Market in Education Fansing Hung The Chinese University

Market in Education Fan-sing Hung The Chinese University of Hong Kong

plan • Government failure: why and what’ll happen? • Public ed. failure: why and what’ll happen? • Market in ed. : mk’t forces, mk’t consequences • finance & operation of ed. : gov’t versus market • School Voucher Scheme • Direct Subsidy Scheme

Gov’t failure: why? • Gov’t monopoly – lack of competition – take for granted • Producer-oriented – no risk-taking, no mistake – red-tape – production according to gov’t officials

Gov’t failure: why? • Non-market decision making – politician interest: election – gov’t bureaucrat & employee interests: expansion, promotion, salary increase, provider captured

Gov’t failure: what will happen? • high price • low efficiency • lack of choice, lack of due attention to consumer preference • slow in change adjustment • market distortion • rent-seeking, corruption, abuse of gov’t power

Public ed. failure: why? • Gov’t officials not educationally professional • Public ed. tends to be – mass production, standardized – top-down, bureaucractic – monopolized by one entity (i. e. gov’t) – risk averting, lack of innovation

Public ed. failure: what’ll happen? • Educational efficiency drops • Educational choice narrows • Educational innovation averted • Lack of educational initiative • Lack of educational incentive • Bureaucrat mindset driven

Market in ed. : market forces • Price determined by free interaction between supply & demand • Consumer preference – choice of school, teaching & learning, curriculum, teachers • Provider motives – quality improvement

Market in ed. : market forces • Information accessible and available – quality of education • Free mobility of resources – school, curriculum, teaching & learning, teachers, materials

Market consequences • Product differentiation (curriculum, teaching & learning, teacher, school, …. • Price competition • Reward/penalty by the market • Innovation stimulated

Finance & Operation of Education • Not necessarily all by the gov’t • Finance can be made by the gov’t if deemed necessary • BUT operation can be in the hands of private individuals/organizations, for or not for profits making

School Voucher System • Eliminate/reduce government bureaucracy • Increase competition among schools • Increase parents’ choice of education • Efficiency in education thus increased in the end of the day

School Voucher System • Universal versus Limited Voucher (scale, target, $ amount, mandatory vs voluntary, …) • However, 3 domains to consider – Finance – Regulation – Information

Direct Subsidy Scheme in HK • Autonomy in student admission, teacher and personnel establishment, curriculum, instruction, fees charged • Gov’t subsidy on per head basis • Much higher subsidy from the gov’t than aided school • Financially enhanced than aided schools

DSS Development

Old and New DSS Compared Year Fee DSS Max Effective Total Income 1988 <= 2/3 X X 1 2/3 X 2/3 X-1 5/12 X X-1/4 X 1 2/3 X >1 5/12 X ¼ X >= 1 2/3 X 2001 <=21/3 X X 31/3 X Gain (or Loss)(2001)-(1988) = + 12/3 X = + 1. 67 times of X