Education with and without the state

,5c&o Human Capital Development and Operations Policy HCO Working Papers Education with and without the State Edwin G. West September 1995 HCOWP 61  Papers in this senes are not formal publications of the World Bankl They present prliminay and unpolished results of analysis that are circulated to encourage discussion and conment; citation and the use of such a paper should take account of its provisional character. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent.  Education with and without the State by Edwin G. West  This paper is based on a seminar that Professor West gave to Bank staff on June 22, 1995.  Abstract Since today's prosperous nations were once 'developing" countries, it is useful to compare their historical circumstance with those of current developing countries. The characteristics of education in 19th century Britain (then a developing country) tum out to be remarkably similar to those now reported for countries such as Belize, Mauritius and Chile. First, the growth of education is associated with increases in per capita income; second, parents voluntarily spend more (directly from their own pockets) on education as their incomes rise; third, the growth of education combats the Malthusian specter of overpopulation. These findings appear to be independent of education being with or without the state. With regard to higher education, it is currently observed that its rate of return is usually lower than that for elementary and secondary. It is recommended, accordingly, that spending be reallocated at the margin from the former to the latter sector. This calls, among other things, for higher college tuition fees in proportion to total costs. One important consequence of such tuition increases is growing competition between universities-this is already well in evidence in developed countries. Competition in the delivery of education has hitherto be hindered by restrictions on entry. A new entrant without a government charter has found it difficult to compete without a government subsidy against a public university that enjoys a considerable one. But because the relative value of the subsidy falls as tuition increases, the entrant has a better chance of surviving. Evidence shows also that survival prospects are further increased when the entrant compresses a four year into a three year course. The reason is that this innovation dramatically reduces the cost to the student of foregone earnings while at college. Examples of such events are provided by the independent University of Buckingham (U.K.), Bond University (Australia), but most especially in the case of the nationally accredited for-profit DeVry Institutes in the U.S.A.  CONTENTS Introduction ...............................................1 Developed Countries in Their Developing Years ...............................................1 Nmeteenth Century England and Wales .........2.....................................2 Literacy Growth in the Nineteenth Century ...............................................2 The Beginnings of Education with the State ...............................................3 Reallocating Resources from Higher to Lower Education: ......................... ......................4 Lessons From Developed Countries ...............................................4 Universities: The Continuing Disorders ..............................................4 The New Demands of the Global Economy ...............................................6 The Prospects for New Entrants .......6.....................................6 Efficiency in Organization .............................................7 The Neglected Cost of Students' Time .............................................8 Not-For-Profit Versus For-Profit Organizations .............................................. 10 The New Corporatization of Universities: World Wide Evidence .......................................... 11 The U.K. Polytechnic/Universities .............................................. 11 The University of Buckingham ......1...................................... 11 Bond University, Australia ............................................ 12 The Devry Institutes ............ 13 Student Loans ............ 14 Conclusion .............. 14 References .............. 17  Introduction The impression is sometimes given that developed and developing countries occupy quite different spaces or "watertight compartments." The purpose of this paper is to demonstrate some mutual gains from constantly learning from each other. There are several instances of developing countries today that were previously classified as developed. Currently developed countries will obviously profit from careful analysis of the circumstances of the decline in these countries so as to avoid the same pitfalls. Next, take the case of newly developed countries A and B that have graduated, although at different rates, from the status of "developing country." It may be of value to emerging countries in general to find out why country B, say, developed somewhat faster than A. In eliciting any differential policy reasons for the relative slowness of country A, developing country observers may avoid what are revealed as detours from the path of optimum progress. The second section of this paper will present an example of a developed country obtaining a richer understanding of its own educational history by studying the newly reported empirical research on twentieth century developing countries. Simultaneously, the exercise will show how some already established details of the educational history of the now prosperous country can "feedback" to the benefit of the developing sectors. The third section of this paper treats a more specific issue. Current literature reasonably argues that, since the private and social returns to the elementary and secondary education in developing countries well exceed those from higher education, efficiency demands special economy drives in the latter sector so as to release extra resources in the former. The proposed economies in higher education, however, are somewhat sketchy. A firmer policy, it will be contended, will emerge from a closer examination of the most recent higher education events in developing countries. These events include a universal trend of increased student tuition's share in-the-total revenue of universities and the emergence of newer for-profit organizations delivering higher education at near full cost fees and supported by efficient student loan systems. This, then, is a case of developing countries looking forward to, and anticipating, changes in higher education that are already afoot elsewhere. Developed Countries in their Developing Years World Bank analyses of the relationship between education and economic growth have hitherto concentrated on the experience of developing countries in the twentieth century. This work can be usefully complemented, however, by studies of the past per capita income and education growth of countries that have graduated over the last century or so from the underdeveloped to the developed status. By all standard measures used today, Britain was an underdeveloped country right down to the later part of the nineteenth century. In the light of this it is interesting, in retrospect, to compare three prominent findings concerning developing countries today. They are as follows: (i) the growth of education combats the Malthusian specter of overpopulation; (ii) education growth leads to increases in per capita incomes which, in tum, improve health and lower mortality; and since these improvemnents enhance the payoff to human capital investment, the growth in education becomes cumulative or, at  2 least, self-enforcing; (iii) as per capita incomes increase, parents voluntarily spend more on education. These findings pertain to the systematic study of the records of over 100 developing countries since 1960.' Nineteenth Century England and Wales Consider now the presently developed country England and Wales in its developing years.2 With a population of nearly 12 million in 1818, and no public (government) schools, about one in sevrenteen were attending private schools paid for largely by working parents. There were no govenment subsidies to private schools and no laws for compulsory schooling. By 1858 the proportion of the population found in fee paying schools had increased dramatically to approximately one in eight. And by this time the annual growth rate of the population had fallen to 1.21 (from 1.40 in 1818). This fact is consistent with the first of the three "modem" findings conceming the twentieth centry developing countries reported above: the growth of education combats the threat of overpopulaton. And in this case it was education without the state. The next relevant fact from the history of British education is that the annual growth of per capita income in the years 1801-71 was just over 1 percent. Since the annual average growth rate of day scholars was well over 2 percent, this combination of circumstances is consistent with the second of the tree findings from twentieth centuly developing countries: education growth is associated with (or leads to) increases in per capita incomes. As well it is pertinent that the years 1801-71 witnessed a drop in mortality rtes, a factor that increased the pay off to human capital investment. Finay, since this was education without the state, and especialy without laws of compulsory education, we have the strongest possible support for the third finding from todays developing countries: parents voluntarly spend more (directly from their own pockets) on education as their incomes rise. Indeed the nineteenth century figures for England and Wales show that the percentage increase in parets demand for education was larger than the percentage increase in incomes (a ituation that economists today describe as the presence of a high income elasticity of demand). Literacy Growth in the Nineteenth Century Another striking feature of British education prior to 1870 is that the record of educational outputs, such as literacy, was even more impressive than that of schooling This fact has presented a particularly serious problem to authors of social histories who tend to downplay any type of social progress during the industrial revolution period. MArk Blaug concludes, "Connional histories of education neatly dispose of the problem by simply ignoring the literacy evidence." Blaug emp 1h that since it is common in developing countries for literacy to run ahead of schooling, we have to recognize the existence of numerous educational agencies in England and Wales outside formal ' Psacharopoulos, Tan and Jrienez, 1986; Becker, 1995. 2 For the historical details that follow see West, 1994.  3 schooling already mentioned. These included the widespread adult-education movement, the mutual improvement societies, the Literary and Philosophical Institutes, the Mechanic's Institutes and the Owenite Halls of Science. Blaug also refers to freelance lecturers who traveled the towns and stimulated self-study among the poor. As for part-time formal education, meanwhile, the Sunday Schools and adult evening schools were obvious examples, and again attendance was voluntary (Blaug, 1975). The fluid, flexible, heterogeneous and competitive educational scenario of the pre-1870s just outlined is, ironicaly, the kind of environment that the more radical of reformers are now demanding over a century later. The school choice movement, it is maintained, has been to a large extent misinformed. What is needed is educational choice. "School choice has not and will not lead to more productive education because the obsolete technology called 'school' is inherently inelastic... As long as 'schoor refers to the traditional structure of buildings and grounds with services delivered in boxes called classrooms to which customers must be transported by car or bus, 'school choice' will be unable to meaningfully alter the quality or efficiency of education." (Perlman, 1992). Although the argument in this quotation is perhaps somewhat extreme, it does contain a substantial element of truth. Genuinely free markets are unpredictable in terms of their unfolding supply organizations as well as in their offerings of completely new products that they constantly surprise us with. The Beginnings of Education with the State The nineteenth century scenario just outlined has been described as education without the state. It must be conceded, however, that some government subsidies to schools were introduced in 1833, but their aggregate value was very low (only