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The Limits of Competition, Marketplace Style

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So, Robert opines that education and health care are the two fields where there is the most government money and the least competition, and that that explains the soaring costs.

But I don’t think so.  I think the government money is reflective of the fact that medicine and education are two fields badly suited to a market model of operation.

With medicine, the explanation is simple–if you’ve just been diagnozed with cancer, you’re not looking for the cheapest doctor or the most cost efficient hospital.  You’re looking for the ones most likely to cure you, and you’re willing to pay just about anything to get that result.  If anything, this mental attitude on the part of health care consumers actually causes prices to rise, because they’re willing to outbid each other, to mortgage the house, sell the cars, do whatever it takes to get what they want.

With education, the issue is a little more complicated.  Consider, first, the case of Mount Holyoke College, one of the original Seven Sisters and still well into Newsweek’s first tier of higher educational institutions.  About ten or fifteen years ago, MH decided to take aim at rising tuition costs as a way of recruiting more bright, first-level students.  So they lowered tuition significantly, and used that as a recruiting tool.

The result?  Total applications went down, and applications from first-rate candidates went way down. 

The reasons were twofold–first, because prospective students and their parents were convinced that the lower price was an indication of lower quality, that really excellent schools charge really high prices, that you get what you pay for.  The second reason was that the economics of college tuition isn’t what it seems to be.  Sticker prices on first tier colleges are less honest than the ones on cars.  A student admitted to Harvard from a family making less than $60K pays no tuition at all.  Even students with parents making as much as $150K get significant grants and other financial aid from first-tier schools.  These schools are ALREADY cheaper, in fact, than the local public university.  The trick is getting into them.

The second thing to consider is thi–the only parents who are interested in picking colleges by their price tags are the ones that know absolutely nothing about the system.  They don’t realize that Yale may actually charge Susie a lot less than the University of Connecticut, if Susie can get in and has board scores in the top 1%.  What’s more, they don’t realize that all schools are not creatd equal, that even if the only thing you’re interested in is the job your kid can get after graduation, Yale may be a better bargain even if you have to pay full price.

But the worst thing about trying to shove education into a market model is that it intensifies the attitude that’s already far too prevalent among students, and makes it damned near impossible for universities to fulfill the gatekeeper function we say we want them to.

That is, when students think of themselves as consumers,  they want their universities to deliver on their demands–As, thank you very much.  They’re not paying $40k s year to get Cs.  They didn’t meet the standard?  It’s the teacher’s job to get them up to standard and the teacher’s fault if they don’t make it, even if they’ve cut two thirds of all their classwork and handed in less than half the reading. 

Harvard and Yale can buck these attitudes–and they’re more likely to have student bodies who understand why they have to take English literature even if they’re a math major.  Third tier colleges and universities, however, are essentially already on a for-profit model, they just pretend they’re not.  That means keeping the number of their students up, keeping classes packed, hiring mostly part time teachers at what would be less than minimum wage if it were honestly figured–and riding teachers who give out “too many” bad grades. 

A college education at these places is rapidly becoming what a high school education is in too many places–in other words, nothing at all.  A survey of local businesses will tell you that graduates of these places do not even have the rudimentary skills that are supposed to accompany a “degree,” such as being able to write clearly or knowing English grammar from a kumquat.  What’s more, you can’t even count on the degree to insure that you’ve got a candidate who knows he has to show up and on time and get his work done.  Adjunct lecturers–part timers hired on a course by course basis–live and die by student evaluations.  Grade too harshly, be too strict about attendance and deadlines–and you’re dead in the water.

And I agree with Cheryl, and with Robert, that the whole house of cards rests on the fact that so many businesses and government agencies now require a college degree for employment–the content of the degree is useless, but it serves as a filter.  It also serves as insurance, at least in the US, because it provides a way to document that you are not discriminating according to race or sex. 

But insisting that we can fix education by subjecting it to a market model is, I think, wrongheaded.  I’m all for getting government money out of the mix for private colleges, but I don’t think that doing that would fix things either.  What we need is some reality.

Im my state, the community colleges offer two year associates degrees and four year bachelors degrees in…auto mechanics.  Among other things.  It is, to me, a massive transfer of wealth in the wrong direction.  Public education is free–you pay your taxes, your kid can go to public school–and if that school teaches your kid what he needs to learn, your tax money is well spent.  If it doesn’t, then you’re out of pocket for teh tution for a “higher education” experience only meant to teach what should have been taught in high school.

I’m getting very complicated about stuff here.  But what it amounts to is this:  we (meaning the US) seem to keep getting ourselves into ruts.  Need better trained people to do x?  Let’s start a college program and send them to that!  Need to punish wrongdoers?  Jail time, absolutely, even if the crime is kiting checks and the perpetrator is eighty six.  System clogged and inefficient?  It must need the market!

Personally, I think ther eal problem with higher education these days is that it is TOO MUCH part of the market.  We’ve given kids the idea that education is something they can buy that will be delivered to them.  Their job is to passively receive what they’ve paid for.

Forget liberal arts educations. NO education will work on that system.

Written by janeh

December 8th, 2008 at 11:17 am

Posted in Uncategorized

4 Responses to 'The Limits of Competition, Marketplace Style'

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  1. I have problems with the idea that minimal government regulation and maximum free marketing will automatically produce the lowest costs. It may – possibly by cutting worker pay and taking shortcuts with safety – and also may not, if the consumer can be persuaded to pay more for irrelevancies (all those brand name objects!) or if the consumer has minority taste or lives in an low population or remote area. I’ve spent too long experiencing how entrepreneurs serve consumers in businesses in which competition is supposed to work to the consumers’ benefit to think otherwise.

    The internet can help, if you can afford online shopping. It’s not much good for cheap versions of the basics of life, though.

    Still, in some cases, in some places no doubt the marketplace does work to the benefit of the consumer, but I’m with Jane in that I don’t think education and medical care are among those goods that benefit from an open market.


    8 Dec 08 at 12:53 pm

  2. A lot of people don’t think market forces should apply to themselves, or to the things they really care about. Sometimes they’re right, but not normally about things bought and sold between strangers. It’s when you ask them about alternatives that the answers start sounding peculiar. Let’s stick to education.

    First, you have the common problem that some of the tuition-payers are buying other things–connections, say, or prestige–and the high price is actually necessary–in fact, it’s part of what you’re buying. (The Johnny Walker people cut the price of their alcohol in Japan some years back, and sales plummeted because they were no longer the appropriate gift for a certain level of boss. Poor fools thought they were selling whiskey. They were really selling gifts.)

    But prestige and connections are inherently limited things. We can change the form of the bidding war, but we probably can’t change the war itself. Still, by their nature, only a handful of schools play that game.

    And so nearly as I can tell, Jane’s right about the pricing. My son told me that “if you have to pay the stated tuition, the school really doesn’t like you.” (This would make the most detested people in American education part-time, evening and weekend students–that is, the people who really need the training or degree to keep their jobs or get new ones. Sounds about right.)

    Two things are more important: first, that often the person attending the institution isn’t the one picking up the check. People just will not spend others’ money as carefully as they spend their own, and it’s often hard to focus a young person’s attention on a student debt he won’t have to pay off for years–and indeed may never have to pay off. Second, many of the students and the schools are buying and selling diplomas rather than education. Theoretically the accreditation process should stop this, but but there are clearly still a few bugs in the system. The automakers began paying attention to quality when the consumers did. When the consumers of college diplomas start pointing out that a degree from College X does NOT mean the kid has basic skills and that they therefore aren’t interested in a diploma from College X, you’ll see a remarkable tightening of standards.

    But if “any four-year degree” from “any accredited institution” is the standard, why should student or teacher put any more effort into it? It’s that market thing again: why put the time and effort–or money–into getting the education, when all you need is the sheepskin? As long as the two are sold separately, you’ll have a hard time getting around that.


    8 Dec 08 at 5:42 pm

  3. Cheryk, I think of the free market as being a form of evolution.

    In nature, ecological niches tend to get filled. In economics, economic niches tend to get filled.

    I don’t expect the process to be particularly efficient but the experience of the USSR and Red China suggests that the free market does better than central planning.


    9 Dec 08 at 1:44 am

  4. I tend to think of it as a system that sinks to the lowest common denominator and that, even in markets where it should work, is often corrupted by participants.

    I don’t think that central planning is a solution – there’s a lot between the extremes of free market and central planning. Pointing out that the free market is hardly an infallible solution to various social woes isn’t the same thing as advocating central planning.


    9 Dec 08 at 7:28 am

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