Monday, November 16, 2009

Education and the Rent Control Model of Monopoly

Education in the United States today is a monopoly, as is the supply of rental apartments in many cities. Monopoly[1] is the restriction of a portion of a market for the exclusive use of certain select sellers at the expense of other sellers who are forbidden entrance into these markets. It is a government-granted privilege.

The delivery of first class mail is the most obvious privilege granted to the US Postal Service. When teenage entrepreneurs have attempted to compete with the post office, they have been ruthlessly put out of business by the feds. But monopoly does not have to be a single seller. It can be a monopoly of the many, as occurs in occupational licensing where the goal is to restrict supply in order to increase prices and therefore income for those who are granted the license.

In government-run monopolies, such as education, the goal is to keep price low and the supply widely available. Inefficiencies that result from the top-down, non-market focus of bureaucratic management in turn lead to high costs that are subsidized by the government. The effect is to freeze out private-sector competition—if it is legal in the first place to compete with the government-run schools. In some countries it is not. If a private-sector system of schools is allowed to exist, the costs of private education often require a quite high price.[2] This is what we have today in the United States and it is analogous to the rent control markets in such cities as New York and Berkeley and Santa Monica, California. The only difference is that the controlled apartment buildings are privately owned. City housing removes the need to call the comparison analogous.

The privilege granted to the operators of government-run schools consists of far more than the obvious lack of competition. It creates a guild of teachers and administrators who work primarily for the benefit of their own needs and wants, not those of their students. As Adam Smith[3] put it over two hundred years ago, referring to publicly financed higher education:

In the university of Oxford, the greater part of the public professors have, for these many years, given up altogether even the pretence of teaching.


The discipline of the colleges and universities is in general contrived, not for the benefits of the students, but for the interest, or more properly speaking, for the ease of the masters. Its object is, in all cases, to maintain the authority of the master, and whether he neglects or performs his duty, to oblige the students, in all cases to behave to him as if he performed it with the greatest diligence and ability.

In the privileged comfort of tenure and salary guarantees, most of today’s K-12 and college teachers seldom, if ever, have to face real competition. Opposite the intended goal of a widely available supply, bureaucratic inefficiencies and indifference create large class sizes and shortages of instructors such that students bang down the teachers’ doors begging to get into the classes that are scheduled—not because the students want to learn from the great masters, but because they need the units. Government involvement in education creates a situation in which sellers do not have to do anything to attract customers. Some sellers—the teachers—find the door banging annoying and the students a nuisance. Niceness, cordiality, and, generally, concern for the customers’ needs and wants, as a result, often go out the window. The same is true of rent-controlled apartment house superintendents.

The solution to both education and rental housing is decontrol and privatization. The privatization of the education market and the decontrol and privatization of the rental apartment market would at once increase the supply and variety of schools and rental apartments, because anyone would be free to begin offering these services and would be free to do so at a profit. The disparity between the current private and public sector prices would converge, because the abnormally high prices of the private sector would immediately drop due to the immediately increased supply (or promise of such increase).

In a free market real prices decline over time. As efficiencies and innovations emerge in the newly deregulated education and rental apartment markets, prices—in terms of the number of labor hours required to purchase a unit of the service—would also decline. Customer satisfaction would become the means to earning a profit. Niceness, cordiality, and catering to the needs and wants of the customer, not airs of guild-like smugness and superiority or indifference, would become primary.

1. Chapter 10
2. See “Dozens More Colleges Pass the $50,000 Mark This Year,” The Chronicle of Higher Education, November 1, 2009.
3. Book V, chapter  I, part III, article II


Frank said...

As far as I'm concerned, the apartment rental Buenos Aires is not a monopoly. However, I think that people who live outside Argentina own some apartments because as they are so beautiful and hard to maintain, lots of money is needed.

Jerry Kirkpatrick said...

Hi Frank. I am mainly referring to the rent control monopolies that we have here in the the US, especially New York City.