Chile Today, Full of Protests

Posted on September 10, 2011 at 1.43 pm

Q. What do you think about the student protests in Chile?– wollpulli, from tumblr.

Q. I recently read a research paper (policy analysis) on Private Scools/schools in Chile and it seems that private franchised schools are the route to go but then I recently read this article which is saying that people can’t afford these “free-market” privately owned schools.

I’m curious, is there a way to keep the free-market school systems without having most of the population in debt? — Mar, from the internet.

A. It doesn’t seem like the protests in Chile have gotten a huge amount of press here in the States, so let me start by quoting a short summary of the situation from one of the links Mar cited:

With the explosion of students in recent years, new graduates – especially those from lower-quality private universities – found themselves with debts of up to $40,000, and not able to pay back their student loans.

And since their parents had guaranteed their loans, their whole families were in a bind – which helps explain the wide support for the student movement among Chilean grown-ups.

So far, the government of conservative President Sebastian Pinera has offered to inject more government funds to higher education, lower interest rates on student loans, and offer full scholarships to the poorest students. But student leaders, emboldened by their popular support, are pushing for more.

The “more,” it seems, mainly includes the establishment of additional, well-funded public schools which students can attend for free.  That said, the protesters — who consist of just 5% of the student population in Chile — have rejected as “too vague” a deal which, among other provisions, included “two constitutional reforms that guarantee access to quality education as a right and prevent universities from making a profit off of education.”

If the next deal is more specific and heads in the same direction, whatever success Chile has had with its partially private education system to date will very possibly be undermined.

Nonetheless, even if the system is left as free as it currently is, we’re left with the question of whether the market can provide high quality, private education at a price affordable for the average Chilean.

I’d argue that it can, based in large part on the work of James Tooley, “a professor of education policy at England’s University of Newcastle upon Tyne. Several years ago he was working as a consultant in Hyderabad, India, for the International Finance Corporation, an arm of the World Bank.” There he found numerous effective, for-profit schools serving the poorest of the poor in India’s slums:

In Hyderabad, a city of more than 6 million people, Tooley and his team—confining their search to poor areas lacking amenities such as running water, electricity, and paved roads—counted 918 schools. Only about 40 percent were run or financed by the government; 60 percent were private. Of those, some were “recognized” by the government, but most were officially unknown to the authorities. These black-market private schools were smaller on average than the other kinds—but they still accounted for about a quarter of all the children in any sort of school. Remarkably, some of the slots in these private slum schools were offered free or at reduced rates: The parents of full-fee students, desperately poor themselves, willingly subsidized those in direst need.

This flourishing educational enterprise is all the more surprising once you understand that India has deliberately discriminated against private education—forbidding for-profit schools, for instance, and requiring schools to be run as trusts rather than proprietorships, and limiting their ability to borrow. Despite these handicaps, private education for the very poor has evidently thrived.

Tooley’s research has demonstrated that education can be provided profitably and effectively at a very low cost by the free market.  Likewise, many private and parochial schools in America are able to provide better education than public schools for a far smaller price tag than the $12-$27,000 spent per pupil in state-run education

It’s only when we get to college that — in America as well as Chile — we see the cost of education balloon, public and private alike.  The problem, unpopular as this opinion may be, is that in both countries we have a college bubble which, like the housing bubble a few years ago, has produced grossly inflated prices which hardly anyone can afford without a mountain of debt or years of saving.

The fact is, not everyone needs to or even should go to college.  Many necessary jobs don’t require a degree, and many people will thrive and learn more as autodidacts.  Our governments, however, disagree:

When governments want to encourage what they believe is beneficial behavior, they subsidize it. Sounds like good public policy.

But there can be problems. Behavior that is beneficial for most people may not be so for everybody. And government subsidies can go too far.

Subsidies create incentives for what economists call rent-seeking behavior. Providers of supposedly beneficial goods or services try to sop up as much of the subsidy money as they can by raising prices. After all, their customers are paying with money supplied by the government.

Bubble money, as it turns out.

College prices are overinflated not because of greedy profiteers — indeed, most American private colleges are nonprofits — but because government policies of huge subsidies and low interest rates have been distorting the market for years.  The education bubble in Chile, with its plans to “inject more government funds to higher education [and] lower interest rates on student loans” in particular, is all set to continue to grow.

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