Wednesday, December 26, 2012

Public Education is our Common Good

Profit is the motor of capitalism. Where there are business opportunities, private sector tends to step in. This principle also applies to the education  sector. The economic crisis and the dogma of austerity which prevails in Europe has as an immediate consequence a reduction of public expenditure in welfare policies such as education or health. Lower investment from the State opens the door to private capital. 

Risk capital has a long experience in investing in education, especially in anglo-saxon countries and northern Europe. In southern countries like Spain or Italy, private equity operations are not so developed, but there is growing interest from the business sector in a context where public investment in education is likely to fall significantly in coming years. The shortfall, which could be, for example in Spain , around 10-11 billion € will be only in part compensated by wealthier families. History tells us that when public investment falls private investment tends to crowd in and vice versa. In fact, one of the main arguments of protests against austerity is to combat privatization and the risk of dismantling public education to the benefit of private initiative. 

Available data on profitability of private colleges and universities do not compare well with other economic sectors. The fall of household income tends to shift students from the private to the public sector as families cut spending in education for their children. However, investment firms acknowledge that education is  particularly sensitive  because clients are the children and their parents. Risk capital firms will step in if it is a stable business based  on foreseeable cashflows over the schooling cycle of students and therefore can provide leveraging. Considering that the duration of private equity in a business varies between 4 and 10 years, the education sector offers a sufficient margin for for making investments profitable in the medium term. This means, that public-private partnerhips could develop as it has already happened in healthcare sector.  

While governments  ensure that budget cuts are essential to sustain the public education system in the medium to long term, opponents to austerity believe that they are taking advantage of the crisis to put more money for education in the private sector. Having exhausted the main sources of business and profit such as the construction and public works and industry remains unattractive because it needs large investments, private capital seeks new business opportunities or expands the existing ones. In that sense, basic services such as education or healthcare offer relatively safe profit opportunities. 

The real problem is that a too large involvement of the private sector may endanger the fundamental right to education as citizens will turn from owners of these rights in users of a private system that they will afford according to their economic possibilities. Some organizations support private investment in education but not for all ages. In the early stages of education where investment brings high social returns, public budgets should intervene in financing education.  

Investing in education increases well being and productivity but also yields positive  returns for the society. According to some empirical estimates by Angel de la Fuente (2011), the social returns to investment in human capital are higher than those on physical capital in most EU countries . Of course, outcomes vary across countries depending on both quantity and quality of human capital investment. However, there is no evidence that private education systems will be better performing. Nordic countries invest a much larger proportion of their GDP in public education with better results than the rest of EU countries. A better educated population means a more productive economic system, and therefore more able to compete globally. It's not a matter of  privatizing education systems.