The Policy Irrelevance of the Economics of Education: Is “Normative as Positive” Just Useless, or is it Worse?

Arguably nothing is more important to long-run improvement in human well being than a high quality basic education for every child and this has been enshrined as a development goal even before there were development goals. Promoting the achievement of this goal around the world requires a serviceable general positive model of education policies—a coherent causal explanation of why governments actually do what they do. “Normative as Positive” (NAP) explains that the policies actually chosen were chosen because they maximize an aggregate social welfare function. Since NAP is false positive model “policy recommendations” based on NAP will be relevant to the actual process of policy making only by coincidence. Moreover, NAP is potentially worse than useless as it may point the research and “policy” work of economists and educationists in precisely the wrong direction—towards nation-states, technocrats and bureaucrats (or “policy makers”) as the locus for educational reform rather than students, parents, communities, and teachers. The difference between thinking small and thinking big is whether which researchers and policy advisers have a correct positive model of the process of the diffusion of knowledge and innovations. This is equally true of more “rigorous” empirical methods like field and randomized experiments—these techniques are intrinsically no more nor less policy relevant than other research methods—they still must be linked with a plausible positive model of policy and policy change if they hope to have influence at scale. BROOKINGS GLOBAL ECONOMY AND DEVELOPMENT CONFERENCE Draft: Comments Welcome 5/27/2008 2 Introduction Economists have an excellent positive model of the individual/household demand for schooling—in part because it is a straightforward extension of their positive model of everything else. Utility maximizing people will invest now by sacrificing time, effort and money on education/schooling/training to gain benefits in the future. Schooling choices are dependent on the usual factors of preferences, endowments, technologies, relative prices, and budget constraints. Economists also have an excellent normative theory of schooling policy which, again, is a straightforward extension of their normative model about the policy everything else. Normative (welfare or public) economics is devoted to the question “what public sector actions would be either (potentially or actually) Pareto improving (by solving a market failure) or, for a given social welfare function, welfare improving (by addressing an equity concern) over the ‘no intervention’ outcome?” But economists have no general positive model of schooling policy. This passage, from the World Bank’s web site on education, is typical of discussions of educational policy: “Governments around the world recognize the importance of education for economic and social development and invest large shares of their budgets to education. The reasons for state intervention in the financing of education can be summarized as: High returns, Equity, Externalities, Information asymmetries, Market failure.” 1 I’d like to thank Luis Crouch, Jeff Hammer, Ricardo Hausmann, Emmanuel Jimenez, and Gunnar Eskeland for helpful pre-draft discussions and Amanda Beatty, Michael Clemens, Susan Dynarski, Bill Easterly, Deon Filmer, Jonah Gelbach, Michael Kremer, David Lindauer, Nolan Miller, Emiliana Vegas and Larry Wimmer for comments on previous versions. BROOKINGS GLOBAL ECONOMY AND DEVELOPMENT CONFERENCE Draft: Comments Welcome 5/27/2008 3 In the absence of a positive model the use of normative as positive (NAP)—assuming actual governments do what they do because of market failure(s) or equity concerns—is an apparently irresistible temptation. When pressed, economists immediately see the obvious mistake of confusing normative rationales for actions of a hypothetical welfare maximizing social planner with positive reasons for actions of a real public sector, but this doesn’t prevent NAP from lurking as the default positive model when economists discuss the “policy relevance” of their work on the economics of education. In this essay I argue three points. First, NAP is not a useful first approximation that has some flaws: it has only failures and no real successes. The standard rationales for public sector interventions provided by normative models do not predict anything about what governments actually do. NAP does not explain why (1) nearly all governments’ support for schooling is “only direct production” as opposed to other instruments (e.g. mandates, subsidies, entitlements, vouchers), (2) why the incidence of schooling is not progressive or the role of displacement effects in public sector supply decisions, (3) the observed productive inefficiency (i) versus private schools, (ii) in the allocation of budget across inputs, or (iii) in the adoption of innovations, (4) the variation across countries in the allocations of public sector support either (i) in total or (ii) across the levels of education (primary versus secondary versus tertiary), (5) the scale of the control of schooling systems. Second, there exist alternative positive models of schooling policy which do a much better job of accounting for observed policies. Pritchett (2003) develops a simple BROOKINGS GLOBAL ECONOMY AND DEVELOPMENT CONFERENCE Draft: Comments Welcome 5/27/2008 4 alternative positive model, which is a formalization of what everyone, except economists, acknowledges are the important reasons for government engagement in schooling. This model has three simple and obvious features of the “real world”: (a) skills and beliefs are jointly produced in formal schooling, (b) the verifiability of the inculcation of beliefs is very costly and hence there is incomplete third party contracting for schooling, and (c) the “state” as an actor has an ideology and hence cares directly about the socialization schooling provides. I argue this model, which I call State Ideology and Incomplete Contracting on Socialization (SI-ICS, sounds like SIX) can easily explain everything NAP cannot. Third, if NAP is false then there is no way to defend positive claims about the policy relevance of research in the economics of education. There are four distinct claims about the body of empirical work in the economics of education: (a) There is a large part of the economics of education that is explicitly about the development of a positive economics of the demand for schooling that has no policy implications even if NAP were true. (b) If NAP is not demonstrated to be true, there is no way to prove the conventional economics of education is not irrelevant to policy as its claims to policy relevance hinges on NAP. (c) If, as I argue, NAP is in fact false, it is likely that nearly all of the conventional economics of education, whose policy relevance, if grounded at all, is premised on the truth of NAP, is policy irrelevant (not just cannot be proved to be relevant). BROOKINGS GLOBAL ECONOMY AND DEVELOPMENT CONFERENCE Draft: Comments Welcome 5/27/2008 5 (d) In alternative positive models of schooling policy economists devoting their time and effort to the conventional economics of education might be worse than useless in that economist’s pursuit of NAP-relevant research actually lowers social welfare by aiding and abetting the adoption of welfare