Free Education

Actually, I have posted this note to free-published community note (facebook) - herewith a copy from what I have done:

By liberalizing the education sector I mean that it has to be made totally free of government control and involvement. Whoever wants to provide educational services must be free to do so, be it domestic or international, for profit or not for profit, at the primary, secondary, or tertiary level. What would be the expected benefits of doing so?

The supply of educational services will increase, the quality will improve, and prices will come down. These are all everyday first-order efficiency effects of letting markets work. The second-order effects will be increased productivity, increased production, and better allocative efficiency within the sector. The third-order effects will arise from the increasing returns to scale associated with the production of education. Finally, there are very important forward and backward linkages that bind the sector with the overall economy. One of them is the use of information and communications technology (ICT) tools. It will give a boost to the IT sector in a way that is unthinkable in any other endeavor.

Increase in the supply of education is a natural outcome of removing all barriers to entry. Domestic and foreign institutions will invest in educational institutions. One can imagine corporations such as IBM, Microsoft, Harvard, and Stanford opening shops in Asian countries, all eager to make a profit. This is no different from a large number of automotive companies starting manufacturing in many developing countries to supply their domestic market. The effect is predictable: an increase in the variety and therefore expanded choice for the consumers.

No longer will one have to fight to get into a good school or college. Instead of a sellers' market, we would have a buyers' market where the consumer is king and therefore the producers will be ever eager to reduce their costs and deliver a quality product. The best part is that with competition, even the incumbents - the public sector institutions - will wake up from their -lack of competition- induced slumber. Competition for students will force institutions to be nimble on their feet and therefore provide education that is relevant. No longer will the education system be producing graduates the majority of whom are unemployable.

Think about the waste of resources that accompanies the current supply-constrained system. Just one example: each year hundreds of thousands of students spend incredible amounts preparing for the entrance exam for public universities. That is directly unproductive use of time and money. That spending would be sufficient to fund a dozen public universities every year. Or think of the estimated US$10 billion that Indians spend in getting an education abroad.

In today's world, an educated population is more valuable than any natural resource. Yes, in Asia, especially China or Indonesia; has a large population with favorable demographics. But only the private sector has the resources to provide the investment required for educating them.

The operative word is "investment". Firms don't invest unless they expect to make a profit. And yes, there is profit to be made from providing education because education itself has positive returns and therefore people will pay for education. Which brings us to a very important point. Producing education will be massively dependent on the use of IT to reduce costs and improve quality. Private firms will use it intensively and effectively to produce education. Meaning that instead of a few computers sitting around in a dusty room in your average school, you will find the best technologies being used in schools and colleges. Students will be learning to use the IT tools while learning other things.

More importantly, one will not have to worry about the much lamented digital divide: whoever attends an educational institution will become a digital native. And who, you may ask, will be attending schools and colleges? My answer is: everyone. If in Indonesia or any Asian developing countries, liberalizes the education sector, then everyone - rich poor, minority, majority, this caste, that caste, this religion, that religion, you name it - will be able to get an education. Only problem will be: the politicians will have to figure out some other way of dividing the country. But that is their problem, not ours.

The liberalization of the education sector in Asia, that is, by allowing free entry - especially for-profit firms - will result in increased supply of educational services. Here I will explore the predictable consequences of this. We begin by recognizing that education is not an undifferentiated homogeneous good; there are distinct levels within it, from basic primary education to post-secondary and tertiary levels. Each level has different pay-back periods for the -return on investment. Furthermore, different people have different abilities to pay for the various levels of education.

Let's graph the ability to pay along the x-axis, with the very poor at the left and the very rich on the right. On the y-axis, let's graph the level of education, with basic primary at the bottom and specialized tertiary (Ph.D level) at the top. The top right quadrant of this diagram represents rich people and higher education, the lower left quadrant poor people and basic education. Recall that higher education has a short payback period and the payback is both private and social, that is, it has positive externalities. So the rich will pay for both higher and basic education if the capacity increases. Basic education, however, has long payback periods and most of the returns are social, and therefore poor people will under-invest in basic education given their shorter planning horizons.

Firms will profitably supply to the two right quadrants because the demand and the ability to pay, both, exist. The left top quadrant is also served by the for-profit firms. For the poor, who have basic education but are unable to pay for higher education they desire, if credit (educational loans) were available them, they would be able to pay for higher education and firms will supply to that need. That leaves the left lower quadrant: if the poor have public support (grants), they would be able to pay for basic education and thus the for-profit firms will supply to that market as well.

By allowing the private sector firms into education, the capacity for greater human capital increases and thus the economy itself grows larger and the growth rate increases. This increases the revenue base for the needed public support of basic education for the poor. Universal primary education can be a reality if the government raises the resources from a larger economy and allows the private sector to efficiently provide the education. Note that the funding is public but the provisioning is left to firms that compete in the market.

Guaranteeing universal basic education is a must for ensuring equality of opportunity. Even the poor, if given the opportunity, will be adequately prepared to continue on to higher education if they so wish. While for basic education the poor needed a grant, for higher education the poor will need a loan. Banks can easily enough provide these if the funds are efficiently spent on acquiring suitable higher education - which again depends on the availability of wide range of choices. And the choices will exist if the education sector is liberalized.

Let me stress this: education is an amplifying mechanism for economic growth and development. If we fix our education system, what we will get for our efforts is going to be far greater than what we put in it. In today's dynamic world economy, the returns to education are staggering, and so also are the losses that accumulate from a dysfunctional educational system. If need be, we should even borrow - money, people, ideas - from others to fix our system.

If I were a billionaire industrialist, here's what I would do. I would get a few of my fellow billionaires to create a corpus of funds - say US$200 million - for a 'Golden Goose' strategy. With the money, I would simultaneously buy out all the politicians of every party so that they will en masse vote to liberalize the education sector. It will be a one-time cost for us billionaires. But that would lay the foundation for many developing countries, like in Indonesia with such formidable growth that we would recover our "investment" in short order.

But alas!! I am not a billionaire and nor are you. We, as the saying goes, are up a creek without a paddle. Any ideas?