Thursday, February 6, 2014

Education Evolves.

The purpose of education is much more than acquiring job skills and earning money. Centuries ago Aristotle with his selective choice of words and quotes that spanned generations made it clear that education is the way to eliminate poverty and empower man for the well-being of the society.  Today repeated research echoes the same thoughts.

The recent January 2013 OECD report (click the link for details on report) brings out some interesting findings. The accuracy of these findings can be argued but I think the core of their findings is something we knew all along.  
  • -       Education increases the life span.  
  • -       The educated citizen will participate in more civic activities.
  • -       There is an increased level of happiness amongst the educated vs. the non-or lesser educated.

The above seems pretty obvious. Right?  Better education translates to improved resources and greater access to good health care and thus the increased life span. Better health with improved resources translates to increased happiness too. A higher education allows us to become more aware of our surroundings and its needs and as a result we try and give back more to the society we live in. 

Clearly the status of education or the education policies of a country influences more than just the students, teachers and parents.  So why has this industry been in hibernation? Why is it that teachers in the United States lack the respect and salaries of their counterparts in European countries? Why is it that US has consistently fallen the rank of PISA ratings and yet its neighbor Canada ranks in the top 10? 

Last week, I shared a subjective perspective on education, this week, it’s an objective perspective of Education: The Industry.

There is more to education than just teachers, schools and colleges.  It is an industry surrounded by many mushroom industries that keep the wheel of education moving forward or at the least balanced.

Investopedia ( a common man’s guide to the basics of finance defines market as “a medium that allows buyers and sellers of a specific good or service to interact in order to facilitate an exchange.” The price paid is predominantly decided by the supply and demand of the good being sold. In the context of education, the primary consumers (buyers) are the students and or parents.  Further, since education influences the whole community and in large the society as a whole, one could argue that the society is the consumer.  Sellers are the institutions. Either public or private institutions supply education. The government and or non-profit institutions sponsor public education, whereas schools and or individuals who charge a mandated fee for their services supply private education.   

The key element for the existence of a market is not the supplier or the buyer; it is the presence of a good that is “in need” and “in demand.” The good here is “education.” What kind of good is education? Is it the kind that should be easily available to all irrespective of their income strata OR is it the kind that should be available to only few who are willing to pay the price?  If you said, both, then you are correct, it is a mixed good. The failing public schools have created a market for private education, thus creating a need and demand where in parents (the consumers) are willing to pay the price in hope for a better future for their kids. From a finance perspective, they are making an investment into their kids’ future by diverting their limited resources (salary) into their child’s education.

There are proponents for all three situations making education either a public, private or mixed good.  For the purpose of this blog, we will consider education to be a mixed good since education provides individual and community benefits.

If it were simply a private or public good, life would be simple. But then it wouldn’t be interesting enough to write a blog post. 

Education being a mixed good calls for many different decision makers thus complicating things.

Dynamics of the Market of Education:

The very definition of market calls for competition. Here the competition is not only between private and public schools within a city, but the competition extends externally and is both inter and intra school districts. The rules governing them are similar with minor variations coming from state and local laws. 

Economists classify market structure into four broad categories (1) Perfect competition, (2) Monopolistic Competition, (3) Oligopoly and (4) Monopoly.

Very briefly, in a perfect competition there are very large number of buyers and sellers with no barriers to entry and no product differentiation. Monopolistic competition is similar with some (minimal) product differentiation. Oligopoly and Monopoly both have high barriers to entry, with the difference being; the number of sellers. In a monopoly, like the name suggests, there is one seller whereas in an oligopoly there are a few sellers who have a similar product with a key differentiating factor and while they are individual companies, it is in their mutual interest to work together.  The best example is the airline industry. 

The blog identifies education as an Oligopoly.  The sellers (both private and public) provide good education differentiating themselves either with the curriculum taught, the method of instruction, the extra activities offered and or the philosophy of education.  Competition in the market allows the private schools to sell their services for a price with no player trying to price below market as that results in lower price points for all.  Public schools don't have to fight to attract consumers. Differentiation there comes from a better academic environment, good neighborhood and the prospect of being in a high achieving neighborhood wherein the residents share similar values. This translates to increased property prices for school districts that have a high academic performance. An testament to the mixed good status of education. 

Purely to understand this further, let us assume for a minute that education is purely a public good, in that case the seller would be the government and the market structure becomes a monopoly. Thus eliminating the need for competition as parents would then not be shopping for individual benefits. 

Coming back to the oligopolistic market structure of education, this market structure is going through a paradigm shift and moving towards a monopolistic competition.  How?  By the use of technology.

Technology disrupts; but not in isolation. Technology by itself cannot change a market. It is the application and the use of technology that may or may not disrupt a market.  Unfortunately, technology has always been an option in the field of education, never the mandate. This is the aspect that is changing and demanding an overhaul of the education policies. S.T.E.M subjects are once again coming back into the forefront. Interestingly the demand though is coming from the industries and not the education institutions. The development of the common core standards was also in reverse. The college readiness standards were worked backwards to arrive at what the teaching standard should be for K-12 students 

The first major disruption in K-12 education came when Khan Academy introduced the idea of free high quality education. It provoked public schools to think outside the box, and many teachers tried the model of learning at home and doing the homework in class. The experiment has been a huge success with the academy reaching greater heights both as an institution and its reach to the global student population.  Once the disruption happened, many other instituions came in, with University of Phoenix being amongst the first few for college level education and now companies such as Coursera and Udemy are creating a disruption again, by offerening courses to anyone, irrespective of age. For instance, a 6th grader interested in learning HTML can now take an online course from these private entities to supplement the missing elements in a traditional school environment.  These companies are providing a platform for both the educator and the student to come together in a virtual world and exchange the good of education for significantly lower prices than a traditional brick and mortal model. 

Virtual academies both at the K-12 and college level are gaining popularity as they allow the flexibility of pursuing passions and learning at a price point that is below the market price, thus changing the market structure.   Last week we saw how the corporate world is defining the missing elements in the traditional school curriculum.  Technology and virtual learning is eliminating the gap.

Tutions, a industry that mushroomed to answer the call of failing education system is also becoming obsolete once again thanks to the presence of self learning virtual options. 

You are probably wondering where do the teachers fit into this equation. The teachers are the doers. One could argue that in a sense they are the "good." Since the quality of education imparted can only be as good as the teacher teaching it, that's a fair argument. What do you think? 

Irrespective of the type of institution, a teacher is needed to close the loop.  

There was a time in America, when innovation, creativity and thinking out of the box was the heart of education. Teachers were respected and given the freedom to teach.   As the world got smaller this gap got smaller too, and the countries that adapted to the change took lead. Today Finland is given as a leading example of an excellent education system. The philosophy in Finland is simple, education does not allow poverty. Education is a priority for the nation there. It is not limited or restricted to any social strata. Teaching is a highly paid profession so many choose it. It is time for the United States to wake up from its slumber and recognize education as the priority. 

It is time to free education of the bureaucracies that are embedded in  the system. There are bureaucracies within bureaucracies.  The school district is a bureaucracy of its own, which then reports to state and federal bureaucracies.  Within the schools there are informal bureaucracies in the form of PTA’s. Bureaucracies are a necessary evil, however for the innovation to comeback in the American education system, it is imperative to align these bureaucracies to a common goal, the goal of providing the learning to every student in the country. 

There are many other aspects to the overhaul of the education system. Examples would be testing procedures, testing standards, tests themselves, the school infrastructures and most importantly our perception of teaching as a profession. It all needs to work hand in hand. Working on one aspect and ignoring the others will result in failure again, for two wrongs do not make a right.  

As an individual we cannot fight alone to change the system, and besides in these crazy times, wherein we barely have time for our families, how many of us are willing to devote our energy to changing the world.  So lets go back to the ancient adage "charity begins at home," and start with our own communities. 

Next time you go to your childs' school, remember to pause and say hello to the teachers. Be a partner in the education of your child and not the questioner.  We all work better when we are appreciated so why should the teaching profession be any different?  

In my humble opinion, the easiest way to bring change in the education system, is by giving the respect and freedom to teach back to the teachers.  

Virtual or brick and mortar teaching model, for learning to happen, at the minimum, you need one student who is willing to learn, and one teacher who wants to teach. 

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