T C A Srinivasa-Raghavan: The Catch-22 of publicly provided education

OKONOMOS

When taxation is feasible and if the young are a majority, public education will always fall far short of what is needed.

Some Indians have become professional lamenters. One of the many things they continually lament is the poor state of public education. Along with many others, I have often wondered why, if education is so precious to people, they don't ask for it more aggressively. A reasonable approximation to the answer may now have been provided by Gilat Levy of the London School of Economics.

In a recent paper*, she says that public provision of education is really just another way of redistributing incomes. When the other method of redistributing it, namely taxation, is also available, the final political equilibrium depends on who is in the majority: the young or the old. This is a fundamental insight. All of us in India, but specially the professional lamenters, must keep it in view while griping.

Suppose, she asks, the main social choice is "between the tax rate and the allocation of revenues between income redistribution and public education." How one chooses will then depend on what one wants most. The young want public education but the old like income redistribution more. This is where the relative size of each group starts to matter.

"When the young are a minority, there is a relatively high level of per capita public provision of education, whereas when they are a majority, income redistribution crowds out public provision of education." This is a counter-intuitive result because things ought to be the other way round.

But what happens is that when the young poor represent the majority interest, they want high tax rates to pay for high levels of public education. But providing public education to so many is expensive and calls for rates of taxation that sends the old rich scurrying to form winning coalitions with the old poor. So what society gets is lower-than-needed rates of taxation and a reduction in the public provision of education.

Second, says the author, "even though the poor are a majority... the rich manage to take advantage of the divergent views among the poor with regard to how to spend tax revenues in order to reduce the size of government." For instance, you can always start off a debate on dividing the subsidies among health, public transport and education.

Finally, she says, "the winning parties are always composed of rich representatives and representatives from the minority segment of the poor "" either the young or the old." Net result: "when income redistribution is feasible, public education may not be provided in equilibrium if the young are a majority."

If this is correct, India faces a huge problem. Around 40 per cent of its population is young and around 80 per cent of their parents are poor. What about private education then? She finds that "the rich and the poor are more likely to be equally educated when the young are a minority." This happens because when public education is available in sufficient quantities, the rich also consume it (for example, college education in India). So everyone has the same level of education.

However, if the young are a majority, the public provision of education will be less than what is needed. Then both the rich and the poor will consume private education. This also happens in India at the high school level. But "" and here comes the swinging Yorker, right on the boot "" "since the tax rate is not the maximum one, inequality of income persists in equilibrium. The rich therefore have more resources to invest in education and become more educated than the poor in this case."

What should policy do then? If the number of poor demanding education is large, the tax rates will not be maximum (as the Left is demanding they should be) because the moment such a demand looks like being conceded, the government will be voted out as the rich old join hands with the poor old.

I have a partial solution. Since the issue is of having enough to spend on education, why not ask foreigners also to provide education?

*The Politics of Public Provision of Education, The Quarterly Journal of Economics, November 2005