By Marc Morgan
A traditional Ponzi scheme “is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.” (U.S Securities and Exchange Commission)
A ‘theoretical Ponzi scheme’ is a theoretical fraud that involves the belief in something because others believe in it.
Both Joseph Markus and Babak Moussavi have recently made valuable contributions to the debate on social mobility. Schooling figured strongly, at least in the background, in both of their assessments. In this piece I wish to offer a theoretical analysis on the issue of schooling by assessing the widely held belief that private schools are, ‘in general’, superior market alternatives for education than state schools. I will solely concern myself with what I see to be the foundational argument for this hypothesis and abstain from dealing with other possible factors which are relevant to the question. Their analysis would demand a separate article, and I think they only come into view once the foundational argument has been accepted.
The hypothesis, of private schools being better than state schools, was formally brought to my attention by the acclaimed economist Arye Hillman, currently William Gittes Chair of economics at Bar-Ilan University in Israel. In 1995 Prof. Hillman was awarded the Max-Planck Prize in economics for his contributions to political economy. These contributions are made clear in his widely used public policy textbook Public Finance and Public Policy (2009). It should be noted that Prof. Hillman’s primary point of reference is education in the US, but the argument itself can be said to have universal appeal, given its nature.
The main argument Prof. Hillman offers then is one which is commonly advanced and rarely challenged. At least, in my experience in education it has been the standard view. The argument, extracted (and formalised) from Hillman (2009) runs as follows:
- If friends and fellow students are important in determining motivation for educational achievement then parents will prefer to send their children to private schools where, for extra payment, the children can be with other children whose parents are also willing to pay for a better education
- Friends and fellow students are important in determining motivation for educational achievement
- Therefore, parents will prefer to send their children to private schools (from 1 and 2)
- Teachers enjoy teaching more in environments where students are more motivated
- Since students in private schools, being the children of more motivated parents and being themselves more motivated, are in an environment with other equally motivated students, then teachers in private schools enjoy teaching more than teachers in state schools (from 3 and 4)
- Therefore teachers in private schools are more motivated than teachers in state schools (from 5)
- Therefore private schools are better than state schools (from 6)
The argument really contains two parts or sub-arguments, one detailing why parents choose private schools over state schools (1-3) and another arguing why teachers are more motivated in private schools (4-7). Both combine to argue, in effect, that private schools are superior to state schools.
In the first sub-argument premise 2 is the important premise. Hillman assumes it to hold, as most people would. The first sub-argument is then valid and sound. However in relation to private schools the argument offers no distinguishing feature which is in any way inherent to private education. All it says is that private schools will more than likely induce highly motivated students.
It is worth noting here that when I judge this argument to be sound I have in mind the truth of the premises from the point of view of the parents. It reflects, in other words, how most parents think (of those who are able to afford private schools). From the point of view of the students the first sub-argument completely ignores the equally reasonable assumption of family background influencing child motivation. A child who comes from an economically ‘poor’ background (with neither parent having attended third level education, for example) might have greater motivation to exert higher levels of effort and performance given the higher ‘marginal returns’ associated with that child’s effort, as compared to those of child from a wealthy background. This said however, a parents’ choice of education will more than likely be confined to the choice of other equally concerned parents in seeking ‘a better education’, as Hillman observes. But this does not tell us anything qualitative about private schools, other than the predisposed attributes of the students they attract.
Similar theoretical features are present in the second sub-argument. Premise 4 is self-evident, while premise 5 and conclusion 6 rely on assumptions external to what the institutions themselves provide. Again this argument seems to be equally valid, and probably more sound than the first sub-argument, given the first’s ignorance of the connection between family background and child motivation. However the overall conclusion of the main argument (7) is an unjustified extension. As highlighted, the entire argument does not argue for private schools producing ‘better educated’ individuals, it just says that ‘better’ (more motivated) students will attend private schools, a claim which is itself arguable. This argument, in effect, makes no institutional claims for private schools (or against state schools). So we really end up with a conclusion which may read that ‘better students attend private schools and thus private schools produce better students’. But this is entirely circular. One is left to hypothesising without arguing. In fact the whole argument isn’t really an argument at all, at least in what it intends to demonstrate, i.e. that private schools are ‘better’ educational institutions than state schools.
The reason why such a flawed and uninformative demonstration appears to be convincing, at least, for parents, is the self-fulfilling nature of the outcome. The more parents that are concerned with sending their children to schools where ‘for extra payment the children can be with other children whose parents are also willing to pay for a better education’ and willing for their motivated children to be with other motivated children of equally motivated parents, the more beneficial the result will be for those willing make the extra payment. Such is the fragile and illusory nature of the argument that it closely resembles a traditional Ponzi scheme. And such is this resemblance that it appropriates the name ‘theoretical Ponzi scheme’. On this account the scheme requires a constant belief in the superior quality of private education because others believe in it and a consistent flow of money from parents to continue. Like with traditional Ponzi schemes, ‘theoretical Ponzi schemes’ tend to collapse when it becomes difficult to attract new believers or when a large number of believers ask for the justifications of the theory. Such justifications may also rely on the ‘success rate’ of the institutions or the valuable student networking that such institutions offer. But even these factors are only possible once the argument analysed above, which groups the potentially ‘successful’ and ‘valuable’ students in the first place, is believed.
In the domain of education we must recognise the systematic damage that arguments of the above sort pose for society. Progress will be made once we dismantle them and once we begin to debate the real issues, like the purpose of education, the desire for social justice, and equality of opportunity or social mobility.