Democracy to the Rescue? Preserving Public Spending on Education as Private Education Expands Its Reach

As demand for quality education in many developing countries increases, and state capacity to provide this falls short, private education is growing in popularity.

Significant attention has, in the past, been paid to the direct impacts of private schools on student outcomes (see, for example, this comprehensive review, commissioned by the UK’s Department for International Development in 2014 and follow-up analysis by CGD researchers). There is also some effort to understand the spillover effects on the performance of public school students For instance, a seminal study by Muralidharan and Sundararaman on a private school voucher programme in Andhra Pradesh in India shows that there is no evidence of spillovers.

What seems to be less understood, at least in the context of developing countries that have seen significant expansion in private provision of basic education, is the effect this can have on the financing of public education.

One place to start such an inquiry is to examine the relationship between the number of students enrolled in private schools and the share of government spending on education per public school student. The theoretical expectation is that an increase in enrollment in private schools would mean more resources for remaining public school students on the one hand and potentially reduced revenues for public schools or local governments on the other hand. Available resources could also be diverted away from public schools depending on the political process behind the allocation decisions. But this is not always the case. There may instead be a maintained focus on, or even increased education spending—where, for instance, this is a key issue for pivotal voters. Here, I explore the factors that might shape this relationship.

Participatory democracy may help to keep the money in public education

I have examined the relationship between how broad-based the political process of a country is (which often influences public spending decisions) and the funding of public education, even as privatization increases.

Figure 1 shows the correlation between the share of private primary school enrollment and government spending per remaining public school student. The data covers the period from 2000 to 2018, across a set of developing countries. .

A comparison between the two panels in Figure 1 demonstrates that privatization is positively correlated with higher spending in the public system in countries with above median rating for participatory democracy. In contrast, the correlation is not significant in countries with less democratic processes.

This implies that democracy plays a role in maintaining or increasing the level of spending in public education, even as the popularity of private schools increases. The absence of participatory democracy, on the other hand, could mean that the consequences of privatization are less predictable. This is partly due to the vested interest of elites in re-prioritizing spending away from public education.

Figure 1. Public spending on primary education, private provision, and participatory democracy

The experiences of Brazil and Rwanda, two countries on either side of the democracy spectrum, may help to illustrate the relationship between privatization and public spending under different political environments. In Brazil, a steady increase in the share of private school enrollment over the past two decades has been accompanied by an even steeper rise in per capita public spending on primary education. This is likely to have come as a result of a combination of constitutional stipulations guaranteeing minimum per capita spending on primary education and a democratic process that brought a progressive political party to power. In contrast, in Rwanda, the rise in private school enrollment coincided with a sharp decline in per capita public spending. It is possible that the lack of democratic participation may have contributed to the prevalence of a regressive funding model in which “schools with pupils with more need are actually worse funded than schools with pupils with less need.”

Figure 2. A tale of two polities—the dynamics of public spending and private enrollment in Brazil and Rwanda

More equal societies are likely to maintain investment in public education in response to privatization

Income inequality also seems to impact spending on public education when privatization increases. In countries with low levels of inequality, expansion of private primary schools correlates with higher (per capita) spending on remaining public sector students. This relationship is far less clear-cut in the case of countries with higher levels of inequality.

This can be seen in the contrast between the two panels in Figure 3 which represent countries with above and below median levels of income inequality (as measured by Gini coefficient). These results are in line with research by de la Croix and Doepke (2009) , which showed that high levels of inequality contribute to a segregated education system.

Figure 3. Public spending on primary education, private provision and income inequality

Admittedly, increasing public spending does not necessarily translate to better educational outcomes. As a matter of fact, there is evidence from Taiwan showing that public schools can be prone to cost stickiness which might lead to spending increases regardless of outcomes or even enrollment. Muralidharan and Sundararaman (2015) also show that private schools in Andhra Pradesh are more cost efficient than public schools. However, increasing or maintaining the level of public spending in response to privatization can have significant efficiency and equity implications, particularly in countries that are already at the lower end of the spending scale.

It should be noted that the broad-brush analysis presented above is only indicative of the potential causal relationship between privatization and public spending in basic education. The correlation could also be masking other forms of heterogeneity that might be important in understanding the link between the political process and spending on public education in a context of growing private school coverage. For example, he following hypotheses are worth testing empirically to gain a more complete picture of the relationship:

1. In democracies where the rate of political participation is skewed in favor of well-educated and upper middleclass households who tend to opt-out of the public school system, per capita spending on public education can decline following an increase in private provision.

2. In decentralized settings where education budget allocation decisions are made at the local level, lower-income families residing in communities where private schools are dominant can be disadvantaged because they lack access to either affordable private education or well-funded public schools.

But the broad relationship between privatization and government spending on basic education suggests that higher levels of political participation and lower levels of inequality might protect the interests of those who remain in the public education system in the face of expanding private provision. This means policy makers in less democratic and more unequal countries may need to pay extra attention to maintaining spending in the public education system in the context of increased privatization.