FEBRUARY 27, 2013 by THE FREEMAN
The primary and secondary education system looks mostly like a state-run monopoly. Higher education has the qualities of a guild or a cartel. These systems have persisted for over a century due largely to their resistance to change and to the tight control over the flow channels that keep them alive. And as with any other monopoly, guild, or, cartel, benefits accrue to members. Threaten those members and you’re threatening to take education from children.
But parties outside the system are harmed, or at least don’t benefit as they would in a robust education market. Those who might compete with universities for talent or the privilege of teaching—would-be competitors—simply cannot. Those who consume or are forced to subsidize education (students, taxpayers, and donors) pay either too little or too much. Those in society at large receive fewer benefits than they might otherwise.
Monopolies, guilds, cartels, and organizations that resemble them fight fiercely to protect their interests. In higher education, there are differences between public and private universities. But all share the basic guild structure:
Accreditation Boards: Protective oligopolies that give members (universities) a degree of security from competition through bestowing the power to grant degrees.
Universities: Protective guilds that give their members (instructors) the power to give grades (which students need in order to get degrees).
Students: A protected group that spends time and money on the guild in order to be granted degrees—that is, signaling mechanisms for professional life or graduate school.
Advantages accrue to these groups by virtue of the structure. When one adds heavy subsidies like federal student loans and Pell grants, it shores them up. Malaise and inflation set in. Alumni donors go on blindly throwing money at these hoary guilds. Taxpayers think they’re supporting education instead of bureaucratic bloat. And students think that sociology degree is going to set them up with a good job.
Cartelization via accreditation allows universities to gain these advantages in anti-competitive ways. Indeed, one is not likely to secure such advantages in a market setting. Political entrepreneurship allows education bureaucrats and teachers to cartelize without much fear of defection. In primary and secondary education, people simply have to pay for a failing system offered for “free.”
In other words, in an entrepreneurial market, there are strong incentives for one to defect from a cartel by lowering prices and increasing quality and/or output. But if cartels are propped up by significant cost shifting thanks to subsidies, student loans, accreditation, tenure, union agitation, irrational degree signaling, and other sources of inflation, incentives to defect from the cartel evaporate. And that’s one reason why any reform that requires full privatization or de-subsidization—significant changes in policy—may be a nonstarter.
Because any existing organization has developed secure channels through which favors from the political class and rationally ignorant taxpayers continue to flow, system-wide reform would require wholesale institutional change. That would mean big changes to the rules. Institutional reform is tough, however, because reform efforts meet resistance from the vocal beneficiaries of the organizational status quo. Those who bear the costs—taxpayers, parents, and some students—are at a disadvantage with respect to the well-paid interests closer to the action and who stand to lose more.
The hard reality of concentrated benefits and diffuse costs comes straight from Mancur Olson. It doesn’t help that everyone has come to believe that public schooling is some sort of panacea (if we just keep pouring money into it). It doesn’t help that people think that a conventional university degree is the primary key to success in life. Both of these mass hallucinations are holding us back.
So, despite all the tuition increases, tax increases, waste, fraud, and abuse by schools and universities—students, parents, and taxpayers have fewer incentives and less information to reform the system than professors, administrators, and bureaucrats have to keep it intact. Nevertheless, something has got to give.
The good news is that changes are coming through the gales of creative destruction unleashed by connectivity, competition, and computing. Education—like telecoms, entertainment, and any number of other industries—is about to be disrupted.
This issue is devoted to that coming disruption.
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Entrepreneurship in education might be a tall order, but Manuel Ayau showed how successfully it can be done. We interview his grandson Pedro.
Our education system was designed for a long-gone industrial past. By going under and around the established monopoly, disruptors are changing that. Michael Horn has done his homework on the subject.
Entrepreneurial challengers are fast rendering traditional educational systems obsolete. Mark Frazier explains where they’re taking us.
Government lending policies meant to increase access to college have triggered an avalanche of debt, price inflation, and a financial crisis. Sound familiar? It should—it's the housing crisis redux, says Jay Bowen.
Wikipedia's success illustrates the benefits of free and voluntary association. Gary Galles explains how free markets provide even more, despite government obstacles.
College often isn't kind to students who don't toe the anti-liberty party line. Take heart, says Aleksandr Jogerst; you're not alone.
Fracking exposes an important lesson about water markets, along with all that gas and oil trapped below the rocks. Joel Watts has the story.
The U.S. economy is quickly approaching the point where there are more tax spenders than taxpayers. Bruce Yandle says this situation is helping to produce a divided country.
Targeting tax increases at just "the wealthy" is impossible—and won't solve any of the government's financial woes, says D. W. MacKenzie.
Progressive taxes are both arbitrary and unfair. Charles W. Baird has the numbers.
When the State seeks to perform the duties that ordinarily would be carried out through people’s voluntary social bonds, it damages these bonds and weakens civilization. Alastair Paynter says Britain is already experiencing the effects.
Our columnists have plenty to share with you. Doug Bandow asks who is really serving the public; Sarah Skwire discusses a detailed look at a world of tradeoffs; Max Borders says to stay “alert” for opportunities to undermine Leviathan, and Jeffrey Tucker has been hearing some sweet music from the market.
Our book reviewers look over an introduction to Public Choice and a summary of a “debate” over financial market reform.