It’s no surprise to see another report on escalating private school fees (Queensland private schools announce fee hikes of up to 7 per cent for 2013), given that, under the traditional schooling model, the potential for productivity gains in schools is limited. Now, although schools can’t increase their productivity much, productivity is increasing in other sectors of the economy – e.g. manufacturing, agriculture and wholesale trade – and this drives up wages in other sectors, which schools will be forced to compete with. This phenomenon is known as Baumol’s cost disease, after the great US economist William Baumol. A very good explanation of the phenomenon was provided by Rumplestatskin at Macro Business last year (Australia has Baumol’s disease). Rumplestatskin noted:
Education is the other area where governments need to acknowledge that cost escalation is unavoidable. While I don’t want to give governments an excuse to waste money operating schools inefficiently, but there are limits to productivity growth in this area. Teachers will still teach classes of roughly the same size, irrespective of the computing and associated technology which supports them.
This is true if the existing model of schooling is retained, which I expect it will be in the short to medium-term. However, in the long-term, we may move away from bricks and mortar schools and embrace e-learning, which obviously would bring major productivity gains. The way forward just may be contained in a brilliant book by Salman Khan, The One World School House: Education Reimagined, which I recommend to readers.