School vouchers

A week ago Jason Soon sparked a brief debate about school vouchers. The catalyst was the recently expressed views of ALP MP Craig Emerson regarding “differential vouchers” that discriminate on the basis of need.

I am skeptical of differential vouchers. If the size of the voucher is dependent on socio-economic position, then the subsidy will decrease as family income increases. This will increase the effective marginal tax rate (EMTR) on low-income families and contribute to the “poverty trap” — where more work doesn’t lead to more income because of a combination of tax and lost subsidies/welfare. The consequence is more welfare dependency. Not good.

I am more positive about non-differential vouchers. There are certainly students who want to go to private schools but can’t afford it. And there are certainly students that currently go to public schools that private schools woud happily accept if they could pay. So introducing a voucher system (where the government offers a subsidy towards schooling — whether private or public) would allow more students to go to a better school and more students to go to a school they prefer.

One compliant leveled at a voucher system is that it would create education ghettos. To quote Steve Munn: “In the event that an even larger section of the middle class put their kids in private schools, only the poorest of the poor will be left in the public system.”

There are a number of problems with this. First, with vouchers it is not necessarily middle-class kids who will go to private schools. It is just as possible for poor kids to start going to private schools.

I have a number of friends who, though great sacrifice from their families, went to private schools. These poor families had to pay for their kids education twice — once through tax and once through fees. A voucher system would allow more poor families to take this option.

Indeed, it is more likely that the current system will promote school ghettos. Growing incomes allow more middle-class families to afford the double payment of sending their children to better private schools. Under the current system, it is the “poorest-of-the-poor” who are least able to afford a private school. Introducing a voucher system would give these families a better chance at finding a better school.

The second problem is that Munn ignores the link between competition and performance. Economists have significant experience is observing the effects that competition has on an industry. Those who previously had an advantage get more popular. Those who previously had a disadvantage fall into two groups — some get better due to competition and some go bust. Therefore, even those children who stay in public schools will receive a better education as competition forces their school to improve (yay) or close (and the students move to one of the better schools).

16 thoughts on “School vouchers

  1. Off topic but of a similar nature, there has been a call by John Menadue to policy group calling itself New Matilda for a nationalisation of health insurance. Read about it here.

    When it comes down to it, socialists sound like whining children, whether it be on health:

    “The distressing thing is healthcare is so unfair,” Prof Dwyer said.

    Or there desire tospend our tax:

    Mr Menadue said the federal government had enough money to fund good quality, equitable healthcare.

    and attacking private service providers:

    Former chair of the NSW Health Council and South Australia’s Generational Health Review, John Menadue, told the New Matilda policy development group in Sydney that the national health system was under attack from private insurers.

    “This is what is pushing up costs and dividing consumers,” Mr Menadue said.

    I wonder if this last bit is because when private insurers can offer expensive treatments to their customers, there is public pressure to force public health providers to follow suit? Maybe we should all be satisfied with taking a becks and ahaving a good lie down.

    Education has a similar bent.

  2. A lot of public funding for schools (public and private) is tied to student numbers. It may come via different paths (federal funds to private schools and state funds to public schools) and it may not be exactly equal (public students get slightly more public funds) however it is close enough to a voucher scheme in all but name.

    The current voucher scheme is seeing a drift in numbers towards private schools. Mark Latham wanted to make the system less equal which I think offended many Australians (except the class warriors).

    No sane politician wants to use the word “voucher” because if it is not associated with war time rationing then its associated with American right wing extremism. Why dirty the system with an unpopular label?

    One could make the current system more pure by increasing the funding of private schools (or cutting the funding of public schools) and privatising all the public schools and deregulating the curriculum. However the necessary political capital across multiple layers of government simply does not exist. If all education of children was a commonwealth responsibility then such an outcome might be politically doable, however submitting all of this power to canberra on the hope that they will then liberate the system is a very big gamble.

    At the moment the public schools will exclude you based on address, however the Catholic schools will put you at the end of the queue if your not catholic (and in my experience if your not catholic they then politely council you in private to please just go away). And many private schools will exclude you if you can’t pay the extras or pass the entrance exam.

    In spite of my political views my kids will be going to the local public school because all up its the best choice for us.

  3. Terje — while it is true that school funding is related to student numbers and that private schools also get some public funding, our current system falls short of a voucher system and falls short of offering proper competition between private and public schools.

    Allowing the funding to be perfectly mobile will increase competition and therefore increase the choices for parents and increase the quality of education.

    I can’t see how Latham’s policy would have made the system less equal. He wanted to shift funding from one set of private schools to another set of private schools. He foolishly wrapped his policy in the rhetoric of class-war in an attempt to make him look more acceptable to a left-wing that was worried about his otherwise free-market tendencies.

    I would prefer that education remain the domain of the states and that a state allowed their public school funding to be mobile to any school. Hopefully they could arrange so that federal school funding for private schools in that state could be wrapped into the deal.

  4. John,

    My main point is that we are much closer to a voucher like system than many people realise. Certainly much closer than the USA where the voucher idea gets the most discussion.

    A good space to watch also is in preschool education where the government has created a form of voucher based system without calling it a voucher based system.

    I think in essence you are asking for a state lead reform with the commonwealth coming to the party on joint funding. It would then not need to be a nation wide initiative but could proceed in a single state. I would agree that this is far more reasonable then my assumed pathway. Any bets on which state would entail the least political obstacles?


  5. Steve, all of these “I have poor friends who went to private school” anecdotes just doesn’t mean anything, since the child has basically no say in the school they get sent to. Thus I could use the anecdote “I have white trash in my street that don’t spend a cent on their children” (which would be true) and point to the fact that if the parents are not willing to spend any money the child still needs to go somewhere and this is not the childs fault and nor can the child change the situation. In addition, the idea that poor parents are going to find the same amount of dough as middle class ones fails any common sense check, since even with a voucher, they need to come up with some amount, and coming up with the same amount is harder if you earn less.

    I also fail to see how a non-means tested voucher system really helps the bottom end at all. This is basically what happens in the university system, but I don’t see lots of poor people rushing to take up large amounts of debt when they can’t get in based on their brain-power (and hence have to pay full fees), and this is when they could do it as an individual, and not a dependent.

    You can also look at it from example. Lets say I subtract $4000 per student from every school to pay for the vouchers. What happens to the good schools? They can either charge the same (in which case _less_ private money overall is going into the school system, because of our earlier $4000 subtraction), or they can raise their fees $4000 (or anything in between). If we have an inbetween figure, then we end up with some middle-class parents (who need to make up the large difference) who wouldn’t be otherwise able to go sending their children there. Thats great, since it moves middle-class->better schools. Presumably the middle class schools then lose a few students and down size. So you just have a middle class educational subsidy (just like our universities).

    What I fail to see is how this does anything to the bottom rung, who are of course the ones that create long term social problems for us all.

  6. I think both are responsible to some degree (for better or worse).

    I also think it reasonable to treat the child to some extent as a free entity also, which is where my problem lies with all of these “family solutions”. In particular, if you don’t believe in the pervasiveness of families then you need to treat the child as a separate entity from the family unit (which they are in many cases to a large extent, especially at the bottom of the SES scale). If a child has parents that only ever provide the minimal amount of basic care, what are they supposed to do?

    If you do this, then you need to assume that the child won’t neccesarily benefit from the voluntary contribution of other family members, in which case the value of things like vouchers for schools isn’t very meaningful unless the vouchers pay for all of the fees (which they are never going to for most decent schools) — This is why I don’t think vouchers for parents in the bottom SES groups will make much difference. In these groups, children get basically nothing from their family in terms of educational subsidies, and hence the only real option they have is choosing from a list of bad schools which can provide an education at the lowest subsidy level (i.e., the voucher level). No doubt you allow more choice, but for a lot of children, this is just going to be choice between bad and bad. Also, also far as I am aware, there is also no great empirical evidence that vouchers help the bottom end of the distribution (and it certainly doesn’t do much for the universities in Australia where the system is basically a restricted voucher system, nor New Zealand which is similar).

    I’m personally not sure what the solution to this problem is, but I don’t see vouchers helping lower bands very much in a zero-sum game (alternatively, I think they might help more in middle SES bands — but then, I fail to see why we should subsidize this group).

    My suggestion would be to use some form of means testing (which I realizes creates poverty traps and is a pain to administer) where parents pay some graded amount to use the public system depending on how much they earn. Presumably lots of parents with enough money would shift their children to private schools if they had to pay even part of the real cost of the education, in which case the money saved could be used for a smaller number of schools servicing those without the neccesary means to pay (whether that be via private or public schools).

  7. The objection that, if we have vouchers, only ‘the poorest of the poor’ would be in state schooling is invalid. If we had vouchers, state schools should be abolished. The whole rotten empire of mediocrity and failure should be gotten rid of. The schools should be sold off, and the department closed down. That’s the whole point of vouchers – to get the state out of it.

    Imagine if all our diverse supermarkets, produce markets, cuisines, restaurants, food courts, take-away shops and chains were replaced by a single vast government ‘Department of Food’, in league with a politically-connected left-wing union, a uniform menu for the whole population, compulsory contributions, and widespread ongoing food poisoning from failure to satisfy basic quality standards.

    The situation is similar with our Department of Education. Monopoly serivces always reduce the quality, and increase the cost of the service, and are run for the vested interests who benefit.

    Those who think that particular people should get more than an equal portion for their education should pay for it themselves. The function of state education is supposed to be education, not some vast re-distribution racket for social engineers. They should be banned from using state force to compel others to pay for their values.

  8. Justin,

    When you say that the whole point of vouchers is to get the state out of education I find myself chuckling. So long as vouchers are funded by and issued by the state then the state is very much still in the game.

    A parallel example might be private practice GPs that get government funds via Medicare for attending to the needs of the general public. The service provider is private (ie the doctor) whilst the funding is public. Whilst this funding is not means tested the amount of funding is not equal as some people need more doctoring. No doubt in education some people need more teaching.

    In education I think that private commercial operators have a role to play. ABC Childcare shows just how successful such operators can be. However if the state was to retreat from the education sphere I would like to see more involvement from civil society. Non-profit institutions with wealth held in trust seem to be a model that has worked elsewhere (US universities). Building an entire society on the profit motive seems a little dull. And as the world goes online projects such as Wikipedia show just how powerful volunteer musle and goodwill can be.


  9. Four compulsions characterise the current state of education in Australia: compulsory contributions, compulsory attendance, compulsory curriculum, and compulsory qualifications. If I had my way, I would abolish them all.

    It is building society on the mirage of social justice that makes society dull, as the Soviet Union and all the dreary socialist states have shown: you have only to look at Cuba and North Korea now. Liberating the profit and loss system of capitalism is the same thing as building society on the basis of rewarding those who serve the public best. People don’t want dull lives: that’s why capitalist societies have the greatest variety, diversity, quality, and economy of goods and services, and the highest standard of living for all.

    There is no need to engineer it: all government needs to do is get out of the way and stop sucking people’s blood for a failed dream.

    The effect of state control of education is simply to create and perpetuate parasitic nests of vested interests at every turn:
    compulsory contributions – Education Department employees
    compulsory attendance – teachers
    compulsory curriculum – Board of Studies mandarins
    compulsory qualifications – teachers, and teachers of teachers such as university and TAFE lecturers.

    It is for their comfortable privileges that the whole population is made to suffer the second-rate standards of a system that every year turns out large numbers who can’t even read or write properly. I know. I’ve employed some of them and the standards are shocking.

  10. Conrad — who is Steve?

    The point of the poor-child-private-school anecdote was to point out the injustice of making a poor family pay twice for good schooling.

    I never said that poor children can find the same money as middle class parents. Middle class parents can often afford the double-payment of private schools. In contrast, without vouchers poor families will struggle to ever afford a private school. Vouchers gives them a chance.

    A non-means tested vouchers helps by (1) making it cheaper to go to private (ie better) schools; and (2) increasing competition so that the quality of all schools rises. This was fairly clear in my original post, so I can’t see why you’re confused. Nothing you have said brings either of these points into doubt.

    In your example you assume that middle-class students go to better schools but ignore that poor students can now start going to middle-class schools. You also ignore the benefits from competition.

  11. Terje, I’m for vouchers in this sense. Firstly, I’m for abolishing all aspects of state interference in education including funding. However if I can’t have that, and I probably can’t, then I’m for getting rid of state schools and the education department as much as possible. Since the main objection from parents, as opposd to education bureaucrats and unionists, is likely to be that they don’t want to give up the benefit of having other people pay for their expenses, I have conceded this point, as unwinnable. So everyone still contributes to pay for education, not just the parents. The only thing left should be that the education budget is divided equally and given in cash or vouchers to the parents who can then buy on the free market whatever education they want. There should be no regulation of curriculum, attendance or teacher qualifications either.

  12. The problem with vouchers is it will mean higher costs via certification, blocking entrepreneurship and therefore innovation, and increasing barriers to entry.

    A better way, if one wants to bring the costs of an industry down, and so that the consumer has lower costs, is to temporarily take that industry out of the tax system.

    This does not create the sort of distortions that voucherisation would.

    You just say that a corporation that only involves itself in education is non-taxable…. and its employees don’t pay the income tax. And any state or local charges that are not strictly user-pays… well they are exempt from them as well.

    You would want to pass this and sunset it for 15 years. Enough time for investments to be paid back. This is a way of buffering people in the changeover. Buffering them for the shock of all government funds being withdrawn from education.

    Its also a way of speeding up the investment and innovation process.

    I was arguing with Jason Soon about this over at Catallaxy.

    (From about post-30-on).

    I would advise this sort of sunsetted, super-strong tax-free-industry approach to deal with any problem where there is some strong momentum for the government to “Do Something!” Since the most distorting thing of all is for the government to try and run the industry and the second most distorting thing is for the government to try and subsidise it.

    Art Robinson came up with this idea for the energy industry in his newsletter “Access-To-Energy” and I wondered why I hadn’t thought of this as a general approach for a very long time.

    Other things an be done like increasing the tax-free threshold a further $20 000 per registered dependent.

    We’ve got to exhaust all options prior to accepting an outright subsidy.

  13. By the way Arthur Robinsons ideas are highly relevant to this debate as well as he is in the home-schooling business.

    There are some people out there who ought to be almost canoninical to what we are about.

    He’s a good firearms man and was one of the earliest people to systematically debunk the global warming hysteria.

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