Economics Explains Why School Fees Rise

Sad to see the passing of an eminent economist, William Baumol, but fascinating to get insights from his work that explains many of the most prominent issues in the news these days, as well as a very clear explanation for parents whose children attend private schools to understand why their fees go up.

‘Baumol’s Cost Disease’ explains why countries like UK and USA are struggling and battling to meet the medical health care needs of their aging populations in the face of the double impact of increased demand and rising costs. You can’t really automate the work of doctors and nurses. It’s highly labour intensive. There are finite limits to how many patients a doctor can see in a day (and still ensure that they give a safe, effective service).

Vox – Baumol Cost Disease Explained

manufacturing gains in productivity, with the result that salaries are pushed up, whilst prices of finished goods can still come down. However, in any field that is labour intensive, those higher wages have to lead to higher prices and service delivery costs.

In education, we see that in the private and international schools, teacher – student ratios of between 6 and 12 are the norm and this represents a very labour intensive model. Salaries form a very significant part of the running costs and thus fee levels are very sensitive to salary levels.

There is an important factor that those of us in education leadership need to take in to account.Being aware of these pressures for ‘price’/ fees to rise over time we must ensure that we are not wasteful or extravagant in the way that we run schools and manage their finances. Prudent cost consciousness is critical to ensure that there’s money available to spend on the right things, that teacher numbers and standards are not compromised, but that costs are kept sensibly under control. When we let costs get out of control or inflate fees for ‘profit’ excessively we do untold harm to the schools. Not least, as the fees rise too rapidly, the education available from the school gets priced out of reach for too many in the community. A school then finishes up with a very homogenized parent and student body. Without diversity, students miss out on a great opportunity in their education.

In addition, however long we may be in charge of a school, we are mere custodians for a limited time in a much longer history, with duties to all pupils past and future, as well as to those studying in the school presently. Over the very long term, schools need to replace all their infrastructure – even buildings and so some funds must be built up slowly over the longer term to meet such needs effectively.

I do believe, like Clayton Christensen (Disrupting Class), that there is the potential for IT enabled disruption to change some of the paradigms in education that rely on the principle of ‘learning is being taught’. When greater power, control and responsibility for learning passes in to the hands of learners, so this changes the dynamics of teacher requirements, concepts of class cohorts and the ability of one teacher to support a limited number of pupils’ learning at a time. However, there’s a long road ahead for those kinds of changes.

Sure, we’d all (especially parents) wish that Baumol’s Cost Disease wasn’t at work in education. Failing that, it gets tempting for people to believe that ‘someone’ – government, philanthropists or just anyone should be subsidising all this extra cost so as to limit the rise in education costs. When this doesn’t happen, especially when parents don’t know about economics – we the educators will be to blame!

Such is life.


Who Should Set School Fees?

Maharashtra is the latest state to attempt to pass legislation that gives the State Government the power to set the fees of private unaided schools. In the past, many states decreed limits on the rate at which fees could be increased annually (Delhi – 10%), and/ or insisted that schools had to give details and explanation of their fees to the State Government. All this in addition to the fact that a school’s annual fee increase must have been approved by the Managing Committee, which includes parent representatives.

Is there any other area of private enterprise where citizens invest their own money, subjected to these kinds of draconian levels of interference? Can anyone really show any likely tangible benefits or gains in the quality of education/ availability and accessibility of high quality education in the country?

I meet plenty of returning NRI’s who vouch that in other countries if they sought a similar quality and standard of education for their child in the private sector, they would have needed to pay fees many multiples higher than what they are asked to pay in India. If you went to educators elsewhere and told them that the education we provide is available for well under US$200 per month, they would be amazed.

If, tomorrow, the government announced that they would decide what car manufacturers were allowed to charge for their cars, how long would it be before the public started to genuinely fear that the ‘price’ to be paid for these ‘cheap’ cars (loss of choice, variety, safety features, benefits and features beyond the basic shell, 4 wheels and an engine) was a price not worth paying?

Times of India – Pune Article

There is a vital debate that is needed, in which every person who cares about the future of Indian school education needs to raise their voice. What do we want, and how will we best arrive at it?

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