In Defence of Choice and Competition: Vouchers and Charter Schools

Education reform is typically a controversial and polarizing issue. Student performance is falling below the national average in some provinces such as Newfoundland and Labrador, however, and the rationale for reforming the public education system seems clearer than ever. Yet, revisiting how provincial governments deliver education does not necessarily mean creating more government programs and more bureaucratic red tape. Instead, there are two alternative reform paths that will be the topic of discussion in this article: vouchers and charter schools.

By definition, a school voucher is a funding certificate issued by the government to parents who wish to enroll their child in a private school or, in some jurisdictions, who choose to homeschool their children. The values of these vouchers typically reflect the cost of educating a student at a public school. They reduce barriers that prevent parents from sending their children to privately-owned institutions, which may provide higher-quality education or education programs that are more suitable for their children’s needs. Critics of school vouchers argue that they force public schools to compete with private schools and that the diversion of funds away from the former results in lower-quality education for those who cannot afford a private alternative. Yet, while it is true that implementing a school voucher system would force public schools to compete with private schools, several studies indicate that student performance improved in jurisdictions wherein competition is rife.

Another alternative is that of the charter school system. Charter schools are publicly-funded, privately-operated autonomous schools operated by groups of educators and parents. These schools feature flexible curricula and offer unique educational programs, but they must demonstrate that their programs are different from what other schools offer and they must be held accountable to the provincial government.

Since elected officials in Alberta enacted the School Amendment Act in 1994, charter schools have played an important role in the province’s education system. And, like the implementation of a voucher system, the charter school system has demonstrated the value of competition and choice. One study indicates that charter schools have been better equipped to advance student learning and another study argues that the success of Alberta’s charter school experiment should be the rationale for expanding it.

In reviewing the successes of both the school voucher system and Alberta’s charter school experiment, it becomes increasingly evident that competition-driven reforms that emphasize individual choice deserve the attention of elected officials in Atlantic Canada, particularly in Newfoundland and Labrador. Parents could then decide what school will best meet the needs of their children and public schools would have an incentive to improve student performance outcomes by developing more effective curricula. Indeed, a rising tide lifts all boats.

Devin Drover is an AIMS on Campus Student Fellow who is pursuing an undergraduate degree in economics at Memorial University. The views expressed are the opinion of the author and not necessarily that of the Atlantic Institute for Market Studies

Is Higher Education Really a Bubble?

Canada’s alleged housing bubble has returned to the media spotlight with full force in recent months. Falling oil prices have slowed housing sales, which has led to speculation that a bust is drawing closer. Bank of Canada Governor Stephen Poloz did not help matters in December when he was widely quoted as claiming housing could be overvalued by as much as 30 per cent. Less quoted was his repeated assurance that Canadian real estate does not qualify as a bubble about to pop. The perennial fear of collapsing real estate values, at this point, has become a form of mass hysteria.

I have wondered lately whether higher education fits that mold. Theories of a “higher education bubble” exist, but mainstream economists almost universally scoff at them, which is understandable because calling student debt a “bubble” is highly misleading as anything more than a metaphor. Yet, it is also worth acknowledging that those who deny the possibility the loudest tend to belong to a knowledge-based class predisposed to uphold the value of university education. The question is not whether higher education has value, though. Rather, the question is whether underlying incentives have caused a misallocation of credit to leverage the wrong kinds of education in the wrong quantities.

The first symptom of a bubble to consider is rapidly rising prices. It is well known that tuition costs have grown significantly above the average inflation rate in both Canada and the United States. In the five academic years from 2010/11 to 2014/15, for example, the average tuition rate in Canada climbed from $5,146 to $5,959, which is roughly 3 per cent annually. During the same period, inflation averaged 1.5 per cent, indicating that tuition increased 1.5 per cent in real terms. Whether this trend is “good” or “bad,” it is not accelerating out of control. In comparison, however, real estate values appreciated by 80 per cent or more between 2001 and 2006 in seven American metropolitan areas. Now that is a bubble!

Student debt, too, is less of an issue and recent graduates are faring much better than is widely believed. The widely-reported number is that students graduate with around $25,000 in debt, but this figure is misleading. In 2012, for example, Simon Fraser University conducted a survey that revealed student debt levels to be roughly $24,600, yet, what is often missed is that this average excludes those who graduate debt free. The average drops to $14,500 when debt-free students are included as part of the analysis.

Bubbles are not just fast growing prices or debt loads, however, but prices that are not connected to market fundamentals. In Canada, rising tuition fees clearly reflect three fundamental forces: 1) demand rising faster than supply (the ratio of students to faculty has increased from 17 :1 to 25:1); 2) higher administrative costs; and 3) a shift in the balance of cost-sharing. Government funding, for example, once comprised more than 80 per cent of Canadian university operating revenues in 1990, but is today closer to 57 per cent percent on average.

Perhaps, then, Canada’s postsecondary education is less like the US housing bubble and more like our own “overvalued”–but not out of control–real estate. The analogy matches quite well. Rather than being driven by easy credit and speculation, our real estate boom is mostly confined to regional markets where the supply of housing is constrained and immigration is high. Low interest rates might have caused some overleveraging and modest mismatching, but it has not been enough for a big bust. In the same way, Canada’s model of postsecondary education leads to modest malinvestments in human capital: too many people with arts degrees, too few in vocational programs. These malinvestments almost surely decrease productivity and lead to labour market mismatches, but they do not portend a catastrophic implosion.

One final possibility is that our public model of university funding transfers the risk to taxpayers, which would mean that our student debt, while not at bubble proportions, is also not the full story. A substantial share of public debt must be considered as well. If that is the case, the question is not one of student solvency but provincial solvency. That, however, is a debate for another time.

Samuel Hammond is an AIMS on Campus Student Fellow who is pursuing a graduate degree in economics at Carleton University. The views expressed are the opinion of the author and not necessarily that of the Atlantic Institute for Market Studies

Energy Transportation and Negative Externalities: The Argument for Sound Regulation

On the heels of my analysis of whether Newfoundland and Labrador has become a “petroprovince,” I examine another aspect of the natural resource development: safety and negative externalities, i.e. environmental costs. In particular, this blog post will focus on the rising usage of large oil tankers for transporting Canadian petroleum products overseas.

Because of Canada’s generous resource endowments, it has become one of the largest oil producing countries and exporters in the world. The proposed Keystone XL pipeline appears to be floundering, however, and the shale gas boom in the United States has withered consumer demand in that country for Canadian exports–both of which have encouraged Canadian producers to look for new markets in emerging economies.

Expanding into overseas markets necessarily requires maritime transportation in the form of transoceanic supertankers, and as demand for energy rises in emerging economies, so too will tanker traffic. Citing devastating spills such as Exxon Valdez, however, several individuals and groups have made an effort to ban or heavily restrict such traffic. Yet, there is a serious economic rationale for continuing to develop, and promote, Canada’s energy sector and the more important issue is developing and promoting it responsibly.

Oil spills have astronomical ecological and economic costs and environmentalists who have concerns about them are justified. In a study published recently by the Fraser Institute, however, the authors note that Canadian tanker traffic has increased by leaps and bounds despite accidents declining sharply, which they argue is the result of better safety practices, smarter regulations, and technological innovation. To reinforce the downward trend in accidents, the most effective regulatory regime is one that requires stringent safety protocols such as corrosion-proof lining for supertankers, in addition to rigorous and frequent inspections to ensure that firms meet these requirements, i.e. a first “line of defense.” Furthermore, establishing safe, well-monitored shipping routes would also reduce accident probability.

Incentives matter and, therefore, policymaking must be independent of private sector interests. (Energy companies have a market-based incentive to avoid losses, which encourages them to take precautions, but many firms fail to pay for their negative externalities.) In addition, regulatory agencies can structure their fine schedules to compensate entirely for the externality costs of environmental damage, which would ensure that firms bear all of the potential costs when making decisions about safety. Canada should also maintain a comprehensive and streamlined oil-spill response strategy that would help contain the damage and repair it, i.e. a second “line of defense.” Lastly, Canadian governments could invest in research and development into containment techniques for “dirty” substances such as diluted bitumen. (Note: most of these precautions exist within the Canadian regulatory structure.)

Some stringent opponents of natural resource development, however, posit that spills are never worth the risk. The nightmarish consequences of many infamous spills haunt the collective memories of coastal communities and environmentalists tend to assume the potential costs to the local economy will outweigh the potential economic benefits. Diluted bitumen, for example, has unknown effects in maritime environments and could prove to be very damaging if it spilled in a maritime setting. Ultimately, those who seriously oppose natural resource development and energy transportation argue that disasters are statistically inevitable and, therefore, not worth risking Canada’s fragile ecosystem and tourist “brand” of having a pristine coastline.

There are several problems with the above link of thinking, however, the most glaring of which is the “inevitability” argument. Indeed, oil spills are inevitable, but so too are all accidents. All economic activities carry some risk, whether they are human, environmental, or financial. Air accidents, for example, have steadily decreased in the last few decades, and although additional accidents are inevitable, it would be unwise to ban air travel. In essence, opponents of natural resource development would like a moratorium on tanker traffic. This approach, however, would stymie efforts within the energy sector to develop safer transportation mechanisms and it could encourage alternative forms of transport that are more dangerous such as rail. Most importantly, it would cripple Canada’s economic prospects and damage our living standards. These caveats show precisely why the apparently calm, well-reasoned rhetoric of the anti-tanker movement is simply a knee-jerk reaction that ignores many constructive solutions to a complex challenge.

Leo Plumer is an AIMS on Campus Student Fellow who is pursuing an undergraduate degree in economics and political science at McGill University. The views expressed are the opinion of the author and not necessarily that of the Atlantic Institute for Market Studies