Peace will come to earth when the people
have more to do with each other
and governments less.

NB: this post is by Tim Hewish, my Parliamentary Researcher, and the views expressed are his own.

I recently attended the E. G. West Memorial Lecture delivered by Professor James Tooley and sponsored by the IEA on the topic of for-profit schooling.

He noted that the word profit is highly politicised and many would not wish to even countenance the notion that profit-making should be implemented in schools.  Professor Tooley prefers the term freedom in education because when we discuss freedom of association we do not object to people making a profit when they meet freely in social co-operation. Therefore, why not in education?

Universal access is a strong label to argue against; however, he objects to the term compulsory education as you cannot compel someone to learn, you merely give them the opportunity. If you look at the number of truancies in the UK this bears out.

Tooley, first through historiography then secondly through present day international examples explains how for-profit education has been successful for the UK and the third world’s poor.

He shows that in 1861 only 4.5% of school children were not in school and the Education Act 1870 was brought in to address this deficit. However, the more the State moved into education it reduced the number of thriving private schools. Parents paid about 7 or 8 pence per week which was possible to pay for but when greater taxation came in and schools were offered cheaper options some even for free, this undercut the existing self-sustaining schools.

Internationally, his work in Africa, India and China shows how for-profit schooling is thriving in these regions. In Nigeria 41% of schools are recognised private, 33% unrecognised and only 26% Government funded. While in Delhi, private schools for the poor are outperforming state run institutions. More evidence can be found by reading his work the Beautiful Tree.

Putting examples to one side, the enduring Left/Right divide is about process. We both want the same basic ends: freedom and prosperity which is both fair and universal, but those on the Right focus less on motives and more in outcomes, the Left visa versa.

For conservatives, the profit motive is reconciled under the aim of results. These for-profit schools are benefitting the world’s poorest without State intervention. It is giving them a better chance in life. The Left will always struggle with this.

In addition, the Left are making the assumption that the State is without motive. Many politicians are driven by the vote motive, likewise civil servants the power motive. They are not devoid of pressure which is not altogether altruistic. We are not angels.

Currently in state education, the allocation of resources are not left to the market place of ideas which are then tested against others. They are left to politicians and civil servants. You could even argue that for-profit schools have more incentives to succeed because the failure would mean closure harming all concerned, whereas state funded schools can continue unharmed, propped up by tax payer money.

The arguments that for-profit schools would leave some pupils at the bottom as they are not ‘profitable’ are disingenuous because after over a 100 years of state schooling and each child receiving  12 years of compulsory education 22% of pupils leave innumerate and 17% illiterate. The Evening Standard’s campaign to highlight the literacy crisis in London supports this position.

Also pupils are left behind under the current state system. Sink schools leave economically poor but bright pupils in a system of mediocrity.

Furthermore, schools today are often oversubscribed and are simply not being built. As the report from the Adam Smith Institute shows: 15.4% of parents nationally did not secure a place at their first choice preference in 2011 and one in ten pupils are now educated in schools that have exceeded their capacity with pupil numbers projected to raise by 8% by 2014-14.

Put simply: There is a frustrated demand and an inadequate supply in the schools market. To be denied the freedom to set up a school for-profit is damaging to the success of pupils from all backgrounds.

Therefore, to allow Free Schools to be run for-profit isn’t something that should be taken off the policy table. In Sweden, 63% of their free schools are run by joint-stock companies and new applications come almost entirely from for-profit organisations.

I can sense it is one half of the Coalition dragging their ideological heels as the for-profit label is too much to stomach. Yet they should look deep into their foundations as a party of Freedom and listen to their founding father:

I confess I think these Resolutions are conceived in a spirit adverse to that national character. They have a tendency in utter contrariety to it. They tend to encourage a dependence which is alien and foreign to the minds of Englishmen—to substitute that which is mechanical, technical, and formal for that which is free, open, elastic, and expansive

…

The element of the freedom in which we move and breathe and have our being is essential to the development of the English character, and, if you take it away, you pine and starve that character, and any substitute you can give in the form of Education Returns is utterly worse than worthless.

In November 2008, the Institute of Economic Affairs published Nick Silver’s A Bankruptcy Foretold: The UK’s Implicit Pension Debt (PDF), which argued that if the UK’s debt is calculated in line with generally-accepted accounting principles, it is something over £4 trillion.

In June this year, an update was published, putting the full scale of the British state’s liabilities at £4.8 trillion, which is around 333% of GDP or £78,000 per person. For comparison, the Budget Red Book (page 2) forecasts a peak net public debt of 70.3% of GDP in 2013-14, falling to 67.4% in 2015-16.

All this could have profound implications.

Martin Durkin’s controversial documentary Britain’s Trillion Pound Horror Story, transmitted on 11 November, took up the theme, arguing that we need to rethink radically the role of the state if we are to deal with the full scale of the debt, including all our liabilities…

As Chairman of the APPG on Economics, Money and Banking, I hosted a panel discussion on the documentary featuring film maker Martin Durkin, the Adam Smith Institute’s Dr Eamonn Butler, IEA Director General Mark Littlewood and CityAM’s Editor Allister Heath.

The discussion was dramatic:

• Martin insisted only lower taxes would get us out of our present hole.
• Allister described the growth of the state, the flaws in monetary policy and the regulatory regime which caused the crisis, calling for lower public spending.
• Mark said we should be “hysterical” and “apoplectic” about the state’s true liabilities before making some spectacular remarks about our democracy and the election (see from min 13 in the video below).
• Eamonn felt things were even worse and was not sure our grandchildren would wish to pay the benefits we are awarding ourselves.

Here’s a video of the introductory remarks and the responses to the first question. Martin gets the last word on the likely public reaction to doing the right thing:

Panel discussion on Britain’s Trillion Pound Horror Story held in Parliament from Steve Baker on Vimeo.

The original documentary may be found here.

Click for debt projections from the BIS

Via Government urged to reveal ‘true’ national debt of £4.8 trillion – Telegraph:

The Institute of Economic Affairs (IEA) has calculated that the national debt is £4.8 trillion once state and public sector pension liabilities are included, or £78,000 for every person in the UK.

The IEA raised its concerns after the latest public finances data from the Office for National Statistics (ONS) this week, which showed that the total debt, excluding bank bail-outs, is £816bn – itself a record high. However, the figures strip out the state’s pension liabilities in a contravention of standard accounting practices.

I made this the central theme of my speech on the Finance Bill on 22 Jun. I referred to the IEA’s work before looking at sovereign debt projections from the Bank for International Settlements. I said:

The Bank for International Settlements published a paper – working paper 300, which I recommend to hon. Members – that considers the future of public debts, the prospects and implications. In my hand, I have a set of graphs that show the public debt for western European nations, plus Japan and the United States, disappearing exponentially. Hundreds of per cent. of GDP are owed by the nations of the western world, including Europe and Japan. The situation is dire. By 2040, our largely age-related debt is projected to be five times GDP. By 2040, our interest payments would be more than a quarter of GDP. I do not know about the rest of the House, but I do not believe that we will ever get there. Long before interest payments reach 25% of GDP, we will have a social catastrophe. We cannot allow that to happen.

In summing up,  I said:

If Members on both sides of the House are serious about building a better society, we have no choice but to reform radically the size, scope and role of the state.

The IEA blogger Kristian Niemitz reports Iain Duncan Smith’s speech:

“The purpose of my life here is to improve the quality of life of the worst off in society.” Such ambitious rhetoric is not unusual for new incumbents at the Department for Work and Pensions. The difference with Iain Duncan Smith is that he means it, having advocated an overhaul of Britain’s rotten welfare system for years while being far away from the lure of power. If IDS is to deliver on his goals of tackling poverty, chronic welfare dependency and low intergenerational mobility, he will not just need zeal but also a good deal of stoicism, because he will make enemies.

Read more: IEA Blog » Blog Archive » A cheer for Iain Duncan Smith – but he will make enemies.

Tu ne cede malis, sed contra audentior ito.

This was the motto of Ludwig von Mises, a great economist and political scientist. It comes from Virgil’s Aeneid, Book VI and it translates as, “Do not give in to evil but proceed ever more boldly against it”. And so we should.

Last week, the Institute of Economic Affairs published Dr Eamonn Butler’s Ludwig von Mises Primer:

Ludwig von Mises was one of the greatest economists and political scientists of the twentieth century. He revolutionised the understanding of money, inflation and recessions; comprehensively refuted the arguments for socialism; and provided a devastating critique of the methodologies of mainstream economics. His contributions to the Austrian School laid the intellectual groundwork for thinkers such as F. A. Hayek, Murray Rothbard and Israel Kirzner.

In Ludwig von Mises – A Primer, Eamonn Butler provides a comprehensive yet accessible overview of Mises’ outstanding achievements. At a time of economic crisis, this monograph makes it clear that Mises’ work is highly relevant today. Indeed, while mainstream economics has been found wanting, the latest recession appears to have been entirely consistent with his analysis. Furthermore, the poor performance of state health and education services can be explained by Mises’ Austrian theories. Nevertheless, Mises remains neglected by the economics profession, policymakers and academics. This readable primer explains why his work should be at the core of economic thinking.

Misesian economic thinking provides a better set of explanations for recent events than the current mainstream Keynesianism or Monetarism. It predicted the crash based on sound theory. That theory uses accurate understandings of the nature of society and social cooperation, time and capital (that is, the means of production). The book explains, but this video is a good start and more fun (Hayek developed the economics of Mises to win his Nobel Prize):

I am deeply grateful to the IEA for giving me the opportunity to contribute the foreword to this book. Eamonn Butler has made a superb job of it and I very much hope it has the impact it deserves.

Buy or download the book here and see also The Pretence of Knowledge.