Atanu Dey On India's Development

The Indian Education System – Part 8

Scarcity

Consider this list: cars, scooters, telephone service, airline ticket, seats in schools and colleges, electricity, and railway tickets. Think of the year 1980. Notice the common feature of the list: shortages. Now consider the list in the year 2007. Notice some things on the list are no longer scarce. It cannot be mere coincidence that only those items which the government has released it stranglehold on are no longer scarce. Could it be possible that if the government lets go of its vise-like grip of schools and colleges, that shortage of educational services will also be a thing of the past?

Given sufficient time, shortages have a way of entering into our worldview so that we simply start considering them as normal and acceptable. Today the power supply where I live in Pune failed for over two hours. It is remarkable that I have accepted that power in India is unreliable and don’t work up a sweat (only figuratively speaking, though.) It is part of our survival mechanism. We adjust to unreasonable situations. That’s how it is, we explain, and cope with it. We have become inured to the mad struggle that people go through to get their children into schools and colleges. We forget how astonishingly unnatural it is that something as basic as a good education involves almost superhuman effort.

Chronic shortages do not occur naturally. You can have acute sporadic shortages due to shocks to the system. But chronic shortages have to be carefully engineered and the machinery that creates shortages has to be kept in good working order. Otherwise the natural tendency for a market is to close the gap between the quantity demanded and the quantity supplied. This is a fundamental truth about the world of humans.

One effect of persistent shortage is low quality. Lacking the discipline enforced by the customer’s freedom of choice, suppliers don’t have an incentive to ensure quality. The consumer is happy to receive even shoddy goods and services because it is a struggle to get anything at all. Take it or leave it, is the basic attitude of the producers in a sellers’ market.

In summary, it is misguided government policy that lies at the root of our dismal education system. The policy change required is to allow the private sector unfettered access to the education market. Will the private sector supply educational services? An unqualified yes because there is money to be made. Currently around 10 percent of GDP is spent on education, which amounts to around US$60 billion. Half of India’s population is below 25 years of age. That defines the addressable market for educational services. If the supply of educational services were to meet the suppressed demand, the annual spending on education will be many multiple times the current level.

Which brings up one of the most important matter associated with education. There is an implicit ban against for-profit educational institutions in India. Why this is so is hard to understand. For-profit producers of other goods and services are not banned. Indeed, it is clear to see that for-profit organizations produce most of the critically important goods and services. The only caveat is that these for-profit firms have to face competition. That’s the bottom line: allow all firms to enter the market, regardless of whether they are for profit or not. The market forces will regulate the firms so that the supply rises to meet the demand, the quality improves, and the prices reflect the underlying costs.

One final point: what about the poor? First, for education up to the secondary level, those who are unable to pay for their education should be publicly supported through vouchers which are redeemable at private schools of choice. Second, for post secondary education, those who are unable to pay should be given loans. Recall that post secondary education has a short payback period and the return on investment in education is positive. So the loan recovery with interest is not a problem.

In the remaining two pieces, I will explore the consequences of liberalizing education in India.

[Previous post: Part 7. Next post: Part 9.]

  • http://apusworld.wordpress.com apu

    Totally agree. Its also possible, that by allowing players freely, market participants will no longer concentrate on one kind of education, i.e. acquisition of degrees. If people see an opportunity, they will launch various kinds of education, including vocational training, specialised training for specific industries such as retail, BPO etc. Ofcourse the government’s role could be to keep pace with these and put in place some common standards.

  • girish

    The government needs to take steps to release education from their control.

    I am sure that competition in education would bring down the costs for students and also the teachers/professors would be paid well by the schools and colleges to retain good talent.

    I wonder why the government is reluctant to liberalise education !

  • http://barbadkatte.blogspot.com Ramesh

    Girish,
    Take a look at the “owners” of the “not for profit” professional colleges & you will see that they are all politically connected. In my opinion classical rent seeking behavior is what is preventing education from opening up. The other lobby at work is the one of “minority” colleges.

  • http://dipanjanc.blogspot.com dipanjan

    Atanu,
    This has been an excellent series. Eagerly waiting for the consequences segments. I guess it will have something to do with “chitto jethA bhayshunyo, uchcho jethA shir,. jnan jethA mukto” (where mind is fearless, head is held high and knowledge is set free). And that is precisely why they will try their hardest to keep education under control. Or else where will the next generation of brainwashed teachers, lecturers and cadre-employees come from?

    1980 is a personal landmark for me. Six-year-old, I was admitted to the first grade of a West Bengal government high school in a small town in the suburbs of Calcutta. The admissions process was brutally selective as that was the only half-decent public (“free”) school in a very densely populated area of about 40 square miles. After a tough entrance test, about 5% of students were selected and some of them had to commute two-three hours daily using a wretched public transport system. Later I came to know some of the school teachers used to accept bribes to guarantee seats. A certain portion of seats were illegally reserved for highest bidders. Some of them — religiously against “privatisation” in theory — would rarely show up in the classes and would rather teach both the selected 5% and the rejected 95% in “private tuition” classes at their residence. Talk about monopoly and rent-seeking. I am sure nothing much has changed since then.

  • http://valluvar.blogspot.com shiv

    Virtually everyone in my circle went to a private school. I am sure that most of the readers of this blog are of similar educational background. Most if not all these schools are quite profitable, though they are all registered as non-profits. I am not aware of any impicit ban though i do know that everyone gets it registered as such for taxation management. Maybe scrapping the HR ministry (as you have recommended) is the only solution as there is a strong politico nexus in this. For the record most private professional colleges in south india are owned by sitting MLA’s or MP’s. The land for these institutions is typically given free (or close to it) by the gov (this includes the IIM’s) hence the political angle.. I think that the gov understands the economics of your argument quite clearly. Its just being monopolised by the political class (entrepreunarial class ??). Is this a case of taking coal to newcastle ?

  • Revathi

    I am in my forties. I was educated at a govt school and went to govt medical clinics for free when i was a kid. Ok, I was in an urban area and so I was well provided. They tell me that rural areas didnt have this facility. These days, no one in their right mind with a the means goes to a govt school or a hospital. It seems that the govt is suddenly incapable of providing any service with accountability. Is it that the number of customers increased uncontrollably and the govt didnt keep up with this expansion?
    I dont think this is just a privatisation issue. Govt services not only stagnated but also deteriorated. What was the reason for this? Was it the lack of accountability? Why was it that there was accountability before and it is not there now? Any comments?

  • S

    Livemint.com released a report stating Maharashtra and Haryana laws permitted “for profit” schools.

    Of course, most schools in these states still choose to operate as “non profit” institutions to avail of the discounts on land and income tax exemptions.

    Other states too might actually permit such schools.

    Any idea?