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Privatised education vs. Mobile Telephony

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Proponents of the free market and private profit driven schools and universities often cite mobile telephony as an example of how markets cost effectively produce high quality service. While the success of private enterprise is undeniably true for mobile telephony, I am a bit sceptical about how well it will translate to a market of privatised education.

My first doubt emerges after considering the components required to service these two markets. Mobile telephony is extremely automated. When someone makes a call or sends a text message, the next human contact in that transaction will probably be the recipient. Everything in between is done by computers/electronics, with no qualms about working 24/7, no need of pay or vacations and who can be replaced, with no serious financial or legal consequences, in 5 minutes if things go wrong. Education on the other hand, relies primarily on smart, driven human beings to perform the role of good teachers. While technology is making inroads, the primary drivers are still humans who are disproportionately responsible (compared to technology) for the success or failure of the system. Juxtaposed with computers, humans are poor workers. They have to be paid, become less productive with long hours, tend to be on the lookout for better career options, demand vacations etc. Consequently it is more expensive and risky to hire and retain them and no amount of privatisation of education will be able to match the success of mobile telephony in lowering costs while maintaining standards.

A second doubt arises from what economists call the price elasticity of demand (PED) which is simply the change in demand of a particular product/service per unit change in its price. Many factors affect PED but a crucial one is the availability of substitutes. In this light, as long as schools remain tied to physical infrastucture, a school building for instance, mobile telephony will always have a higher PED than education. Being in direct competition with other communication methods such as fixed line telephony, instant messaging and email, mobile companies are aware that if prices go up beyond a certain threshold, customers can and will shift to other communication technologies without batting an eyelid. It would take extraordinary cartel building skills to raise prices of ALL forms of communication and hence this will probably never happen.

On the other hand, it is extremely difficult to switch schools. The children attending school will not like to leave old friends behind. The new school may not have the sports/music facilities the child enjoys using. It may be inconvenient to travel to. The school timings may not match work schedules very well. Parents may find part of the curriculum distasteful. The ties to physical infrastructure and the presence of human relationships result in a significantly lower PED for schools and parents may be willing to put up with higher prices/poor service just to avoid these complications. The inability or lack of desire to change will mean that the market will never be as efficient as that for mobile telephony.

The barrier to entry for education is also significantly higher than mobile telephony, again due its physical nature. A “good” school needs a building, maybe some sports fields, possibly computers and science labs. Some music and arts facilities will be nice. “Good” teachers have to be found and recruited. Mobile operators may have to bid for air spectrum and put up some mobile towers and control centres, which is the only physical infrastructure. In today’s world, where the trend is towards separate infrastructure management and service provision, mobile operators may be able to lease air spectrum and physical assets from an infrastructure provider, while schools cannot really share classrooms very efficiently. It is therefore much easier for a new mobile operator to enter an inefficient market than it is for a new school to do so. Obviously this results in a more efficient mobile telephony market.

While I think the example of mobile telephony to promote the virtues of a free market in education is unsuitable, it is hard to debate that a shift to privately run, profit driven schools will not lead to an improvement in standards compared to schools under government control with tightly prescribed rules. Profit driven schools will accomplish what most profit driven frameworks do; high inequality with an average level better than the idealistic scenarios. It would be good to have schools run as charities or non profit organisations, so that they can maintain comparatively lower running costs and maybe allocate more funds for deserving and needy students. Tight government control with rules trickling down from some education minister to a classroom hundreds of miles away does not inspire confidence at all.


Written by clueso

March 19, 2011 at 1:14 am

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Is greed good?

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Here is an NY Times article that describes the change in India since the liberalisation in the 1990s.

No one who remembers the India from the late 1980s will need the NY times or any other media to tell them that things have improved for a large section of society. This change is primarily driven by greed. Someone’s greed to have more money, more power, more fame or simply more contentment, which drives them to create companies, technologies, schools and charities that serve as conduits for benefits to trickle around to other people in society. Yet it is taken for granted and often, even vilified.

Michel Douglas is often quoted as saying “Greed is good” in the movie “Wall Street”. This quote has been used time and again to show the capitalist system to be made of immoral, money grabbing thugs. However, that quote is incomplete. The complete line is “Greed, for lack of a better word, is good.”, and the additional words make all the difference.

The difference they make is that the “greed” is not material greed any more, but is whatever that makes the practitioner feel good about themselves. Someone like Patrick Awuah will be “greedy” to setup an first rate educational facility in Africa and produce as many good graduates as he can. This makes him feel good because he is contributing to his home nation’s development and ensuring his children don’t lose touch with their roots. To satisfy his “greed”, he enlists people in the USA for financial aid. The Americans involved are also “greedy”, because they can save on their tax, and they too get the feel-good factor of furthering a noble cause.

I use the word “greed” in quotation marks, because it shows that efforts are driven by people wanting more of something, even if that something may not be material gain. We would do good to create an environment where people are allowed to pursue their “greed” with minimum hindrance. It may be the most elegant solution to a lot of our problems.

Update: I had an opportunity to watch “Wall Street” again and realised that this post too missed out most of Gekko’s speech in the movie. A complete transcript can be found here. It is like a 3-5 minutes lesson in the fundamentals of economics.

Written by clueso

January 23, 2011 at 1:42 am

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Would a socialist economy work?

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One of the perks of working in a university is getting to attend lectures on all sorts of topics which in no way concern the work I do and which in normal life I would never think about. It is one of the natural by products of having a large population who are free to follow their own passions, of course, within reasonable limit. It is with a certain level of curiosity about the topic that I went along to a lecture title “Does socialist planning work?” organised by the Socialist workers party in the University.

The talk was leaning so far towards socialism that it would have tipped over if they had tried to push the topic any more. It was an evening spent in capitalism bashing, claiming how all the ills of the world had their foundations in the greed and profit driven world of today and how if it weren’t for capitalism, we could have been living full, contented and enjoyable lives. The speaker then went on to describe the structure of a socialist economy, based on the “need” and not the “greed” of people and how it would yield a more balanced, just and successful society. He also sort of glazed over examples of how public transport and food would benefit from socialist planning. While they sounded pretty good to start with, a little thought on the matter has left me less convinced of the merit in the ideas.

Free Transport

One of the ideas bantered around during the talk was that socialist planning of the economy would do a better job of public transport than the current capitalistic models do. According to the speaker, public transport should be publicly owned, paid for by taxation and made free. Having free transport will make a few people scuttle around on the network to start with, but then things will settle down and people will make only the journeys they require.

Being an ardent environmentalist, I would welcome any system that provides efficient public transport, but I seriously doubt the feasibility of a system paid for by taxation and which is free to the users. The public transport system of the nation is a huge and complex beast affected by a multitude of factors, which may require swift reactions in the event on any change. A good example is the oil price roller coaster we had in the recent past. As the price of oil (or other energy source) goes up, so does the cost of running a transport network. When privately owned and priced, the price hikes can be passed on to consumers, who in all fairness are benefiting from the service and should pay the cost of it. But a system paid by with taxation and which is free at the point of use will have only a limited amount of money to work with since tax rates are fixed and taxes collected annually. The public transport firms with therefore have to be bailed out by the government, or will have to cut corners by reducing services, laying off workers or doing something of that sort. In order to cushion such a system from these vagaries of the economy, the government will probably have to introduce a “real time” tax rate, which varies on any given day of the year, depending on the global conditions and the cost of providing services. Such a system would be hideously complicated, unworkable and unproductive as no one will really know what sort of money they are going to take home at the end of the pay day. A market structure gives the most nimble way to react to such changes in costs. I agree that the profit motive may not be the optimal solution, but the free transport one does not convince me either.

A second problem with a centralised, publicly owned transport system is the lack of competition and therefore the desire/need to innovate and improve services. If every member of the company feels secure in his job, then he will not take the pains to improve himself and make sure he stays at the top of his game. Some people may strive to improve, out of pure interest, but most would not bother, seeing that they will get no monetary, social or any other benefit from their efforts. Those who are not ambitious would also throttle those who are. Since a transport network would need a very dedicated, committed and motivated team to run it, the lack of motivation by the large percentage of employees is bound to drag the whole firm down.

Food Distribution

The socialist solution to solving the food problem was to serve out food vouchers with which people could buy a certain amount and kind of food. I guess the only way this is different from the capitalistic way is that everyone would get the same amount of food coupons and therefore the ability to buy food will be decoupled from each person’s earnings. That is again an ideal situation, but one that requires the people in charge to be completely non-corruptible. The distribution of food coupons concentrates power in the hands of the few and there will always be people who will offer bribes to get additional food coupons from those in power. When something as fundamental as food supply is left in the hands of the few, there are myriad ways of sniffing out the ones with the weak morals and then corrupting them to an advantage for oneself. I don’t think it is too difficult to create artificial shortages and black markets in such a scenario. While the capitalistic model has multiple agents competing for people’s custom, the socialist one has people competing for the government’s attention and the feeling is not a comfortable one.

My conclusions

The lecture on socialist planning was enlightening in that it gave me an alternative viewpoint to think about, but failed to convince me about the merits and the practicality of socialism. It should work in an ideal world, where people are not corruptible, not very selfish and they are willing to sacrifice their luxuries for the “needs” of others. In my view, the single biggest flaw with socialism is that it fails to take into account the fact that a majority of people will act out of selfish reasons, at least to some degree. The capitalistic model on the other hand embraces this idea and uses it as a foundation, which is why capitalism has outlived its rival. The altruistic(or at least non-selfish) attitude needed for socialism cannot be imposed by the government, but has to develop within each person and impel him/her to act in the non-selfish way. It is already happening to a small section of society in the developed world and maybe in the future we may land up living in a world that appears socialist, but will in reality still be capitalist as it will depend on people making a certain choice and the markets reacting to them.

Written by clueso

October 30, 2008 at 11:48 pm

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