EdInvest News
 
January 2004
 
Copyright © World Bank Group, 2003.  All Rights Reserved.
 
http://www.worldbank.org/edinvest
 
Facilitating Investment in the Global Education Market




In this Issue:  This month's newsletter will focus on the voucher system in Chile.





This article was written entirely by the staff of the NCSPE (National Center for the Study of Privatization in Education) at Teachers College, Columbia University. NCSPE provides independent, non-partisan information on and analysis of privatization in education.  A listing of their recent publications on home schooling; cyber schools; and the market in education. can be found under the Publications heading of the newsletter.

See their website:



http://www.ncspe.org/




Almost anywhere in the world, when vouchers are discussed the case of Chile is inevitably mentioned. The country has the only nation-wide voucher system in existence. Implemented over 20 years ago, the voucher system materialized as part of the extensive state and financial reforms adopted by the former Chilean dictator, A. Pinochet. Yet, most of the analysis and evaluation of the Chilean case has been conducted in the United States, due to a growing American interest in the privatization of education.

The reform, its components and regulations

The original voucher reform implemented in Chile had two main components: (a) the governance of public primary and secondary schools was decentralized and located  at the municipal level; (b) a per student funding scheme for municipalities and private schools –those which opted for incorporation in the subsidy regime- was designed and determined by the student enrollment in each school. The per-capita funding plan was implemented for pre-school, primary and secondary education levels. Moreover, the level of per student funding varied by level of education.
The transfer of authority to municipalities was completed in 1986. Previous efforts to restructure school governance were delayed by a severe economic crisis that affected all of Latin America in the early eighties.  The financial difficulties faced by schools were compounded by an initial per-pupil funding scheme that was indexed to the US dollar, a policy was later changed.  Municipal schools encountered deficits and the central government was forced to cover local expenses.  Thus, municipalities struggled to gain autonomy from state influence.  In addition, though private schools were offered public subsidies to participate in the voucher program they were slow to enter the market, despite a steady decline in the demand for municipal schooling, which delayed the realization of a widespread voucher program.  
With the rise of the 1990s and a democratically elected government in Chile, the state began to push a policy agenda focused on quality and equity. Consequently, they implemented strategies to serve disenfranchised students, strengthen institutional capacities, and increase educational spending.  In 1994, per-pupil expenditures finally surpassed levels established in 1982. However, the Chilean government maintained the voucher program. A tax reform in 1993 allowed all municipal secondary schools and participating private schools to opt for a mixed funding scheme. Resources given to schools were discounted proportionally to the tuition charged. If parents were charged a tuition of half the level of the per student subsidy, no discount was applied. On the other hand, schools charging between one half and 100% of the subsidy level were applied a 10% discount; schools charging tuition between one and two per student subsidies were applied a 20% discount, and so on. By 1997, 25% of the total school enrollment was subscribed to this mixed funding scheme (Cox, 1997). In theory, by allowing both public and private schools to access public funds parental choice would expand.  This would encourage a large number of schools to participate, increase competition and improve efficiency.  
The regulatory framework of the education system did not change much in terms of curriculum specification, minimum infrastructure requirements, and teacher certification requirements from what existed in the former welfare state. Previously established requirements continued to hold (although slightly altered) for all public schools, as well as for participating private schools. Theoretically, the program design emphasizes outputs and content, but eliminates regulations over inputs, except for minimum requirements on infrastructure and teacher salaries. However, no accountability measures are tied to performance. Although assessment is mandatory for all schools, the publication and dissemination of results is almost exclusively for media consumption.
Arguably, the positive impact of the voucher program is hindered by limited regulation.  Since the government plays no role in disseminating the results of school assessments, there is no formal effort to inform parents of available choices.  This may diminish efficiency and equity. Furthermore, there are no regulation mechanisms on school admissions. Municipal schools have to admit all students who apply, whilst participating private schools are allowed to select the students they prefer. Similarly, the voucher amount was not designed to compensate for existing SES differences. Therefore, it did not focus on the egalitarian effect of such a design.


The developments & evaluating the evidence

As a consequence of Chile's voucher program, enrollment in private schools subsidized by the state has grown enormously in Chile.  Between 1981 and 1991, the population of private school students increased 120%, rising from around 430 thousand children to 950 thousand (average annual growth rate of 12%). Over the last decade the increase continued, reaching 1.2 million by 1999. In short, private school enrollment evidenced a 180% increase within a two-decade period.
The private sector not subsidized by the state also grew during this period, although at a much shallower rate, with an increase of 20% in the first decade (2% on average, per year), and a total variation of 57% by 1999.  The unsubsidized private sector did experience an initial decline in enrollment following the introduction of school vouchers, which may suggest the benefited sector included students who already had the capacity for private choices. However, several of the private schools opted for the subsidized system, which may provide a more likely explanation for decreasing enrollments.  Regardless, private non-subsidized enrollments recovered quite fast.
On the other hand, public school enrollments decreased 21% between 1981 and 1991.  Attendance did begin to increase in the 1990s, but by 1999 student enrollment figures were still below levels prior to the voucher reform. As a whole, total enrollments increased 21% in these two decades. Therefore, the overall increase in the private sector was larger than the overall public sector decrease. However, most of this increase was in the 1990s, with a total enrollment growth of only 3.4% by 1990.
In terms of student outcomes, results vary across studies. A large set of researchers have studied the Chilean voucher system's effectiveness on the basis of student outcomes as measured by the National Assessment System of Chile (SIMCE). Most researchers have found a clear gap on student achievement test scores of public over private-subsidized schools, such results tend to be highly determined by differences in student' socioeconomic background. Moreover, schools specialize, with public schools targeting socio-economically disadvantaged students and with private schools producing better results with more advantaged students. The highest quintile attends mostly private-non-subsidized schools, the 4th and 3rd quintiles attend municipal and private-subsidized schools in comparable proportions, and the lower quintiles are highly concentrated in municipal schools.
Overall, studies evaluating results before 1990 have all found higher test score achievements of private-subsidized schools, after controlling for SES and other geographic and school quality related variables such as, class size, teacher experience, failure rates, within others (Carnoy, 1997 & 1998; Carnoy and McEwan, 1998 & 2000; Bravo, 1999; Mizala and Romaguera, 1998 & 2000; Parry, 1997). However, the study by Bravo et al., considering all years between 1982 and 1997, documented that public and private subsidized schools have equally distributed educational results (and this has remained stable) and that private-subsidized superiority over municipal schools, having controlled for school SES decreased during the nineties. This result is similar to the findings by authors analyzing post 1990 trends, (Carnoy & McEwan (1998 and 2000), McEwan (2000a & 2000b), Mizala and Romaguera (1998)). Altogether, studies show a set of mixed evidence for post 1990 data sets. Where private-subsidized schools are superior, such superiority in test scores is slight.
As concluded by Carnoy (1998), municipal schools appear to have done initially worse as a consequence of the large shift of students to the private-subsidized sector, but after 1998 the situation stabilized. He states that from then on, municipal schools' test scores have shown a gradual gain compared to private-subsidized schools. Whether this is so because of the effect of competition can not be straightforwardly concluded, but such an outcome would be expected with time in a competitive market.


Conclusions

This voucher experience shows that there are a great variety of factors at play, with the consequences of such a system not clear a priority.  It appears the proliferation of vouchers has stratified students from different SES backgrounds between institutional types, which may affect equity. However, due to lack of data, there are no studies on SES segmentation within the public school system previous to the reform, conclusions cannot be drawn. Therefore, the question of importance is whether the reform in fact promoted SES segmentation, or just expanded a within-public-school segmentation across public and private schools.
Analyzing the Chilean voucher program does show that there are a lot of considerations in the design that might promote more or less such segmentation across sectors. This is related to transportation issues, tuition add-ons, non-existence of enrollment regulations, etc. Moreover, the Chilean case provides quantitative evidence that in the first years there were attainment gaps between sectors, but that these gaps have reduced in the 1990s. This can be the result of public schools improving as well as the private sector worsening. Additionally, if the model is actually 'working' and achieving equilibrium this is to be expected. In this case, what is being criticized is the result that is actually expected of a market. Hopefully, further research will look into the education market as a whole and estimate whether there is a convergence towards a 'steady-state' or whether these results are just spurious and simply a consequence of both sector having been similar in the first place. However, it must be acknowledged that most of the private-subsidized schools did not exist prior to the reform.
Studies evaluating the equity, efficiency, choice and social cohesion effects of such a voucher scheme need to be set in context. Clearly cohesion was not an issue, because curriculums were not liberated, an authoritative regime was in place, and a highly centralized education system prevailed in the latter decades. Yet, this does not necessarily mean that such cohesion will not be affected in the future.
Finally, in terms of equity, SES segmentation in education is no different from the distribution and consumption of most goods. In Latin America, as well as the rest of the world, the disadvantaged tend to be 'left-out' of the market. What the Chilean experience suggests is that markets may in fact serve the middle and middle-low sectors, but that the lowest sectors need to be targeted in other ways. The fact that the lowest sectors stayed in the public schools and were the recipients of most of the compensatory and institutional capacities policies might actually be a 'good' thing, especially if one then believes that expenditures per student are greater in the public sector because of these interventions. The question here is whether this is at all realistic, since over and over, populations have managed to segregate themselves through different mechanisms notwithstanding the country.

BRAVO, D., CONTRERAS, D., & C. SANHUEZA. (1999) Educational Achievement, Inequalities and Private/Public Gap: Chile 1982-1997. Chile: Universidad de Chile.

CARNOY, M. (1997) Is privatization through education vouchers really the answer? A comment on West, The World Bank Research Observe, (12)1, pp. 105-16.

CARNOY, M. (1998) National voucher plans in Chile and Sweden: Did privatization reforms make for better education? Comparative Education Review, (42)3.

CARNOY, M. AND P. MCEWAN. (1998) Is Privatization More Effective and Cost-Effective the Public? The Case of Chile. Draft. Palo Alto: Stanford University.

CARNOY, M. AND P. MCEWAN. (2000) The Effectiveness and Efficiency of Private Schools in Chile's Voucher System. Educational Evaluation and Policy Analysis, (22)3, 213-239.

COX, C. (1997) La Reforma de la Educación Chilena. N° 8. Chile: PREAL.

MCEWAN, P. (2000a) Private and Public schooling in the Southern Cone: A comparative analysis of Argentina and Chile. Occasional Paper No. 11, NCSPE. New York: Teachers College, Columbia University. Available on-line at http://ncspe.org/list-papers.php.  

MCEWAN, P. (2000b) The Potential Impact of Large-Scale Voucher Programs Occasional Paper No. 2, NCSPE. New York: Teachers College, Columbia University.

MIZALA, A. AND P. ROMAGUERA. (1998) Desempeño escolar y eleccion de colegios: la experiencia chilena, Center of Applied Economics. Santiago de Chile: Universidad de Chile.

MIZALA, A. AND P. ROMAGUERA. (2000) Determinación de factores explicativos de los resultados escolares en educación media en Chile. Center of Applied Economics. Santiago de Chile: Universidad de Chile.

PARRY, T. (1997a). Theory meets reality in the education voucher debate: some evidence from Chile. Education Economics, (5)3.



Publications

The National Center for the Study of Privatization in Education at
Teachers College, Columbia University, USA would like to bring your attention to our three latest publications on home schooling; cyber schools; and the market in education. All three papers can be found on the NCSPE website at
http://ncspe.org/list-papers.php  

The first paper(#88 on the site)is the most advanced work explaining what is known about home schooling.

The second paper(#87)addresses this phenomenon where schools without brick and mortar and few personnel are getting the same charter school payments as regular charter schools, despite their very low costs. They mainly work with home schoolers.
 
Finally, the third paper(#86)provides what we believe is the clearest explanation of what is known about the issues and evidence on putting education in the marketplace.

Abstracts are available for each paper on the website. We hope that you will also visit our home page at http://www.ncspe.org for general information about privatization in education.

Articles of Interest

In a January 22, 2004 article, The Guardian reports that the Conservative party of Britain  plans to privatize Britain's universities within 15 to 20 years as the central plank of their long-term alternative to top-up fees. Their plan is based on promise to create permanent endowment funds for universities, which would provide an alternative source of income to student fees. These would be funded by the sale of disused analogue TV and radio spectrums and possibly the privatization of Channel 4. Another "funding stream" being looked at is business sponsorship. Businesses and individuals funding endowments would be encouraged by tax breaks, reflecting the US system. See the article at:

http://education.guardian.co.uk/students/tuitionfees/story/0,12757,1128432,00.html

British Prime Minister Tony Blair's Labour Party won a majority vote in the House of Commons, approving a major increase in tuition for college students. Blair has argued that Britain's financially strapped universities would fall further behind their international competitors without the additional funding, which the government estimated would provide about $1.8 billion per year. The bill raises fees from about $2,000 per year to $5,400 by 2006. But it also provides for enhanced scholarships for students from low-income families and defers payments so that graduates will not be required to begin repaying the fees until they begin earning $27,000 annually. See the article in the Washington Post at:

http://www.washingtonpost.com/wp-dyn/articles/A52854-2004Jan27.html


A recent article in the Economist discusses the state of British universities which are suffering under a lack funds, state control of   price and quantity of courses, increased enrollment and the inflation of qualifications. Elsewhere in Europe universities are even more overcrowded, with barely a vestige of direct teaching, with a few exceptions. A recently published ranking of the world's best universities by the European Commission found that of the top 50, all but 15 were American.

See this article with graphics and related items at http://www.economist.com/world/displaystory.cfm?story_id=2367332

The province of Ontario, Canada recently announced a children's education program called Children First: School Choice Trust, which will offer 225 new tuition assistance grants for the 2004-05 school year. The program is currently serving 150 children a year across Ontario and will be expanded to provide grants to 1275 Ontario children over the next six years.  This is Canada's first privately funded program to provide tuition assistance grants for independent elementary school tuition in Ontario. The funding has been made possible by an increased commitment from The W. Garfield Weston Foundation, a private family foundation that supports educational and environmental initiatives across Canada. Complete program details and application forms are available at www.childrenfirstgrants.ca.

The Pew Foundation reports on the United States Congress passing the first federally funded school voucher program on January 22, 2004, allocating $14 million to establish a program for low-income students in the District of Columbia. In the fall, eligible students – those whose families earn up to 185 percent of the poverty level – will be offered vouchers of up to $7,500 that can be used to pay for private secular or religious schools. See the entire story and related articles on their website:

http://pewforum.org/docs/index.php?DocID=44


Events

The International Finance Corporation (IFC) held an International Forum on Investment in Private Higher Education last week at the headquarters in Washington, DC. Over a two-day period speakers discussed issues such as the global marketplace, quality and relevance, student financing and financial structuring options.  Presentations will be available on the website from February 2, 2004.

http://ifcln1.ifc.org/ifcext/che.nsf/Content/EducationConference

The Institute for International Research  (IIR) will hold its 6th annual Education Industry Investment Forum in Miami, Florida March 23-25, 2004.  The forum offers in-depth analysis of investment opportunities in the K-12, post-secondary and corporate training markets in America.  This year the  focus will be on investment trends, government spending and regulation. For further information contact Ross Kovach by email  at rkovach@iirusa.com