Economic Dimensions in Education

Martin O'Donoghue

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351312547
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

This book examines the economic issues of education from an unusually systematic and broad perspective. Although the book is soundly based in economic theory, it is not heavily mathematical.

Economic Dimensions in Education is designed to provide an introductory analysis of economic issues in education both in academic life and in the general community. Some of the issues discussed include the nature and reasons for public sector activity in education, the role education plays in providing skilled human resources for an economy, and the economic consequences of migration between countries of educated peoples. The book also deals with various aspects of demand: patterns of educational demand, individual demand for education as a form of social investment for the community, and supply aspects of education as related to types and sizes of educational establishments and problems of ensuring the efficient provision of education.

There has been a growing interest in the economic aspects of education. The considerable growth in the volume of educational activity is now at the point where today education is one of the largest industries in most countries and also one of the chief employers of highly skilled personnel. The recognition that education may have a significant influence on the employment and income opportunities and hence affect the distribution of income and wealth in society is also a factor. A final reason stems from the post-war emphasis on economic growth and development, with education playing an important role as a provider of skilled personnel for an economy.

This classic volume is comprehensive, clearly written, and will appeal to undergraduates and first-year graduate students. The treatment is firmly embedded in economic theory and is must reading for those professional economists concerned with education.

CHAPTER I

THE ECONOMIC APPROACH TO EDUCATION

THERE has been a growing interest in the economic aspects of education during the past decade. Various reasons can be, and have been, advanced to account for this development. One is the considerable growth in the volume of educational activity to the point where today education is one of the largest industries in most countries and also one of the chief employers of highly skilled personnel. A second is the recognition that education may have a significant influence on the employment and income opportunities open to people and hence affect the distribution of income and wealth in society. A third reason stems from the post-war emphasis on economic growth and development, with education playing an important role as the provider of skilled personnel for an economy.

It is not necessary to continue with any careful cataloguing of such reasons in order to justify the contemporary economic interest in educational activities. A more interesting question is rather to explain the comparative neglect of education by economists in the earlier decades of this century. Studies of, or references to, education by economists in the period are few and far between, in contrast to the many studies of other industries and sectors of the economy.

One possible explanation for this neglect was the absence of a satisfactory analytical framework within which to conduct an economic analysis of education. The accepted framework for analysis of individual sectors was that of the competitive market economy. In this system it is held that competition among buyers and sellers will result in the most efficient pattern of production and consumption for any commodity. This is so because buyers will only pay prices which do not exceed the value they place on the item in question, while sellers, for their part, will not accept (or not for long) prices which do not cover the costs of supplying the item. In this system over-production would not occur because suppliers would quickly find that they could not dispose of the surplus at a remunerative price. Equally, under-production would not long persist because any scarcity would cause buyers to offer higher prices which would encourage increased supply.

What was true for one item applied equally to all. Competition would determine the correct quantity and price for all the goods and services available in an economy. In this process of determining how the economy’s resources would be allocated among various uses, the competitive system would also produce the economically appropriate pattern of income distribution. The income which any individual commanded would be determined by the value of the economic services which he provided. In this way a self-contained economically interdependent system of production and consumption would emerge.

Given this competitive model as the analytical basis, the normal pattern for the study of any one industry or sector would be to examine demand and supply patterns, the development of the industry, its relationship with other industries, and other points of interest in terms of whether they resulted in an adequate degree of competition, and, if not, to identify imperfections in the competitive system with a view to eliminating them.

It is possible to analyse education in a similar manner. One could explore such questions as whether parents/pupils had an adequate knowledge of the costs and quality of the education provided by various schools, whether there was an adequate range of educational establishments available to pupils, whether there was freedom of entry for those seeking to open new schools, and so forth, in the same way as one might look at the shoe, ship or sealing-wax industries. However, it is only necessary to state this type of approach to become aware that this is not the way in which education is customarily described. Education deals with people, and there is a certain distaste in describing educational processes in terms similar to those used for processing animals, vegetables and minerals.

Apart from this aversion to the usual theoretical framework, there is a major practical objection to it on the grounds that the bulk of education in almost all countries is not bought and sold on a competitive market basis, but is rather financed or operated by both governmental and philanthropic agencies.

To discuss education in economic terms, a framework is needed which is appropriate to this pattern of mixed public and private activity which may contain both competitive and philanthropic elements. No adequate framework existed, nor for that matter has one yet emerged. The post-war years, however, did bring a growing interest in, and understanding of, the economic aspects of such mixed situations. In contrast to the earlier position in which taxation, for example, might be extensively discussed, but government spending either ignored or quickly glossed over, there is now considerable economic literature on public sector spending and activities. It is this development which has facilitated the economic treatment of individual expenditure areas, such as education.

But while there have been considerable advances in the treatment and understanding of these areas, there is still no comprehensive theory of public expenditure which could be used as a basis for discussion. Instead there has been a piecemeal type of development with the emphasis on identifying the various causes for intervention with market activities and then attempting to work out the most appropriate methods for the treatment of these problem areas. Since this is also the procedure which will be adopted here, it will be convenient first to summarise and illustrate the manner in which this piecemeal approach has been developed, both in the general case and in the specific area of education.

II

A variety of both non-economic and economic reasons was gradually established which might explain non-competitive types of economic activity. Intervention on non-economic grounds might be prompted by a number of considerations. Thus on humanitarian grounds, a modification of the pattern of incomes produced by a competitive economic system might be sought, because competition is consistent with zero incomes being earned by persons who provide no economic services to the community, such as the sick or the aged. Rather than leave the relief of the resulting distress to private initiative, many economies sanctioned the introduction of taxation policies aimed at redistributing income. Modifications of the competitive pattern of resource-allocation have also been sought on political grounds. The competitive system may call for the importation of foodstuffs or other essential items. For security reasons it may be desired to have such items home-produced, which is frequently achieved by farming subsidies or controls regulating farm output. This list of examples could be lengthened to illustrate the point that in most societies the normal competitive system may be modified because of a conflict between economic and other motivations. While a Marxist might deny the validity of these non-economic motivations, most economists accept that economic man is a fiction (of non-economists), and recognise that many forms of governmental activity will arise from this conflict.

On economic grounds intervention in the competitive system may arise for several reasons. One is that the technical characteristics of a particular industry may be such that a monopoly is the cheapest, or most appropriate, form of supply—telephones, electricity, gas and water, are common examples of a single supply source. Here it would be economically inefficient to maintain or promote competition; instead the monopoly situation is generally accepted and the object is then to devise an appropriate basis for its regulation. These monopolistic situations may also arise, not through any technical factor, but because of human deviations from the requirements of the perfectly competitive model. Thus there may be an inadequate degree of knowledge which prevents potential buyers or sellers from maximising their situation; or there may be restrictions on entry to an industry or occupation which prevent people from acting in accordance with their economic knowledge. In such cases, non-market action may again be advocated to cope with the specific form which these monopolistic situations may take.

A second type of economic problem within the competitive system occurs with items which involve joint consumption, where the exclusion of any one individual or group from sharing in the consumption of the item is either difficult or impossible. The provision of an army or other components of national defence is a standard example of this type of ‘public good’ problem. Since some of the citizens cannot be excluded from the defence protection provided, it will not be possible to discover how much each individual would freely pay for this service, hence a competitive solution is not feasible.

A third problem arises where the market is not sufficiently comprehensive to embrace all activities involving economic costs and benefits, and where in consequence some resources or outputs are unpriced. This leads to what is termed a divergence between the private and social valuation of the items involved. Standard examples are the effluent discharge from a factory which pollutes a river, killing the fish and spoiling bathing facilities, or the smoke from the factory chimney which soils the laundry in the neighbourhood. Here costs are imposed on anglers, bathers and housewives, as a result of the factory’s activities, but these costs are not charged to the factory and hence are not reflected in the prices of its products. The problem in these divergence cases tends to centre around the absence or inadequacy of property rights—whether the anglers have a right to the fishing, the bathers to clean water, the housewives to clean air, or whether the factory has the right to impose these costs. These divergence questions may then be resolved via the legal system, or by taxes/payments to the affected parties.

A special form of this divergence problem which is relevant to investment-type decision may be noted separately. This is the case of the divergence between the private and social valuation of present and future goods. Here the divergence arises because the life expectancy for any individual is both shorter and more uncertain than for the community as a whole; hence individuals will place a relatively higher value on present rather than on future goods. This divergence can be significant if one is interested in questions of economic growth and development, because the volume of saving, and hence of investment, resulting from a free market system will be less than that which would arise from community valuations.

Finally it may be worth noting that if intervention in the competitive system is called for on economic grounds, then there is also a case for intervening to alter the distribution of income and wealth on similar grounds. This is so because the prevailing distribution will no longer reflect an economically ‘efficient’ pattern of activity. Thus a person might become wealthy, not because he had provided very valuable services to the economy, but because he had enjoyed a monopoly position, or had access to unpaid factors of production.

Similar reasoning may also be applied in seeking to explain the absence of competitive activity in education. First it may be noted that education is a service which is demanded by substantial numbers of consumers; there is rarely, therefore, any monopolistic problem on the demand side. The supply side is, however, less clear-cut and varies both with the level of education and with the particular area under review. Thus in the urban areas of developed countries there is usually a sufficient number of suppliers (schools) at the primary and post-primary levels of education to ensure a reasonable degree of competition. At the higher levels, however, the choice is typically much more restricted; most cities would have only one university for example—hence a significant degree of local monopoly may occur. Similar monopolistic situations will tend to arise in varying degrees in rural areas of developed economies, and in both urban and rural areas of underdeveloped countries for first and second level education. The presence of these monopolistic tendencies may thus constitute one reason for the absence of an adequate market in education.

A second possibility is that education is an activity which gives rise to significant divergences between the private and social valuation of its costs and/or benefits. This is a possibility frequently discussed in the literature on the subject. There are many references to the benefits which the presence of an educated person or group may confer on other sectors of the community. It has been suggested, for example, that educated people may raise the productivity of others with whom they work; that they may lead to reductions in lawlessness and to greater social cohesion and stability; or that they may make democratic political processes possible. These examples all refer to external benefits from education; equally there might be cases where costs might be imposed by educated people on the rest of the economy. Education might, for example, produce discontented intellectuals who would generate social strife, or who would decline to accept ‘inferior’ employment. Whether beneficial or detrimental, however, the presence of these effects may constitute a second reason for public sector educational activity.

Distribution aspects may be a further factor in such intervention. Governments pursuing policies of income redistribution would presumably be interested in dealing with the causes of unacceptable inequalities. If it could be shown that education is a significant factor in causing income differentials, policies aimed at providing some more widespread pattern of educational opportunities might be pursued as part of any long-term dynamic solution to such distributional problems.

Finally, it may be necessary to take account of the non-economic reasons motivating public sector intervention. Historically it would appear that these were more important than the purely economic factors in many countries. Such viewpoints find expression in references to education as being a desirable thing in itself, as providing its own justification and satisfaction, as an inalienable human right, and so forth. From the introduction of universal compulsory education in nineteenth-century Europe and America to the United Nations charter, the tone in which education is frequently described suggests that it is these non-economic considerations which have been paramount.

III

Elaborating the variety of reasons which can lead to noncompetitive forms of economic activity illustrates the complexity of motivation that is possible. In this respect education is not unique since similar complexities arise in many other areas. One purpose which economists have in seeking to identify the various forces at work in any given area is to help in arriving at an adequate description and understanding of them. While positive knowledge of this type is important and valuable in its own right, there is also a second objective in these efforts. This consists in the more difficult and more far-reaching attempt at formulating policy prescriptions and drawing normative conclusions. The temptation to indulge in activities of these latter types in understandable: the areas under investigation utilise large amounts of available resources and they profoundly affect the whole well-being of the population. Since decisions must continually be taken on the size and composition of activity in each area, it is perhaps inevitable that economists seek to make their contribution to such policy-making.

But again in this normative prescriptive sphere there have been significant changes and developments in recent decades. The overwhelming bulk of the prescriptive statements in earlier periods were based on an advocacy of the competitive market system. Competition was good, monopoly bad; free trade between countries was good, restrictions bad. Similarly, increases in government budgets were bad, reductions good—in economics as in other spheres that government was best which governed least. But gradually, as the various problem areas associated with a competitive system were identified, there was a wider recognition and acceptance of the necessity for intervention with the market economy. For a time, indeed, in the post-war period there was a tendency to look on government activity as being more or less automatically justified in all cases where competitive failures were identified. The more recent tendency has been to retreat from each extreme, and to adopt a much more agnostic attitude to the derivation of policy prescriptions and normative statements.

Thus the earlier approach to the ‘public good’ problems noted above (defence etc.) was to assume that since these items could not be organised competitively, they should be provided through the public sector. The present position is the more cautious one that if the ‘ideal’ competitive world is not available, it is necessary to examine and compare the various ’second best’ positions which may be possible in reality. A careful analysis will normally be needed in order to determine whether private operation or financing would provide a more satisfactory (albeit less than ideal) position than some public sector arrangement. The empirical answer to this question will, moreover, shift from time to time. Technological developments, for example, might mean that it would be feasible to charge vehicles on an individual basis for their use of city streets by fitting some monitoring device, whereas on practical grounds such individual pricing has not hitherto been possible. Again radio and TV signals which have been available to all possessing the necessary receivers could in future be supplied on a selective basis by transmitting ‘scrambled’ signals which could then be ‘decoded’ by those who pay for the necessary equipment.

Despite this greater caution, and increased awareness of the limited validity which any prescriptive statements may possess, the practical pressures are such that policy conclusions will continue to be drawn from economic analyses. It will become evident that in this respect too, education has received a similar treatment to that accorded other activities. In this respect, indeed, it might well be contended that education has had more than a fair share of such treatment. Given the importance attached to education by various groups, its ideological and philosophical connotations, the historical controversies which have surrounded so many of its aspects, the opportunities it provides for imposing particular value-systems and thought-patterns on the young, and the emotional reactions which discussions of it can evoke, it would be surprising if economists could avoid the temptation to derive normative/prescriptive statements from their studies.

The foregoing remarks are intended as a preparation and an apology to the reader for the rather laborious and painstaking treatment of the later chapters. Given the absence of a fully coherent and acknowledged theoretical framework on the one hand, and the temptation to derive policy-relevant statements on the other, it would be all too easy to present particular viewpoints or value-judgements as though they were the result of some objective analysis.

CHAPTER 2

THE DEMAND FOR EDUCATION

IN this, and in the three succeeding chapters, the demand aspects of education will be examined. The present chapter will be primarily concerned with such general questions as the total expenditure on education, the trends in these totals, and the factors which appear to influence the level of demand.

The first problem to be resolved is the content and coverage of education for purposes of this discussion. The solution adopted for almost all economic studies, and the one which will be followed here, is to confine attention to the services provided by certain types of establishment, usually schools and colleges. Some of the limitations and dangers of such an approach will be immediately apparent. The more usual way of defining education is in terms of a process, in this case the process by which personality-development takes place. On this definition, by no means all—indeed not necessarily even the major part—of education may take place in educational establishments; the home, work and leisure activities, may each provide educational environments and experiences. In restricting the focus to educational establishments, it is clear that much educational activity will be excluded from the study.

The main reason for adopting this more restricted approach is a practical one. Since no direct measurement of the educational process itself is, as yet, available, any attempt at a comprehensive treatment could result in purely qualitative statements. Economists, however, are primarily interested in quantitative results, and consequently seek measurements of the phenomena which they investigate. This emphasis on measurable phen...

Table of contents

• Cover
• Title Page
• Copyright Page
• Contents
• 1. The Economic Approach to Education
• 2. The Demand for Education
• 3. Education as A Personal Investment
• 4. Education as A Social Investment
• 5. Education and Economic Growth
• 6. The Manpower Approach
• 7. Efficiency in Educational Provision
• 8. Migration and Education
• 9. The Financing of Education
• 10. The Relevance of Economics to Education
• Index