Saturday, June 30, 2007

Privatization

There has been a bit of talk lately about privatization: health care, aspects of post-secondary education. It is worth considering what privatization means, who promotes it, why, and what will likely happen before any decisions are made in this regard. I don't think the issue "privatization" is at all an academic debate. Nor do I think it is about "the best way to deliver services" or "saving money" or "efficiency." I think the whole privatization debate is about the type of country we have. Does that sound a little to grandiose? Does it sound like I am upping the stakes? Many of the proponents of privatization would, in fact, say so. They would say that they are talking about modes of delivery and saving money and not fundamental values. I think they are deluded (in a literal sense of the word). Privatlization ultimately is about values and that is what I want to demonstrate in this blog. In other words, it is not a small issue but a big issue, a issue about our values as society and how we want to organize that society. It is on this ground that I think the little bit of talk, of late, about privatization in health care and education merits attention.



You will notice, btw, that I have not yet said whether I am for or against privatization. In my view, this is, in fact, the first problem with public discourse on privatization. People stake out their ground in advance and then don't move from it. In place of discussion and analysis that might lead to policy conclusions, we get ideology in which the specifics of any given situation are lost amidst a haze of generalization. In other words, when the discussion turns to privatization of education or health, we rarely end up with a discussion of the specific institution or situation: "how will this work in Sackville NB?" Instead, we get odes to the wonders of private enterprise or aspersions cast at the American health-care system. Whatever merit such generalizations may have in terms of argument, they actually don't help us make a decision about the specific situation at hand. In this regard, I think it is at best premature to come out for or against privatization before one has worked through the arguments. Moreover, precisely because this issue is important -- because it will affect Canada and will affect real people's lives -- I think we need to be guided by evidence, not general views. In other words, decisions about privatization need to be made in the cold light of logic with a consideration of evidence; not in the head of ideological conflict.



With this in mind, I can't really talk about health care. I don't know that industry and can't bring anything dramatically new to the discussion, at least until I have done my homework. With this in mind, then, I'll turn to my industry: education. Periodically we hear people talking about the need for a private university in Canada. The implication here is that the university would surrender its government grant and turn to the market to make a go of it. The proponents of privatization suggest that there is nothing to fear in this and much to gain. It would be a more efficient allocation of resources; it will unlease an entrepreneurial spirit on campus; students will pay for what they get; the university will not be held back by the state, and on down the line. In other words, privatization will bring many benefits and few drawbacks. With the dramatic curtailing of government support for post-secondary education over the last fifteen years, these arguments come more and more to the fore. As the government pays less of the tab of public education, state support for education seems less relevant. Is this so? There are a number of points to consider.



First, revenue: the government does not pay as much of the university tab as it used to but it still pays a lot. At my institution, by a conservative estimate, government grants count for something like 35% of the budget, or somewhere around $17.5 million. Now, we need to think about what privatization might mean. One thing it would mean is that my institution would need to find another $17.5 million each year. Tuition would have to increase, to be sure. One could argue that it should because that is the way the mrket works. The taxpayer should not subsidize someone else's education. But, we are talking about a big increase here. Again, I want to be conservative (in other words, my aim is to present a reasonable scenario; not a worst case scenario). The average jump in tuition if we divided the revenue shortfall by total current student body would amount to something like $8 500, but let's round down just to be reasonable and allow for some cost savings. Let's say $8 000. What this means is that tuition at Mount Allison (where I would would go up by $8 000/year would would make it somewhere between $14 000 and $15 000 total, excluding residence, meal service, books, other fees, etc.



What we need to bear in mind with this is product substitution. The problem Mount A would encounter is that other institutions would not privatize. In fact, if Mount A withdrew from state support, there would in fact be more money for other institutions in NB. They'd get our chunk of government support. The likely result would be tuition stability at other institutions. Our product is not all that different from other institutions. We're good. I think we are rightly proud of the job we do, but exact how different is on History, English, Biology, etc., degree from another at the undergraduate level. I have friend who teach at other universities and they are good, too. They are rightly proud of the job they do. One question we need to ask before we privatize is this: is our product that much better than other institutions that students (or, their parents) would be willing to pay over twice the tuition of other institutions to attend Mount A. Some would. How many? And, what students? Would really good students be willing to pay over twice as much to attend Mount A? Or, would we get the student who could gain admission no where else and had to pay our tuition out of a lack of other alternatives? What would that do to our standing as an institution?



Second, one could argue that privatizing would unleash some sort of entrepreneurial spirit and allow the University to work in a more efficient way. How? I work at Mount A and I can tell you how hard people work, how inventive they are. What I can say is that there are some bad apples. No one doubts this. But, most people, by and large, are working as hard as they can. Is the university inefficient? Well, I don't know. You'd need to ask the registrar and the VP administration about that. I don't think they would say that they are inefficient. I think the registrar and the VP admin would, in fact, say that their people are working as hard as they can. But, for the sake of argument, let's say they aren't. Let's say the administrative branch is amazingly inefficient. Why do we need to privatize to gain this efficiency? We pay these people a lot of money to do their job. Why should the structure of the company affect whether or not they do their job right? If they aren't doing it right, they should be fired. It is not state support that keeps them in their jobs. From what I can tell the same bureaucracy will be needed regardless of the funding model. Any post-secondary institution will still need secretaries, mail staff, registrars. comptrollers, etc. If there are cost savings to be had, we need to know where those are and how privatization would realize them and whether or not we need to privatize to attain them.



Third, will privatization allow the university to raise more money from the private sector? I don't know but again we need to look at this in a way that is not ideological. Large companies in Canada already donate a lot of money to universities. Will they donate more to a private institution? What will their incentive to do so be? To believe that privatization will bring in more money from corporate donors, one needs to believe that the people who raise money for a university are not doing as good a job as they could be doing. They are missing sources of revenue. Will privatizing suddenly make them better at this? And, what sources of revenue are they missing?



Finally, there are ethical arguments to think about. I've gone on too long already so I'll keep this short. Will raising tuition via privatization ensure that the taxpayer does not pay for someone else's education. Education is a tax deduction so ... it is likely that the taxpayer will pay just by another means. In other words, to ensure that the taxpayer does not pay for someone else, one would need to change the tax system; not the way universities are financed. If the tax system is not changed, increased tuition could be passed along to taxpayers via tax deductions. If one cares about this -- and I think there are good reasons to discuss it -- privatizing the university is the wrong target. Are there other benefits that would foregone if tuition increased? Asked differently, the question is: are there benefits to a better educated society that are difficult to specify in economic terms? There is no easy answer to this but we need to think about education as a form of training for which there are spin-off benefits to industry. What are those benefits? Would industry end up having to pay more for training and up-grading and how would that affect profits? What about equality of opportunity? How would it be affected? What about political knowledge and the ability of people to be thinking citizens? Political scientists tell us that there is a strong correlation between formal education and political involvement. In a day when we are concerned about declining voter rates, is it in society's best interest to price education higher? What about crime rates? How does higher levels of formal education affect crime?



And, we could go on. I've not really spent most of this blog talking about the issue I raised at the start: the values that privatization would signify for Canada. I've raised these only at the end because I think that skill development, equality of opportunity, safety, are values Canadians hold dear. How would privatization affect the realization of our values? Instead, I've focused on the economic issues involved because that is where the debate is most cloudy. I don't provide answer. I am, however, trying to suggest that the issue is more complex. We need to think about things like the efficiency of existing bureaucracies and ways to make them more efficient. We need to think about product substitution and what that could do to enrolment. We need to think about the possibility of being a "last chance u" for people who have no other alternatives. And, we need evidence. I don't believe in change for the sake of change and ideology is misleading. It substitutes what someone happens to believe for analysis. Before we move toward privatization, we need to do that analysis.
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