Should public schools have charitable status? There’s a paradox here - the people who should favour such status actually oppose it, whilst those who should oppose it actually support it.
To see what I mean, bear in mind that the case for charitable status is not that private schools save the tax-payer money. If this were the argument for treating public schools as charities, we’d also regard private health insurance, or private security guards, as charities. But we don’t.
Instead, the case for public schools being charities is that education might be a public good - its benefits spill over to society as a whole. This is why private healthcare doesn‘t have charitable status, despite it saving tax-payers‘ money; its benefit are purely private.
But is education a public good? Herein lies my paradox.
For education to be a public good, its social returns must exceed its private returns.
But this claim is typically associated with New Labour, at least in its early years. Blair’s claim that his priorities were “education, education, education”, and the target of having 50% of youngsters in higher education, were founded on the notion that education is a social good. In some post-neoclassical endogenous growth theories, to use Brown’s phrase, there can be external benefits to education which cause the economy to grow quicker if people are better educated.
So, the first leg of my paradox is that those New Labour characters who have been most enthusiastic about the economic role of education should be most supportive of public schools’ charitable status - as they are the people who think education is a public good. But it fact, many of these seem to oppose such a status.
Equally, though, there’s an inconsistency in those who defend public schools’ charitable status. Many of these - such as Tim? - are those who, in other contexts, argue that unregulated labour markets work reasonably well. But if this is the case, the benefits to education are largely private. If workers are paid their marginal product, then the gains from education - better human capital - are captured by private individuals, in which case schooling is not a social good, so it shouldn’t have charitable status.
So, many people’s positions on the charitable status of public schools seems inconsistent with their attitude to labour markets.
So, who’s right? Is education a public good or not? The evidence is mixed. Some researchers have found (pdf) spill-overs (pdf), but others have been very (pdf) sceptical.
There is, however, a third possibility. Maybe education is a positional good. If so, it has negative spillovers - better education for me makes you worse off. One survey (pdf) has found that over a third of people do indeed regard schooling as a positional good.
This might be because education raises people’s self-confidence by more than their ability - which makes them a pain in the neck for the rest of us. Or it might be because their education puts them into positions of power, from which they are better able to exploit others.
If this is the case, then there’s a case not only for withdrawing public schools’ charitable status, but for taxing them.
Now, you might object here that I’ve taken a narrowly philistinistic economists’ perspective. I have. But it’s not obvious that a wider view alters things. After all, for every public schoolkid who is an adornment to the nation, such as Helena Bonham Carter or Hugh Laurie, there’s a Piers Morgan or Ed Balls.
To see what I mean, bear in mind that the case for charitable status is not that private schools save the tax-payer money. If this were the argument for treating public schools as charities, we’d also regard private health insurance, or private security guards, as charities. But we don’t.
Instead, the case for public schools being charities is that education might be a public good - its benefits spill over to society as a whole. This is why private healthcare doesn‘t have charitable status, despite it saving tax-payers‘ money; its benefit are purely private.
But is education a public good? Herein lies my paradox.
For education to be a public good, its social returns must exceed its private returns.
But this claim is typically associated with New Labour, at least in its early years. Blair’s claim that his priorities were “education, education, education”, and the target of having 50% of youngsters in higher education, were founded on the notion that education is a social good. In some post-neoclassical endogenous growth theories, to use Brown’s phrase, there can be external benefits to education which cause the economy to grow quicker if people are better educated.
So, the first leg of my paradox is that those New Labour characters who have been most enthusiastic about the economic role of education should be most supportive of public schools’ charitable status - as they are the people who think education is a public good. But it fact, many of these seem to oppose such a status.
Equally, though, there’s an inconsistency in those who defend public schools’ charitable status. Many of these - such as Tim? - are those who, in other contexts, argue that unregulated labour markets work reasonably well. But if this is the case, the benefits to education are largely private. If workers are paid their marginal product, then the gains from education - better human capital - are captured by private individuals, in which case schooling is not a social good, so it shouldn’t have charitable status.
So, many people’s positions on the charitable status of public schools seems inconsistent with their attitude to labour markets.
So, who’s right? Is education a public good or not? The evidence is mixed. Some researchers have found (pdf) spill-overs (pdf), but others have been very (pdf) sceptical.
There is, however, a third possibility. Maybe education is a positional good. If so, it has negative spillovers - better education for me makes you worse off. One survey (pdf) has found that over a third of people do indeed regard schooling as a positional good.
This might be because education raises people’s self-confidence by more than their ability - which makes them a pain in the neck for the rest of us. Or it might be because their education puts them into positions of power, from which they are better able to exploit others.
If this is the case, then there’s a case not only for withdrawing public schools’ charitable status, but for taxing them.
Now, you might object here that I’ve taken a narrowly philistinistic economists’ perspective. I have. But it’s not obvious that a wider view alters things. After all, for every public schoolkid who is an adornment to the nation, such as Helena Bonham Carter or Hugh Laurie, there’s a Piers Morgan or Ed Balls.
"better education for me makes you worse off. One survey (pdf) has found that over a third of people do indeed regard schooling as a positional good."
That a proportion of people regard schooling as a positional good does not make it so, it's an example of the zero sum game fallacy.
Charitable status for private schools has long been viewed as a quid pro quo for those who have to pay for the state system and get no benefit from it. This cosy little arangement was spoilt by the Charities Act 2006 which was specifically designed to remove charitable status from private schools unless the school engaged in charitable activities outside their normal course of business. It is unsuprising that many view this as an attack on private schools because it was a feature of the legislation, not an unfortunate bug.
So the answer to "should private schools have charitable status?" is mu. The problem can only be resolved by either making the cost of private schooling tax detuctable up to the cost of a state education or bringing in a voucher system.
Posted by: Falco | July 20, 2009 at 05:20 PM
Yes, me, but then I'm with Adam Smith on this. To a certain level of education, education is indeed a public good. A population that is essentially literate and numerate is indeed one. I don't think it extends to university level though, think it stops before that, somewhere.
Of course, all we now need to do is get the publicly funded system to turn out 14 and 15 year olds who are functionally literate and numerate.....
Posted by: Tim Worstall | July 20, 2009 at 06:03 PM
"Charitable status for private schools has long been viewed as a quid pro quo for those who have to pay for the state system and get no benefit from it."
So why doesn't my private army have charity status?
Posted by: john b | July 20, 2009 at 06:19 PM
Given that private schools had charitable status for years, and only now is that being questioned (on highly politicised grounds in my opinion) would it not be fairer to say that any school that is currently a charity could opt out of charitable status, and transfer all its staff/assets to a private organisation? Perhaps subject to a clause that if the school ever stopped being a school all the assets have to be given to some specified charities? And then they pay tax on profits, and capital gains etc just like any other business?
This way the past is the past, and if we are now agreed that private schools should not have any tax benefits in the future, we should not punish decisions made many years ago in different times and under a different law?
Posted by: Jim | July 20, 2009 at 06:59 PM
"To see what I mean, bear in mind that the case for charitable status is not that private schools save the tax-payer money. If this were the argument for treating public schools as charities, we’d also regard private health insurance... as charities. But we don’t."
But we should.
Posted by: Hugo | July 20, 2009 at 10:31 PM
"So why doesn't my private army have charity status?"
Because Chris has been saying "public good" when he means "merit good".
Education is not a public good, it's a merit good. Defence is a public good.
Posted by: Hugo | July 20, 2009 at 10:32 PM
Perhaps, though, both sides are in fact being entirely politically consistent.
If public schools are not regarded primarily as providers of education, but as a competitor and antagonist of the state school system, then the positions are defensible. And I would argue that both sides in this debate do, indeed, define public schools mainly in opposition to state schools and not as neutral providers of a service in the market.
Believers in education as a public good - especially if they think it has a network effect among pupils - would thus consider public schools to be damaging the provision of this public good, and deserve taxing. Those who disagree, would see public schools as flagships, leading the way to a more efficient education sector, and thus worthy of subsidy.
(by the way, Hugo, I don't think "merit good" is right either. Perhaps "social good" or "good with positive externalities"? It might be a merit good as well, but that's a different argument)
Posted by: Leigh Caldwell | July 21, 2009 at 01:36 AM
"better education for me makes you worse off"
No when you go to your doctor (or your lawer, or your car mechanical). You are much better when you are surrounded by well educated people.
Maybe the point for you then is to have also your chance to get an education an take it. For your good and for the good of the rest of us.
Posted by: ortega | July 21, 2009 at 10:58 AM
"So why doesn't my private army have charity status?"
It's all down to that pesky Henry the VII.
Posted by: Falco | July 21, 2009 at 02:07 PM
Education is indeed a Merit Good, which would be both under produced and under consumed if left to the free market. That's why it's compulsory. It also creates positive externalities - and the public benefit exceeds the private benefit - also why it's compulsory. Capitalism has a hunger for literate and numerate workers, but also for more than that; it needs both socialised workers and effective leaders.
The covert school curriculum, of obedience, punctuality and the ability to perform repetitive work tasks, is universal and common to both state and private schools (except perhaps Neill's Summerhill). What private schools produce in addition to this is a large number of leaders. It's the inability of the State sector to produce leaders in the quantities that they should that grates, I think. Until they do, we must rely on the private sector.
Posted by: Raedwald | July 21, 2009 at 02:19 PM
Children's clothes are a private good. But they are still VAT exempt. Taxation exemptions might just reflect a moral consideration of what ought to be provided more cheaply and easily. I don't think Tories would have a problem with that sort of position, although as a libertarian I would prefer that taxes were uniformly low and neutral.
Posted by: Nick | July 21, 2009 at 03:35 PM
Perhaps "social good" or "good with positive externalities"?
I don't know what a "social good" is. A good with positive externalities is a merit good.
Whatever it is, education is not a public good. It is neither non-rivalrous nor non-excludable.
Posted by: Hugo | July 26, 2009 at 02:14 PM
Instead, the case of charities in public schools is that education can be a public good. Its benefits extend to society as a whole.
Posted by: אייקידו | October 18, 2011 at 07:20 PM