Demystifying free education

Peter-John Gordon, GUEST COLUMNIST

The issues of free education and free health care are ones which require dispassionate analysis. The notions of free education and free health care are misnomers; there is no free lunch. The British speak of 'free at the point of usage' instead of 'free', since they recognise that the beneficiaries will have to pay for these services, just not at the time when they access them, i.e., the beneficiaries will pay either before and/or after access through the tax system. I will attempt here to demystify the process of 'free' education. These arguments are easily extended to 'free' health care.

Let us construct a simple society in which there are 100 families, each with a child to be educated. Let us further assume that each family is equally wealthy. Let us assume also that the only purpose of taxation is to pay for education. The cost of educating a child is $50,000 per year. In such a situation, $5 million is the education budget. It matters little if each family pays $50,000 directly to the school, or pays $50,000 to the tax department which then turns it over to the Ministry of Finance, which in turn hands this money over to the Ministry of Education, which then passes it on to the school. The simplifying assumption here is that general administration is costless and, therefore, no taxes are needed to support these activities. If families pay directly to the school, taxes will be zero; if there is 'free' education, the tax bill of each family will be $50,000.

These are two extreme positions: we could arrange partial support by the State and partial funding by each family. In such a situation, each family could pay $30,000 directly to the schools and $20,000 in taxes, or $40,000 to the school and $10,000 in taxes. The point is that the larger the proportion of the education cost paid directly to the school, the smaller the amount of taxes required and vice versa. The trade-off is between higher social spending and higher taxes on the one hand, and lower social spending and lower taxes on the other.

The story becomes more interesting as we relax some of our earlier assumptions. Suppose not all families are equally wealthy. To keep our analysis simple, let us assume that five families are unable to pay the school fees of their children (call them 'poor'). Not having 'free' education does not mean that the children of the poor should be excluded from receiving an education. The rich will pay and the poor will be supported by the State. Since the Government has no other way of raising money but by taxation, this means that it will have to raise $250,000 in taxes (the cost of educating the five poor students). Assume further that the poor pay no taxes; this means that the 95 rich families will each have to pay $2, 632 in taxes. If there is 'free' education, each taxpayer will have to pay $52,632 in taxes.

Wealth Redistribution through taxation

The tax system can, therefore, be used as a means of redistributing wealth within a society, from those who have to those who do not have. The larger the ratio of poor people to rich people, the higher will be the tax rate on each taxpayer. Also, the more non-poor families who masquerade as poor in order to freeload, the larger the burden each taxpayer will be required to carry.

Let us further relax another assumption. Let us assume that not all families have children in school. Those persons without children who pay taxes are paying to educate the children of others, and there is no direct benefit to them. On the surface, this may appear to be grossly unfair. However, there is a social benefit to living in a society with educated persons (they usually make better parents, better neighbours, practise healthier lifestyles, which impacts the health status of others, etc). For these benefits, persons without children should be prepared to pay. There are, however, private benefits to education for which an individual's family ought to contribute.

The debate, therefore, is not about paying all costs directly to the school versus paying all costs through the tax system; rather, it is about whether all the cost recovery should be through the tax system or whether some should be paid directly to the school, i.e., cost-sharing. Tax rates will be lower under cost-sharing than under 'free education'. They will also be lower the smaller the ratio of poor to rich. The sustainability of 'free' education is, therefore, more likely the wealthier the society, i.e., the smaller the ratio of poor to rich, and the more inclusive the tax system.

Let us further relax another assumption, i.e., that taxes are used exclusively to finance education. In addition to education, we allow taxes to pay for other things, such as health care, road construction, the military and policy, the justice system, etc. Paying directly to the school is a sure and certain way of the school obtaining resources. If the education cost is included in general taxation, there will always be competition for these tax dollars, irrespective of the political will to properly fund education. A hurricane comes, or there is some social disturbance which requires additional expenditure on security or for the Jamaica Tourist Board to spend more on promotions than was previous planned; either additional taxes must be levied or, more likely, resources must be redirected from elsewhere.

There is no guarantee that education expenditure will not be adjusted downwards as part of the Government's overall response to an immediate crisis. Direct payments from parents to the schools cannot be diverted to tourism advertising or road reconstruction. The greater the portion of the school's funding which passes through the tax system, the more susceptible is education to unforeseen activities elsewhere.

The discussion so far presupposes that quality issues remain unaffected by the method of funding, i.e., education under 'free' education is identical to education under cost-sharing. This is a neat three-card trick. The experience of the 1970s and today's experience inform us that 'free' education has led to a deterioration of education, i.e., the thing called education under 'free' education is not identical to the thing called education under cost-sharing. 'Free' education results in fewer resources reaching the schools; the quality of the education offered must, therefore, be worse than under a situation where the schools have access to more resources.

Failing quality

The same would be true of 'free' health. There, falling quality manifest itself in longer waiting times for patients, lack of pharmaceuticals, inadequate supplies, and patients being required to provide privately the supplies needed for hospital care, etc.

School principals will confirm that there is more engagement of parents in the education of their children when there is direct payment to the school. This closer collaboration between school and home enhances the effort exerted by students - a vital resource in the educational process - and leads to better educational outcomes.

It is unfortunate that after trying 'free' education and 'free' health in earlier periods and seeing the inadequacies of these policies, we have again embarked on this journey. The last experiment lasted six or seven years; this one will probably last the same length of time before it crashes under its own weight. Must we repeat the failures of the past? After its inevitable demise, will we return to it in another 20 or 30 years? The last general election saw one political party offering some 'freeness' in the health sector, and the other party offering more 'freeness' in both health and education. The latter was rewarded for these bigger promises. Is it that the political pressure will drive us to the lowest possible denominator?

It is perfectly appropriate that the trade-offs which society faces be made in some instances through the political process. The technicians must, however, make clear to the policymakers the feasible lines along which trade-offs can be made. We can have more social spending and higher taxes on the one hand, or less social spending and lower taxes on the other. We cannot have more social spending and lower taxes at the same time. Lower social spending does not imply that we must exclude the poor. What it means is that we must find better ways of identifying them and target assistance to them. In making the trade-offs, the policymakers must also be mindful of the implications of higher taxes to other spheres of social and economic life of the country.

It is very likely that 'free' education will lead to a wider gap between the rich and the poor, since the schools attended by the children of the rich will not have to rely exclusively on funding through taxation. Rich parents understand too well the importance on their childrenÕs education to allow this to be part of any political football; they will continue to ensure that their children's schools are adequately funded, whether or not there is 'free' education. It is the schools attended predominantly by the children of the poor which will be starved of resources. Yet, sadly, it is the poor who think they are being helped by 'free' education and 'free' health. 'Free' education and 'free' health make for good sound bites and utterances from political platforms. However, being charitable and appearing to be charitable are often two completely different things.

Peter-John Gordon is a lecturer in the Department of Economics at the University of the West Indies, Mona. Email feedback to columns@gleanerjm.com and pjmgordon@hotmail.com.