Competition from private schools boosts performance system-wide

Ludger Woessmann, Martin West, 2 December 2010

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The appropriate role for the private sector in the provision of schooling is one of the most hotly contested issues among education policymakers worldwide. Proposals for vouchers, tuition tax credits, and other mechanisms to expand access to private schooling are often justified on the grounds that enhanced competition from private schools will strengthen incentives for innovation and cost containment within the public sector, lifting student achievement system-wide (Friedman 1962, Neal 2002). Critics of such policies, however, note that the educational benefits of competition are unproven and argue that a greater reliance on private schooling will increase the stratification of students along lines of ability, ethnicity, or class (Brighouse 2000, Ladd 2002).

Although there is considerable international variation in the share of students attending private schools, existing evidence on the effects of private competition on student achievement across countries is limited – for obvious reasons. Countries where more people choose to invest in private schools may have other attributes, such as higher income levels or a greater commitment to education, that lead to better achievement. If this is the case, any positive correlation between private schooling and student achievement could reflect a country’s income or educational commitment rather than any beneficial effects of competition. Or it may be the case that low-quality public schools increase the demand for private schooling. If so, then it could seem that competition lowered public school quality when in fact the causal connection could be in the opposite direction.

Historical Catholic opposition to state schooling as a “natural experiment”

Our recent work (West and Woessmann 2010) addresses this challenge by taking advantage of the historical fact that the size of the private education sector varies from one country to another for reasons that have little to do with national income, commitment to education, or contemporary school quality. In particular, the extent of private schooling stems largely from the Catholic Church’s decision in the 19th century to build an alternative system of education wherever they were unable to control schools operated by the state.

Over the course of the 19th century, Vatican authorities expressed growing concern over the implications of emerging state systems of mass education for the moral and religious training of Catholics. For example, among the propositions included in the Syllabus Errorum, the list of commonly held beliefs condemned by Pope Pius IX in 1864, was the notion that “Catholics may approve of the system of educating youth unconnected with Catholic faith and the power of the Church.” Related claims also denounced in the Syllabus include those that “The entire government of public schools … may and ought to pertain to the civil power” and that “popular schools open to children of every class of the people … should be freed from all ecclesiastical authority, control and interference.”

The distinctive Catholic doctrine emphasising the obligation of local parishes and parents to ensure that every Catholic child received a Catholic education spurred efforts to establish and maintain private schools in many Western countries and, in some contexts, to adopt policies benefiting private schools more generally. Predictably, these efforts were most successful in countries where Catholics represented at least a substantial minority of the nation’s population. Countries where Catholicism was the official state religion throughout this period are an obvious but important exception to this pattern, as Catholics in these nations did not need to create private schools in order to comply with their religion’s dictates. Our research exploits this historical natural experiment by using the size of the Catholic population in each country in 1900 (interacted with an indicator for whether the country’s government was officially non-Catholic) as an instrument for the share of its students currently enrolled in private schools.

The effect of private competition on student achievement across countries

We implemented this strategy using student-level data from 29 member countries of the OECD that participated in the 2003 study of student achievement. (Note that performance on such international achievement tests is a leading predictor of a country’s long-run economic growth (Hanushek and Woessmann 2008), underlining the relevance of performance on the tested skills.) The study sampled 15-year-old students in each country, regardless of the grade they currently attended. Thus, in most participating countries, the target population consists of individuals nearing the last stages of compulsory schooling. The 2003 database also enables us to control for an unusually rich set of student and school background factors when making comparisons across countries.

Our analysis of the data confirms that the size of the private education sector – and thus the amount of competition between public and private schools – is related to the size of the Catholic population in 1900. More specifically, a 10-percentage-point increase in the percentage of Catholics in 1900 is associated with a 4.7-percentage-point increase in the share of students enrolled in privately operated schools in 2003 (see Figure 1).

Figure 1. Historical Catholic shares and contemporary private schooling across countries

Notes: Added-variable plot of a regression of the share of 2003 students enrolled in privately operated schools on Catholic population share in 1900 (interacted with an indicator whether Catholicism was the state religion) and additional student- and country-level control variables. Based on a student-level regression aggregated to the country level. Source: West and Woessmann (2010).

Our results indicate that the share of schools that are privately operated has an economically and statistically significant positive effect on student achievement in mathematics, science, and reading, even after controlling for the current levels of Catholics and for the share of funding that privately operated schools receive from the government. Larger historical Catholic shares that translate into a ten percentage point larger private school sector today increase average student achievement on the math test by 9% of an international standard deviation (see Figure 2). Science and reading achievement increase by roughly 5% of a standard deviation. These patterns are evident despite the fact that the contemporary share of Catholics in each country is negatively related to student achievement, suggesting that distinctive cultural features of traditionally Catholic countries are unlikely to be driving these results.

Figure 2. Private schooling and student achievement across countries

Notes: Added-variable plot of IV regression of math achievement on share of students enrolled in privately operated schools (instrumented by Catholic share in 1900 interacted with an indicator whether Catholicism was the state religion) and additional student- and country-level control variables. Based on a student-level regression aggregated to the country level. Source: Own depiction based on the analysis in West and Woessmann (2010).

Importantly, much of the positive effect of private school shares accrues to students in public schools, suggesting that the overall effect is not simply due to privately operated schools being more effective, but rather it reflects benefits of competition. Indeed, a key advantage of international evidence is that it makes it possible to examine such general-equilibrium effects of private competition, which will not necessarily arise in situations when new programmes introduce additional school choice only on a small scale.

Finally, we also find that private competition reduces educational expenditure per student in the system, so that better educational outcomes are obtained at lower cost. Changes in historical shares of Catholics that are associated with a 10-percentage-point increase in the private school share today lead to a $3,209 reduction in cumulative spending per student, or 5.6% of the average OECD spending level of $56,947. Under competitive pressures from private schools, the productivity of the school system measured as the ratio between output and input increases by even more than is suggested by looking at educational outcomes alone.

Interestingly, descriptive evidence also suggests that a larger share of privately operated schools is also associated with a strong reduction in the dependence of student achievement on socioeconomic status – as long as all schools are publicly financed (Woessmann et al. 2009). In other words, the additional choice created by public funding for privately operated schools seems to particularly benefit disadvantaged students and thus boost equity in the school system.

Summing up

In short, international evidence strengthens the case that competition from private schools improves student achievement – and that it does so for public-school as well as private-school students. More generally, our analysis illustrates how historical “coincidences” – in this case that Catholic resistance to state education in the 19th century induced persistent differences in the shares of privately operated schools – can have quite unexpected long-term consequences. Ironically, although Catholics historically placed less emphasis on education than some other faiths (Becker and Woessmann 2009, Botticini and Eckstein 2007), their opposition to state education in many countries helped create institutional configurations that continue to spur student achievement in the present day.

References

Becker, Sascha O, Ludger Woessmann (2009), “Was Weber Wrong? A Human Capital Theory of Protestant Economic History”, Quarterly Journal of Economics, 124(2):531-596.

Botticini, Maristella, Zvi Eckstein (2007), “From Farmers to Merchants, Conversions and Diaspora: Human Capital and Jewish History”, Journal of the European Economic Association, 5(5):885-926.

Brighouse, Harry (2000), School Choice and Social Justice, Oxford University Press.

Friedman, Milton (1962), Capitalism and Freedom, University of Chicago Press.

Hanushek, Eric A, Ludger Woessmann (2008), "The Role of Cognitive Skills in Economic Development", Journal of Economic Literature, 46(3):607-668.

Ladd, Helen (2002), “School Vouchers: A Critical View”, Journal of Economic Perspectives, 16(4):3-24.

Neal, Derek (2002), “How School Vouchers Could Change the Market for Education”, Journal of Economic Perspectives, 16(4):25-44.

West, MR and L Woessmann (2010), “‘Every Catholic in a Catholic School’: Historical Resistance to State Schooling, Contemporary School Competition, and Student Achievement Across Countries”, The Economic Journal, 120,546: F229-F255.

Woessmann, Ludger, Elke Luedemann, Gabriela Schuetz, and Martin R West (2009), School Accountability, Autonomy, and Choice around the World. Cheltenham: Edward Elgar.

Topics: Education
Tags: competition, private schools, privatisation

Martin West
Assistant Professor of Education, Graduate School of Education, and Deputy Director, Program on Education Policy and Governance, Kennedy School of Government, Harvard University
Ludger Woessmann
Professor of Economics, University of Munich; Head, Human Capital and Innovation Department, Ifo Institute for Economic Research