Economics for Edu-Pundits II

(Part I is here.)

Most people don’t understand the distinction between capitalism and capitalists (i.e., businessmen).  The former is almost always good when there is a high degree of free competition; the latter are usually bad and often attempt to stifle competition.

Being pro-capitalism is not the same thing as being pro-business, yet this is often how those who favor government intervention in markets tend to paint those who favor capitalism. Free-market economists like Adam Smith, David Ricardo,and Milton Friedman have been harshly critical of businessmen.  Smith wrote against “the clamour and sophistry of merchants and manufacturers.” Any suggestions about laws and policies coming from such people, he said, ought to be “carefully examined, not only with the most scrupulous, but with most suspicious attention.” Skepticism about the business community has remained part of the tradition of free-market economists.

Businessmen seek to reduce or eliminate competition because it is in their self-interest to do so.  By reducing competition, they are able to squander scarce resources and increase their own profits.  It is competition that forces the efficient use of resources by businessmen, lowering prices and thereby competing down profits.

Today, the preferred method businessmen use to stifle competition is through the political process by lobbying the government to intervene on their behalf through subsidies, by keeping out foreign and domestic competition, through favorable regulations, by bailing out failing companies, and the like.  The reality is that businessmen don’t like free-markets and competition any more than Marx did. And government, both parties, is often all too willing to comply with these lobbying requests.  Business leaders are not wedded to a free market philosophy or any other philosophy. They promote their own self-interest any way they can, like other special interest groups. Economists and others who are in fact supporters of free markets have known this for at least two centuries.

Often only businessmen receive the scorn for their anti-competitive, self-interested behavior.  But their willing partner in this malfeasance, government, is just as much to blame. Behind every market scandal there is inevitably a bad regulation which played a significant part.

So what does all this have to do with public education? Plenty.

In public education, government has intervened to replace the businessmen with government officials (the school board). public schools are basically run as non-profit organizations.  This presents a special problem which I’ll discuss in a subsequent post.  For now, it’s only important to recognize are being run along traditional corporate lines with government officials serving as businessmen.  And, if government has been all to willing to intervene on behalf of private businessmen to stifle competition, it’s not difficult to recognize their willingness to do the same when they are the businessmen.

Since government officials are political actors they act in their self-interest not to seek profits (there aren’t any), but to seek political favors from school officals and employees and other related third parties.  Let’s go down the list.

Management.  The administrators who run the schools.  Always highly compensated, as in most industries.  But these guys have extracted a special advantage from their government overlords – zero responsibility to perform well.  when schools fail, like they are in the inner cities, these guys should be the first against the wall.  Are they?  Almost never. What typically happens is that they get reassigned or voluntarily move to another school to burden themselves with.  They have also been successful in shifting responsibility down to the next tier – teachers.

Teachers.  The employees, unfortunately not professionals, who in theory should be merely following orders from on high.  So when schools fail, it’s technically should not be their fault.  But, these are no white knights either.  they’ve formed themselves in unskilled labor-like unions and have successfully eliminated all competition in the labor market which might have served to keep their compensation in check and to make them somewhat responsible for performing with some degree of competence.  Their unions have been highly successfully in lobbying government for favors that are in their self-interest.  Teachers and administrators have in effect stepped into the shoes of the businessman who would normally be running schools.  They are now the loathed businessmen, as the public is starting to recognize. And they are certainly acting like capitalists  by converting what would normally be excess monopoly profits into increase compensation and job security for themselves.

Third party contractors.  All the people who provide services to schools – builders/contractors, publishers, schools of education, and anyone else who provides any service to schools.  These people benefit by being awarded contracts through the political process and by having administrators who aren't too concerned about  the bottom line.  This is why we see Taj Mahal like buildings and overly-produced and priced textbooks.

Only two groups are being screwed in our present system –students and taxpayers (i.e., the public).  The groups that the schools are supposed to be serving.  Bear that in mind the next time you read some lofty rhetoric about “public institutions.” “public good,” “society does to advance its own objectives,” “education being too important to be left to private enterprise,” and “the social harm that would be caused outweighing the profits.”

Forget about the public-good and private-enterprise labels.  That is a difference without a distinction.  We could easily have the same awful system under private enterprise.Private businessmen have also been successful in lobbying for the same kinds of reduced competition benefits.

The trick is to avoid the kinds of problems we see in the present public education system. The next post will discuss how that can be accomplished.