Private vices, public benefits: Does it work in education Claudio de Moura Castro

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Private vices, public benefitsDoes it work in
education?Claudio de Moura Castro
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Private vices, public benefits(B. Mandeville,
1724)

• The old paradox Is society best served when
  citizens pursue their self-interests and try to
  make as much money as possible?
• Are private vices virtuous and create the
  greatest benefits for most?
• This powerful and baffling idea still haunts
  societies, almost three centuries later
• In market economies, the consensus is yes,
  but
• Education is in the but category denounced by
  right and left

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Harnessing the vices

• Attractive rewards and deterrent penalties must
  be so contrived, adjusted and applied as to
  induce the members of all classes to behave
  steadily in the moderately vicious ways that
  are socially expedient (Overton Taylor)
• An unresolved controversy Is it enough to have
  competition and good laws?
• Do we also need moral sentiments sympathy, a
  predisposition to be ethical?
• Education is still tangled up with XVIII century
  controversies

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Excellency is possible in the private sector

• Patek Phillipe, Rolex, Rolls Royce and BMW engage
  punctilious craftstsmen to obtain the very best
  products
• Shakespeare tried to make money with his plays
  (writers are paid)
• Picasso sold his paintings, Van Gogh tried (the
  best art is for sale and very expensive)
• Medical doctors charge for their services
• ? Best products and services are produced by
  profit-driven individuals and firms
• (By the way, Ladas and Volgas are manufactured in
  public firms)

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Why not in education?

• Why good education has to be public or non-profit
  (philantropic)?
• Why profit motives (private vices) are not good
  enough for quality education?
• What makes education different?
• Usual accusations
• Education is not a merchandize
• Learning not a product
• Students are not clients
• Schools should not engage in commerce
• These are just plays on words, analytical noise.
  But is there some truth to it?

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All serious organizations maximize surplus

• Churches, sausage makers, mortuarians, schools
  and philantropies alike cut costs and increase
  revenues ? maximize surplus
• Public universities, non-profit universities and
  for-profits also maximize surplus
• What is the difference?
• For-profits can reinvest or take home
• Non-profits must reinvest (or pretend)
• Does it mean ? for-profits that re-invest are
  just like non-profits? Not quite

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Differences?

• Public universities can ignore costs, and pursue
  public interest (or mismanage)
• Non-profits will try to generate slack and may
  cross-subsidize deficitary courses with major
  social benefits
• For-profit schools mostly try to expand surplus
• There are many for-profits disguised as
  non-profits (to save on taxes)

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There are similarities

• None can spend above their revenues
• All try to find areas that are less saturated and
  attract prospective students
• Higher quality if other schools offer less (and
  vice-versa)
• New careers or revitalized areas
• Less covered geographical spaces
• All try to go where the money is
• All strive to get visibility to their action
• Cost cutting but not brutally (public more
  wasteful)

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How do for-profits schools behave?

• Like everybody else minimize costs and maximize
  revenues
• Avoid courses that do not break even ? No
  cross-subsidization
• Exceptions
• New programs (infant industry argument)
• Prestige, status, good-will
• Legal impositions (i.e. research)
• A token of social responsibility, perhaps a
  foundation

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The sins of for-profits?

• They do not instill the proper values
• ? Unlikely, same teachers as in publics
• They make too much money
• ? Lack of competition. Market reserves
• They offer shoddy education and lax standards.
  They cheat the students
• ? Inadequate laws, weak controls
• Cut corners, offer cheaper education
• ? Why not? But State can fix threshold
• They are just incompetent, amateurish
• Eventually, competition will take care of them,
  but it may take time

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Private vices lead to public benefits if

• There is competition ? no barriers to entry
  (monopolies are bad)
• Free flow of information ? role of governments to
  ensure it
• Truth in advertising ? students are not stupid,
  lying is forbidden
• Proper regulatory framework ? Right incentives
  Serious enforcement

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Markets vs. Laws?

• False dilema markets vs legal action
• Fair competition requires legal framework ? wild
  capitalism is passée
• Competition takes place within laws
• Role of government
• No monopolies
• Free flow of information
• Binding contracts, enforcement
• But laws that prevent market from functioning are
  ineffective or inefficient (e.g. price setting,
  market reserves)

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Do markets work?

• Brazil
• Some evidence the best for profits are more
  profitable
• After 5 years of Provão
• ? A and B courses got 10 more candidates
• D and E courses lost 40 of their candidates
• Areas that grew faster (business administration)
  ? tuition went down
• But Ministry has not discovered it and wants to
  restrict fredom of entry

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In some aspects, for-profits are better

• There is a boss around (instead of wishy-washy
  governance and committees)
• Clearer lines of accountability
• Refreshing honesty in being openly for-profit
  (R. Rush)
• Professionalism in management
• Quicker and more alert decisions
• Emphasis on measurable results (e.g.
  employability, quality)

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The inherent limitation of private schools

• In the absence of subsidies, quality is limited
  by what students can pay
• Equity issue
• Possibilities of cross-subsidization are limited,
  will move where the money is
• ? On their own, where public interest colides
  with private means they cannot replace government
  action

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The egregious sins

• To get short-run benefits, some for-profits may
  misbehave, break the law or take advantage of
  helpless students
• Governments
• Can ignore how markets function
• Create ineffective or perverse policies
• Be ineffective in enforcement
• Publics can be unbelievably inefficient, slow and
  lacking in governance
• Non-profits can sin in either way
• ? But abuse should not invalidade use

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Latin America

• All possible combinations exist
• High quality public USP, Unicamp, U. of Chile
• High quality private Colegio de Mexico, U. de
  los Andes, Di Tella, IBMEC, Catholics (most)
• Low quality public in most capitals
• Low quality private many, everywhere
• Big public universities offering both good and
  bad UNAM, UBA

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Any conclusions?

• Good and bad quality in public, non-profits and
  for-profits
• Non-public tend to be better managed and more
  efficient, but not all of them
• Bad schools come in all flavors
• Modest schools with weak students
• Delinquent institutions that cheat, overcharge
  and under deliver
• Adjustments are slow, abuse frequent
• Ideology pervades most discussions, making
  progress almost impossible

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The upward migration of the private sector
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In the good old days...
Primary Education
Private
Public
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Public schools bump the private
Primary Education
Secondary education
Private
Private
Public
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Public secondary grows
Primeiro grau
Segundo grau
Elite
Religious
Pedagogical Niches
Private
Private
Public
Public
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Higher Education Private vs private
Primary schools
Secondary Schools
Higher Education
Elite
Religious
Pedagogical niches
Private
Privado
Private
Private
Public
Public
Public
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Survival Strategies
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Competition in higher educaton

• Brazil Public is high quality, relatively small
  and cannot expand due to high costs
• ? Private come in all categories
• ? Need strong regulation and public controls
• Latin America in general public is large and
  relatively weak ? private tend to offer higher
  quality

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Proprietary or philantropic?

• Brazil
• Better and more aggressive schools are moving to
  for-profit category. It gives them more freedom
• Weaker are retreating to non-profit status to
  avoid taxes they cannot afford

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Mutation and competition within the private sector
First wave
Confessionals
Traditional lay
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Mutation and competition within the private sector
First Wave
Second Wave
Confessionals
Former cramming courses
Traditional lay
(Objetivo, Positivo, COC, Pitágoras ...)
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Mutation and competition within the private sector
First Wave
Second Wave
Former cramming courses
Confessionals
(Objetivo, Positivo, COC, Pitágoras ...)
Third wave
Traditional lay
Modern business origins
(IBMEC, Trevisan...)
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In the new world of private education

• The pool of students who can afford tuition is
  limited
• Competition is fiercer than ever
• New competitors are more competent (evidence from
  Provão)
• Some schools will not survive
• Students benefit from competition
• In some ways, the better public schools are
  acting like privates

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Darwin said Find your niche or be eaten up by
the fittest

• Stay away from competition (hienas learned to eat
  rotten meat, dogs befriended men)
• Advertize or die!
• Find the niche where you can be better than the
  competition. If possible, have no competitors
• Yes, the private vices are responsible for the
  geographical spread of higher education

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Golden rules for survival

• Treat well your students ? they bring friends or
  they transfer to the competitors
• Improve your management
• Fear the corporate universities!
• Rules of good management are the same for
  spaguetti factories, brothels and schools
• Be clear on your goals and objectives
• Goals are shared by all
• Control your processes
• Measure your results
• Use evaluation to improve

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Management rules are generic

• Goals tell what to teach
• Pedagogics tell how to teach
• Management ensures that you are efficient in
  doing whatever you want to do (it should not
  intefere with goals and teaching styles)

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Find your niche

• Find new or insufficiently supplied market
  niches
• Social criticism (IUPERJ, PUC/SP,)
• Community work (ULBRA, Blumenau)
• Become a producer of goods and services (Santa
  Rita, Passo Fundo, Positivo)
• Train teachers (Passo Fundo, Sagrado Coração,
  PUC/MG)
• Create MBAs and business connections (FGV, UBMEC,
  Don Cabral)

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• Be creative!
• Glass blowing?
• Ioga?
• Acupunture?
• Outdoor activities?
• Umbanda?
• Budist?
• Ballet?
• Legislative?
• Insurance University?
• Coffee University?
• Fashion University?
• Circus College?
• ? They all exist!

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Find your niche

• Become an education boutique (IBMEC, Trevisan, Di
  Tella)
• Improve your reputation by doing research
  (Catholic Universities, Los Andes, )
• Open two-year programs (U.A.Guadalajara / Unico)
• Move to smaller communities
• Mass education with quality (Pitágoras)
• Improve teaching quality (the tradicional
  lecture the iguana of education)