Education
Education encompasses so much of what matters to us as people. It is part of passing on the heritage and culture of our society, as well as of developing in people the sort of skills that help equip them to achieve their economic potential and raise their living standards. In many respects, the New Zealand education system appears to produce reasonably good results. By international standards, there is now a high rate of participation in (and graduation from) tertiary education.
The huge amount of government spending in the education sector, broadly defined, covers all ages and stages of life: from universal subsidies to early childhood care, universally available (and notionally free to the user) state primary and secondary education for children, and heavily subsidised tertiary education and income support (either direct or in the form of interest-free loans) taken up by a wide range of people from 17 to 77 (at least). There appears to be little coherence to the way in which spending is undertaken in the sector.
Take provision as just one example. In the early childhood sector, most providers are private, with many for-profit operators. In the school sector, the state is the overwhelming provider (much more so, say, than in Australia), but the integrated schools sector can be seen as representing something like a funder-provider split in action. The bulk of the tertiary sector falls into a muddled middle.
There are significant issues in each of these sectors. We see little merit in the middle class churn involved in universal early childcare subsidies (which have trebled in cost over the last five years, to around $1.2 billion per annum), and have seen no evidence to suppose that any valuable public policy objective has been met by the initiative. Even though the childcare facilities are not state-provided, the sector appears to have been subject to an increasingly expensive overlay of unnecessary regulation and cost. Given the choice of competing providers, it is not obvious, for example, why the state specifies minimum academic qualifications for workers in such centres. If such qualifications truly add value, presumably parents will seek out centres that employ such staff. As a general observation, contracting models of the sort the Taskforce favours do need well-specified contracts, but we give maximum scope for innovation if the focus is more on desired outcomes than on specific inputs, governance structures of provider bodies, etc.
There has been considerable focus this year on new national standards for childhood numeracy and literacy. There are few things schools can provide that are more important to getting a successful start in life than numeracy and literacy (and, at present, there is a disturbingly long tail of underperformance in this area, especially among Maori and Pacific children). To that extent, the new standards make a useful point about community expectations and accountability. But measured against the scale of the issues, this year's changes strike us as marginal at best.
The school system remains unresponsive and without mechanisms to generate serious accountability and to reward excellence. At the heart of the issue is the lack of effective choice. State schools are all managed independently, with neither the incentive nor the ability to take a successful model and replicate it in another community. Private schools seeking to enter the market get very little government funding (even though the prior decision has already been made to require all children to attend school, so that the state is obliged to fund each child's education). And the lack of choice reinforces the power of teacher and principal unions to avoid serious accountability to purchasers - whether conceived of as the state or parents. International evidence suggests that, in teaching as elsewhere, choice and pay for performance work[64]. People are rational: they respond to incentives. If we want better schools - better educational outcomes, better choice, and better value for money - we need better models of ownership, governance and accountability, and remuneration.
One model that would, over time, allow greater choice and more effective discipline on existing providers is that adopted by Sweden - a country in which the state still spends much more heavily as a share of GDP than is the case in New Zealand. Under its far-reaching reforms (which we understand are now supported by teacher unions in Sweden) any new provider (for profit or otherwise) can set up a school (or chain of schools) and be funded for each pupil who attends[65].
Allowing private for-profit providers has been an important component of the success of the scheme, as private providers have a strong and direct profit motive to expand capacity when an existing successful school reaches capacity limit. Queues and administered rationing of access (in education, this means things like zoning limits which ration access to good schools based largely on parents' ability to afford a house in certain suburbs) are simply much less common when the private sector provides goods and services than when the government does so.
At the tertiary level, there is evidence of very significant misallocation of resources and of pricing restrictions that threaten the ability of providers to generate the sort of world-class education New Zealand will need for a high performing future. As it is, the quality of universities is no better than average - in one recent international comparative exercise, not a single one of our universities made it into the top 200 in the world, and several did not make the top 500. There is almost certainly a place for a considerable diversity of types of tertiary institutions (such as, for example, there is in the United States) but present structures make it hard for any to become a top-flight research-led university. That also jeopardises the ability of our universities to compete in international markets for students (itself a significant export industry).
Some years ago, a major study concluded that the benefits from tertiary education were around three-quarters private and one quarter public, and that the charging and income support regime should reflect that. For now, we are not revisiting whether that proportion remains the right one, but we have seen no evidence to justify the shift over recent years that has materially reduced the private share of the cost of tertiary education.
On the one hand, we have the totally indefensible policy of providing interest-free (not even inflation-indexed) student loans, including to people of an age where there is no probable public benefit at all to study and little prospect of the loan ever being repaid. Student loans need to be moved back to being provided at, at least, the cost to government of funding the debt. The nominal value of student loans is now around $10 billion, suggesting the policy is costing well in excess of $500 million per annum.
And on the other hand we have fee caps and subsidy levels that starve universities of resources (including the ability to continue to compete for top-flight staff) and probably encourage too many people to undertake study that has little or no public or private benefit.
Price controls restrict the supply of a quality product - they encourage providers to produce only what the fee will cover. As a matter of priority, we urge the Government to abolish the fee caps applying to university fees.
Finally, we suspect there would be considerable gains from substantially reforming the ownership and governance structures of our main tertiary institutions. At present, accountability and incentive structures seem to be flawed, with a resulting substantial overlay of bureaucracy through the Tertiary Education Commission and the Ministry of Education. It is not obvious why the government needs to continue to own and control polytechnics: different models would be likely to lead to consolidation, greater efficiency and improved training outcomes. It may also be worth considering establishing universities as independent foundations - akin to many universities in the US and UK - and at the same time ensuring that other providers, perhaps the better Australian universities, can enter the New Zealand market on the same funding basis as existing providers. We want our young to have access to excellent education here, and should not be greatly concerned who provides it.
In all of this we are highlighting ideas, and the power of incentives. The details of this area warrant further in-depth reporting and analysis. But there is scope for very substantial gains in performance and efficiency.
More generally, the government is by far the largest spender in the economy. It needs to be much smarter and better-focused, using expensive resources much better to position us for 2025.
Notes
- [64]As just one recent example, see “Teacher Performance Pay: Experimental Evidence from India” by K Muralidharan and V Sundararaman, 2009, mimeo. The authors report on an apparently carefully structured large scale programme in India, tying teacher bonuses to test performance. The authors report not only that test scores improved, but so did student performance over a much wider range of dimensions of educational outcomes.
- [65]We note the Swedish model not because Sweden necessarily has better education outcomes than New Zealand but because it provides an established model for introducing greater choice and for facilitating the entry of new providers in which school education remains overwhelmingly state-funded.
