Education and profit

Jamie Whyte writes in the NZ Herald:

On these pages late last year, Linda Mitchell, an education lecturer at Waikato University

I tend to stop reading when I see the phrase “education lecturer at Waikato”! But Jamie did read it.

She claimed the quest for profits damages the service provided. Or, as she put it, an interest “in making profits for owners or shareholders positions Evolve Education Group at odds with more community spirited aims to invest fully in the service itself”.

That profits injure consumers is a familiar idea. But this should not blind readers to its absurdity.

Kindergartens, like most enterprises, need capital and labour. The capital pays for the buildings, equipment and so on, and provides cover for “rainy days” when costs exceed revenue. The labour at a kindergarten is mainly teaching but people also work on administration, cleaning and maintenance.

Ms Mitchell is right that if the people who contributed capital were not paid for it then more could be spent on educating the children.

Yet the same is true of those who provide labour. Imagine a kindergarten with four teachers. If they all took a 20 per cent pay cut, they could hire a fifth teacher on the same pay and give more attention to each child. If they worked for nothing, they could hire even more extra teachers and pay for all sorts of other services that might benefit the children.

Why does Ms Mitchell not lament the fact that teachers are paid for supplying labour? Why is paying teachers not also “at odds with more community spirited aims to invest fully in the service itself”?

Excellent points by Dr Whyte.  Why do they argue against a return on capital, yet for a return on labour.

Second, eliminating profit harms the intended beneficiaries: in this case, children receiving preschool education. A kindergarten that gets its capital from profit-seeking investors must provide a good service. If it doesn’t, parents will take their children elsewhere and profits will decline. If the kindergarten performs very poorly, it may even go out of business and lose its shareholders the money they invested. A privately owned kindergarten, like any privately owned enterprise, has a powerful commercial incentive to provide a good product or service.

Yep. Unlike at school level, pupils are not forced into their nearest school.

Ms Mitchell pointed to the insolvency of ABC, an Australian preschool company, as evidence against private ownership. This is the crowning glory of her confusion. That underperforming private firms are subject to insolvency is a virtue of private ownership, not a vice.

The same applies to charter schools. A charter school that fails will be closed down. State schools that fail get given more money.