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Showing posts with label public. Show all posts
Showing posts with label public. Show all posts

Thursday 20 July 2023

A Level Economics 49: Market Failure

In a free market economy, the allocation of goods and services is determined by the forces of supply and demand. Producers decide what to produce and how much based on what consumers are willing to pay (demand), and consumers decide what to buy based on the prices set by producers (supply). The goal of a free market is to achieve an efficient allocation of resources, where goods and services are produced in quantities that match consumers' desires and preferences.

Efficient Allocation of Resources:

An efficient allocation of resources means that the available resources (such as labor, capital, and materials) are used to produce the right mix of goods and services that maximize overall welfare or satisfaction in society. In a perfectly competitive free market, the equilibrium price and quantity are determined where the demand and supply curves intersect. At this point, the quantity supplied equals the quantity demanded, and there is no incentive for producers or consumers to change their behavior.


Explanation of Market Failure and Efficiency:

In a perfectly competitive market, the free market equilibrium output is determined where the demand and supply curves intersect. At this point, the quantity supplied equals the quantity demanded, and there is no incentive for producers or consumers to change their behavior. This equilibrium results in allocative efficiency, where the resources are allocated to produce the quantity of goods and services that maximize overall social welfare.

Example of Efficiency at Equilibrium:

Let's consider the market for smartphones, assuming it is perfectly competitive. The equilibrium price and quantity are determined by the intersection of the demand and supply curves. At this equilibrium, both consumers and producers achieve the maximum possible welfare. Consumers benefit from purchasing smartphones at the equilibrium price, and producers benefit from selling smartphones at the same price.

However, market failure can occur due to various factors that prevent the free market from reaching allocative efficiency and maximizing consumer and producer surplus.

Examples of Market Failures:

  1. Externalities: Externalities are costs or benefits imposed on third parties who are not directly involved in a transaction. If an activity generates negative externalities (e.g., pollution from manufacturing), the social cost exceeds the private cost, leading to overproduction and an inefficient allocation of resources.

Example: Suppose a factory emits pollution while producing smartphones, imposing health costs on nearby residents. The market equilibrium may result in a higher quantity of smartphones being produced, but the social cost of pollution is not reflected in the equilibrium price, leading to inefficiency.

  1. Public Goods: Public goods are non-excludable and non-rivalrous, meaning individuals cannot be excluded from their benefits, and one person's consumption does not diminish the availability for others. Since private firms cannot exclude people from using public goods, they are typically underprovided by the free market.

Example: National defense is a public good. If left to the free market, firms may not invest adequately in national defense, as they cannot charge individual consumers for its use.

  1. Information Asymmetry: Information asymmetry occurs when one party in a transaction has more information than the other, leading to adverse selection or moral hazard problems.

Example: In the market for used smartphones, sellers may have more information about the condition of the phone than buyers. This information asymmetry can lead to market failure, with buyers potentially paying more for a smartphone that is of lower quality than expected.

  1. Market Power and Monopolies: When a single seller or a small group of firms have significant market power, they can set prices higher than the competitive equilibrium, leading to reduced consumer surplus and inefficiency.

Example: A dominant smartphone company may use its market power to set high prices for its products, limiting consumer choice and causing inefficiency in the market.

In conclusion, market failures occur when the free market fails to achieve allocative efficiency and maximize consumer and producer surplus. Externalities, public goods, information asymmetry, and market power are some of the factors that can lead to market failures. In response to these failures, governments may intervene through regulations, taxes, subsidies, or the provision of public goods to improve resource allocation and promote overall welfare.

Saturday 17 June 2023

Economics Essay 65: Deficit and Debt

Explain why recent UK governments have generally been concerned about high levels of public sector debt.

Debt refers to the accumulation of financial obligations incurred by a government or an entity. In the context of public sector debt, it represents the total amount of money that a government owes to external creditors, including individuals, institutions, and foreign governments.

Public sector debt arises from several factors:

  1. Government Spending: Governments often spend more money than they collect in revenues through taxes and other sources. To finance this spending deficit, they borrow money by issuing government bonds or borrowing from domestic or international lenders.

  2. Economic Downturns: During economic downturns or recessions, governments may experience a decline in tax revenues due to reduced economic activity. At the same time, they may need to increase spending on social welfare programs, unemployment benefits, or stimulus measures to support the economy. This can result in higher levels of public borrowing to cover the budget shortfall.

  3. Infrastructure Investment: Governments may borrow money to fund long-term infrastructure projects, such as building roads, bridges, schools, or hospitals. These investments are intended to stimulate economic growth, enhance productivity, and improve public services. However, they can contribute to higher levels of public sector debt.

Recent UK governments have generally been concerned about high levels of public sector debt due to several reasons:

  1. Fiscal Sustainability: High levels of public debt can pose risks to a government's fiscal sustainability. When debt levels become unsustainable, governments may struggle to meet their debt obligations, resulting in a potential default or a significant burden on future generations. Governments aim to maintain a balance between borrowing to support necessary expenditures and ensuring long-term fiscal stability.

  2. Interest Payments: Public sector debt carries interest costs that governments must pay to lenders. Higher levels of debt lead to increased interest payments, diverting a significant portion of government revenues towards servicing the debt. This reduces the available funds for other critical areas such as public services, infrastructure, or social welfare programs.

  3. Crowding Out Private Investment: When governments borrow extensively, they compete with the private sector for available funds in the financial market. This increased demand for borrowing can lead to higher interest rates, making it more expensive for businesses and individuals to borrow money for investment or consumption. This phenomenon, known as "crowding out," can hinder private sector investment and economic growth.

  4. Creditworthiness and Investor Confidence: Excessive public debt can erode a government's creditworthiness and investor confidence. This can lead to higher borrowing costs, as lenders demand higher interest rates to compensate for perceived risks. It can also undermine a country's reputation in international financial markets and affect its ability to attract foreign investment.

Given these concerns, governments often prioritize reducing public sector debt to maintain fiscal sustainability, control interest payments, foster a favorable investment climate, and ensure long-term economic stability. Strategies to address high levels of debt can include implementing fiscal consolidation measures, controlling public spending, increasing revenues, and promoting economic growth to generate higher tax revenues.

Thursday 10 June 2021

Government Pensions subject to 'Good Behaviour'

Lt. Gen. H.S Panag (retd.) in The Print

On 31 May, the Ministry of Personnel, Public Grievances and Pensions, which is headed by Prime Minister Narendra Modi, issued a gazette notification amending Rule 8 — “Pension subject to future good conduct” — of the Central Civil Services (Pension) Rules 1972. The amendment prohibits retired personnel who have worked in any intelligence or security-related organisation included in the Second Schedule of the Right to Information Act 2005 from publication “of any material relating to and including domain of the organisation, including any reference or information about any personnel and his designation, and expertise or knowledge gained by virtue of working in that organisation”, without prior clearance from the “Head of the Organisation”. An undertaking is also supposed to be signed to the effect that any violation of this rule can lead to withholding of pension in full or in part.

There are 26 organisations included in the Second Schedule of the RTI Act, including the Intelligence Bureau, Research & Analysis Wing, Directorate of Revenue Intelligence, Central Bureau of Investigation, Narcotics Control Bureau, Border Security Force, Central Reserve Police Force, Indo-Tibetan Border Police and Central Industrial Security Force. These organisations are excluded from the RTI Act. Ironically, the armed forces, which are responsible for the external and at times internal security, are covered by the Act.

In 2008, Rule 8 was first amended to make more explicit the existing restrictions under the Official Secrets Act by barring retired officials from publishing without prior permission from Head of the Department any sensitive information, the disclosure of which would “prejudicially affect the sovereignty and integrity of India, the security, strategic, scientific or economic interests of the State or relation with a foreign State or which would lead to incitement of an offence.” An undertaking similar to the present amendment was also required to be signed.

The scope of the 31 May amendment is all-encompassing and its ambiguity leaves it open for vested interpretation and virtually bars retired officers who have served in the above-mentioned organisations from writing or speaking, based on their experience in service or even using the knowledge and expertise acquired after retirement. There is an apprehension that in future, the rules of other government organisations, including the armed forces, may also be amended to incorporate similar provisions. 

The motive behind the amendment

All governments are legitimately concerned with safeguarding national security. Almost all countries have laws for the same. However, political dispensations often use these provisions to stifle criticism of the government, particularly by retired government officials who, based on their domain knowledge and experience, enjoy immense credibility with the public.

Originally, Rule 8 allowed withholding/withdrawal of pension or part thereof, permanently/for a specified period if the pensioner was convicted of a serious crime or was found guilty of grave misconduct. “Serious crime” included crime under Official Secrets Act 1923 and “grave misconduct” also covered communication/disclosure of information mentioned in Section 5 of the Act.

There was no requirement of prior permission before publication of any book or article, and prosecution under Official Secrets Act was necessary before any action could be taken. No undertaking was required to be given by the retiree officials. There is no noteworthy case in which this provision was invoked.

The motive behind the 2008 amendment by the UPA and the present amendment by the NDA, was/is to crack down on dissent by retired officials without the due process of law. This, when despite recommendations of the Law Commission and Second Administrative Reforms Commission, no effort has been made to amend the 98-year-old Official Secrets Act to cater for current requirements of national security. The only difference between the two amendments is that the latter makes the rule more absolute by adding the ambiguous rider regarding publication without permission “of any material relating to and including ‘domain of the organisation’, including any reference or information about any personnel and his designation, and expertise or knowledge gained by virtue of working in that organisation.”

The amendment to Rule 8 is unlikely to withstand the scrutiny of law. The Supreme Court and the high courts have repeatedly upheld the principle that “pension is not a bounty, charity or a gratuitous payment but an indefeasible right of every employee”. The government cannot take away the right merely by giving a show cause notice to a retired official for having used “domain knowledge or expertise” while writing an article/book or speaking at any forum. Any application of this amendment will be thrown out by the courts. No wonder that there has been no known application of the amended rule since 2008. There has been no alarming increase in cases under the Official Secrets Act. Between 2014 and 2019, 50 cases have been filed in the country and none against a government official. And if a government official is actually guilty of violating national security, then is withdrawal of pension an adequate punishment?

What does the government then gain by this amendment? Simple, the new amendment acts as deterrent against criticism by retired officials. Which self-respecting retired government official would like to seek permission from her/his former junior or fight a prolonged legal battle to get his pension restored? The government’s will, thus, prevail not by the wisdom of its decision but by default.
 
Loss to the nation

All major democracies make optimum use of the experience of their retired government officials. While some become part of the government, others contribute by educating the public and throwing up new ideas/suggestions for the consideration of the government. The domain expert keeps a check on a majoritarian government facing a weak opposition by publicly speaking and writing. All governments try to hide failures and scrutiny for inefficiency. With a weak opposition and government-friendly media, the Bharatiya Janata Party dispensation is more worried about the perceived threat from the retired officials with domain expertise than an ill-informed opposition.

Given the Modi government’s obsession with respect to national security and its lackadaisical performance in its management, it is my view that in the near future, the government will incorporate similar provision in the pension rules of other government departments and the armed forces.

A case in point is the attempt by the Modi government to deny/obfuscate the intelligence failure and the preemptive Chinese intrusions. To date no formal briefing has been given about the actual situation in Eastern Ladakh. Doctored information has been fed to the media through leaks by government/military officials. Three retired defence officers, including the author, brought the real picture before the public through articles and media interviews. All were careful to safeguard operational security. A concerted campaign was launched to discredit these retired officers through government-friendly media and pliant defence analysts until the events overtook their detractors to prove them right. The author extensively used his knowledge of the terrain in Eastern Ladakh to bring the truth before the public. In a similar situation in future, these officers may well be battling in courts to safeguard their pensions.

Imagine a situation that in future when no historical accounts of our wars, counter insurgency/terrorism campaigns and communal riots can be written by retired government and armed forces officers. No retired official will be eligible to head our security related thinks tanks or speak in international forums about our experience. Despite provision of Section 8(3) of the RTI Act to declassify documents after 20 years, the government never does so except to score political points as in the case of Netaji Files.

The amendment to Rule 8 of Central Civil Services (Pension) Rules 1972 is nothing more than a blatant, overarching and draconian gag order against retired officials to manage the public narrative for political interests under the garb of safeguarding national security.

It safeguards the interests of the political dispensation and not the nation. It must be challenged in the courts and in the interim disregarded with contempt.

Saturday 6 February 2021

Modi govt has lost farm laws battle, now raising Sikh separatist bogey will be a grave error

Shekhar Gupta in The Print


 

Protests over the three farm reform laws are well into the third month now. There are six key facts, or facts as we see them, that we can list here:

1. The farm laws, by and large, are good for the farmers and India. At various points of time, most major political parties and leaders have wanted these changes. However, many of you might still disagree. But then, this is an opinion piece. I explained it in detail in this, Episode 571 of #CutTheClutter.

2. Whether the laws are good or bad for the farmer no longer matters. In a democracy, all that matters is what people affected by a policy change believe — in this case, the farmers of the northern states. Facts don’t matter if you’ve failed to convince them.

3. The Modi government is right when it says this is no longer about the farm laws. Because nobody is talking about MSP, subsidies, mandis and so on. Then what’s it about?

4. The short answer is, it is about politics. And why not? There is no democracy without politics. When the UPA was in power, the BJP opposed all its good ideas, from the India-US nuclear deal to FDI in insurance and pension. Now it’s implementing the same policies at the rate of, say, 6X.

5. As far as the farm laws are concerned, the Modi government has already lost the battle. Again, you can disagree. But this is my opinion. And I will make my case.

6. Finally, the Modi government has two choices. It can let it fester, expand into a larger political war. Or it can cut its losses and, as the Americans say, get off the kerb.

Here is the evidence that lets us say that the Modi government has lost the battle for these farm laws.

First of all, there is the unilateral offer of an 18-month deferral to implementing the laws. Count 18 months from now, you will be left with only another 18 before the 2024 general elections.

You see even a Modi-Shah BJP is unlikely to risk reopening this front at that point. In fact, the bellwether heartland state elections, Madhya Pradesh, Chhattisgarh and Rajasthan, will be exactly 12 months away. Two of them have strong Congress incumbents and in the third, the BJP has bought and stolen power. Nobody’s risking losing these to make their point over farm reforms. These laws, then, are as bad as dead in the water.

Again, unilaterally, the government has already made a commitment of continuing with Minimum Support Price (MSP), although there is nothing in the laws saying it will be taken away. With so much already given away, the battle over the farm laws is lost.

The Modi government’s challenge now is to buy normalcy without making it look like a defeat. We know that it got away with one such, with the new land acquisition law. But that issue was still confined to Parliament. This is on the streets, highway choke-points, and in the expanse of wheat and paddy all around Delhi. This can spread. If the government retreats in surrender, this issue may close, but politics will rage. And why not? What is democracy but competitive politics, brutal, fair and fun? The next targets will then be other reform measures, from the new labour laws to the public listing of LIC.

What are the errors, or blunders, that brought India’s most powerful government in 35 years here? I shall list five:

1. Bringing in these laws through the ordinance route was a blunder. I speak from 20/20 hindsight, but then I am a commentator, not a political leader. To usher in the promise of sweeping change affecting the lives of more than half a billion people, the correct way would have been to market the ideas first. We don’t know if Narendra Modi now regrets not having prepared the ground for it. But the fact is, people at the mass level would be suspicious of such change through ordinances. Especially if you aren’t talking to them.

2. The manner in which the laws were pushed through Rajya Sabha added to these suspicions. This needed better parliamentary craft than the blunt use of vocal chords. This helped fan the fire, or spread the ‘hawa’ that something terrible was being forced down the surplus-producing farmers’ throats.

3. The party was riding far too high on its majority to care about allies and friends. If it had taken them along respectfully, the passage through Rajya Sabha wouldn’t have been so ungainly. At least the Akalis should never have been lost. But, as we’ve said before, this BJP does not understand Punjab or the Sikhs.

4. It also underestimated the frustration among the Jats of Haryana and western Uttar Pradesh, disempowered by the Modi-Shah politics. The senior-most Jat leaders in the Modi council of ministers are both inconsequential ministers of state. One is from distant Barmer in Rajasthan. The most visible of them, Sanjeev Balyan, won from Muzaffarnagar, where the big pro-Tikait mahapanchayat was held. In Haryana, the BJP has no Jat who counts. On the contrary, it found the marginalisation of Jat power as its big achievement. It refused to learn even from statewide, violent Jat agitations for reservations. The anger then was rooted in political marginalisation, as it is now. Ask why the BJP’s Jat ally Dushyant Chautala, or any of its Jat MPs/MLAs in UP, especially Balyan, are not on the ground, marketing these reforms? They wouldn’t dare.

5. The BJP conceded too much, too soon, unilaterally in the negotiations. It doesn’t have much more to give now. And the farm leaders have conceded nothing. 

In conclusion, where does the Modi government go from here? One approach could be to tire the farmers out. On all evidence, that is not about to happen. Rabi harvest in April is still nearly 75 days away, and with much work done by mechanical harvesters and migrant workers, families would be quite capable of keeping the pickets full.

The next expectation would be that the Jats would ultimately make a deal. This is plausible. Note the key difference between Singhu and Ghazipur. In the first, no politician can even go for a selfie. Ask Ravneet Singh Bittu of the Congress, who was turned out unceremoniously. But everybody can go to Ghazipur and be photographed hugging Tikait. The Congress, Left, RLD, RJD, AAP, all of them. Even Sukhbir Singh Badal comes to Ghazipur, instead of Singhu to meet his fellow Sikhs from Punjab. Wherever there is politics and politicians, conflict resolution is possible. But what happens if this becomes a reality?

This will leave India and the Modi government with the most dangerous outcome of all. It will corner the Sikhs of Punjab. Already, the lousy barricading visuals and government’s prickly response to something as trivial as some celebrity tweets is threatening to redefine the issue from farm laws to national unity. The Modi government will err gravely if it changes the headline from farm protests to Sikh separatism.

This crisis requires political sophistication and governance skills. This BJP has neither. It has, instead, political skills and governance by clout, riding an all-conquering election-winning machine. It is the party’s inability to accept the realities of Indian politics and appreciate the limitations of a parliamentary majority that brought it here.

Does it have the smarts and sagacity to negotiate its way out of it? We can’t say. But we hope it does. Because the last thing India needs is to start another war for national unity. You would be nuts to reopen an issue in Punjab we all closed and buried by 1993.

Sunday 13 January 2019

Britain’s private school problem

While many agree that private education is at the root of inequality in Britain, open discussion about the issue remains puzzlingly absent. In their new book, historian David Kynaston and economist Francis Green set out the case for change in The Guardian 


The existence in Britain of a flourishing private-school sector not only limits the life chances of those who attend state schools but also damages society at large, and it should be possible to have a sustained and fully inclusive national conversation about the subject. Whether one has been privately educated, or has sent or is sending one’s children to private schools, or even if one teaches at a private school, there should be no barriers to taking part in that conversation. Everyone has to live – and make their choices – in the world as it is, not as one might wish it to be. That seems an obvious enough proposition. Yet in a name-calling culture, ever ready with the charge of hypocrisy, this reality is all too often ignored. 

For the sake of avoiding misunderstanding, we should state briefly our own backgrounds and choices. One of our fathers was a solicitor in Brighton, the other was an army officer rising to the rank of lieutenant-colonel; we were both privately educated; we both went to Oxford University; our children have all been educated at state grammar schools; in neither case did we move to the areas (Kent and south-west London) because of the existence of those schools; and in recent years we have become increasingly preoccupied with the private-school issue, partly as citizens concerned with Britain’s social and democratic wellbeing, partly as an aspect of our professional work (one as an economist, the other as a historian).

In Britain, private schools – including their fundamental unfairness – remain the elephant in the room. It would be an almost immeasurable benefit if this were no longer the case. Education is different. Its effects are deep, long-term and run from one generation to the next. Those with enough money are free to purchase and enjoy expensive holidays, cars, houses and meals. But education is not just another material asset: it is fundamental to creating who we are.

What particularly defines British private education is its extreme social exclusivity. Only about 6% of the UK’s school population attend such schools, and the families accessing private education are highly concentrated among the affluent. At every rung of the income ladder there are a small number of private-school attenders; but it is only at the very top, above the 95th rung of the ladder – where families have an income of at least £120,000 – that there are appreciable numbers of private-school children. At the 99th rung – families with incomes upwards of £300,000 – six out of every 10 children are at private school. A glance at the annual fees is relevant here. The press focus tends to be on the great and historic boarding schools – such as Eton (basic fee £40,668 in 2018–19), Harrow (£40,050) and Winchester (£39,912) – but it is important to see the private sector in the less glamorous round, and stripped of the extra cost of boarding. In 2018 the average day fees at prep schools were, at £13,026, around half the income of a family on the middle rung of the income ladder. For secondary school, and even more so sixth forms, the fees are appreciably higher. In short, access to private schooling is, for the most part, available only to wealthy households. Indeed, the small number of income-poor families going private can only do so through other sources: typically, grandparents’ assets and/or endowment-supported bursaries from some of the richest schools. Overwhelmingly, pupils at private schools are rubbing shoulders with those from similarly well-off backgrounds.
They arrange things somewhat differently elsewhere: among affluent countries, Britain’s private‑school participation is especially exclusive to the rich. In Germany, for instance, it is also low, but unlike in Britain is generously state-funded, more strongly regulated and comes with modest fees. In France, private schools are mainly Catholic schools permitted to teach religion: the state pays the teachers and the fees are very low. In the US there is a very small sector of non-sectarian private schools with high fees, but most private schools are, again, religious, with much lower fees than here. Britain’s private-school configuration is, in short, distinctive.


 
Some of the public figures of the past 20 years to have attended private schools (l-r from top): Tony Blair, former Bank of England governor Eddie George, Princess Diana, Prince Charles, Charles Spencer, businesswoman Martha Lane Fox, Dominic West, James Blunt, former Northern Rock chairman Matt Ridley, Boris Johnson, David Cameron, George Osborne, Jeremy Paxman, fashion journalist Alexandra Shulman, footballer Frank Lampard, Theresa May, Jeremy Corbyn and cricketer Joe Root. Composite: Rex, Getty

And so what, accordingly, does Britain look like in the 21st century? A brief but expensive history, 1997–2018, offers some guide. As the millennium approaches, New Labour under Tony Blair (Fettes) sweeps to power. The Bank of England under Eddie George (Dulwich) gets independence. The chronicles of Hogwarts school begin. A nation grieves for Diana (West Heath); Charles (Gordonstoun) retrieves her body; her brother (Eton) tells it as it is. Martha Lane Fox (Oxford High) blows a dotcom bubble. Charlie Falconer (Glenalmond) masterminds the Millennium Dome. Will Young (Wellington) becomes the first Pop Idol. The Wire’s Jimmy McNulty (Eton) sorts out Baltimore. James Blunt (Harrow) releases the bestselling album of the decade. Northern Rock collapses under the chairmanship of Matt Ridley (Eton). Boris Johnson (Eton) enters City Hall in London. The Cameron-Osborne (Eton-St Paul’s) axis takes over the country; Nick Clegg (Westminster) runs errands. Life staggers on in austerity Britain mark two. Jeremy Clarkson (Repton) can’t stop revving up; Jeremy Paxman (Malvern) still has an attitude problem; Alexandra Shulman (St Paul’s Girls) dictates fashion; Paul Dacre (University College School) makes middle England ever more Mail-centric; Alan Rusbridger (Cranleigh) makes non-middle England ever more Guardian-centric; judge Brian Leveson (Liverpool College) fails to nail the press barons; Justin Welby (Eton) becomes top mitre man; Frank Lampard (Brentwood) becomes a Chelsea legend; Joe Root (Worksop) takes guard; Henry Blofeld (Eton) spots a passing bus. The Cameron-Osborne axis sees off Labour, but not Boris Johnson+Nigel Farage (Dulwich)+Arron Banks (Crookham Court). Ed Balls (Nottingham High) takes to the dance floor. Theresa May (St Juliana’s) and Jeremy Corbyn (Castle House prep school) face off. Prince George (Thomas’s Battersea) and Princess Charlotte (Willcocks) start school.

The statistics also tell a story. The proportion of prominent people in every area who have been educated privately is striking, in some cases grotesque. From judges (74% privately educated) through to MPs (32%), the numbers tell us of a society where bought educational privilege also buys lifetime privilege and influence. “The dogged persistence of the British ‘old boy”’ is how a 2017 study describes the traditional dominance of private-school alumni in British society. This reveals the fruits of exploring well over a century of biographical data in Who’s Who, that indispensable annual guide to the composition of the British elite. For those born between the 1830s and 1920s, roughly 50-60% went to private schools; for those born between the 1930s and 1960s, the proportion was roughly 45-50%. Among the new entrants to Who’s Who in the 21st century, the proportion of the privately educated has remained constant at around 45%. Going to one of the schools in the prestigious Headmasters’ and Headmistresses’ Conference (HMC) still gives a 35 times better chance of entering Who’s Who than if one has not attended an HMC school; while those attending the historic crème de la crème, the so-called Clarendon Schools (Charterhouse, Eton, Harrow, Merchant Taylors’, Rugby, St Paul’s, Shrewsbury, Westminster, Winchester), are 94 times more likely to join the elite than any ordinary British-educated person.

Even if one’s child never achieves celebrity, sending him or her to a private school is usually a shrewd investment – indeed, increasingly so, to judge by the relevant longitudinal studies of two different generations. Take first the cohort born in 1958: in terms of those with comparable social backgrounds, demographic characteristics and early tested skills, and different only in what type of school they attended when they were 11, by the time they were in their early 30s (around 1990) the privately educated were earning 7% more than the state-educated. Compare that with those born in 1970: by the same stage (the early 2000s), the gap between the two categories – again, similar in all other respects – had risen to 21% in favour of the privately educated.

The only realistic starting point for an analysis lies with the assertion that, in the modern era, most of these schools are of high quality, offering a good educational environment. They deploy very substantial resources; respect the need for a disciplined environment for learning; and give copious attention to generating a positive and therefore motivating experience. This argument – the resources point aside – is not an altogether easy one for the left to accept, against a background of it having historically been undecided whether (in the words of one Labour education minister’s senior civil servant in the 1960s) “these schools are so bloody they ought to be abolished, or so marvellous they ought to be made available to everyone”. We do not necessarily accept that all private schools are “marvellous”; but by and large we recognise that, in their own terms of fulfilling what their customers demand, they deliver the goods.

Above all, private schools succeed when it comes to preparing their pupils for public exams – the gateways to universities. In 2018 the proportion of private-school students achieving A*s and As at A-level was 48%, compared with a national average of 26%; while for GCSEs, in terms of achieving an A or grade seven or above, the respective figures were 63% and 23%. At both stages, GCSE and A-level, the gap is invariably huge.



A famous image of school privilege: Harrovians Peter Wagner and Thomas Dyson and local schoolboys George Salmon, Jack Catlin and George Young photographed outside Lord’s cricket ground in 1937 by Jimmy Sime. Photograph: Jimmy Sime/Allsport

There are, of course, some very real contextual factors to these bald and striking figures. Any study must take account of where the children are coming from. Nevertheless, the picture presented by several studies is one of relatively small but still significant effects at every stage of education; and over the course of a school career, the cumulative effects build up to a notable gain in academic achievements.

Yet academic learning and exam results are not all there is to a quality education, and indeed there is more on offer from private schools. At Harrow, for example, its vision is that the school “prepares boys… for a life of learning, leadership, service and personal fulfilment”. It offers “a wide range of high-level extracurricular activities, through which boys discover latent talent, develop individual character and gain skills in leadership and teamwork”. Lesser-known schools trumpet something similar. Cumbria’s Austin Friars, for example, highlights a well-rounded education, proclaiming that its alumni will be “creative problem-solvers… effective communicators… and confident, modest and articulate members of society who embody the Augustinian values of unity, truth and love...”

If, on the whole, Britain’s private schools provide a quality education in both academic and broader terms, how do they deliver that? Four areas stand out.

First, especially small class sizes are a major boon for pupils and teachers alike. Second, the range of extracurricular activities and the intensive cultivation of “character” and “confidence” are important. Third, the high – and therefore exclusive – price tag sustains a peer group of children mainly drawn from supportive and affluent families. And fourth, to achieve the best possible exam results and the highest rate of admission to the top universities, “working the system” comes into play. Far greater resources are available for diagnosing special needs, challenging exam results and guiding university applications. Underpinning all these areas of advantage are the high revenues from fees: Britain’s private schools can deploy resources whose order of magnitude for each child is approximately three times what is available at the average state school.

The relevant figures for university admissions are thus almost entirely predictable. Perhaps inevitably, by far the highest-profile stats concern Oxbridge, where between 2010 and 2015 an average of 43% of offers from Oxford and 37% from Cambridge were made to privately educated students, and there has been no sign since of any significant opening up. Top schools, top universities: the pattern of privilege is systemic, and not just confined to the dreaming spires. Going to a top university, it hardly needs adding, signals a material difference, especially in Britain where universities are quite severely ranked in a hierarchy.
Ultimately, does any of this matter? Why can one not simply accept that these are high-quality schools that provide our future leaders with a high-quality education? Given the thorniness – and often invidiousness – of the issue, it is a tempting proposition. Yet for a mixture of reasons – political and economic, as well as social – we believe that the issue represents in contemporary Britain an unignorable problem that urgently needs to be addressed and, if possible, resolved. The words of Alan Bennett reverberate still. Private education is not fair, he famously declared in June 2014 during a sermon at King’s College Chapel, Cambridge. “Those who provide it know it. Those who pay for it know it. Those who have to sacrifice in order to purchase it know it. And those who receive it know it, or should.”

Consider these three fundamental facts: one in every 16 pupils goes to a private school; one in every seven teachers works at a private school; one pound in every six of all school expenditure in England is for the benefit of private-school pupils.

The crucial point to make here is that although extra resources for each school (whether private or state) are always valuable, that value is at a diminishing rate the wealthier the school is. Each extra teacher or assistant helps, but if you already have two assistants in a class, a third one adds less value than the second. Given the very unequal distribution of academic resources entailed by the British private school system, it is unarguable that a more egalitarian distribution of the same resources would enhance the total educational achievement. There is, moreover, the sheer extravagance. Multiple theatres, large swimming pools and beautiful surroundings with expensive upkeep are, of course, nice to have and look suitably seductive on sales brochures – but add relatively little educational value.

Further inefficiency arises from education’s “positional” aspect. The resources lift up children in areas where their rank position on the ladder of success matters, such as access to scarce places at top universities. To the considerable extent this happens, the privately educated child benefits but the state-educated child loses out. This lethal combination of private benefit and public waste is nowhere more apparent than in the time and effort that private schools devote to working the system, to ease access to those scarce places.

What about the implications for our polity? The way the privately educated have sustained semi-monopolistic positions of prominence and influence in the modern era has created a serious democratic deficit. The unavoidable truth is that, by and large, the increasingly privileged and entitled products of an elite private education have – almost inevitably – only a limited and partial understanding of, and empathy with, the realities of everyday life as lived by most people. One of those realities is, of course, state education. It marked some kind of apotheosis when in July 2014 the appointment of Nicky Morgan (Surbiton High) as education secretary meant that every minister in her department at that time was privately educated.

On social mobility, there has been in recent years an abundance of apparently sincere, well-meaning rhetoric, not least from our leading politicians. “Britain has the lowest social mobility in the developed world,” laments David Cameron in 2015. “Here, the salary you earn is more linked to what your father got paid than in any other major country. We cannot accept that.” In 2016 Jeremy Corbyn declares his movement will “ensure every young person has the opportunities to maximise their talents”, while Theresa May follows on: “I want Britain to be a place where advantage is based on merit not privilege; where it’s your talent and hard work that matter, not where you were born, who your parents are or what your accent sounds like.” Rather like corporate social responsibility in the business world, social mobility has become one of those motherhood-and-apple-pie causes that it is almost rude not to utter warm words about.

Yet the mismatch between such sentiments and policymakers’ practical intentions is palpable. The Social Mobility Commission, with cross-party representation, reported regularly on what government should do, but in December 2017 all sitting members resigned in frustration at the lack of policy action in response to their recommendations.

The underlying reality of our private-school problem is stark. Through a highly resourced combination of social exclusiveness and academic excellence, the private-school system has in our lifetimes powered an enduring cycle of privilege. It is hard to imagine a notable improvement in our social mobility while private schooling continues to play such an important role. Allowing, as Britain still does, an unfettered expenditure on high-quality education for only a small minority of the population condemns our society in seeming perpetuity to a damaging degree of social segregation and inequality. This hands-off approach to private schools has come to matter ever more, given over the past half-century the vastly increased importance in our society of educational credentials. Perhaps once it might have been conceivable to argue that private education was a symptom rather than a cause of how privilege in Britain was transferred from one generation to the next, but that day is long gone: the centrality of schooling in both social and economic life – and the Noah’s flood of resources channelled into private schools for the few – are seemingly permanent features of the modern era. The reproduction of privilege is now tied in inextricably with the way we organise our formal education.
Ineluctably, as we look ahead, the question of fairness returns. If private schooling in Britain remains fundamentally unreconstructed, it will remain predominantly intended and destined for the advantage of the already privileged children who attend.

We need to talk openly about this problem, and it is time to find some answers. Some call for the “abolition” of private schools – whatever that might mean. We do not call for that, because we think it is better – and feasible – to harness for all the good qualities of private schools. Feasible reforms are available; these do not require excessive commitments from the Treasury, but do require a political commitment.

We are, however, under no illusions about the task of reform. The schools’ links with powerful vested interests are close and continuous. London’s main clubs (dominated by privately educated men) would be one example; the Church of England (closely connected with many private schools, from Westminster downwards) would be another. Or take the City of London, where in that historic and massively wealthy square mile not only do individual livery companies have an intimate involvement with a range of private schools, but the City corporation itself supports an elite trio in Surrey and London (City of London, City of London school for girls, City of London Freemen’s school). While as for the many hundreds of individual links between “top people” and private schools, often in the form of sitting on governing bodies, it only needs a glance at Who’s Who to get the gist. The term “the establishment” can be a tiresome one, too often loosely and inaccurately used, but in the sense of complementary networks of people at or close to the centres of power and wealth, it actually does mean something.




All of which leaves the private schools almost uniquely well placed to make their case and protect their corner. They have ready access to prominent public voices speaking on their behalf, especially in the House of Lords; they enjoy the passive support of the Church of England, which is distinctly reluctant to draw attention to the moral gulf between the aims of ancient founders and the socioeconomic realities of the present; and of course, they have no qualms about utilising all possible firepower, human as well as media and institutional, to block anything they find threatening.

The great historian EP Thompson wrote more than half a century ago about The Peculiarities of the English. Historically, those peculiarities have been various, but the most important – and pervasive in its consequences – has been social class. Of course, things to a degree have changed since Thompson’s time. The visible distinctions of dress and speech have been somewhat eroded, if far from obliterated; the obvious social manifestations of a manufacturing economy have been replaced by the more fluid forms of a service economy; the increasing emphasis of reformers and activists has been on issues of gender and ethnicity; and a series of politicians and others have sought to assure us that we are moving into “a classless society”. Yet the fundamental social reality remains profoundly and obstinately otherwise. Britain is still a place where more often than not it matters crucially not only to whom one has been born, but where and in what circumstances one has grown up.

It would be manifestly absurd to pin the blame entirely on the existence over the past few centuries of a flourishing private-school sector. Even so, given that these schools have been and still are places that – when the feelgood verbiage is stripped away – ensure that their already advantaged pupils retain and extend their socio‑economic advantages in later life, common sense places them squarely in the centre of the frame.

Is it possible in Britain over the next 10 or 20 years to build a sufficiently widespread consensus for reform? Or, at the very least, to begin to have a serious, sustained, non-name-calling, non-guilt-ridden national conversation on the subject of private education? A poll we commissioned from Populus shows a virtually landslide majority for a perception of unfairness about private education, indicating that public opinion is potentially receptive to grappling with the issue and what to do about it. The poll reveals, moreover, that even those who have been privately educated, or have chosen to educate their own children privately, are more likely than not to have a perception of unfairness.

The question of what to do about a sector educating only some 6% of our school population might seem relatively trifling, and difficult to prioritise (especially in challenging economic circumstances), compared with say the challenges of quality teacher recruitment across the state sector or the whole vital area of early-years learning. Yet it would be a huge mistake to underestimate the seriously negative educational aspects of the current dispensation and to continue to marginalise the private-school question. The private schools’ reach is very much broader than their minority share of school pupils implies. Unless some radical reform is set in train, an unreconstructed private-school system, with its enormous resource superiority and exclusiveness hanging over the state system as a beacon for unequal treatment and privilege, would make it hard to sustain a fully comprehensive and fair state education system.

Ultimately, the issue is at least as much about what kind of society one might hope the Britain of the 2020s and 2030s to be. A more open society in which upward social mobility starts to become a real possibility for many children, not just a few lucky ones? A society in which the affluent are not educated in enclaves, and in which schooling for the affluent is not funded at something like three times the level of schooling for the less affluent? A society in which the pursuit through education of greater equality of life chances, seeking to harness the talents of all our children, is a matter of real and rigorous intent? A society in which there is a just relationship between the competing demands of liberty and equity, and in which we are, to coin a phrase, all in it together? For the building of such a society, or anything even remotely close, the issue of private education is pivotal, both symbolically and substantively. The reform of private schools will not alone be sufficient to achieve a good education system for all, let alone the good society; but it surely is a necessary condition. At this particular moment in our island story, the future seems peculiarly a blank sheet. Everything is potentially on the table. And for once, that has to include the engines of privilege. For if not now, when?

• Engines of Privilege: Britain’s Private School Problem by Francis Green and David Kynaston is published by Bloomsbury on 7 February (£20). To order a copy for £17.60 go to guardianbookshop.com or call 0330 333 6846. Free UK p&p over £10, online orders only. Phone orders min p&p of £1.99


How to do it: feasible reform options

There are broadly two types of option: those that handicap private schools, making them less attractive to parents, and those that envisage “crossing the tracks” – some form of integration with the state-school sector. Some reforms would have much more of an impact than others.

1. Handicaps

Contextual admissions to universities Where universities, especially the high-status ones, make substantial allowances for candidates’ school background; alternatively, as another method of positive discrimination, some form of a quota system.

Upping the cost Where the fees are substantially raised, making some parents switch away from the private-school sector and opt for state schools. Even though tax subsidies are not huge, the government could reduce them, for example by taking away charitable status (from those schools that are charities) or by requiring that all schools pay business rates in full (as in Scotland from 2020).

Alternatively, something that would “hurt” a bit more, government could directly tax school fees (as in Labour’s manifesto pledge to impose VAT or in Andrew Adonis’s proposed 25% “educational opportunity tax”).

2. Crossing the tracks

There are several proposed schemes for enabling children from low-income families to attend private schools. Mainly, these would leave it to schools to choose how they select their pupils. Some are relatively small in scope, including a proposal from the Independent Schools Council that would involve no more than 2% of the private-school population. Others are more ambitious: the Sutton Trust’s Open Access Scheme proposes that all places at about 80 top private secondary day schools would be competed for on academic merit. The government would subsidise those who could not afford the fees.

In another type of partial integration, schools would select a proportion of state-funded pupils according to the Schools Admissions Code, meaning that the government or local government would set the principles for selection and the extra places would become an extension to the state system. We suggest a Fair Access Scheme, where the schools would be obliged initially to recruit one-third of their pupils in this way, with a view to the proportion rising significantly over time.