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Minnesota 2020 Journal: Public Education and the Paradox of Value

January 24, 2014 By John Van Hecke, Publisher

When we debate public school bus transportation outsourcing, we’re really debating value. Does outsourcing, moving busing from a direct school district function to one contracted to a private bus transportation company, create greater public value or does privatization diminish it? Public perception turns on price or cost but that’s not truly the case. Outsourcing is a debate about value because what’s going on isn’t what you think is going on. What seems to make sense actually makes no sense at all.

Economists are guided by the conviction that humans attach value to enterprise and activity, acting accordingly. While that value can be observed and calculated, revealed as price, deciphering value is a tricky undertaking because it is frequently obscured by a broad array of market activities including self-delusion. What appears to be an item’s price isn’t the true price because at least some costs are not known or at least aren’t appreciated.

The Scottish economist Adam Smith, a towering figure in economic thinking, created a framework for contemplating value. He realized that there’s a big difference between value-in-use and value-in-exchange. Understanding that difference undermines faithfully repeated but unsupported conservative public policy suppositions.

Last week, I wrote a Minnesota 2020 Journal column, “Outsourcing Costs More Than It Saves,” challenging the conservative conviction that private enterprise can provide any public, government function at lower cost, greater efficiency and at a profit. Specifically, I cited school transportation outsourcing as an example of conservative doctrine that is widely believed without much if any data analysis supporting the policy. A 20-year Pennsylvania cost study and a single Minnesota school year analysis suggest that, minimally, school districts could save money by shifting from completely privatized school bus operations to completely district run operations. While there isn’t much publicly available data, I found enough to suggest that taxpayers should rethink blind assumptions about private enterprise’s capacity for school cost savings.

Unsurprisingly, I received critical feedback from conservative policy advocates. I apparently missed their point that private enterprise is superior to public enterprise. While my observation still stands—very little cost-benefit analysis exists, beyond conservative chest thumping, to guide the public policy debate—I willingly examine my own convictions. Government functions heavily rely on privately-provided goods and services. Is outsourced school busing any different from buying a box of dry markers?

School buses cost around $75,000 each. Since the market for big yellow school buses is functionally limited to hauling school aged children, government and outsourced school bus service contractors are the overwhelmingly dominant purchasers. The State of Minnesota has negotiated state-wide fleet vehicle purchasing agreements with several bus manufacturers, allowing school districts to benefit from fleet discounts by being part of a group purchase.

Narrowly limiting cost calculations to only expenditures of restricted transportation funds misleads policymakers and taxpayers alike. Pretending that other factors don’t affect public education’s mission is a little like suggesting that if you ignore all the cars clogging roads, commuting to work is a pleasant experience. Economists call these factors externalities. They are costs or benefits affecting someone who did not choose to incur that cost or benefit. It’s a factor “that need not be paid for according to the existing definition of property rights in the society.”

We’re increasingly learning that calculating cost is a far trickier proposition than previously assumed. Community investments intended to benefit many, for example, are discovered to quietly and disproportionately benefit a few. Once the advantaged beneficiary discovers the benefit, he has every incentive to shield that knowledge from the public.

Economist Adam Smith, in his 1776 book, “The Wealth of Nations,” distinguishes between use-value and exchange-value. Common things with the greatest use have a lower exchange value. Water, in Smith’s example, is absolutely essential yet its abundance reduces its value to that calculated as a commodity. Diamonds, on the other hand, are, or were in Smith’s time, ornamentation yet their scarcity and demand created high exchange value. Water is a life-sustaining good while diamonds are merely pretty, yet we value diamonds and dismiss water. Hence, the paradox.

This is what’s happening in Minnesota’s public school policy debate. Education and the functions required to support it, are treated as commodities. Conservative policy advocates frame schooling as a functional commodity, thus seek to provide education at the lowest possible price, much like gravel, corn or cattle. That’s their argument; it’s just not the truth.

Systemically reducing educational funding reduces education’s exchange value for most public school students. That reduction ripples through every student’s lifetime, manifesting in lower earnings, reduced social mobility and decreased family and community stability. Decreased school funding has an additional immediate retail economic impact as shrinking budgets mean less wage earnings spent on community goods and services. Outsourcing school transportation disguises this effect, hiding it behind a façade of so-called responsible fiscal management. Decreased family and community stability is hardly responsible but it further illuminates Smith’s paradox of value.

As I learn about the complex nature of human exchange and valuation, I grow more suspicious of conservative public policy that pretends to serve the public interest while actually serving to concentrate wealth into fewer hands. Schools serve family and community interests by creating stability and prosperity. We don’t need paradox; we need strong public schools that anchor our communities and create better futures for students in every sense of the term. We need and must insist upon value.

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