Rethinking Elementary Education

There is a strong consensus today about the importance of elementary education in Indian public policy. It is hard to imagine how productivity and income growth can come about for the 50% of India which is illiterate. Going beyond economics, there are significant returns to education as far as social development and politics are concerned. It is hard to imagine how social progress can be obtained with 50% illiteracy. There is little doubt that the persistent importance of religion and caste in India is linked to ignorance, and illiteracy is clearly the most extreme form of ignorance.

From this perspective, one common theme that has emerged is that while the liberalisation of 1990s has involved taking the State out of myriad aspects of the Indian economy, there remains a major role for the State in elementary education. Indeed, the withdrawal of the State from other areas should help free up resources for education and health.

Why is elementary education special? Why should the State spend on elementary education? A common reason that is supplied is that poor people are too backward to invest in education by themselves; hence the only way to ensure that their children grow up educated is through large government interventions. This argument is suspect. Some evidence about this question is presented later in this article.

The second, and more defensible rationale for public expenditures for elementary education is based upon "externalities" of education. Each educated person generates myriad benefits for all those around him, and he, individually, cannot capture the full benefits of his education that accrue to society. Hence individuals have an incentive to underinvest in education. This justifies an intervention by the State, which would spend on education, generate these positive benefits, and take away part (but not all) of these benefits as taxes.

These arguments justify public expenditures on elementary education, and these expenditures have grown enormously in the 1990s. Yet, educational outcomes have not improved sharply. Illiteracy is still substantially with us -- from 60% in 1990 to 50% in 2000 AD. Children fail to enroll in schools in enormous numbers, and the drop--out rate is very high amongst those that do.

We must shift focus from the inputs, such as public expenses on education or the number of schools, to outputs, which are educational outcomes. If elementary education is important, then we should focus upon outcomes, measured in terms of literacy rates, and and what children have learned. If the educational system is badly functioning, then adding money at the input is an inefficient way to improve outcomes.

India's educational outcomes are a spectacular failure when compared with dozens of countries which achieved complete literacy in a generation after 1945. Part of this problem is rooted in low public expenditure upon education in India. But an even more important problem lies in the inefficient Sate--dominated education system.

The public sector is a highly inefficient producer of educational services (just as it is inefficient in producing watches, or banking services, or telecom services). In keeping with the spirit of liberalisation, we should try to obtain better educational services by using competition in the private sector.

Writing in the book Agenda for Change recently produced by the Rajiv Gandhi Institute for Contemporary Studies, Parth J. Shah has an elegant and simple idea which goes to the heart of this problem. At present, the government spends roughly Rs.3000 per year per child in primary school. This money is spent upon the (inefficient) production of educational services by the public sector. Instead, a totally different approach should be used. Government should completely get out of the production of educational services; all schools should be run by the private sector and charge fees. Parents should be provided with coupons worth Rs.3000 per child per year which they pay to the school of their choice. Coupon distribution is efficiently implemented, for example, by giving parents 12 coupons when a child is born.

The essential desirable features here are choice by consumers, and competition in the private sector. The private sector would work to run profit--making schools, charging fees of Rs.3000/year and above. Parents would be able to select between multiple competing schools. Some schools would offer teaching at the floor price of Rs.3000/year, other schools would charge higher fees where parents supplement the government subsidy by their own funds.

In this proposal, parents are empowered. If a school produces a poor education, parents would move their children to a competing school. This will be the most important ground--level check upon the quality of educational services and hence educational outcomes. Parth describes a remarkable idea that has been used in Kerala: the government reimburses the transportation costs faced by children in commuting to school. This measure increases the choices available to parents, and avoids the problem of a local monopoly.

This proposal is criticised on the grounds that poor people are so ignorant that they will give their vouchers to scamsters who will make off with Rs.3000 and not supply any education. This assumes that poor people are uninterested in the education of their children. Parth offers powerful evidence which shows that the poorest quintile of India -- households which earn under Rs.3000 per capita per year -- spends between 10% to 36% of their family income upon education of their children. This is in a regime where primary education is supposed to be free -- these poorest of the poor choose to walk away from free education supplied by the government by spending their own money. This is sharp evidence about the extent to which the poor of India care about the education of their children.

In this sense, the evidence about low enrollment rates and high dropout rates is quite likely to be related to the poor quality of the education which public sector schools provide. If parents were given better schools that their children could attend, it is very likely that enrollment rates would rise.

Private sector schools, competing for enrollment, would think innovatively in trying to produce better educational services. One simple example which Parth offers is that of the timings which schools use. The timings are presently chosen in a way which is convenient for government employees. In rural areas, a schedule such as 2 PM to 8 PM would be highly convenient for students, since it allows children to work on farms in the morning and then attend school. When educational services are produced by the public sector, as they are at present, there will be no effort at trying to think about the customer and improving the quality of service from his perspective. If all parents were armed with coupons worth Rs.3,000, private sector production of educational services will blossom in quality and customer orientation. This will lead to better education, and better educational outcomes.

In summary, there is a strong case for the State to care about education, but we must shift focus from inputs, such as the money spent upon education, to outputs, which are educational outcomes. Educational outcomes in India can be dramatically improved, without enlarged public expenditure upon education, by the simple idea of putting parents in complete control of the Rs.3000 per child per year that we currently spend in the country.

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