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The recent economic crisis and the expenditure on education

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Countries invest in educational institutions mostly because they expect to foster economic growth, productivity and development, among other reasons. However, they do not all invest the same amount. In OECD countries the preferences of public and private agents regarding the proportion of education expenditure relative to GDP are different. In Portugal, for all levels of education combined the expenditure on educational institutions as a percentage of GDP (from public and private sources) was 5,5 in 2005 and 5,8 in 2010, values that, albeit growing, are inferior to those of the OECD average, 5,8 in 2005 and 6,3 in 2010.

Analyzing the expenditure on educational institutions as a percentage of GDP for all levels of education by source of fund in 2010, we verify that private expenditures in Portugal were 0,4% and in OECD average  they were 0,9%, and that public expenditures both in Portugal and OECD average correspond to 5,4% of GDP. As a result, the difference comes, mostly, from private expenditure. Notice also, the large public weight on education funding in OECD countries

In fact, many of the OECD countries with the greatest growth in private spending have also had the largest increases in public funding, denoting that private spending tends to complement public investment rather than replace it.

The demand for high-quality education has costs that must be balanced against other demands on public expenditure (health care, justice, social support…) and the overall revenues (mostly fiscal) in order to compensate de deficit originated, especially in the current international economic context.

Indicators such as the presented ones can be affected by financial crises. It is not possible yet to analyze the full extent of the impact of the recent crisis, but it is still interesting to look at the already available data, as the following picture, from Education at a Glance 2013 – OECD”.

Image

We can see that public expenditure on educational institutions increased while GDP decreased in most of these countries between 2008 and 2010. Nevertheless, when the changes between 2008-2009 and 2009-2010 are analyzed separately the picture is not so positive.

In the period 2008 to 2009, GDP decreased in most countries while public expenditure on educational institutions increased (4% – OECD average). Between 2009 and 2010, while GDP rose in most countries, public expenditure on educational institutions fell in one-third of OECD countries.

This reinforces the trend that the cuts in education budgets observed in one-third of countries in 2010 will also begin to appear in more OECD countries over the next years.

Once more than three-quarters of education expenditure in most countries comes from public sources, we could expect that the downturn in GDP growth would affect public spending on education, yet data show us that the education sector has been relatively protected from early budget cuts.

The effect of the financial crisis on education budgets is more evident in the OECD countries that had substantial budget deficits in 2010 and 2011 (such as Greece, Ireland, Portugal or Spain). In 2011-2012, cuts in education budgets of more than 5% were observed, for instance in Portugal.

Therefore, we cannot forget that these are still first-stage results of the recent economic crisis and that in the next years it is going to be possible to have a clearer and more complete image of these consequences.

Sara Simões #643

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Author: studentnovasbe

Master student in Nova Sbe

One thought on “The recent economic crisis and the expenditure on education

  1. After reading the article about “The recent economic crisis and the expenditure on education” I have came with other few points that I find interesting to complement the article. According to what was written, the majority of the OECD countries, found themselves throughout the crisis, forced to cut on the public expenditure on education, due to budget restrictions. In addition, we also came to notice that countries don’t invest evenly on education. This article seems remarkable because it brings back the question on “how to finance the education sector?”.With the current crisis it is necessary to rethink the way of financing education. Should it be public, private or a mix of both? And what does the state need to do? Of course there is no simple answer but I think that, due to unprecedented budget and financial constraints, it became clear that the financing of education, no matter it’s status or geography, cannot be an exclusive burden or duty of the state. Of course that we may find countries where the state’s exclusive response is successful. For instance, in some Nordic countries like Sweden, there is an intensive public financing. In Netherlands most schools are private but publicly financed. Thus, what do we want for Portugal? This is the first question that politicians should ask themselves. We need to think first what type of school we want for our children (if is free or not, if it is for everyone, questions like that) and once defined the concept, we need to think how to finance the system. In my opinion, a mix of public and private funding is the best solution. Nowadays many individuals argue that in Portugal we need to increase the freedom of choice on what concerns education and establish a “quasi-market” in this field, in order to promote the efficiency and increase the quality of public schools. My first line of thought on this “hot” topic is the following: sure, we can and probably should increase the freedom of choice, but it must be supported by a?) movement. In other words, students cannot find themselves ultimately in a worst situation than they were before on quality school standards In a second line of thought, if the number of choices increases, we need to create mechanisms able to “smooth” the differenciation between schools that can lead to segregation (stratification). Indeed, as the better students can be attracted and retained by private schools, increased inequality might become an insurmountable challenge, putting into question the freedom of choice single policy.
    To conclude, it is difficult to discuss this “hot” topic, of financing the school, in few words, but the essential idea is that, for Portugal, given the public budget constraints, we need to increase the private financing of schools (that can keep its private or public status but that brings us to another discussion ), and we need to have a fresh look at the opportunity costs of moving ahead with this kind of changes and particularly at social consequences in terms of stratification and equality. Basically, the current crisis highlights this discussion, since we all agree on the need to change and reform the system.