The Philippine educational system seems to be in a bubble. By bubble, this means that the current setup is unsustainable. As famed economist Herb Stein once puts it, if something cannot go on forever it will stop.
The cost of private education has been exploding, as exemplified by the estimated 7 year annual fee increases by PIDS on architecture and engineering courses from 1994-2001 (left window). This has been way beyond the rate of inflation (tradingeconomics.com-right window).
Yet it would be misleading to claim that competition among private schools doesn’t exist.
Most school participants of the major sports tournaments as the UAAP and NCAA demonstrate not only competition for sports superiority, but likewise “competition” for privately funded education.
And competition ought to have brought down tuition fees to market (affordable) levels. But this hasn’t been happening. So what’s wrong? Is this a case of market failure?
Competition Is In The Real Resources
Table from the Department of Education
Even as public schools dominate the education market in the primary/elementary (37,607 for school years 2008-2009) and secondary/high school (5,359) relative to the private sector (primary/elementary 7,084 and secondary/high school 4,707) based on the DepEd report, the relationship between the private sector and the public sector is incomparable or can’t be discerned as either “monopoly” or “market based competition” in the traditional sense, because both cater to distinct constituents, particularly to the underprivileged for public schools and to privately funded education.
However, where factual competition is going on is in the real resources department. Both the private sector and the public sector basically compete to consume the same materials, such as pencils, papers, food and etc... And this includes manpower (e.g. teachers).
Yet the fundamental difference will be on how the consumption patterns are being carried out, i.e. the private sector is sensitive to price mechanism via profit and loss discipline, whereas the public sector is politically determined.
A good example of how this competition for resources is being waged is in the subsidies provided by the Philippine government to private school students.
This from the Inquirer.net, (bold highlights mine)
Monsignor Gerardo Santos, national president of the Catholic Educational Association of the Philippines (CEAP), said private schools needed more subsidies from the government because their lowly-paid teachers were transferring to the public schools.
“That’s not just okay with us. We are advocating it [subsidies]. We are fighting for it,” Santos said in a recent media briefing.
“We want it increased. I hope the government hears us. We really need more,” he said.
The Department of Education estimated that almost half of the country’s 1.3-million private high school students are subsidized by public funds though the Government Assistance to Students and Teachers in Private Education (GASTPE). The program provides a P10,000-subsidy to first- and second-year high school beneficiaries in Metro Manila.
Junior and senior high school beneficiaries in the metropolis get P5,000 while all the beneficiaries in the provinces also receive the same amount.
The government allotted P3.59 billion for the GASTPE program this year.
We learn of several things from the article;
1. There is a mandate for private schools to accept or accommodate welfare constituents via tax funded subsidies.
2. Since government subsidies are considered as deficient, then the private schools shoulders the additional load of expenses (resource consumption) incurred by the welfare students.
3. Operating similar to the mechanics of the senior citizen’s discount cards, the subsidy gap contracted will have to borne, not by the school owners (through profit or earnings), but by passing these costs to the paying consumers, in this case, the paying students.
The last thing that anyone would do is to apply the onus of the cost of government compliance to their own income or earnings. Instead, it would be intuitive for them to just pass it to consumers. This means that any subsidy that comes out of the pocket of the owners suggests that market pricing limits have been reached and that consumers can bear no more. Alternatively, this means lots of marginal providers will go kaput upon reaching this level.
Hence, the exploding costs of private education partly reflect on the subsidies covered by private students on welfare recipients.
And perchance, the high cost of education has significantly diminished the rate of college enrolment from 2001-2005 (tradingeconomics.com).
4. Since government has extensive controls over private schools at almost every aspects, from welfare accommodation to curriculum mandates, enough to designate private schools as extensions of the public school system, then the operating ‘competitive’ environment may not be seen as genuine market based competition but a semblance of cartel-like pseudo-competition.
Thus the first pin to the bubble is when these indirect costs of private sector subsidies become too onerous to bear.
Of course, this resource competition represents only a symptom to a much a larger disease-the education welfare state.
The Original Sin-Welfare Education
For the public ingrained with state paternalism, it would seem like blasphemy to talk about the ills of welfarist education. The deeply entrenched popular opinion is that the state is the only dutiful and rightful provider of education and thus must supply, and if not regulate, almost every activity associated educational development.
Hardly anyone ever realizes that throughout world history, schools or the educational system have been frequently used as the primary conduit by the state to inculcate or impress upon political or religious agendas to commandeer society’s acceptance or what is known as theory of passive obedience.
Murray N. Rothbard in Education: Free and Compulsory wrote,
``It is inevitable that the State would impose uniformity on the teaching of charges. Not only is uniformity more congenial to the bureaucratic temper and easier to enforce; this would be almost inevitable where collectivism has supplanted individualism. With collective State ownership of the children replacing individual ownership and rights, it is clear that the collective principle would be enforced in teaching as well. Above all, what would be taught is the doctrine of obedience to the State itself. For tyranny is not really congenial to the spirit of man, who requires freedom for his full development. Therefore, techniques of inculcating reverence for despotism and other types of "thought control" are bound to emerge. Instead of spontaneity, diversity, and independent men, there would emerge a race of passive, sheep-like followers of the State. Since they would be only incompletely developed, they would be only half-alive.” (emphasis added)
And all these ‘romance with the state’ through education has clearly been visible on budgetary allotment of Philippine government as shown from the above table from National Statistics Coordination Board.
Budgetary allocation for education has ballooned to Php 185.5 billion (Philstar) out of the Php 1.541 trillion or accounting for about 12% of the national budget for the year 2010 (Sunstar).
Yet for the many who embrace Sta. Claus economics, nothing is ever enough. There are many who still clamor for more spending as if government is a fountain of endless wealth.
Never has it occurred to them that government’s primary source of revenue is mainly through taxation which means government redistributes rather than creates wealth. And government can only redistribute what is available, or that there are effective limits to redistribution.
The worst part is that by depending on government, welfare recipients have been relieved of their major personal responsibilities such as family planning, by which the ensuing dependency mindset could have contributed to the above world average population growth for the Philippines (Google Public Data). “Why not have more children”, welfare beneficiaries might think, “since government pays for their education anyway”.
The dependency mindset via the welfare state is the most obvious way to manipulate society to create a political constituency that could ensure the preservation or the expansion of power by the political class.
Yet what we aren’t told about is that resources consumed by the public sector, in this case Php 185.5 billion worth from the education department, represents as lost productive opportunity or money that could have been used by the private sector to get invested into productive ventures that could have increased the per capita of the Filipinos, from which would allow them to finance out of their own pockets, a quality education of their choice for their own children.
Besides, private sector charity or philanthropic activities would surely get amplified once the burden of taxation will have been mitigated from the diminished pressures of government expenditures. But all these aren’t likely to happen until the unsustainability of the system will forced upon by economic laws.
The crux of the bubble in welfare state is that the bubble can only last for as long as the taxpaying population is willing to tolerate the costs or comply with government’s redistribution program or the market is open to funding fiscal spending requirements.
Three Pins To Pop The Bubble
Nevertheless, I see three possible proverbial pins that could implode the education welfare bubble.
One, An Overdose of Welfarism.
As mentioned above, disharmony in the economic system caused by too much subsidies and other interventions could drive up the cost of education to highly restrictive levels. And as consequence, there will be increases in the political demand for more free (lunch policies) education. And instituting more of these welfare policies will push the country’s fiscal conditions into a boiling point where funding from taxation or from market based debt financing won’t be sufficient.
Two, Contagion Effect From Boom Bust Cycles
Since the world operates on boom bust cycles, I don’t see it as a distant possibility for a crisis to happen in Asia or within the Southeast Asian region. And any crisis of this nature is likely to have a severe contagion effect on the Philippines, similar to the Asian crisis of 1997.
Like all cycles, during good times, social programs like education are alluringly on path for expansion. That’s because as the economy expands, political leaders are likely to exhibit more generosity—in order to buy votes or preserve or enhance their popularity ratings—in the expectations that the growth in tax revenue collections will be sustained.
However, once a financial or economic bust should emerge, all these programs will suddenly suffer from a withdrawal or a dearth of funding. It’s not hard to picture a recent noteworthy example of government prodigiousness penalized—Greece.
Three, there is always the transition to the information age to consider.
Acceptability of “affordable” online education seems to be picking up momentum and may displace the overrated industrial age educational system in place.
This from SFGate.com
``Evidence nationwide suggests students could be warm to the idea of online learning.
``The number of college students taking online courses nearly tripled between 2002 and 2008, according to the Sloan Consortium, a nonprofit that encourages online education. Nearly 5 million students took at least one online course in 2008, up from 1.6 million in 2002, Sloan found.
``UC wouldn't be the first university to offer undergraduate degrees online. Among the most successful is the University of Massachusetts' "UMassOnline," which includes graduate degrees. It reported revenue growth of 20 percent since last year, to $56 million, and 14 percent enrollment growth, to 45,815 students.”
And here is how Mises Academy fared with its introductory online course, according to Jeff Tucker at the Mises Blog,
``From our own experience, the success of the Mises Academy has far exceeded anything we imagined. It grows and grows. The venue is super compelling, highly effective, economically rational, and it connects students and professors together again as they were before the rise of the overfunded, unresponsive, heavily bureaucratized brick-and-mortar U. There is no doubt about the future; the only question is who will be making it happen vs. who will be left in the dust.
The major problem for online courses, for now, is that the current business environment has been oriented towards the recognition of credentials via government accreditation procedures or mechanisms. This is actually part of how the state controls our actions.
As Murray Rothbard once wrote,
By enforcing certification for minimum standards, the State effectively, though subtly, dominates the private schools and makes them, in effect, extensions of the public school system. Only removal of compulsory schooling and enforced standards will free the private schools and permit them to function in independence.
But the continued permeation of online education could reach a tipping point where the current credential-accreditation system risks being deconstructed.
And this obviously will pose as another threat to mainstream’s educational platforms, be it on the private sector or on the public schools.
As online education grows expect fireworks (resistance to change) from here.
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