The Pakistan Education Task Force, co-chaired by Shahnaz Wazir Ali and Michael Barber, had a survey done on low fee private schools in Karachi. The full report of the survey is not on the website, but a presentation of survey results is. It argues that the school market, in the five low income areas of Karachi that the survey was conducted in, is competitive as a) there is effective choice between 5-10 schools for all children in these localities and b) barriers to entry into the school market are low as anyone can rent a building and open a school. This is especially true of the un-registered schools, and the survey covered these as well.
What is interesting is that the task force survey did not look at barriers to movement of children between schools. The survey did find that the average fee for low fee private schools in these five areas was only Rs. 270 per month, but it did not ask, or the presentation on its website does not give details on other costs and charges.
A friend recently wanted to shift his child from one private school to another. The child was not happy in his school and my friend found that the management was also quite uncooperative. But his problem was that he needed a good Rs. 20,000-30,000 to be able to move the child to the new school. The new school had an admission fee, a security deposit requirement and a couple of other smaller fees all adding up to the total above. He could not dish out that kind of money from his salary and so the child stayed in the old school.
The new school also had different books and a different uniform. So, if the child had been moved, the cost of moving would have been even higher. This is a very effective barrier to movement of children across schools. Even if entry into school markets is easy as schools need not be registered, there is a ready supply of buildings that can be rented and teachers are also readily available, the issue of competition is also tied to how easy it is for students to move across schools. And if the private sector charges admission and other fees, and has variation in uniforms and books, then to the extent these fixed costs are lumpy enough, they will reduce effective competition by discouraging switching.
There was a time when in the mobile telephony industry too though there were a number of players in the market; the market was not very competitive and number portability was not allowed or was not possible. Admission fees and other non-refundable fees as well as uniform and different books act in a similar manner. Of course, the barriers would be higher, in monetary terms, for private schools that charge higher fees, but even for low-fee schools these barriers can be substantial, given the lower income of the clientele.
The question to ponder is whether these barriers should be allowed to exist and are they legal? Why should private schools, low fee or high fee, be allowed to charge admission fees? What is that fee facilitating? Admission fees were charged by institutions to defray processing costs of forms, admission tests, etc. But it does not seem that the fees being charged currently by private schools are tied to these processing costs. And what is a security deposit about? It is the parent who is entrusting his/her child to the school, and it is the parent paying a security deposit as well! It should really be the school paying security deposit, if there should be any. Other fees are even less justifiable.
One can understand the need for uniforms on the grounds of appearance, formality, the need for discipline, need for uniformity, and even the need for distinctiveness, but if this acts as a barrier to movement, which it will in case of low-income families, there needs to be a discussion of the tradeoff by some regulator. The same would be true of differences in school books. Since most children, apart from those in higher fee private schools who are prepared for the O Level stream, prepare to appear for matriculation examination, the differences in content is unlikely to be large but it could become a significant barrier to movement of children due to cost issues. Again, a regulator needs to debate the public interest dimensions of this issue.
Competition is assumed to be good for quality. The argument is that if school space is competitive, schools will compete for children and this will force them to make quality improvements to attract clients. This should work between private schools. If we assume that it does, then anything that hampers competitive forces artificially and acts as a barrier against competition should be seen as a negative and should be discouraged. This is a legal issue as well, as artificial barriers to entry/exit are usually considered to be illegal in most jurisdictions. The Competition Authority of Pakistan should have a look at this case and if they feel the admission/security and other fees and some of the other charges imposed by private schools are artificial barriers that encourage oligopoly and reduce competition, they should step in to declare them to be illegal and unacceptable.
The writer is an Associate Professor of Economics at LUMS (currently on leave) and a Senior Advisor at Open Society Foundation (OSF). He can be reached at [email protected]
