Private vs public education

Private vs public education

A common term is free education and free health services. Nothing is free. We pay taxes and the government gives us back goods and services in return. In OECD advanced countries, the largest percentage of government employees is in education. So, let’s examine education. A similar reasoning applies to health and other services.

There are two questions regarding the services provided by the government, who produces them and who pays. If the government did not provide education, the user of educational services would have to pay directly to schools and universities as happens in private ones. The users are paying exactly for what they consume. In this case the user is paying and private schools produce the service. Of course, students are not paying themselves, their parents or relatives are paying.

Some poor users may not be able to afford an education. Public education has two characteristics, it is guaranteed and users are not paying for what they consume. Generally, low-income citizens pay less and rich pay more. It depends mainly on three factors; a) how many children one has b) if he sends them to public schools and universities c) how much tax he pays. One can be in the upper class but pay less for education than he consumes if he has many children in public schools or universities. On the other hand, someone else may be in a lower class but have no children. So, he pays for education services without using them.

Some rich people pay for something they are not using, if they sent their children to private schools. On they are hand poor people may end up paying for other goods or services that they are not using often or at all. Two examples are airports and Marinas. Rich people’s share in taxes is larger even with a flat tax rate, so they pay more for common goods. People are not either rich or poor. A common income distribution measurement is in quintiles, five equal parts that each contains 20% of adult population. In this way 5 income classes are formed, lower, lower middle, middle, upper middle and upper.

There are two other alternatives to private and public education. The same effect with public education could be obtained with private schools if tuition is subsidized according to income level. Another option is that the government pays to private schools all tuition. We have four alternatives; a) private education b) public education c) private education with government subsidies for tuition d) private education with the government paying for tuition.

In a, c, d, the service is produced in the private sector. In a, it is paid by users. In c, it is paid jointly by users and taxpayers. In d, it is paid by taxpayers. In b, it is produced in the public sector and paid by taxpayers. Some public universities charge fees that cover part of the cost. In this case the service is produced by the public sector and paid jointly by taxpayers and users. A variation to this would be if governemnt charged fees that covered costs and at the same time subsituted according to income.

The difference between 1) a and 2) b-c-d is that in the latter education is guaranteed and users are paying according to their ability. What is the difference between b and c or d ? One difference is public vs private sector’s productivity. A second difference is that c or d leave more room for exploiting the system. These two have opposite effects. A general belief is that private sector is more productive than private. This will be examined soon. Based on that c or d would be preferable compared to b. Potential system exploitation in c or d makes b more preferable. The question to be answered is which has a bigger effect, private sector’s productivity or potential system’s exploitation.

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