Date created:24/2/04
Last modified:24/2/04
Maintained by: John Quiggin
John Quiggin

States schooled for success

Australian Financial Review

29 January 2003.

The recent statement by Prime Minister John Howard, suggesting that parents are abandoning the public school system because it is 'value-free', or, alternatively because it is excessively devoted to the values of 'political correctness', has attracted comment and criticisms from many directions. Economic analysis, however, has been conspicuously absent. An economic perspective on the question suggests that some commonly held beliefs about private and public education are groundless and that some important factors have been neglected.

Consider first the premise, shared by Howard and many of his critics, that the shift in enrolments from public to private schools must reflect increasing dissatisfaction with the public system. An economic appraisal suggests a much less abstract explanation.

Thanks to changes in Commonwealth government policy, subsidies to private education have been steadily increasing. Meanwhile the effective subsidy to publicly educated students has remained constant or declined in recent years. Standard economic analysis suggests that when a service is subsidised, its consumption will increase.
The analysis even works when comparing Catholic and other independent schools. Under Labor, the Catholic system received fairly generous assistance, but aid to the wealthier independent schools was limited. The Howard government has greatly increased aid to the wealthiest schools and enrolments have followed, with both government and Catholic schools losing market share in recent years.

From this perspective, in fact, the surprise is that the increase in attendance at private schools has been so small. In 1963, before the Menzies government began the provision of government aid to private schools, around 24 per cent of students attended non-government schools. After 40 years of steadily increasing public assistance, the non-government share has reached only 32 per cent. This suggests either that parental preference for non-government schools is very weak, or that the perceived advantages of private education have been declining over time.

There is a good deal of evidence to support the view that the advantages of a private education have declined. In the 1960s, only around 20 per cent of government school students completed Year 12, and very few made it to university. Although the odds of attending university still favor non-government school students, their relative advantage has declined substantially.

The power of the price mechanism is illustrated by the experience of the United States where there is greater dissatisfaction with the public school system than in Australia, but no government aid to private schools. Despite their dissatisfaction with the public system, only 10 per cent of parents are willing to bear the full cost of a private education.
Another neglected feature relates to the perverse incentives created by our Federal system. Vertical fiscal imbalance means that most taxes are raised at the federal level, but most expenditure is undertaken by the states. Political pain and gain is allocated accordingly. Not surprisingly, federal governments tend to like cutting taxes, while state governments like higher expenditure.

One result of this is that Labor, which typically supports higher expenditure, has become the natural party of government at the State level. Over the last 20 years, Labor state governments have rarely lost office except as a result of gross mismanagement. Meanwhile, the conservatives have struggled to put together two successive terms in office in most states, and have nowhere (except in the Northern Territory) managed three . By contrast, the Federal scene has been much more evenly balanced.
The case is rather different, however, with the federal government's' own-purpose' expenditure, which includes aid to private schools. In cases where easy access to federal revenue is combined with ideological predisposition to support particular kinds of spending, areas of federal own-purpose expenditure can receive funding of a level of generosity that is unusual in the straitened conditions under which modern governments generally operate.

From a political viewpoint, then, it may make sound political sense for John Howard to talk up the advantages of private schools, and to back his words with dollars. The credit for that new science block in an independent school will go the Howard government and will translate into votes when the next Federal election is held. Meanwhile, even if the conservative parties are blamed for cuts in support for government schools, most of the pain will be felt at the state level.

One question remains. Howard's attacks on state schools may make sense in Commonwealth political terms. But why would an aspiring state leader like Lawrence Springborg in Queensland see Howard's presence on the campaign trail as an electoral asset?

John Quiggin is an Australian Research Council Federation Fellow in Economics and Political Science at the University of Queensland.

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