Earnings advantage of the tertiary-educated

Skimming through the tweets of the chairman of the Productivity Commission –  who often includes interesting charts –  I spotted this picture.

returns to education

It is an interesting chart on a number of counts.  First, in every country shown, except the UK, the earnings advantage to tertiary educated workers is higher –  often materially so –  for older workers than for younger ones.  Second, all the countries at the far left of the chart are among the poorest of all those shown (the sample is OECD countries and “partner countries”).  And thirdly, of course, that New Zealand is over towards the far right of the chart, where the earnings advantage to tertiary educated workers is pretty low (and especially so for older workers).   The chart is drawn from this short OECD note.

Making sense of the numbers isn’t straightforward.    First, note that the chart isn’t claiming to illustrate returns to tertiary education, but the earnings margin of people who have had a tertiary education over those who haven’t.  The difference matters –  people who undertake tertiary education are different, in various dimensions, to people who don’t.    I’m in that older age group, and if I think back to my Auckland high school, only about 10 per cent of those who started in the third form made it to the seventh form.  Most of them probably did go on to university, and perhaps a few others did tertiary study later, but it was a cohort that was much more intellectually capable, on average, than the other group.   Since university was all but free to attend in those days, there weren’t even obvious financial barriers excluding capable people from poorer families.

These days, of course, a much larger share of young people undertake tertiary education.  But that probably means that the intellectual capability of the median tertiary qualifed person today is lower relative to that of the population as a whole than was the case 40 years ago.  It isn’t clear that is true if we compare the median of those with tertiary education and those without it (since the median of those without it is now likely to be quite a bit lower relative to that of the population as a whole).

Productivity performance in New Zealand has been poor for a long time, and we now start a long way behind the better-performing OECD countries.  If there were a lot of really good opportunities here then all else equal, and given how far behind we start, I might have expected the returns to enchanced skills (not, of course, the same as having a tertiary education) to be higher here than in many other countries.  The greater international mobility of people with better educational qualifications might have tended to work in the same direction.

But instead, those with tertiary educations aren’t doing well absolutely (low productivity country) or relative to those without.     And so you are left wondering quite why immigration policy is oriented towards recruiting lots of “skilled”  migrants –  particularly those with New Zealand tertiary education –  and why “education” policy is oriented towards encouraging yet larger proportions of people to undertake tertiary education.  None of which prevent’s Treasury’s living standards dashboard  – which we are told is going to help shape next year’s Budget – including the share of the population with a university degree of one of their “wellbeing indicators”.

(As far as I can tell, this particular chart also doesn’t taken of the fact that getting a tertiary education costs a lot of money –  directly (fees and living costs) and indirectly (foregone time in the labour force) and thus, if anything, probably overstates the advantage held by the tertiary educated.  There are other estimates of overall lifetime earnings advantages (or otherwise)).

More kids means more education spending

I’m tied up with other commitments today, but I happened to notice this chart from the OECD.

education spending

Since today is also the day the primary/intermediate teachers’ strike hits Wellington, it seemed timely.

In some ways, it is quite a striking chart.  New Zealand devotes the second largest share of GDP to education of any OECD country, exceeded only by super-rich Norway (as far as I can see this is an estimate of total public and private spending).

And yet, once one looks even a bit more closer it is less interesting than it might have seen.  For example, at the other end of the chart both Ireland and Luxembourg have GDPs that are flattered by unusual effects –  in Ireland’s case, the impact of their corporate tax system (which ends up exaggerating the true economic value occurring in Ireland, and does not reflect value accruing to the Irish), and in Luxembourg’s case, the fact that a lot of the GDP arises from people who work in tiny (financial centre) Luxembourg but live across the border in various neighbouring countries (their kids won’t be using Luxembourg’s schools).

And in our case, who uses schools and universities?  Mostly children and young people, and if you don’t have many children you’ll need to spend less (as a share of GDP) on education.   As this chart shows, of the OECD countries only Turkey, Mexico and Israel have a higher total fertility rate at present than New Zealand does.   Our TFR this particular year was 1.9 (births per woman) while that for, say, Japan was about 1.4.  That makes a big difference to how much needs to be spent on schools (all else equal about a third more).  Iceland spends as much on schools as we do, but with quite a bit smaller a birth rate.

Total fertility rate (2016)

And the other thing that marks us out relative to most OECD countries, although not all, is a high rate of immigration.  Not all migrants, by any means, have children with them when they move here (temporarily or permanently) but some do.  It all adds to the amount (share of GDP) needing to be spent on education.

Both birth rates and migration rates are just one of those things that people doing education budgets just have to take as given.    The other thing that you’d expect to influence education spending quite substantially is class sizes –  even at tertiary level the old Oxford/Cambridge tutorial system is a lot more resource intensive than, say, stage 1 lectures with 350 young people with largish tutorials run by honours students. But there tends to be more of a focus on school class sizes.  Unfortunately, the charts in the OECD Education at a Glance publications don’t have New Zealand data for pupil/teacher ratios, but here is the chart.

Average class size in primary education, by type of institutions (2016)


What I found striking is how wide the range of practices is.  It isn’t just that richer countries have smaller class sizes –  Chile is at one end and Costa Ricas at the other –  even though my understanding of the educational research is that smaller class sizes is mostly just a luxury item, with little or no impact on educational outcomes.   Shifting from one end to the other is likely to have significant implications for the cost of primary school education.  I have no idea where New Zealand would sit on the chart: I’m always a bit surprised how small my children’s class sizes have been, but that probably just marks me out as an old fogey, recalling classes in the mid-high 30s back in the early 1970s.

I don’t have any particular conclusion to this post, other than the caution that a high share of GDP devoted to schooling sheds –  on its own – precisely no light on the reasonableness, or otherwise, of the teachers’ claims, and their strike.  Having said that, I’d have preferred my daughter’s Principal not to have been using public resources to email us all urging parents to support the industrial action, join the protest rally etc.

In (reluctant) support of teachers

I’m no great fan of school teachers (at least as found in contemporary New Zealand –  a re-read last week of Goodbye Mr Chips was another matter altogether).  Over ten years now we’ve encountered a handful of very good teachers, quite a few duds, and lots who seemed no better than mediocre.  There was the Principal who, when my oldest child started school, told a gathering of parents of new entrants that it was really quite inappropriate to teach content as almost all of it would be out of date before long.   And when this particular Principal (together with the NZEI) was using the pages of the Dominion-Post to promote my daughter’s teacher –  apparently genuinely excellent –  as an illustration of the case for more pay, I made myself unpopular by noting that in the same school there were less than outstanding teachers, and that most people knew who they were.   Then there was the science teacher at the local intermediate school teaching conspiracy theories around 9/11.      Teachers who want to tell students off for discussing the previous day’s playground incident in which a deeply troubled student was on the loose with a knife and the school was in lockdown.   And then there is the endless “indoctrination”, mostly probably by teachers not quite smart enough to realise there really is an alternative view to their particular right-on views on colonialism, capitalism, homosexuality or whatever, and not apparently trained to the view (common in my youth) that a teacher’s personal political views (let alone sexual preferences) weren’t something to obtrude into the classroom.   If there are any teachers in Wellington sympathetic to a market economy, they must keep rather quiet about it.

So I’m not normally overly sympathetic to teachers.  And mostly we are stuck with them –  the teachers’ unions being among those most strongly opposed to effective school choice.   That said, as a stay-at-home parent, their stopwork meetings and strikes don’t inconvenience, or greatly bother, me.  It can be nice to have a bonus day at home together.

Of course, like any occupation there can at times be difficulty filling particular teaching positions.  When I was young we moved from Christchurch to Kawerau, and either on the day we arrived, or possibly the next day, the Principal of the local high school was on the door step.  He’d heard that the new Baptist minister’s wife had science qualifications and teaching experience (10 years previously) and he was desperate for staff.

Perhaps not all such specific vacancy stories tell anything meaningful about salaries and/or working conditions.  But when the stories multiply, and there is evidence of a material gap between demand and supply (demand exceeding supply) at the current price is usually a sign that the price should be rising, perhaps quite a bit.

How confident can we be that there is a shortage of teachers at current salaries?  Principals tell us so, but they –  members of same unions –  aren’t entirely disinterested observers (it was only a few weeks ago that a newsletter came home from one local school in which the Principal urged us parents to get along and support the teacher protest).    And almost every day, at least in the schools I have exposure to (three at present), there is a warm body in front of each class.

But then in this morning’s newspaper we read that the government itself –  the ultimate employer/funder of most school teachers –  recognises the problem.  The Minister of Education “is pledging to find at least 400 overseas teachers for the 2019 academic year”.

Which is rather convenient for the government surely?  As the near-monopsonist purchaser of school teaching services, it deals with shortages by using its power as  controller of the immigration and work visa regime to attempt to meet its staffing problems.

As I’ve written previously, there can be a place for work visas where, for example, there is a sudden and unexpected increase in a demand for a particular skill, or even where a particular skill is very rare (the market for some speciality skills can be very thin indeed).   But there are no real surprises as to how many teachers are needed nationwide –  at bare minimum for people born here there is a five year lead time, and that for new entrant teachers.  And decent teaching skills aren’t, or shouldn’t be, that hard to come by –  the PPTA apparently claims 17000 members.    These should be jobs that can be perfectly adequately filled by local residents –  who will have the added bonus of understanding the local culture –  at least if the labour market was allowed to work.

A few months ago I wrote here (and here) about how the work visa system appeared to be enabling local authorities to keep down bus driver wages and (thus) fares and ratepayer funding by substituting foreign workers in place of locals.    The bus driver case looked particularly egregious –  it being a quite modestly-skilled role into which someone could be trained in 6-8 weeks.   But it isn’t clear to me that the school teacher case is really so different, even granting that the skill levels are higher, and thus the inevitable local training and recruitment lags would be a bit longer.

Of course, like all work visa applications the case for importing teachers will be supported by evidence that locals couldn’t be recruited. But if you keep the wage level down it isn’t overly surprising that New Zealanders with other options will pursue them, and you will be left with an apparent shortage.

And the market in teachers is a pretty dysfunctional one.  We have national pay scales even though it must be a great deal harder to get teachers in Auckland than in Timaru (and that private sector jobs typically pay a bit more, for the same job, in Auckland than in Timaru), the pay scales for secondary teachers don’t differentiate by subject (even though the alternative options for a good science teacher and a good history teacher may be quite different, and we still have something like pay parity between kindergarten teachers and secondary school teachers.   For that we can blame both the teacher unions and successive governments (National-led and Labour-led).

Nonetheless,  there does seem to be a shortage of (good) teachers, and it isn’t obvious that the government should be able to use the immigration system to avoid meeting the market (while no doubt claiming in other fora that heavy use of work visas in particular sectors doesn’t hold down wages in those sectors).

When writing about bus drivers, I suggested adopting this sort of policy

To that end, I’ve argued previously for a system in which Essential Skills visas are granted on these terms:

a. Capped in length of time (a single maximum term of three years, with at least a year overseas before any return on a subsequent work visa, with this provision to apply regardless of skill level).

b. Subject to a fee, of perhaps $20000 per annum.

If an employer really can’t find a local hire for a modestly-skilled (or unskilled) position, they’d be able to get someone from overseas, but only by paying (to the Crown) a minimum annual fee of $20000.  It is pretty powerful incentive then to train someone local, or increase the salary on offer to attract someone local who can already do the job. If you can’t get a local to do a job for $40000 per annum, there might well be plenty of people to do it for $50000 (and still cheaper than paying the ongoing annual fee for a work visa employee).

Even in the context of teacher salaries –  where starting salaries are well above $40000 –  per annum – this looks like the starting basis for a workable model.

More generally, I have argued that

If we are going to have government officials administering something like a mass market Essential Skills visa scheme, and deciding who does and doesn’t get approval, surely a key aspect of any labour market test should be something along these lines?

“has the effective wage or salary rate for this occupation risen materially faster than wages and salaries more generally in New Zealand over the past couple of years?”

If not, how can you seriously use the term “skill shortage”?    Even if wages in a particular occupation have risen faster than the norm, it takes time for locals to respond and shift occupations, so one wouldn’t necessarily want to jump at the first sign of a bit of real wage inflation in a particular occupation, but if after a couple of years the pressures were persistent then some sort of Approval in Principle for temporary migrant labour –  at wages at or above those now prevailing in the domestic market – might make some sense as a shock absorber.  But MBIE seems perennially averse to markets adjusting in ways the generate higher real wages, even though that outcome is one core part of what we look for from a successful economy.

I’m not a fan of the teachers’ union propaganda arguing that some decades ago senior teachers earned as much as MPs, and that they should be again –  MPs seem to have been quite badly underpaid in that earlier period.  But I’d be surprised if the government could show that teacher salaries (and overall working condition-adjusted remuneration) have increased more rapidly than the market generally in recent years.  If not, surely higher salaries –  perhaps regionally differentiated – should be the first part of any adjustment, and if there is any resort permitted to offshore labour markets it should be explicitly temporary, backed by financial incentives/penalties of the sort I outlined above.

It sticks in the craw to stick up for teachers and their unions, but the market indications would appear to be on their side in this particular dispute.   Of course, the fact that there is a shortage doesn’t –  in an administered market like this –  tell one how much salaries should be adjusted (or the onerous paperwork burden eased), or the appropriate balance (starting salaries vs later progresssion) but the direction looks pretty clear.  And the proposal to resort to substantial offshore recruitment looks as if the government has indirectly conceded the case –  even as, again, it continues to preference the interests of offshore people over those of New Zealand workers.  Teachers might be less sympathetic than bus drivers, rest home workers, or shop assistants, but they are New Zealanders too.  Even, as it happens, substantial funders of the Labour Party.

A generous subsidy championed by the beneficiaries

Reading the Herald over lunch, I chanced upon a story under the headline $50m PhD subsidy pays off.   That is the $50 million per annum subsidy put in place more than a decade ago that allows foreign PhD students to study at domestic fees (apparently a saving for them for more than $30000 per annum each), allows full domestic work rights for them and their partner, and free access for their children to New Zealand public schools.

The story says it is based on a new report from Education New Zealand.  Education New Zealand, of course, is not exactly a disinterested party.  It is the government agency that champions the export education industry.  In their own words

ENZ is New Zealand’s government agency for building international education. We promote New Zealand as a study destination and support the delivery of education services offshore.

But I went looking anyway and found the new report.  They got a research firm to produce it for them, not (as far as I could see) involving any new research themselves.

There didn’t seem to be a great deal in the ENZ report on the PhD subsidy scheme, but there was this

Since the introduction of the PhD policy in 2005, the number of international PhD students has increased, and now makes up 45% of all PhD students. Berquist (2017) finds indicators that suggest this policy has been effective, such as an increase in New Zealand’s research output, with the rate of citation of New Zealand research rising from 0.96% of the world average before the strategy, to 1.26 times the world average for 2010-2014. The academic impact of research from New Zealand is also rising; and at a rate faster than Australia. In addition, all eight New Zealand universities are now in the top 450 of the QS world university rankings, compared to three in 2005.

That sounded quite good –  to be perfectly honest I didn’t have any strong priors on the merits of this programme –  but it did leave me wondering why, if it was such a good deal for the universities, they didn’t just price PhD products this way themselves, rather than turn to the taxpayer for more subsidies?

Here was what the Herald article reported the university lobby as saying

Universities NZ director Chris Whelan said the subsidy gave NZ universities an advantage over their overseas counterparts.

“We don’t know of any other jurisdiction that does it,” he said.

“Lifting rankings has a flow through to our ability to recruit students, and our ability to recruit world-class academics, and our ability to collaborate with researchers overseas.

“It’s this that is really strongly contributing to the rankings of a university like Auckland and feeding that virtuous cycle which works to attract more international students.”

The fact that no one else runs a programme like this should probably be a red flag –  the more so, as it is now 13 years since New Zealand introduced the subsidy.  Call it marketing spending, or whatever other label you like, but if the university lobby is right surely there is no reason for them not to fund it from within their own resources: their own argument is that it generates a virtuous circle for them?

But I was still curious about the evidence in support of the claims.  In that ENZ quote there was after all a reference to “Berquist (2017)”.  So I tracked that paper down.

It turned out not to be journal article or anything of that sort, but a paper that had been given at a conference in Australia a year or two ago.  Which might be fine, except that as I flicked to the end of the paper it showed the author

Brett  Berquist,   Director  International,   The  University  of  Auckland

In fact, his entire career seems to have spent in doing/promoting/facilitating international education.

I’m not here to criticise Mr Berquist. He has a job to do, and a business to promote, and may well do it very effectively.  He just wrote a conference paper; it was ENZ that chose to use it as the evidence for the effectiveness of this (really quite large) subsidy scheme.  All that said, Mr Berquist didn’t exactly bring a detached “academic” tone to his conference paper.

In  our  international  education  industry,  where  many  people  have  chosen  this  line  of  work  from  a   deep  personal  conviction  or  experience,  we  sometimes  seem  to  assume  that  the  general  public   shares  our  logical  views,  even  if  they’ve  not  had  our  personal  experiences  of  what  a  powerful   and  beneficial  force  international  education  can  be.

Subsidised industry =  logical views.  Anyone sceptical, presumably not so much.

I suspect there are plausible arguments to be made on both sides of this particular issue.  It is plausible that by means of this subsidy we end up attracting to stay some highly-skilled and innovative migrants who otherwise wouldn’t have considered New Zealand.  But even if so, we really need a proper cost-benefit analysis, because the upfront cost per person isn’t small and (according to the paper) the typical person finishing their PhD on this programme is already in their 30s.  On the other hand, there is the selection bias problem.  Really able people don’t pay fees to do PhDs at top overseas universities –  in fact, the top universities compete to get these people.  And since New Zealand universities aren’t top tier (even in many individual subjects), and we are offering a cheap programme, with attached work/residence points rights, it might be reasonable to wonder quite what quality the median foreign PhD student we are subsidising is.   I don’t know the answer.  And there might be some foreign students who really prefer Auckland or Victoria to Harvard, Chicago, NYU, Stanford (places young Reserve Bank economists have gone off to do PhDs at) or Oxford or Cambridge.     But, for now, we don’t seem to have the evidence.   It would benefit everyone –  well, perhaps not the universities –  for such in-depth research to be done by independent rsearchers.

I’m also a little puzzled about the reported cost of the programme.  The Herald article says

Numbers have leapt from less than 700 in 2005 to 4475.

The subsidy means doctor of philosophy (PhD) students at the University of Auckland pay only $6970 a year, the same as domestic students, compared with $39,529 for international doctoral students in education, fine arts, music and clinical psychology.

Nationally, the subsidy is budgeted to cost $50m in this financial year.

But if we now have 4475 foreign students doing PhDs, and are subsidising them each $32559 (on these Auckland numbers), that seems to multiply up to about $145 million per annum.  (And some of them would have been here anyway even without the subsidy –  arguably the better ones, for whom it was worth meeting the cost or who could earn the university’s own scholarships?)  And any domestic school fees, for those with kids, is on top of that.

Whatever the answer to that particular issue, for now one would have to say of the subsidy programme “case not proved”,  and take the Herald article with a considerable pinch of salt.  ENZ is probably always just going to produce as much propaganda as it can get away with, but I wonder if The Treasury has attempted a proper evaluation of the programme?


Poor returns to tertiary education

Tertiary education was quite a theme in the recent election campaign. In my household – with three kids likely to go to university in the next decade – promises to reduce the direct costs of tertiary education were tempting.  But resisting temptation remains a virtue.

A few days ago I noticed (thanks to Jim Rose) this chart

lifetime benefit of a degree

It isn’t a new result. These OECD data have shown for some time that the economic returns in New Zealand to getting a degree are pretty low relative to those in other advanced countries.   Such results even prompted Treasury to commission some external research on the gap in private returns.

In the chart – from a few years ago – whoever put it together has highlighted two groups of countries: the Nordic and Benelux countries on the one hand, where there are already lots of skilled people, and high income taxes, and former eastern-bloc countries which are now catching up to the rest of the advanced world, and where skills are in high demand, and able to command high returns. I’m, of course, more interested in the contrast between New Zealand and those central European countries.  As I’ve written recently, 25 years ago both we and they were looking to reverse decades of poor performance and catch-up with the other advanced countries. They’ve made progress in that direction. We haven’t.

Since the net benefits are shown in dollar terms (rather than, say, as a per cent of GDP per capita or of lifetime earnings), it is probably reasonable to expect that poorer countries will be bunched towards the left of the chart. And there one finds Turkey, Greece, New Zealand and Italy. But that clearly isn’t the bulk of the story. After all, even though they are now catching up, all six of the former eastern bloc countries shown still have levels of GDP per hour worked and/or GDP per capita similar to or (generally) below, those of New Zealand.

I had a look at a few background documents from the OECD. If anything, as we shall see, the New Zealand numbers may be even worse than what is shown in this chart.

It is important to recognise the distinction the OECD draws between private and public costs and benefits. Some of these things can be easily measured (eg upfront private fees, or direct public grants to institutions or individuals). Others are more approximate. (The other aspect, which I’m not sure any of these particular indicators attempts to account for is the selection bias, in which the typical person who undertakes tertiary study has other traits – eg intelligence – that mean that they would probably earn more in the labour force than the average person who does not undertake tertiary study.)

This chart is from a few years ago, and tries to break down the costs of tertiary education (in this case for a man). In New Zealand, as in most countries, the largest private cost by a considerable margin, is the foregone earnings of the student themselves.

tertiary costs

These OECD indicators assume that students do not work while studying.  In the latest OECD Education at a Glance they show estimates for 15 countries as to how much difference it would make to include reasonable estimates of actual student earnings. For New Zealand, doing so would lift the estimated returns to tertiary education by around 15 per cent, more than for most of the other countries shown. However, as you can see from the first chart above, a 15 per cent lift in returns to tertiary study in New Zealand would not alter our relative position on the chart.

The other aspect of the calculations which often doesn’t get much attention is the appropriate discount rate to use in making these calculations. It matters a lot – the costs are mostly incurred between, say, ages 18 and 22, and the economic benefits accrue over decades. A decision by an individual is a very long-lasting investment project, with significant irreversibilities (the years spent on education can’t be reclaimed).

The OECD at present adopts a very low discount rate.

The NPV results presented in the tables and figures of this indicator are calculated using a discount rate of 2%, based on the average real interest on government bonds across OECD countries. However, it can be argued that education is not a risk-free investment, and that therefore a higher discount rate should be used.

I’d say there was no ‘it can be argued” about it. No sensible government would do a cost-benefit analysis of building more schools or universities using a discount rate of 2 per cent. The New Zealand Treasury, for example, uses a default discount rate of 6 per cent real. And as an economic proposition, an individual’s tertiary education is a pretty risky proposition, with few effective diversification options for most people.

As it happens, in the latest Education at a Glance the OECD presents a table illustrating, to some extent, what difference it makes to use a higher discount rate.

discount rates.png

Using a discount rate of 5 per cent (real) reduces the estimated benefits by around 60 per cent (relative to the 2 per cent baseline) – and these numbers are for a man, and in most countries the net benefits to tertiary education for a woman are (on average) lower than for a man.

This issue matters particularly for New Zealand which has a higher risk-free interest rate on average than any of the other countries in the table. The gap is large. On Friday, the real interest rate on the New Zealand government’s longest (23 year) inflation-indexed bond was 2.39 per cent, while that for the US government’s 20 year indexed bond was 0.77 per cent (and US yields are far from the lowest in the world). A margin of 1.5 percentage points above “world” rates hasn’t been a bad guide for New Zealand interest rates over recent decades.

Even a 5 per cent real discount rate appears too low to evaluate a personal decision to invest in a tertiary education in New Zealand. But if one takes the results for New Zealand in the table above when evaluated at a 5 per cent discount rate, and then compares them against the results evaluated at 3.5 per cent for other countries (to capture that persistent difference in real interest rates), only Latvia would offer lower returns to tertiary education than New Zealand does.

And bump up the discount rate a little more and the estimated net returns to tertiary study will soon be approaching zero or going negative.  And, remember, those estimates are for a man. The average female returns are even lower.

People will have a range of reactions to these sorts of numbers. Some will take them as supporting proposals to reduce tertiary fees or increase student allowances. Such changes might increase the net private returns to tertiary education, but they won’t (of course) change the all-up net returns (someone still has to pay).  Others seem to see tertiary education as some sort of “merit good” that people should have the opportunity to undertake, at moderate expense, whether there is an economic return – to them, or the public more generally – or not.  And, of course, for some people and some courses, a tertiary education is more akin to consumption than investment (which is not intended as a criticism).

For me, I see them as yet another marker of the failure of the economic strategy pursued by successive governments over recent decades.  Our remoteness means it is very difficult to generate consistently high returns to anything much in New Zealand for very many people. The determination of our governments to quite rapidly increase the population here, despite those apparently limited opportunities, just compounds the problem. It does so directly – the limited natural resources (our one distinctive advantage) are spread over ever more people – and indirectly, through a persistently overvalued real exchange rate and high real interest rates.

Returns to tertiary education in New Zealand are probably quite reasonable for those New Zealanders who get an education here, and then leave (but that is probably a poor investment for the taxpayer). For many of those who stay, it looks like a distinctly marginal proposition. Attempting to bring in lots more skilled people from abroad – most of whom aren’t that skilled anyway – just compounds the economic problem, even if the New Zealand taxpayer doesn’t have to pay anything for their tertiary education. There just aren’t the good economic opportunities here for a rapidly growing population, and increasing subsidies to tertiary education would seem likely to further exaggerate the evident imbalances.

In an economy that was making progress towards reversing decades of relative economic decline, there is good reason to expect that returns to investment in tertiary education (like other prospective investment returns) should be consistently high relative to those in other countries. Sadly, those returns appear to be consistently low in New Zealand – especially when evaluated at an appropriate discount rate. And, of course, we are making no progress at all in closing those productivity gaps.

School choice and the ACT Party

Reading the Herald over lunch, I found an article about potential future heightened pressures on the rolls of Auckland Grammar and Epsom Girls’ Grammar.

But what struck me was the stance of the local MP, and leader of the ACT Party, David Seymour. In addition to these roles, Seymour is also

  • Parliamentary Under-Secretary to the Minister of Education
  • Parliamentary Under-Secretary to the Minister of Regulatory Reform

The ACT website says of ACT’s policy on schools and pre-schools

ACT believes that education at this level is an investment in human capital that the government rightly makes.  However, the delivery of the service has been captured, at the primary, intermediate, and secondary levels at least, by a providing bureaucracy that limits choice and innovation for the purpose of self-preservation.

ACT believes that state education funding should be seen primarily as an asset of the parent and child, to be used at a school, public or private, of their choice.  ACT would diminish the role of the Ministry of Education in allocating resources, separate the property ownership role of the Ministry from the operations role, make Boards of Trustees more autonomous in their  governorship of schools, introduce better mechanisms for State and Integrated schools to expand and contract according to demand, and increase the subsidy to private schools to the extent that it is expenditure neutral.

To be sure, ACT has only a single seat, in effect gifted to it by the National Party, but where is the evidence of this sort of approach in the stance adopted by Mr Seymour?  ACT has pursued the cause of so-called Partnership Schools, but these are not really a vehicle for parental choice, since the only people who can set up these schools are those targeting “underachieving children”.  That is one worthy goal, but it is quite different from a framework that facilitates widespread parental choice on schooling.  Reasonable academic achievement isn’t the only thing parents value.

What does Seymour have to say about the pressures in the Grammar zones?  Is he suggesting abolishing the zones?  Is he suggesting establishing new excellent state schools?  Is he suggesting allowing new integrated schools to be established easily?  Is he suggesting practical ways to treat “state education funding…primarily as an asset of the parent and child”.  The answer, of course, is none of the above.  And it gets worse, as he is reported as toying with an idea that students in new houses would not be included in the zone?  And this from a party allegedly favouring more responsive housing supply.

Seymour’s response seems to be primarily about protecting the choice, and the property values, of one small group of among the highest income New Zealanders, in Mount Eden, Parnell, Newmarket, Remuera, and Epsom.  And it is not as if this stance is new.  As the Herald reports, he has previously come out opposed to intensification in his own area, and opposed efforts of neighbouring schools to extend their zones in ways that overlap with the Grammar zones.  ACT rightly criticises corporate welfare, and has also been fairly critical of the growth of the welfare benefit system, but there is gaping inconsistency right at the heart of their home territory.  It looks a lot like protecting elite privilege.  Many people would like to send their kids to one of the Grammars –  or schools like them.  But a rapidly decreasing number can afford the house prices in those suburbs and the dominant state provider doesn’t build any more.  Why would one take Seymour seriously on any proposed policy when he is not willing for his policies to start at home?

I think he is right about the education bureaucracy, but it isn’t only the provider bureaucracy that seems driven by self-preservation.  The Under-Secretary for Education and MP for Epsom seems to have gone the same way.  ACT is likely to be at its best when it is attacking, not defending, established advantage, and when it is campaigning to democratise access to excellence and strongly advocating competition, even if it means some transitional costs fall on some of their own supporters.  Thank goodness that governments that abolished import licensing – which had provided many very comfortable livings –  did not take the ACT approach.  I’m sure Seymour (and his party colleagues), knows that his position is untenable when put up alongside party policy.  And so I wonder what he really stands for?  Allowing bars to open more easily on the mornings of a few rugby games is all well and good, but beginning to make progress on allowing real school choice for the mass of middle New Zealand is a rather more important, and more enduring, issue for the longer-term.

These issues don’t just arise in Auckland.  In the weird world on education bureaucracy, my son is zoned out of the closest state boys’ school (which we don’t particularly want him to attend) because for decades the Ministry of Education has failed to build even a single state school in what is generally regarded as New Zealand’s largest suburb.

New Zealand already has a limited quasi-voucher system in the integrated schools system.  For some parents, there is an effective choice, between a neighbourhood state school and a (slightly more expensive) integrated school.  But in practice the choice is limited: most of the schools are Catholic, and Catholics are supposed to attend Catholic schools and (reasonably enough) there aren’t many places for those from other traditions.   And rolls are capped.  The integrated schools model was a far-reaching reform of the Third Labour Government in the 1970s, in response to a funding crisis in the Catholic system.  More than 10 per cent of New Zealand children are educated at such schools, and (unlike the so-called Partnership Schools) there seems to be little debate around their performance –  it is just recognised that some parents will prefer one sort of school, and others will prefer different types.  But why not use the integrated schools model as a basis for a real extension of choice?  Allow proprietors –  existing, new, for-profit, and non-profit –  to set up new schools, as they like, and provide per capita funding accordingly if they can attracts parents and students.  For most parents –  especially with more than one child – private schools aren’t a real choice –  the financial burden is just too heavy.    And perhaps there will never be much effective choice in most small towns. But most of our population lives in our larger cities –  half in Auckland, Wellington and Christchurch alone –  and in those places (and no doubt most of our larger provincial centres) effective and genuine affordable choice could be made to work.

Yes, no doubt there would be some duds set up.  There are some disastrous schools now.  No doubt there would be some excess capacity built.   But that is akin to an argument that we’d be better off with one supermarket in a suburb than two, to avoid the wasted extra physical capital, or the old days of licensing when a new entrant might have to prove there was insufficient capacity, rather than simply being allowed to take a risk and open up.

Yes, there are lots of other details to work out  The state has some legitimate interest in ensuring a minimum standard of schools, but it has much less interest in that than parents have. The state, its bureaucrats and ministers, gets to make mistakes over and over again.  But each child only goes through school once: the stakes are that much higher for parents and kids than they are for the education bureaucrats and politicians.

None of that necessarily helps with what should happen in Auckland right now.  Someone is going to miss out, and political choices will (openly or not) decide who.   That is a  problem for Mr Seymour, and perhaps one he should have thought harder about before campaigning for school choice and reduced land use restrictions in suburbs like Epsom.  Real choice rarely comes from the elites –  they aren’t, generally, the ones with most to gain from it.