Markets in public services

The latest row between Neal Lawson and Tim Worstall suggests to me that Bryan and Danny might be right - abstract ideas can be distracting delusions.
Neal writes:

Markets, the mechanism of choice, are designed to allocate the spoils to the winner. That's OK with supermarkets and car makers – it's not OK for the state. We can't have and can't allow schools and hospitals to fail and be replaced by the fittest.

Tim replies:

This is in fact what we actually want, a continual ratcheting up of quality in pursuit of the discerning consumer so that the spoils do indeed go to those who are providing the goods or services better than those others around them.

So who’s right? To a large extent, it’s a matter of empirics, not abstract theorizing about the virtues or not of markets.
To see what I mean, imagine that parents are allowed to choose freely, through some market-type mechanism, between a good school and a bad one.
What happens? A lot depends upon why the good school is good - and in particular upon whether its quality is scalable.
Let’s imagine school quality is not scalable - that the school is good because it has some good teachers, who only shine because they have smallish classes to work with.
In this event, there are two possibilities.
One is that as the school expands in response to parental choice, its quality worsens. If there are informational frictions - say if parents choose schools on the basis of out-of-date information - then the “good” school could (for a while at least) become worse than the “bad” school.
Alternatively, the school might recognize that it is not scalable and simply refuse to expand. There’d then be excess demand for its places. This poses the danger that places will be allocated according to class - say because house prices rise near (pdf) the school’s catchment area, or because posher parents are better able to wheedle their kids into the school.
In this world, Neal is right. Market allocation is a bad idea.
But what if school quality is scalable? Then - assuming parents have good information about quality - Tim would be right. Good schools could expand at the expense of bad ones, thus raising average quality. And because there’d be no need for the school to ration places, if it could expand without loss of quality, it would have no need to allocate places preferentially to posher parents. So there’d be no increase in inequality of opportunity.
The issue, then, is not so much one of principle as empirics: what is the educational production function? To what extent is a good school scalable?
The thing is, AFAIK (I’d welcome corrections) there’s not much hard evidence here; certainly, neither Tim nor Neal provide any.
Yet again, it seems, the strength of people’s opinion is disproportionate to the evidence base.

Comments

[Nick]

There is a pretty continuous stream of evidence in favour of school choice from the US: http://books.google.co.uk/books?id=d2IbnWDPnLYC&dq=school+choice+the+findings&printsec=frontcover&source=bn&hl=en&ei=PrJpSoOcE96hjAfl2cS6Cw&sa=X&oi=book_result&ct=result&resnum=4

Depending on how they are implemented, vouchers, for example, either make a school system better or, at least, cheaper.

Using your example, it should be clear that there isn't a lump of good teacher labour out there, whose use can only be rationed. What we need are better signals as to what constitutes good teaching.

[GeorgeNYC]

Since when do markets have anything to do with quality?

I am not being rhetorical. Markets are about equilibrium pricing, i.e. market clearing pricing.

The market will give people what they think is a "good" school. Whether that equates to quality who knows.

[Luis Enrique]

another problem is what happens to the pupils stuck in the bad schools during the process.

In some respects, this isn't a terribly strong point - pupils are stuck in bad schools in non-market systems too. But if accepting a market system means accepting the idea that bad schools are somehow going to whither and die, then you have to wonder about the welfare of the pupils who are there during the schools death throws.

(I'm not sure scalability is the only possible mechanism - replication or replacement are other means)

But I'm puzzled by Neal. From what he says: "We can't have and can't allow schools and hospitals to fail and be replaced by the fittest." I seems he wouldn't like a market system even if it turned out good schools were scalable - he doesn't want good schools expanding at the expense of bad ones - so whatever his objection is, your post does not speak to it.

I'm further puzzled by Neal:

"[individualism] cannot be the future of the left. Democracy is the way in which we express our preferences as society.... Through it we even decide when and where we want choice and the market to reign and where we don't. This is what makes us socialists."

what "makes us socialists?" - being democrats? Or choosing to remove choice from certain areas of the economy?

[Glenn]

There might already be scalability in the current system.

There's been the creation of school federations in some areas. A successful school's head then takes on a role as as the director of a failing or underperforming school.

This has happened in Cambridge - Parkside Secondary School is now Parkside Federation, taking over Coleridge school. This has created a 'campus' with some specialisms on different sites.

A friend of mine works in Newark where his school head has taken on a similar role at another school.

To me it seems like pragmatic common sense.

Or is this all a bit too 'managerialist' for you Chris?...

[Spango]

"And because there’d be no need for the school to ration places, if it could expand without loss of quality, it would have no need to allocate places preferentially to posher parents"

Bit uptopian init?

I mean, there may be other factors which stop a school expanding, be they physical or grounded in the headteachers psyche.

Not to mention that expansion may prove sticky.

I'd suggest it inevitable that, in a choice system, some schools will be oversuscribed, and thus hurt social mobility.

[Marcin]

I think Chris has forgotten the other end of the market mechanism - there are lots of schools, and most are alright, but a few are substandard. If the OK schools can absorb some more pupils without getting worse, then a migration of pupils should occur from the bad schools to the acceptable schools. The bad schools will go bankrupt, or change, and the average quality of schooling will have increased.

[Spango]

Well, sure.

But the top schools are still going to be monopolised by the well off.

Whichis Neal's point all along; that choice can't help but hurt social mobility.

[Luis Enrique]

"choice can't help but hurt social mobility"

Is it really impossible to design a system wherein parents are able to choose between schools, and yet good schools don't end up being monopolised by the well off?

[Luis Enrique]

what i mean is, the good school catchment area house price thing is a consequence of a combination of the way school places are currently allocated, and the fact that a good education for their kids is something wealthy people are willing to spend money on. We don't have to keep the current way of allocating school places, do we?

[Charles]

Y own experience suggests that scalability is problematic. In our area the top comprehensive has been growing steadily for a decade and standards have been declining. As a result, the less good alternatives have been getting worse as the more aspirational parents send their children to the top comprehensive - which, in turn, has suffered from its growth.

[Charles]

I meant to add: the concept of federations had escaped me until recently, when I found that a number of schools and the local college are joining up to educate pupils in from a wider area. Initially it seemed a bit silly that, as a consequence, students were being bussed around - studying geography in one school, tech in another and so on - but it does have the effect of relegating the 'catchment effect' where one school becomes stigmatised from being located near a sink estate. As a result, pupils from a wide area attend two or three different institutions.

Whether the gains from this break from a catchment-centric approach counteracts the inefficiency of transporting pupils over a wider area remains to be seen - but it seems worth a try?

[Matthew]

It's certainly the case that the top private schools are oversubscribed, and yet don't massively expand their pupil numbers.

[Shuggy]

Why do people like Tim Worstall talk as if there were no choice in the system already? There is - at least in Scotland there is. Here's the impact 'choice' has on standards in the real world:

School B, which is a shit school, has declining numbers as a result of people voting with their feet through placing requests and moving house. They send their weans to School A, which is a good school. Eventually, School B has so much excess capacity that the council closes it and amalgamates what's left of it with School A.

Here's what happens: more often than not, School A actually ends up being even more shit than School B ever was. Turns out one of the reasons that School A did ok was that it didn't have to deal with the pupils from School B. People start to realise that School B wasn't so bad after all - at least it had the expertise and experience needed to accommodate said pupils of School B, which is more than can be said for the now shell-shocked management of School A. But it's too late now - onwards and downwards. Yeah, let's have lots more of that kind of thing, shall we?

[jameshigham]

Tim's right on this.

[Guano]

If parents choose school A over school B that tells us nothing new: the decision is based on the reputation of the schools (often on the basis of inspection and monitoring data provided by the lEA). It's the "rathcheting up the quality" bit that is tricky.

[Guano]

Vouchers seem to have some effect in some African countries, where education authorities don't have information about what is going on in their school. In the UK we have plenty of information about what goes on in schools and where here are problems, and parents can lobby their councillor, MP or LEA about it (and frequently do). There are parent governers and parents' fora. My concern is that proponents of "choice" actually mean using "choice" instead of "voice" or "influence" as the way in which users signal their level of satisfaction. The Academy model of secondary schools seems tobe pointing that way.

[Tim Worstall]

To use scaleability as the important point is to, I think, be in error from the start. It is to insist from the beginning that the market's use to us is only in allocation of a scarce resource (good schooling).

However, markets have at least one other, possibly even more important, attribute: they are information discovery mechanisms. What is good schooling in the eyes of the parents? The educators? the bureaucrats, taxpayers, politicians or the children themselves? Is there a match or a mismatch between them?

A market would allow us to identify (or, given the incentives, the market participants, not us), to recognise and cater to whatever it is that "good schooling" is without there necessarily having to be closures, mergers, bankruptcies and all the rest.

After all, we don't say that Jaguar is going to go bust tomorrow because Mercedes makes better cars. We do say though that Jaguar might go bust in some years' time if Jaguar doesn't take note of why Mercedes makes better cars and do something about it....

[Alex]

Just to brown nose a bit, off topic, I've really enjoyed your posts recently, Chris.

Please keep it up!

[Guano]

Asking people is a much more efficient information-generating mechanism than producing dozens of different types of schools (or cars) and observing which people choose.

[georges]

The parents want to control their children's PEER GROUP. Better teachers, teaching methods, school facilities are all secondary to that. Read Judith Rich Harris.

[georges]

Tim

What's the principal difference between a Saga holiday on the Canary Isles and a Club 18-30 holiday on the Canary Isles? It's the character of the other holiday-makers.

[howardclark@btinternet.com]

The problem with the markets and choice application to services, is that ideology pushes the concept onto things.

In service systems you have to understand demand.

If what matters to a customer is choice (you literally hear them placing demands on the system) 'let me choose between' then okay, introduce some element of choice.

Otherwise the introduction of choice in the wild beleif that it will improve servie quality is quite clearly a fallacy along the same lines of economy of scale.

[stan]

No, good schools are not scaleable, and given the choice popular schools will select by ability (directly or underhand)rather than expand. Markets however are full of businesses which do not scale at the individual site, but where managerial competence pays off running a multi site business.

What is lacking in education is business for profit, and a takeover mechanism. Teachers hate the word profit, and even in the private sector charitable status is clung to.

[Tim Worstall]

"It's the character of the other holiday-makers."

Sure, and the problem with that is?

"Asking people is a much more efficient information-generating mechanism than producing dozens of different types of schools (or cars) and observing which people choose. "

Guess we'll just replace markets with focus groups then.