A Solution to the Education Crisis

Abstract:     
One of the largest expenditures of state and local governments in the USA, and of various governments at all levels in other countries, is for the provision of education. In the USA, states provide a free public school education to students for the first twelve years, and subsidize tuition at state universities thereafter. As a result, public education has become a near monopoly because privately provided education finds it difficult to compete on price. Where private education exists, it can compete only because of nonprice advantages. This near monopoly position with regard to education exhibits many of the attributes of monopolies in general -- the price is higher than would be the case in a market system and the quality is lower. This phenomenon has been recognized, and some economists and others have advocated breaking up this monopoly by the use of a voucher system whereby parents can purchase education for their children by presenting these vouchers to the appropriate authority. Vouchers inject choice and competition into the public education system, which, it is thought, will overcome the disadvantages of the present near-monopoly situation. The funds for these vouchers would be provided by taxation, just as the public school system is presently funded by taxation, except that parents would have some power to decide where the tax proceeds flow. While the use of vouchers would trigger markets, and would cause the price of public education to decrease while improving quality of service, vouchers are only a half-way measure because they ignore some fundamental issues, such as whether government should be in the business of providing education in the first place. This paper explores the possibility of privatizing education and attempts to answer questions such as: Is providing for public education a legitimate function of government? How would education be funded if government didn't do it? How would a privately funded education system provide for those who couldn't pay?

JEL Classifications: I22, I28

Working Paper Series