplied to the grid.  In addition, the state electricity authorities are not called upon to pay income tax, are given preferred access to "dedicated" coal deposits, may borrow with government guarantees, and are generally able to use the state as an insurance agency if pricing and investment decisions should turn out to have been mistaken. (6)

In contrast to the electricity industry, it seems that trunk-line operations in telecommunications may exhibit approximately constant returns to scale.  In telecommunications, natural monopoly elements in the industry are most likely to exist in the local networks, and government ownership does not suffice as a mechanism to squelch competition in the decreasing or constant returns to scale part of the business.  Instead, competition has to be explicitly excluded by statute.


PART 2
A MODEL OF PUBLIC UTILITY OPERATION
(7)

In this section we discuss a simple model (8) of public utility operation and show how it can account for the regularities discussed in the previous section.  The purpose of such a model is that we can use it to analyse the likely consequences of altering institutional arrangements.  In fact, any assertion about the likely result of institutional changes must at least implicitly be based on some theory about the way different institutions alter incentives to produce different results.

Our starting-point is the assumption that decision-makers (both politicians and enterprise managers) are concerned about non-pecuniary benefits as well as monetary payments.  A traditional assumption in economic models of bureaucracy is that bureaucrats want to maximise the output of the bureau.  Others have suggested that engineers working in the bureau may desire to maximise the amount of engineering input into projects.  More generally, we could think of managers as desiring some combination of inputs (which could correspond to output but may include plush offices, and fancy technology).  However, managers will also have to contend with employees, who will have their own goals.  Economists studying trade unions have suggested that a good characterisation of the aims of union leaders is that they attempt to maximise some combination of the wages paid to their members and the level of employment of their members.  (As a special case, they may be interested in the total wage bill paid to their members).  Depending on the relative bargaining strengths of the managers and workers, enterprise employees as a whole will be attempting to increase employment and wages with varying degrees of emphasis on each goal.

We would expect politicians to be concerned with the decisions of the utility and therefore to have an incentive to monitor it.  However, it will not be in the private interests of politicians to ensure the enterprise operates efficiently.  Each politician will be attempting to maximise the personal satisfaction and benefits from being an elected representative, but his actions will be constrained by the requirement that he gain enough votes to remain in office in the face of electoral competition from a representative of another party. (9)

While we might expect electoral competition would tend to result in policies favoured by a majority of voters, there are several complicating factors.  Information is costly to obtain and disseminate, so that both government and opposition parties will always be uncertain of the effects of policies.  As a result the status quo is automatically accorded an advantageous position.  Also, voters will have an incentive to discover most about those policies most likely to affect them.  It would not be very wise for a voter to attempt to determine the effect of policies which he expects, a priori, would have only indirect or minor relevance to him.  Therefore policies which impose costs of minor relevance on a large number of voters, but bestow major benefits on a few, are likely to be successful.

Finally, in a majority-rule system, politicians, and thus their supporters, must compromise to form a winning coalition.  Even if voters knew certain policies had small detrimental effects on them, they would agree to such policies if, in exchange, they could get others to support policies with large beneficial effects.

In short, a representative political system based on majority rule will result in government policies which favour a coalition of minorities at the expense of voters not in the coalition.  A party could gain (and hold) office by proposing and implementing inefficient policies if the costs were dispersed across many voters and there are significant benefits to a politically influential group.  We should also note that inefficient policies may be far more effective at disguising the transfer than more efficient alternatives, and so may actually achieve a greater redistribution for a given political cost.

When establishing a public enterprise, politicians will have an incentive simultaneously to establish some procedure for monitoring it (such as reports to Parliament or accounting practices) to ensure it behaves in accordance with the political goals of the government.  Since private ownership of the net income of the enterprise is absent, profitability, or an adequate return on capital invested in the enterprise, will not be the most important goal.  The implication is that the goals will be diverse and may change over time.

It will be much more costly to monitor the achievement of a diffuse and poorly defined set of goals than to check on profitability.  Further, monitoring or accounting procedures effective for furthering one goal may not be effective for others.  The most desirable level of investment in any one set of procedures will depend on the anticipated returns.  Since the goals of the monitors of public enterprises can change from period to period, the optimal investment will be less than for a private firm with an unchanging goal.  Finally, when the enterprise is being established, it may not be in the interests of the incumbent party to make it too easy to force the enterprise to behave in accordance with the governments' objectives.  Supporters of the government may prefer to under-exploit their power to control the enterprise so that the opposition might also be less effective if it became the government.  In short, the preferred degree of monitoring or control of public utilities by politicians may be quite small and aimed at more diffuse goals than profitability or an adequate return on the investment in the enterprise.

Given that the quality of service provided by the utility can be varied in many dimensions, politicians will find it very difficult to determine the level of service being provided to consumers.  On the other hand, it will be much easier to determine the prices consumers are being charged.  Parliament can also impose on the state enterprise the requirement that its total revenue equal total operating costs (or differ from them by some fixed tax payment to Treasury or subsidy from general revenue).

Based on these considerations, we could approximate the goals of management (10) of state enterprises as some trade-off between increased employment and higher wages.  However, managerial discretion is limited by markets arid politically-imposed constraints.  First, politicians could be reasonably assumed to be capable of forcing the utility to keep total costs equal to total revenues net of taxes.  The taxes are payments to Treasury which could represent, for example, turnover taxes or "artificial" (typically artificially low compared with comparable private returns on capital) legislated rates of return on capital assets.  Second, politicians are assumed capable of specifying prices for different consumer groups.  In effect, the costs to politicians of monitoring prices are assumed to be much lower than the costs of monitoring levels of service.  By spending more on monitoring, the politicians are assumed to be able to force the utility to supply a level of service closer to the demand of customers at the politically-set prices.  Managers will also be constrained by markets.  Wages paid to employees must be at least as great as they could earn elsewhere, while output is limited by the amount demanded by consumers at the prices set by politicians.  The conferring of monopoly status on the utility could be seen as an attempt to increase demand at each price.

In turn, (11) the politicians are assumed to set prices, a tax rate and a level of monitoring so as to maximise a "political support function" subject to the constraints that:

  • employment, output and wages for a given setting of prices, tax rates and monitoring expenditure are chosen by the utility managers;
  • wages do not fall below the competitive payments employees can receive in alternative employment;
  • output does not exceed demand at the prices set by the politicians.

The "political support function" depends on the consumer surplus received by special interest groups, and the overall net contribution to general revenue after allowing for monitoring costs.

This set of assumption yields a model of the management and control of government-owned enterprises.  While such a model is necessarily a rough generalisation, we can nevertheless show that it implies government enterprises would tend to behave in many of the ways we see them behaving.  This in turn gives us confidence that the model can be used to investigate the likely consequences of organising production into public monopolies as opposed to private competitive firms.

One implication of the model is that output may equal that achieved under average cost pricing.  But for a firm whose technology displays short-run decreasing returns, average cost pricing will lead to an over-expansion of output, which is consistent with our observations in the previous section.  The over-expansion of output arises because the returns to capital are used to fund current operating expenses.  Compare this with the situation of private firms.  They have to compete for investment funds by offering a competitive return on capital.  Equity and bond markets can be viewed as markets which trade rights to corporate profits.  The prices of a firm's shares or bonds give an easily-observed measure of managerial performance.

In addition, individuals who can improve on managerial performance can buy a majority interest in the firm and gain financially from any improvements they make.  Similarly, taxpayers might be thought of as the nominal owners of a government firm.  However, rights to the return on capital in a publicly-owned firm cannot be traded.  It is more costly to monitor managerial performance than for a private firm and there is less incentive to do so.  The return instead tends to be dissipated on current expenditures with taxpayers called upon to finance investment.

The model is further able to demonstrate how output may deviate from the output achieved under average cost pricing depending on the influences of four factors. (12)

  • The degree of political support enjoyed by different groups of consumers can influence the structure of prices, with favoured groups being charged a price below average cost and disfavoured groups taxed.  When customers are a favoured (disfavoured) group the size of their subsidy (tax) will vary inversely with elasticity of demand, holding the effect of other influences constant.
  • Non-price rationing may arise in response to differences in costs of monitoring prices and services.  In particular, the utility may find it optimal to ration those consumers the politicians attempt to favour by lower prices.  Non-price rationing may reduce output closer to the level which would be forthcoming under marginal cost pricing, but the non-price rationing may itself introduce inefficiencies as customers expend resources to move up queues, and services may be provided to those who value them less.
  • To the extent that there are non-pecuniary benefits depending on something other than output, inputs will not be chosen to minimise costs.  In this case, output will fall short of the output supplied by a cost-minimising firm pricing at average cost.  However, the fact that output is not supplied at minimum cost will represent an inefficient use of resources.  We should also note that the absence of an incentive to cost-minimise may lead to a de-emphasis of commercial skills in the internal incentive structure of the enterprise.  On the other hand, any technical advance which enables a given output to be produced with fewer inputs will be of value to the managers, since then they can produce extra non-pecuniary benefits or make higher factor payments without altering output.  This may explain the fact that many public utilities have internal management structures which reward technical but not commercial expertise.
  • Finally, employees may be paid in excess of their competitive market wage, and this too will raise costs when compared with a cost-minimising firm which takes all factor prices as given.

Deviations between average cost pricing and actual tariffs were noted in our discussion of public utility policy in the previous section.  These deviations can be related to each of the four factors just outlined.  We observed that the relative prices charged to different customer groups were related to differing degrees of political support and differences in elasticities of demand.  We noted that non-price rationing is often observed in publicly-owned utility industries.  There is also some evidence that capital may be chosen in part to provide non-pecuniary benefits while employees are paid in excess of their competitive return.  The apparently complex and inexplicable behaviour of publicly-owned utilities can in fact be explained as quite rational choices within the institutional framework.

The ability to use public utility prices to cross-subsidise favoured groups of consumers will give politicians an incentive to support the existence of a government monopoly, even though it is less efficient than delivering the same service using privately-owned competitive firms.  Achieving the same cross-subsidy through explicit taxation may be less desirable for politicians.  It is much easier for the taxed individuals to perceive the costs when taxes are explicit than when the taxes take the form of divergences between prices and marginal costs.  Also, if competition with the public utility is allowed, the ability to charge some consumers in excess of marginal cost in order that other consumers may be subsidised is severely curtailed.  The "taxed" consumers will instead purchase from private competitors leaving the public utility making operating losses on the services it provides to subsidised customers.


PART 3
THE PRIVATELY-OWNED FIRM

A series of recent papers, such as those by Jensen and Meckling [1976] and Fama and Jensen [1982], have examined the incentive structure of private firms.  In owner-managed private firms, the owner-manager has an incentive to maximise the present value of his assets and generally reduce the cost of production.  In large private firms, managers will normally be employed by the owners (share-holders) and this separation of ownership from management may reduce pressures on management to run the firm efficiently.  So long as his individual share in profits remains small, any one owner will not have a great incentive to force managers to operate the firm efficiently.

However, competition between managers, and more particularly transferability of ownership, will limit the divergence between the aims of managers and share-holders.  Furthermore, it will be in the private interests of those first establishing the enterprise to set up effective, low-cost mechanisms by which the share-holders can monitor the behaviour of managers.  Only then will the value of shares in the enterprise be maximised.

It will also be in the private interests of subsequent share-holders to carry out the amount of monitoring implicit in the share's purchase price, for to do otherwise would result in a fall in the value of the shares.

If ownership becomes very diffuse and managerial efficiency declines, individuals (or other managers on behalf of individuals) will have an incentive to purchase a controlling interest in the firm, increase efficiency, and realise a capital gain in their shares.

In summary, transferable property rights will encourage the pursuit of profits and hence the search for ways of reducing production costs or producing more valued outputs.  By contrast, we noted in the previous section that the absence of explicit claimants to the returns to capital in publicly-owned firms produces a bias in such firms towards an over-expansion of output and a general under-valuation of capital inputs.


PART 4
SOME LESSONS FOR PRIVATISATION

Having achieved some understanding of why publicly-owned firms behave the way they do, and compared their operation to privately-owned firms, we can outline some of the potential benefits and costs of privatisation.  The monitoring of profit-maximisation tendencies of managers by share-holders is likely to produce more cost-effective production than the political monitoring discussed in the previous section.

However, privatisation alone is not sufficient to deliver the benefits of a market system.  The other crucial ingredient is competition.  While private ownership provides an incentive to maximise profit, and hence reduce cost, without competition the private firm will be able to charge a price in excess of its marginal cost.  This, too, will result in an inefficient level of output.  The cost to society of increasing output of the good in question would fall short of the benefits to consumers from doing so (See figure 6).  While a publicly-owned monopoly will have a tendency to over-produce, a privately-owned one would have a tendency to under-produce.

Figure 6:  Monopoly pricing and efficiency


Thus, many of the potential efficiency gains from privatisation may not be captured if the public firm is turned into a private monopoly.  For many public utilities this might be thought to cause a serious difficulty.  It is often argued that the technologies in these industries are such that even if a large number of competing firms start out in the industry there will be a tendency for just one of them to become dominant -- the industry is characterised as being a natural monopoly.  The basic requirement for an industry to be a natural monopoly is that the average costs of producing output continually decline as more output is produced (See figure 2).  In that case, the largest firm will always have the lowest cost and thus, it is argued, can undercut its competitors and drive them out of business.  It is also argued that the economies of scale in setting up distribution networks turn many public utility industries into natural monopolies.  However, while such economies of scale do appear to pertain to the establishment of an electricity distribution grid and a local telephone network, they do not apply to electricity generation or, particularly with recent technological innovations, the trunk telephone network.  Thus, while the natural monopoly argument may provide a prima facie case for regulation of firms involved in providing local telephone networks and the electricity distribution grid, no such case is provided for regulation or public ownership of firms engaged in electricity generation or trunk telephone services.

In addition, the natural monopoly argument has itself come under increasing questioning in recent years.

Even if the largest firm has a cost advantage and drives its competition from the market, it may not then act as a monopolist.  As soon as it attempts to charge prices in excess of its marginal costs it will provide an incentive for competition to enter the market and attempt to capture some of the monopoly profits.  So long as the costs of entering and leaving the market are not too great such potential competition will limit the extent to which prices can exceed marginal costs.  In short, the threat of competition might be nearly as effective in enforcing low prices as the presence of actual competitors.

Nevertheless, if maximum efficiency gains are to be obtained from privatisation, attention must be paid to the competitiveness of the resulting market structure in addition to the ownership of the firms.

The second lesson to be learned from the above analysis is that it will be virtually impossible to privatise most government enterprises without affecting adversely both the employees of the enterprise and some groups of consumers.  The inefficiency of government ownership is associated both with the production of rents for employees and cross-subsidisation of some consumers by others.  If we attempt to privatise while avoiding losses for these groups we will probably forego many, if not all, the efficiency gains.  The efficiency gains from privatisation mainly take the form of a set of prices which more closely match marginal costs, a use of technology which minimises economic costs as opposed to employee welfare, and a level of output which more closely matches marginal costs with marginal benefits.  One way of reducing costs for the affected parties is to phase the changes in gradually.  However, this also delays the gains from the change, and may give opponents of the policy more time to prevent or obstruct its implementation.

The third lesson is that criticisms of privatisation on the grounds that only the profit-making parts of the business will be sold, leaving the taxpayers to fund the losses, largely miss the point.  At the moment, taxpayers are called upon to fund investment in government-owned enterprises which earn less than the competitive return on invested capital.  What should be a return to investing in the enterprise is instead dissipated in over-expansion, over-payment of employees, the use of inefficient technology or the subsidisation of some consumers.

In addition, the loss-making parts of the business are often cross-subsidised from other consumers.  It is not as though privatisation introduces a new need for tax revenue -- if the cross-subsidised consumers continue to be subsidised, privatisation changes the form in which existing taxes are paid and who pays them.  The advantage of privatisation, however, is that it reduces the cost inefficiencies which lead to a greater need for subsidisation in the current institutional framework.

The fourth lesson is that the way privatisation is carried out could make a difference to the efficiency gains.  In particular, if shares in the new firm are widely distributed to consumers and former employees in an attempt to avoid disadvantaging them, the ownership in the new firm will be very diffuse.  While it might become more concentrated over time, the Bell Group takeover bids for BHP in 1985 and 1986 illustrate that it can be difficult to discipline management in a widely-held firm.  In consequence, the owners will place less pressure on management to maximise profits and hence reduce costs.  In general, the government should choose a method of privatisation, and accountability of managers to share-holders, which maximises the sale value of the shares.

The final lesson from the above analysis is that the industries we choose to privatise should yield benefits concentrated on some influential groups in addition to the more diffuse efficiency gains.  Since politicians appear to gain from government ownership it will be politically unpopular to privatise.  How can the politicians gain even though the institution is less efficient?  The basic reason appears to be that the costs are diffused over a large number of individuals (consumers and taxpayers) while the benefits of public ownership, while lower in aggregate amount, are concentrated on smaller groups (employees and favoured consumers) who are apparently more influential.  Conversely, the benefits of privatisation will tend to be diffuse while the costs are concentrated.  The most successful privatisations will therefore be those firms where government monopoly has begun to impose increasing costs on politically influential groups of consumers.  For example, government monopolisation of Australian coastal shipping has gradually imposed greater costs on certain regions or industries (such as mineral processing).  These groups might be expected to provide a political counter-balance to the employees who would be adversely affected by privatisation of the ANL coupled with an opening of Australian coastal trade to free entry.  Similarly, those living in more distant parts of the continent might provide a powerful advocacy in favour of privatising TAA along with deregulating the domestic airline industry.  As another example, the introduction of AUSSAT has provided an opportunity for AUSSAT and the trunk network of Telecom to be privatised, with the likelihood that a reasonably competitive long-distance telecommunications market could be produced, benefitting, in particular, users of such services for data transmission.  In the case of the electricity industry, it would appear that considerable efficiency gains could be reaped by encouraging more private generation.  This could be quickly done if co-generated power (that is electricity produced as a by-product from some other industrial process) were paid its marginal value to the system.  Advances in electronic technology now make it more feasible to pay a time-varying price for privately-supplied power, while firms in a position to supply co-generated electricity might be expected to be strong advocates of a change in policy.


PART 5
CONCLUSION

We have argued that many of the peculiar features of utility operations result from the incentives inherent in government ownership of a legislated monopoly.  These same incentives lead to the efficiency losses associated with government-owned firms.  Privatisation of many government enterprises can lead to efficiency gains so long as care is taken to ensure the resultant market structure is competitive, that is, subject to freedom of entry and exit.

Privatisation is also likely to involve losses for those currently advantaged by government ownership.  Attempts to reduce these losses by making the private ownership diffuse and expensive to trade will also reduce the pressure on management to behave efficiently.  This, too, will be less of a problem if the markets are competitive.  Other firms will then put some pressure on management to control costs even if shareholders have little incentive to do so.

Finally, we noted that privatisation is likely to be politically unpopular.  We suggested that for this reason the best firms to privatise are those where some concentrated interests stand to gain from the increase in efficiency and/or removal of cross-subsidisation.  In Australia, the most obvious candidates would appear to be the ANL and TAA.  One might hope that those living in more distant parts of the continent would provide a political counterweight to the current beneficiaries of government ownership and regulation in the transport sector of the economy.



ENDNOTES

1.  In contrast, some particular decisions of governmental (and private) bodies do appear to be explicable only if we also take account of some particular facts about the personalities or attitudes of important decision-makers.  No model of private or public enterprise would be capable of ruling out magnificent, or disastrous, decisions in either enterprise due, say, to the presence of a brilliant, or hopeless, administrator.  We cannot hope to explain all, but just theories which may illuminate the inherent features of the organisational form.

2.  Centre of Policy Studies [19821, see also Hartley and Trengove [1984].

3.  See Trengove [1982].

4.  The costs of metering may exceed any benefits from peak-load pricing of local calls.

5.  Under marginal cost pricing, demand would equal capacity in several periods so capacity costs would be spread over all these periods.  Relative prices in the different periods would then be set to ration demand to the available capacity.

6.  Recent changes of government policies, such as required rates of return on assets, valued at market prices, may have tipped the scales somewhat in the direction of private companies.  Nevertheless, the price paid for private power has not been changed to reflect its marginal value to the system and many of the concessions to the state electricity authorities remain in place.

7.  For further details of this model see Hartley and Trengove [1986].

8.  The model can be complicated in various ways to increase the extent to which it accounts for the behaviour of public utilities -- see Hartley and Trengove [1985].

9.  See for example Downs [1957], Breton [1974] or Mueller [1976] for similar models of the representative political system.

10.  See Hartley and Trengove [1986].

11.  Following Peltzman [1976].  See also Hillman [1982].

12.  For further details see Hartley and Trengove [1986].



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