Paste your Google Webmaster Tools verification code here

Why teachers are just like bankers

Posted by on August 29, 2012 in Economic Theory | 1 comment

The current highly emotional debate about GCSE grades is not very enlightening.  But what has happened tells us a lot about how incentives matter, how they affect outcomes.  And at the same time, it shows that unless a proper set of social norms is in place, incentives can have unanticipated, perverse effects.   Bankers and teachers have behaved in exactly the same way.

Go back to the major reforms in education under Mrs Thatcher in the 1980s.  There is no market within the state sector.  So the government tried to mimic the effects of a market by introducing exam targets.  Resources for your school in general and your own promotion prospects depended on hitting these targets.  Teachers were given an incentive to improve, just like in a real market.  Or at least, that was the theory.

Incentives did indeed work, but in an unanticipated way, with an undesirable outcome.   Teachers worked out that targets could be met by entering pupils for the more Mickey Mouse subjects.  These boomed at the expense of subjects like physics.

Nobel Laureate, Elinor Ostrom, got her prize for pointing out that markets were not the solution to everything.  Social norms, emerging from the interactions between people, can trump incentives.  So if the teachers had upheld a set of social norms which disapproved of the devaluation of standards, we would not be in the current mess.  But they didn’t. Most individual teachers are left-wing, but they acted like caricatures of Rational Economic Person in their own self-interest, just like the bankers they despise.

What about the exam boards and grade inflation?  No-one outside the state education sector believes that the sustained rise in grades over a 24 year period has any real meaning.  The boards compete in a real market, for students to take their exams.  Competition is almost always beneficial.  It keeps suppliers on their toes, forcing them to innovate, and improves quality.  The concept of wasteful competition is virtually an oxymoron.

But in education, we are dealing not in competing goods and services, but in competing currencies, where a different set of rules apply.  The unit of value is the quality of the grades.  Collectively, it was in their interests to maintain standards.  Individually, each board had an incentive to make the exams that little bit easier.  The outcome has been a catastrophic downward spiral in standards.

We have seen a classic example of Gresham’s Law, of bad money driving out good.  Why choose to enter your students with a board which tries to uphold standards, when another will supply you with more and better grades for the same ‘price’, the effort you and your students put in.

Michael Gove is trying to enforce a new set of social norms, with the educational sector once more respecting standards.  He must not back down.

Published in CityAM on Wednesday 29th August 2012

1 Comment

  1. The assertion that ‘most individual teachers are left-wing’ is unsupported by any evidence. The term ‘left-wing’ has no useful meaning without further definition and is therefore no more than a notion. Does Paul Ormerod suggest that most teachers support a large state, are critical of all free markets, deplore private property rights, support ‘liberal social causes’ or, Soviet style, reject them? Teachers tend to be educated, thoughtful, rational and flexible and very unlikely to swallow a neatly labelled left / right package. They are certainly not a homogeneous ‘tribe’. Ormerod attempts to to brand teachers as irrational or hypocritical by suggesting that left-wing views (which some may hold), are incompatible with acting rationally in one’s own self-interest. Clearly this is nonsense. Those on the left have combined to form unions, founded mutual organisations and co-operatives, specifically to further their own interests both individually and collectively. There is no conflict here. Aiming to conflate bankers and teachers and hence damn the latter by suggesting that they both act rationally to promote their own self-interest is equally specious. At the very worst, the teacher is conspiring to serve the interests of pupils, not rip-off the customer, shareholder and ultimately the state as lender of last resort. The teacher is also likely to have the subtlety to distinguish between the economic benefits of retail banking and the casino and will not ‘despise’ indiscriminately. Unless Paul Ormerod has forgotten the lessons he was taught in his ‘golden age’, he remains a poor advert for the educational standards of a previous generation of teachers and examiners. I cannot think that he would gain a high grade in a 2012 AS paper in Critical Thinking based on the evidence of this post.

Leave a Comment

Your email address will not be published. Required fields are marked *