Of Kids and Kings

My AFR oped today is on school funding. Perhaps because I’ve been reading too many speeches by Barack Obama, I set out four principles that I thought all sides in the education debate should be able to agree on. I’d be curious if blog readers think that these are actually points upon which it might be possible to achieve consensus.

If I’ve counted correctly, this is my 100th opinion piece. By coincidence, it’s also the first time an editor has used my suggested headline. The article is a little controversial, but less so than my first op-ed, published in the Age on 27 November 1999, in which Justin Wolfers and I attempted to see whether the Donohue-Levitt abortion-crime link held up for Australia. For better or worse, all my opinion pieces – some 80,000 words so far – are on my academic website.

Getting School Funding Right, Australian Financial Review, 25 March 2008

Of all the policy debates in Australia, school funding is perhaps the feistiest. If you have children at school, you’re an instant expert. If not, you can always talk about how things were when you went to school. So even the merest whiff of change is guaranteed to prompt a barrage of talkback calls and bagfuls of letters to the editor. Add a dash of religion and a pinch of class warfare, and you have all the ingredients for a first order political barney.

Yet as Julia Gillard’s recent entry into the debate illustrated, school funding is an area that desperately requires reform. Indeed, it may be that the best way of delivering on the promise of equality of opportunity is to get school financing right.

The last revolution in school funding occurred with the Howard Government’s 2001 shift to fund private schools based on parents’ socioeconomic status. Introduced by then education minister David Kemp, the so-called ‘SES formula’ aimed to ensure that schools with more students in poor neighbourhoods got more money.

Unfortunately, the 2001 reforms also included a guarantee to all private schools that if the SES funding formula made them worse off, then they would receive their year 2000 funding amount, adjusted for inflation in the education sector. Seven years later, this ‘grandfather’ clause applies to about half of Australia’s private schools; making a mockery of the notion that private school funding is needs-based.

Another odd feature of the current school funding scheme is that private schools do not adjust their fees to take account of differences in the ‘voucher amount’ that parents bring to a school. For example, high school students in the most advantaged suburbs last year brought their schools just $1333 in federal funding, while those in the most disadvantaged suburbs were worth a whopping $6807 apiece. Yet the typical high-end private school did not offer a $5000 discount to poor parents.

Rather than arguing over particular policies (which themselves often reflect the oddities of historical compromises), the best way of moving the school funding debate out of the ideological mire might be to see whether we can reach agreement over the basic principles that should guide the debate. Here are four core notions that I think all sides should be able to agree to.

First, the wellbeing of children is more important than anyone else. Teachers and school administrators matter, but the top priority of education policies is to help kids, not adults.

Second, we should not penalise parents for spending more on their children’s education. To the extent that education has ‘positive externalities’ (higher productivity, more social capital, better civic engagement), we should encourage it. There is a real difference between a policy that says ‘the richer you are, the less the government should give your child’ and one that says ‘the more you spend on your child’s education, the less the government should give you’. The former targets resources to those who need them most, while the latter operates like an education expenditure tax.

Third, schools should be judged on outputs, not just inputs. At present, the federal government allocates billions of dollars to private schools, but asks little in return. Taxpayers who fund these schools have a right to demand that they provide empirical data such as test scores, dropout rates, or parental satisfaction surveys.

Fourth, funding should be transparent. Parents should know precisely how much government funding they bring to their child’s school.

Acceptance of these four basic principles could lead to better reform of our education system.

Recognising that kids come first, we might agree that it is good for a child to move to a better school (though we might still argue about how to help those who remain).

Accepting that we should not penalise education spending might allow us to revamp the private school funding formula so that all schools are financed according to their needs. Middle-income parents who choose to send their children to high-fee schools should get more government assistance than rich parents who opt to send their children to low-fee schools.

Measuring outputs would help parents select the best school, and let voters find out which private schools are adding value, and which ones are skimming the cream.

And making funding transparent puts the bargaining power in the hands of low-income parents, who can march up to the principal and ask why they’re bringing the school nearly $7000 in federal funds, yet not getting a discount on their tuition.

Ultimately, getting private school funding right is essential if the system is to be applied to public schools, as Gillard has proposed. Tantalising as it is to envisage public schools in the poorest neighbourhoods bidding six-figure salaries to attract the best teachers, there’s a long way to go yet.

Andrew Leigh is an economist in the Research School of Social Sciences at the Australian National University.

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20 Responses to Of Kids and Kings

  1. Patrick says:

    Great article.

    As for consensus, good luck with this one:

    Third, schools should be judged on outputs, not just inputs

    That is just code for competition, and there are both enough participants in the debate who know that and who bitterly oppose the idea that schools could compete with each other outside of sports day.

    Middle-income parents who choose to send their children to high-fee schools should get more government assistance than rich parents who opt to send their children to low-fee schools.

    Can you say class war? This will not be the subject of consensus this century, either.

    Measuring outputs would help parents select the best school, and let voters find out which private schools are adding value, and which ones are skimming the cream.

    Agree. I also bet that many will not, because as noted, this is just competition. All sorts of bad thangs come from competition.

    I think your point about measuring outputs is both the most contentious but also by a long way the most important. This is because competition is a natural state, and the more measurable indices the more there will be. Also, as I understand the limited practical research, even modest competition (such as the Florida study I linked to via marginalrevolution a while ago) seems to have disproportionate effects.

    Hence,a minimalist model is needed, focused on gaining acceptance of greater promulgation of information. There should be a central website with basically all the data on each school except student names and addresses, for example. And the government should work out (or adopt) a model based on the net worth of inputs’ families and the outputs (test scores/ENTERs etc) which should be publicly available.

    I think that alone would move things more than anything else in the last 10 years. The next step would be to include some modest sanction for consistently bad performance (because, perversely, it seems easier to get people to accept punishing poor performers than it does to get them to accept rewarding good ones!!!).

  2. conrad says:

    I think you wouldn’t get consensus on a number of these:
    1) The well being of staff is more important than that of the children. Teachers being assaulted is a big problem, and becoming moreso. If there is a trade-off and staff don’t win, you won’t have any teachers and you needn’t worry about the well-being of children. You will also get sued for having a dangerous workplace. cf. Is the well being of a violent child more important than your teachers? I didn’t think so.
    2) I think its crazy, but some people complain about some aspects of outside education (most notably “coaching” clinics), especially when they perceive minority groups do it more or benefit more from it. (as an example, the conservative poster whyisitso left a statement to that effect on Andrew Nortons blog a few days ago).
    2.1) I think its crazy also, but where I work occasionaly in France, there are really hard-core left guys (as in communists). They might object to parents spending money on their children’s education.
    3) You are sure to get complaints about forcing schools to disclose data from the left.

  3. Sinclair Davidson says:

    Andrew enters, again, into the education debate. He has written a lot in the area, and along with Andrew Norton is must-reading. This op-ed (congratulations on making 100), however, is not at all helpful to the debate. To some extent it is inspired on Obamaism or – here is Australia – Ruddonomics. It is long on symbolism and ‘we can all agree’ but short on substance.

    Let’s have a look at the four common points.

    ‘First, the wellbeing of children is more important than anyone else.’ Yes, we all agree on this point. Yet the immediate difficulty is why then are adults allowed to use school children as industrial/political pawns? Why are teachers allowed to belong to trade unions? If the wellbeing of children supercede those of educators then the education unions should be abolished. Yet, Andrew would never agree to that point (nor the unions either) so any agreement can only be superficial.

    ‘Second, we should not penalise parents for spending more on their children’s education.’ Again I agree totally, but I’m not sure where this leads. Later in the piece we see a point that all schools should be financed according to their needs. But what does this mean? Why not finance all students according to their needs? This could be easily done by means-tested education vouchers. Yet, again, I doubt many in the education lobby would go down this path.

    ‘Third, schools should be judged on outputs, not just inputs.’ Ahh, league tables. Why stop at private schools? All schools should participate in league table exercises. If the education lobby were smart, they’d oppose private schools from publishing league tables, simply because this would place greater pressure on the public system.

    ‘Fourth, funding should be transparent.’ This principle confused me somewhat. Public funding of private schools is transparent. On private school invoices the amount of Commonwealth funding per student is clearly set out – parents pay the difference between the school fee and the public funding. So the comment ‘And making funding transparent puts the bargaining power in the hands of low-income parents, who can march up to the principal and ask why they’re bringing the school nearly $7000 in federal funds, yet not getting a discount on their tuition’ is meaningless. All parents get the same discount. (In any event, the same argument applies at any public school where the subsidy is even higher.) Andrew’s argument seems to assume that the cost of teaching a student is a functon of their socio-economic circumstance. At a macro-level that may be true, I don’t know, but not in the same classroom with students from diverse backgrounds.

    Given the amount of publicity the education lobby give to federal funding of schools it is remarkable that anyone could argue any lack of transparency in federal funding of private schools. This is, however, a lack of transparency that neither the education lobby nor Andrew point to – the relative funding of public school and private schools. Public school are highly funded from state government coffers and the totality of public funds going to public schools is far, far greater than those going to private schools. I quote from an article I wrote on this topic last year.

    Total government funding per public student in 2005 – 6 was approximately $11,790, and approximately $7,589 per private student. The ratio of private spending per student to public spending per student is 64 percent. In other words, I estimate a discount to private schools of 36 percent. The AISV estimate a discount of 42 percent (they include capital costs in their analysis). If anything, private students are being under funded and not public students. It is public schools that are reliant on hand-outs.

  4. Andrew Leigh says:

    Sinc, thanks for the thoughtful critique. A few brief responses.
    * On point 2, the distinction does matter to policy. Latham’s hitlist was based on penalising high-spending schools. By contrast, the SES policy pays less to schools with rich parents. (On applying it to public schools, I think Julia Gillard is heading down your road, though maybe not as far as you’d like).
    * On point 3, I never said to stop at public schools – see my last oped on this topic. But it may be politically easier to start with private school accountability.
    * Your last point arose in my conversation with Andrew Norton last year. My basic view is that one of the best arguments for private schools is that they save taxpayers money. This disappears if the voucher amounts are the same for both systems.

  5. Sinclair Davidson says:

    I did think your point 3 was a bit out of character.

    Private schools do save taxpayers money – that is correct (although not the best argument IMHO). The effective voucher amounts are different across the two segments (public and private) but equal within any given (private) school – that figure is entirely transparent. (Although I suspect individual parents would not go to the headmaster saying, ‘I bring in $x in subsidy’. They might say, ‘I pay $y in fees’ – especially when y > x). Public subsidy is greater than the private subsidy but I never hear anyone from the education lobby say so. At a broader philosophical level the discrepancy doesn’t worry me – what does worry me is the education lobby assult on private education on the basis of funding. I suspect the general public think that private schools get more taxpayer money than public schools.

  6. andrew says:

    Good article Andrew. I am not entirely sure of your point below though,

    “Another odd feature of the current school funding scheme is that private schools do not adjust their fees to take account of differences in the ‘voucher amount’ that parents bring to a school.”

    In Victoria, many private schools do this, including wealthier schools like Scotch College. Does your research suggest otherwise?

  7. Kevin Cox says:

    Andrew,

    A mechanism that will be seen as fair is to give equal money directly to all children to be spent at the school of choice. To overcome the disadvantage of coming from a poor family or from a family who do not want spend their money on education give money directly to schools in inverse proportion to the amount of money given to the school by parents. This approach probably can be made to create a system to satisfy all your principles and be politically acceptable.

  8. Patrick says:

    Hey, I completely and wholeheartedly agree with Kevin Cox on this one 🙂

  9. Brendan says:

    Kevin Cox, your proposal is the very opposite of what Andrew Leigh wants. What you propose is effectively ‘the more you spend on your child’s education, the less the government should give you’.

  10. cba says:

    Kevin: as Brendan says, it sounds like your proposal would discourage parents from using their subsidy to pay for education. If parental discretion in spending is important, then how about giving a cash payment to parents that varies inversely with parents income, and then give matching funds to the school for each dollar a parent spends on education? those matching funds would be disclosed to parents and might phase down at some maximum contribution level. that sort of scheme would be a progressive benefit, help overcome the unwillingness to pay for education and make school financing more transparent to parents.

    As noted by Andrew, competition on outcomes is a very important piece of this puzzle. Without it, schools will happily aborb any amount of govt subsidy withot measurably improving results. That said, unless consensus excludes teachers unions, this item will be controversial.

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  13. Kevin Cox says:

    Brendan and cba,

    At first sight it might appear to discourage people but it is really a sort of reverse tax and taxes – provided they are not too onerous – do not discourage people from earning income. It would take a good psychologist to work it out the best rate but I expect if you gave a little to every school that it would be OK.

    The problem with a means tested system is that it discourages people from earning income and it is not fair on the kids who do not want to pay for reasons other than money. For example there are many people who think public schools where children come from a diverse background are good for the kids and for society.

    I am coming from the point of view of what seems “fair” which is a different viewpoint than what is most cost effective.

  14. John Greenfield says:

    Andrew

    I’ll comment on your piece in a mo. Quick question. Was it you who some time back did some research calculating the house price premium parents were prepared to pay to buy within the catchment areas of better public schools?

  15. Andrew Leigh says:

    Kevin, for the reasons I set out in the oped, I’m still unpersuaded that taxing educational expenditure is better than taxing income.

    John, that was indeed me. Paper here.

  16. Kevin Cox says:

    Andrew,

    The number one principle is what is best for the child. I guess this is the “average” child and I guess the crude measure is how can we get the most money spent on education. At the moment the system is geared to only the better off spending more money and I believe the income based proposals will continue that trend. I believe that the proposal I suggest is more likely to get more money spent on children from the people who send their children to government schools without reducing the fees paid by those going to schools who also charge fees.

    A way to test it out is to “run some experiments” or better still we set up the system and allow people (schools?) choose which system they want to use. That way we do not have to run experiments we can let the real system evolve. We don’t have to have to have one size fits all in these things. We can let people choose which is the system they think is most advantageous to them. If the outcomes are not what we want (more money to children) we see why and adjust.

  17. derrida derider says:

    I’d strongly disagree with at least one of Andrew’s “consensus” principles. I’d argue that penalising (in relative terms) parents who spend more on their children’s education is highly desirable because failure to do so rapidly creates a separating equilibrium that deeply undermines intergenerational mobility. It’s bad enough to be a child of neglectful parents, but to get much less educational opportunity as a result adds insult to injury.

    And in this particular case no economist should buy the “oh, but we’ll advantage the poor without disadvantaging the rich” line – there are finite educational resources which makes it a zero-sum game, and in fact the dynamics of that separating political economy equilibrium probably makes it a negative-sum game.

    And “measuring outputs rather than inputs” always sounds dandy until you actually try to do it. There’s a reason managers in many fields still manage inputs- they are proxies (admittedly highly imperfect ones) for utterly unmeasurable outputs. Plus there is little consensus anyway on which outputs matter for outcomes, or even which outcomes really matter.

  18. conrad says:

    “there are finite educational resources which makes it a zero-sum game”

    That’s hardly true. If more money goes into the system, it clearly isn’t a zero-sum game, and there’s no reason either quality can’t go up or the system couldn’t expand given more money. Take two schools as an example. If parents, for example, generate a slush to buy infrastructure for their school, that clearly disadvantages no-one. Either we have two schools with shitty infrastructure, because people don’t want to contribute (or you won’t let them), or one, because some parents in one of the schools are willing to contribute but not the other. Even in the worst case, where school X buys out physics teacher Y from poorer school Z, one would hope that that would lead to increased numbers of people becoming teachers, because hopefully physics teacher Y gets paid more than the base rate because of it and over time people might realize that teaching is not a poorly paid crappy job.

  19. Jono says:

    I don’t like the sound of this idea one bit:

    Second, we should not penalise parents for spending more on their children’s education. To the extent that education has ‘positive externalities’ (higher productivity, more social capital, better civic engagement), we should encourage it. There is a real difference between a policy that says ‘the richer you are, the less the government should give your child’ and one that says ‘the more you spend on your child’s education, the less the government should give you’. The former targets resources to those who need them most, while the latter operates like an education expenditure tax.

    The first half of this point is a slippery slope. What do you mean by “spending more on their children’s education” ? Is there ever a point at which parents could be accused of over-investment in their children’s education ? I mean, if parents are spending $25k-$30k per year, that seems like a point where government should not be subsidising much towards fees. You can’t just approach this issue by simply suggesting the more spending, the better.

    Also, how do you go about helping the middle class families but not the rich ? This means all kinds of intrusive and bureaucratic means testing and it will create all kinds of class warfare and resentment as every single family will be charged different amounts for the same product, based on their income.

    As for the fourth point about feedback and transparency, in practical terms, there will be so many moral hazards. Could you imagine how a school would handle parent feedback forms, testing scores, aptitude tests if their funding was tied to it ?

    Every school would alert parents to the fact that any feedback below a score of 3/5 would result in a loss of funding and would harm students ! Every school would try to provide lower scores on aptitude tests and better scores on final exams so as to look like they are adding more value and improving poor students.

    You can’t measure outputs without changing them, its the Heisenberg uncertainty principle and its why all these well-intentioned regulations cause moral hazards as institutions quickly adapt to play the system.

    If you want more bargaining power for poor families, give them the voucher directly to spend. Leave middle class families out of the policy, we have far too much tax churn and middle class welfare as it stands !

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