No Ticket, No Start---No More!
The Consequences of Throwing Money at Schools
Professor Ross Parish
Throwing 'Money at Schools' is the title of an article
by Eric A Hanushek, published in 1981. The abstract
of the article is as follows:
'The conventional wisdom about public schools is that
they face serious problems in terms of performance
and that improving schools requires additional money.
However, the available evidence suggests that there
is no relationship between expenditures and the achievement
of students and that such traditional remedies as reducing
class sizes or hiring better trained teachers are unlikely
to improve matters. Furthermore, there is little reason
to believe that schools will move toward more efficient
operations, either on their own or through consumer
pressures. More attention should be given to developing
direct performance incentives' (Hanushek, 1981:19).
The available evidence cited by Hanushek came from
statistical studies all based on North American data---of the relationship between various measures of educational
input and measures of output. The 'inputs' investigated
were student-teacher ratio, teacher education, teacher
experience, teacher salary, and expenditure per student.
The most commonly-used output measure was student performance
on standardised tests, but the investigators looked
at school drop-out rates, attendance patterns, student
attitudes, and school grades. Hanushek collated the
results of 130 such studies in a subsequent article
(1986), he included the results of an additional 17
investigations. These are summarised in Table 1.
Most studies showed no statistically significant relationship
between education inputs and outcomes. For example,
the student-teacher ratio had a statistically significant
effect on test score or other output measure in only
23 out of 112 studies and in a majority of these (14)
it had the wrong sign 1
Hanushek's conclusion is 'that there appears to be
no strong or systematic relationship between school
expenditures and student performance'. This leads
him to the simple policy implication:
'... increased expenditures by themselves offer no
overall promise for improving education. Further, the
components of these expenditures offer little promise.
Thus, a simple recommendation: Stop requiring and
paying for things that do not matter.
There is little apparent merit for schools to pursue
their ubiquitous quest for lowered class sizes. Nor
should teachers be required to pursue graduate courses
merely to meet tenure requirements or to get an additional
salary increment. (Hanushek, 1986:1167).
These conclusions are certainly not refuted by recent
historical experience. In the 1960s and 1970s schools
in the United States increased their expenditures each
year, thereby reducing their class sizes and employing
more experienced and better-educated teachers. Yet,
at the same time, there was a decline in the educational
performance of students, at least as measured by test
scores. Similarly, expenditure per student increased
markedly in Australia in the 1970s and 1980s, causing,
among other things, student-teacher ratios in government
schools to fall by one-third (from 21.3 in 1972 to
14.9 in 1986). But there is little evidence that the
quality of education received by pupils has improved.
On the contrary, there is a widespread perception that
the quality of output of the schools is low or has
declined. Areas of particular concern are students'
preparation in the basic skills of literacy and numeracy,
changes in the curriculum, treatment of moral questions
in the schools, and school discipline.
One reaction to Hanushek's---and other similar---findings
is simply to disbelieve them or to deny their significance.
This is often the response of professional educationists.
For example, there is a good deal of evidence that
the effects of class size on the cognitive achievements
of students are small and of indeterminate sign, but
I have yet to find a teacher who accepts this evidence.
Now far be it for me to urge the uncritical acceptance
of statistical findings, especially those relating
to complex systems such as the education process---
and even more especially if they appear to be contrary
to reason. Hence I can understand the educationists'
scepticism. However, a little reflection on the manner
in which education is organised easily leads one to
the conclusion that these findings are quite reasonable.
The great majority of Australian students (73 per
cent) receive their education in government schools.
In the United States the proportion is even higher
(90 per cent). In Australia government schools are
run by State bureaucracies, with varying degrees of
authority being delegated to individual school councils.
Federal government departments and agencies also exert
considerable influence through the funding of special
Education bureaucracies are supposed to operate in
the interests of the community---and to promote the
welfare of their students. However, these interests
may often be in conflict with their own private and
group interests. One does not have to be a hard-line
Public Choice man to believe that the private interests
will often dominate the public ones. This can happen
because of a lack of meaningful accountability of the
bureaucracy to either its clients or its political
Private suppliers selling their product competitively
in the market have an imperative incentive to produce
something that matches the preferences of at least
some of the potential consumers, for their survival
depends on their appealing to at least a minimum clientele.
Whether and to what extent a bureaucratic enterprise
attempts to please the users of its freely-provided
product, by tailoring it to their preferences, is largely
a matter of the altruism of its members, and their
desire to enjoy the esteem of their clients. (These
motives are also present in the members of the private
enterprises, of course.) The bureaucratic enterprise
is accountable to the bureau as a whole, which is accountable
to the government, which is accountable to the electorate,
which includes the users of the service. The mere enumeration
of these connections suggests the indirect and tenuous
nature of the relationship between the supplying enterprise
and the consumer. Make further allowance for the rational
ignorance of voters, the bundling of issues at elections,
and the rational ignorance of politicians, and it is
obvious that the relationship is weak, indeed.
Having little accountability to their clients, either
directly or indirectly, bureaucratic producers are
able to pursue their own ends; or other interest groups
may be able to capture, or at least considerably influence,
the bureau and its policies. In the case of education,
we can distinguish between the teachers and the members
of the higher bureaucracy---administrators and policy-makers.
Teacher unions have become quite influential in the
postwar period, they seek to secure higher salaries
and better working conditions for their members, and
to the extent that they are politicised, pursue ideological
aims as well. Posts in the higher bureaucracy are attractive
to persons interested in bringing about political and
social changes---for in the absence of strong political
and social changes---for in the absence of strong political
direction from the government, and with a largely
passive clientele, the reformer is likely to be able
to exert considerable influence on policy and its implementation.
It is not in the self-interest of bureaucracies to
maximise profits (since, if they do not sell their
product, they do not earn any), or to maximise notional
surplus (as cost-benefit theorists would have them
do) or to maximise costs, rather their interest lies
in maximising their budgets. Discussing the American
scene, Hanushek commented as follows:
'Administrators, who are typically drawn from the
ranks of teachers, share many conceptions about what
is 'right'. Moreover, it generally serves the interests
of administrators to accept teachers' arguments about
reducing class sizes, raising salaries, and increasing
expenditures; such policies increase the administrators'
domain, lessen conflicts with their employees, and
ultimately must affect their own salaries. Teacher
training institutions, the chief purveyors of conventional
wisdom about organization and teaching methods and
the traditional source of most research in education,
have a direct stake in choices that influence the aggregate
demand for teachers and for teacher training, particularly
class sizes and requirements for graduate degrees.
State and federal education agencies tend to view themselves
as representing teachers and teachers' interests....
Finally, even local school boards are affected by such
conflicts; rarely representative of the general population,
they have usually been composed of individuals closely
associated with the schools and individuals generally
favouring 'quality' education' (Hanushek 1981:33).
The pursuit of bigger budgets by education bureaucrats
is helped by the fact that, there being a lack of generally
accepted measures of educational output, measures of
input are used as proxies for output. So acceptable
have these measures become that debate on educational
policy tends to be conducted almost exclusively in
terms of input measures such as expenditures (per pupil,
or as a percentage of GDP), pupil-teacher ratios, and
participation rates in senior secondary and tertiary
education. The particular input variable favoured by
education lobbyists has varied over the years. In his
Buntine Oration of 1962, Professor Karmel showed that
our expenditure on education as a percentage of GDP
compared unfavourably with many other developed countries.
This demonstration of the inadequacy of our efforts
was widely accepted at the time, the alternative hypothesis---that other countries were wastefully over-spending
on education---receiving little credence. Now that
our expenditure of 5.6 per cent of GDP is relatively
high, the education lobby tends to ignore the figure.
Similarly, pupil-teacher ratios are seldom mentioned
now that ours are among the lowest in the world. Participation
rates are the statistic currently favoured.
None of the foregoing is meant to imply that educational
inputs are not important---just that they should not
be confused with output. Nor is there any warrant
for the view that teacher and school 'quality' does
not matter in the determination of educational outcomes.
On the contrary, there is a good deal of evidence
that some teachers and some schools are much better
than others in educating their charges. All that is
being claimed is that teaching excellence cannot be
explained in terms of variables that are conventionally
supposed to contribute to it. There is some evidence
that school principals can evaluate teachers' performance
rather accurately. But as Hanushek points out:
'... the evaluation of principals have had no material
impact on school operations; they rarely affect salaries
or determine employment decisions, having long since
been neutralized by contract provisions and regulations.
Yet, if these evaluations had some real impact in terms
of salary and employment decisions, the performance
of schools might be quite different'. (Hanushek, 1981:36).
This example nicely illustrates what I am inclined
to call the iron law of bureaucratic decision-making:
that a more objective but irrelevant criterion is preferred
to a more subjective, relevant one The 'law' is the
unfortunate consequence of the understandable desire
to reduce the bureaucrats' scope for exercising discretion,
for fear that they will behave unlawfully or corruptly.
In the prewar and early postwar period, teachers in
government schools were limited in the discretion they
could exercise by the system-wide adoption of fairly
detailed curricula and syllabuses and the prescription
of textbooks. Furthermore, their performance and the
progress of their pupils were monitored by inspection
and by the results of external examinations. Many teachers
were recruited as trainees on the completion of their
secondary schooling, and their training and subsistence
costs were paid by the education department. In return
trainees entered into a bond to work for the department
as teachers at the completion of their training, and
to accept postings to remote or unpopular localities.
Promotions up the hierarchy were based largely on
The centralised bureaucratic administration of education
on a State-wide basis, and the substantial degree of
direction and oversight of teacher activities has been
termed 'the prudential tradition' in Australian education.
The system was commonly criticised as being excessively
rigid, discouraging the exercise of initiative by parents
and teachers alike, stifling innovation, and making
for conformity and mediocrity.
It is instructive to observe how many, and which,
of the systems' constraints and rigidities have been
removed as the result of educational policy changes
in the postwar period. The more important changes are
- Assessment by inspectors of the performance of individual
teachers and schools has been largely abandoned.
- Employment conditions for teachers have improved
with the dropping of coercive features of former contracts.
The bonding of trainee teachers to serve the education
department is no longer practised, and the departments'
powers to direct teachers to transfer from one school
to another have been greatly curtailed.
- Detailed curricula or syllabuses have been replaced
by 'broad guidelines', and prescription with regard
to books, etc. by recommendations.
- There has been a widespread replacement of external
assessment by schools-based assessment.
- The issue of certificates at transition points within
primary-secondary schooling (such as at the end of
primary school, or after three or four years of secondary
school) has been discontinued, leaving only the certificate
marking the end of secondary schooling.
- There has been a trend away from selective secondary
schools towards comprehensives.
- There has been a change in emphasis from so-called
'academic' subjects to a broader and less formal curriculum
intended to appeal to less gifted pupils.
- Progress from form to form has become more or less
automatic, with children seldom being held back for
In short, the 'prudential tradition', insofar as it
constrained and monitored teachers' performance has
been almost completely discarded with teachers being
freed from inspection, from external examinations (in
the main), from closely prescribed curricula and textbooks,
from unwanted transfers. At the same time, however,
other characteristics of the bureaucracy remain unaltered:
for example, promotion by seniority and the acquisition
of formal qualifications. Teacher unions have also
secured work conditions and procedures which reduce
the systems efficiency. 2
Most of these changes (and some non-changes) have
benefited the less competent teachers. State school
teachers were never directly accountable to parents.
Now they are hardly accountable to anyone.
In retrospect it seems likely that the prudential
tradition was a necessary feature of systems that delivered
education to largely passive parents. At any rate,
there is at the present time some disposition for
reasserting a greater degree of central control over
what goes on in the schools. In Great Britain a national
school curriculum is being introduced and schools are
being encouraged to free themselves from local government
control. Dr Metherell, the NSW Minister for Education,
is attempting to put some backbone into the curriculum
and to retain some informational content in the Higher
School Certificate. At the same time, there have also
been moves to increase the influence of parents, by
devolving greater powers to school councils and by
relaxation of zoning restrictions on the schools students
Both the assertion of greater political control from
the centre and the enhancement of the powers of school
councils are to be welcomed as means of disciplining
the teacher workforce. But there are reasons for pessimism
concerning how much might be achieved by these means.
While the breaking down of zoning restrictions is
unambiguously desirable in that it widens parental
choice and stimulates competition among government
schools, enhancing the power of school councils increases
the scope of political decision-making at the local
level and may benefit only the small minority of politically-active
Popular support for firmer central direction of State
education systems probably requires a reasonable degree
of consensus concerning the content and aims of education,
and of the purposes of society in general. That consensus
seems to have been lost about 25 years ago. Whether
a new consensus, other than the multi-culturalist belief
that 'anything goes', can be established, remains to
be seen. Furthermore, we need to remind ourselves that,
however much the past may seem to have been a golden
age, as compared with the present state of affairs,
we complained mightily about it at the time: it was
a rigid bureaucracy, with all the defects inherent
in that mode of organisation. An alternative approach
to educational reform is privatisation. Private enterprises
have incentives to be efficient in the narrow sense
of minimising costs and in the broader sense of providing
services that are desired by their clients. As a candidate
for privatisation, education would seem to be at least
as attractive as, and probably more attractive than,
other industries commonly considered. For example,
education is a private good in the technical economic
sense, i.e. it is something that can be supplied and
demanded quite efficiently by private initiative---
as the existence of a substantial and expanding private
sector amply confirms. Also, the problem of 'natural
monopoly' associated with decreasing cost industries
(e.g. communication networks) hardly exists in the
case of education. None of the 'market-failure' type
arguments for government intervention in education
implies that government operation of schools is desirable.
Indeed, far from correcting market failure, free provision
of education by government-operated schools takes education
out of the market sector altogether, and turns all
educational questions into political questions.
The characteristic liberal-economic prescription for
government involvement in education as been for a regime
of privately-operated schools supported by a uniform
per-pupil subsidy, preferably in the form of a voucher
scheme. This elegantly simple device has been opposed
by the education establishment on grounds of egalitarianism,
parental incompetence and, presumably, self-interest.
For a time, in the early 1970s, we had something approximating
to uniform per-pupil subsidies for private schools,
but the basis of subsidisation was soon changed to
that of 'relative needs', thus discriminating against
better-off schools. Also the eligibility conditions
for the receipt of subsidies have been progressively
tightened. The temptation to use subsidy schemes for
political ends would seem to be irresistible.
Holland has given equal per-pupil subsidies to public
and private schools since about 1920. The system has
evolved in the direction of increasing control over
the private schools. For example, teacher numbers,
salaries, required credentials, hours and conditions
of work are all centrally determined. Teachers cannot
easily be fired, and then only according to age and
seniority, not competence. Expenditure on buildings
is also determined by government. Private schools are
restricted in the fees they may charge, and are unable
to exclude students for non-payment. The result is
three very similar school systems---State, Catholic,
and Calvinist---operating in accordance with a common
set of bureaucratic rules. (One small difference concerns
expenditure on 'discretionary funds', government schools
spending more on 'maintenance and cleaning', and private
schools favouring 'educational facilities'. This may
be due to the use by government schools of more expensive
municipally-supplied services.) (James, 1986)
In some Canadian provinces, the religious minority
(Protestant or Catholic) have secured a system of denominational
schools, financed and organised in a similar manner
to the public schools. In other provinces private schools,
denominational or otherwise, receive no significant
government funding. According to one investigator,
'Evidence ... convinced us that the lengthy period
of total support had significantly 'deprivatized' Catholic
schools in Alberta, Saskatchewan, and Ontario, attenuating
or obliterating numerous characteristics which elsewhere
distinguished Catholic schools from public schools
.... The point of highest agreement among respondents
concerned the commitment of teachers, almost unanimously
described as stronger in the privately supported Catholic
... In provinces with publicly supported Catholic
schools, far smaller proportions of Catholic school
teachers were nuns ... The need to recruit far larger
numbers of teachers may be part of the explanation
... but we were repeatedly informed that many nuns
had left because they felt that tax-supported Catholic
schools could easily afford to hire 'lay' teachers
to replace them, and sometimes because they felt resented
by members of teacher unions.
Traditionally, in Catholic elementary schools... relationships
between school and parish were extensive and strong.
Teachers and administrators could invoke not merely
their authority as educators, but the resources and
authority of the church.... In Alberta, Saskatchewan,
and Ontario, however, full legal authority over Catholic
schools was held by elected school boards. Religious
leadership in Catholic schools had been assumed largely
by professional educators in the downtown office; priests
and other normal religious leaders often felt excluded
and ignored' (Erickson, 1986:99-100). 2
In 1978 British Columbia introduced subsidies far
private schools of 30 per cent (per pupil per year)
of public school per pupil operating costs. Surveys
before and two years after the subsidies were introduced
indicated, with respect to Catholic schools, a substantial
decline in teacher commitment as perceived by parents
and in parent commitment as perceived by teachers.
Some parents 'perceived that improved salaries were
attracting a new breed of teacher, less dedicated and
more money orientated, or that the schools were becoming
less communal and flexible and more formal and rule-bound...
' (Erickson, 1986:103).
Private schools become more subject to government
regulation regarding curriculum content and examinations.
'In several schools, including the most elite school
in our sample, teachers said they had been forced to
replace vastly superior courses with one that was ludicrous
in their eyes---prescribed consumer education course',
The Dutch and Canadian experiences suggests that throwing
money at private schools robs them of their elan and
turns them into clones of the public schools.3 The
privatisation goals of diversity and efficiency seem
unlikely to be achieved in this way. These considerations
lead me to the rather austere policy prescription that
the best way to achieve educational reform is for government
to get out of the business of education altogether,
except for providing means-tested tuition vouchers
to low-income families, Forget about education being
free, compulsory, and secular. Let it be bought and
sold like any other good. And may a thousand flowers
1 One input measure that tended to behave according
to the conventional wisdom was teacher experience.
In 65 out of 109 studies its coefficient had the right
sign and in half of these cases the coefficient was
statistically significant However, there is the possibility
that in this case causation runs in the opposite direction,
'senior teachers having the ability to select schools
and classrooms with better students'.
2 For information on the situation in Victoria, see
Liberal Party of Australia, Victorian Division (1987)
3 Casual observation suggests that, in Australia, Catholic
'system' schools are becoming more and more similar
to government schools.
Erickson, Donald A. (1986), 'Choice and Private Schools:
Dynamics of Supply and Demand', in Daniel C. Levy (ed.),
Private Education Studies in Choice and Public Policy,
New York: Oxford University Press, 82-109. Hanushek,
Hanushek, Eric A. (1981), 'Throwing Money at Schools',
Journal of Policy Analysis and Management, 1:
(1986), 'The Economics of Schooling:
Production and Efficiency in Government Schools',
Journal of Economic Literature, XXIV:1141-77.
James, Estelle (1986), 'Public Subsidies for Private
and Public Education: The Dutch Case' in Daniel C.
Levy (ed.), Private Education. Studies in Choice
and Public Policy, New York: Oxford University
Liberal Party of Australia, Victorian Division, (1987),
Victorian Schools Under the Labor Government,
Parish, Ross (1987), 'Education', in John Freebairn,
Michael Porter and Cliff Walsh (eds.), Spending
and Taxing: Australian Reform Options, Sydney,
Allen & Unwln in association with Centre of Policy
Studies National Priorities Project.
(1987), 'Reforming Education: Reducing
the Role of the State', C.I.S. Policy Report,
3 (December): 1-6.
(1988), 'Input Output Education',
Quadrant, XXXII (March): 20.
Why HR Nicholls?