Taxation and government spending: which comes first?

The common assumption is that the UK’s taxation is the source of revenue that pays for public services, health, welfare benefits, education and defence. It is often assumed, and commonly framed as, taxpayers money. I was having quite a discussion on Twitter about this. I was putting forward the idea that taxation is not a source of income. The following justification comes from Larry Randall Wray and is a view held by heterodox [1] economists who subscribe to Modern Monetary Theory or Modern Money Theory (MMT) (see Mitchell, 2016; Wray, 2015).

Wray explains the principles in the following video. If you want a brief overview read on.

Imagine year zero for a country’s economy, the notional point at which the economy begins. The first thing that the country has to do is invent a currency. In the UK we have the pound. The government creates a currency with which transactions and trade can take place. The government is the only institution that has the legal power to create that currency. Anyone else who tries to faces criminal prosecution.

At year zero, the UK has to introduce that currency into the economy, it can give it to its citizens and it can pay them to provide the things we need for our society. The government pays people to provide administration, build hospitals, schools, sports facilities and weapons. It can pay people who don’t have a job. It can pay people to be doctors, teachers and it can provide training for those individuals. It can pay for research and development.

It is only after the government has introduced currency into the economy that it can tax people and businesses. This flow of spending followed by taxation continues year-on-year. And in fact most of the time the UK runs at a deficit, there is lag between spending and taxation. Because spending precedes taxation. You can see this in the graph below.

gov-spending-and-revenue
Government General Expenditure (GGE) and Government General Revenue (GGR) (IFS source)

So what is taxation for, if it does not provide government its revenue?  Wray and other MMTers argue that it creates a demand for the currency, it makes it flow round the national economy. If we did not have taxes then the currency, the pound for example, would not be in demand in the economy. We need it because we have to pay taxes in that currency. Richard Murphy (2015) considers tax a kind of democratic subscription, it gives citizens a commitment and right to participate in democracy. Taxation is also used to redistribute wealth and to regulate inflation by increasing or reducing demand in the economy.

It is important to recognise that running an economy in deficit does not necessarily increase the national debt, because the national debt is not really a debt in the sense that we understand personal or household debt (Wray, 2015). The national debt are bonds created by the government to drain accumulated reserves in the banks. This represents the accumulation of currency in the private sector and technically speaking it is used to maintain the overnight interest rate. This, I understand is common knowledge for anyone in banking or finance.

So when a government talks about maxing out the government credit card, or leaving a debt for our grandchildren this is highly misleading. A government cannot run out of its currency. Therefore, there is really no excuse for not funding health and education and other public services properly.

Related blog posts:

There is plenty of money to spend on schools: a Modern Money Theory perspective

Education, policy and pedagogy: It’s the political economy stupid!

Note:

[1] Heterdox economics contrasts with orthodox or mainstream classical economics.

[2] 0n 22/2/2017 I noticed that this blog had been replaced with an earlier incomplete draft, I have now restored it

[3] Thank you to Sandra Crawford who introduced me to this excellent illustration of the ideas in this post.

References

Mitchell, W. F. (2016). Modern Monetary Theory and Practice: An Introductory text. CreateSpace Independent Publishing Platform.
Murphy, R. (2015). The joy of tax: how a fair tax system can create a better society. London: Bantam Press.
Wray, L. R. (2015). Modern money theory: a primer on macroeconomics for sovereign monetary systems (2nd edition). Houndmills, Basingstoke, Hampshire ; New York, NY: Palgrave Macmillan.

Education, policy and pedagogy: It’s the political economy stupid!

At the heart of all the main issues in education at the moment is economics. In fact economics in education has become of increasing importance and is a growing field in itself. Analysis of data to evaluate education policy has been valuable in understanding how schools perform and the achievement and a progress of different types of students, for example.

This approach is in the tradition of classical economics. Underpinning classical economics is the idea that people make rational decisions within markets. This leads to econometric models that can be used to predict the behaviour of markets and the behaviour of the economy as a whole. In education, for example, it leads to predictions about earnings following participation in school-based programmes or interventions, the study of various subjects or attendance at Higher Education.

Classical economics sets its boundaries at the edges of the economic system. It does not concern itself with the political dimensions of economics, apart from say, informing policy makers on resource allocation. This rests on its fundamental principle of rational behaviour.

If we step outside classical economics, we can still see the distributions of wealth and power that classical economists observe, but we can also begin to see the forces that create these systems. It is not simply rationality with, as Adam Smith observed, an invisible hand ensuring that all would be fair in a freemarket society. Karl Marx’s critical analysis of capitalism in the three volumes of Das Kapital showed that the freemarket does not lead to a fair or equipatable distribution of wealth. It necessarily leads to the accumulation of capital. As a consequence there is an exploited working class. And hence economy is necessarily political.

One can be forgiven for thinking that in state education political economy can be ignored. The reason we think like that is that since the end of the Second World War and until recently, we have had no reason to think differently. But now we must. I shall explain by dividing the period between 1945 and the present into three economic phases.

The first phase is from 1945 until 1970. The post-war period saw considerable government spending on health and education and sat alongside a  freemarket economy. Education was grant-funded through local authorities. This investment was seen as a benefit to society as a whole. However, from the late sixties until the 1970s, things changed. The economic context changed and public education economics had to change in response. This leads to our second economic period between 1970 and 2008.

In the 1970s, there was a change from a mixed economy with public sector spending alongside a freemarket economy to neoliberalism, where there was much greater emphasis on the freemarket. During the early seventies there was a crisis in capitalism, in the UK this was characterised by inflation, decreasing company profits and increasing wage demands by the work force. In the end the unions lost, their pay was controlled and businesses were able to maintain their profits to some degree. The worst outcome was that the economic crisis was erroneously blamed on the unions, inefficient nationalised companies and a supposedly bloated public sector. When Margaret Thatcher was elected in 1979, she famously took on the unions, began privatising nationalised companies and reducing the size of the public sector. Underpinning this was the belief privatisation and marketisation was the best way to run our public services. The invisible hand would do its job. Neoliberalism was the political economy that continued until 2008. It was adopted by New Labour in 1997 and was supplemented by an increase in public spending. Although much capital spending in schools was from private capital. For large businesses, neoliberalism created opportunities to profit from public-sector services and subsidised by the state.

The preoccupation through this period of neoliberalism has been on the deficit in public sector finances. That is the difference between tax revenues and government spending. The preoccupation with eliminating deficit spending and an attempt to return a surplus in public finances has the effect of reducing private sector surpluses (I explain this in more depth here). In other words private sector borrowing has to increase, households become more indebted, house prices inflate. This creates demand in the economy (consumers are debt spending) and the banks profit. In 2008 this whole sorry pile of private debt was found to be overvalued and the big banks had to be bailed out by the state. Once again capitalism is in crisis. But the financial crisis of 2008 was a symptom of underlying problems brought about by neoliberalism itself.

The neoliberal period of unregulated freemarket capitalism has resulted in increased wealth inequality, while the richest 10 per cent or so, have got richer the rest have got poorer or are carrying considerable debt. Inequality in society is indicative of a divided and unhealthy society. Wealth and income inequality leads to democratic inequality, where the wealthy are in a position to influence government much more than the less well off. It also leads to health and education inequalities. Furthermore, it leads to a less productive society since there is less investment in workers and their development.

We find ourselves in period of post-capitalism or post-neoliberalism, the collapse of centrist politics is indicative of this also. No longer is the status quo working for a large proportion of society, this is evident in the election of an unequivocally anti-austerity leader of the opposition, and more dramatically the referendum result that will ultimately lead us out of the EU. This was the precipitation of an anti-establishment and anti-status quo vote.

In terms of the character of education, the three economic periods (public sector, neoliberalism and post-capitalism) have shaped schools and pedagogy in particular ways. During the public-sector period (1945 – 1970) practices and organisations were emergent, but drew heavily on the approaches used in traditional establishments, like for example, the grammar school. In an attempt to address diverse social needs and with new ideas developing in the fledgling field of education research, there were attempts to address individual needs using student-centred practices. However, the mainstay of educational practice drew on traditional teacher-centred practices, because it is much easier to prepare for and to manage classrooms.

The neoliberal period (1970 – 2008) can be characterised by increasing accountability, increasing managerialism and perfomativity. The emphasis on accountability means that teachers are expected to ensure students achieve targets and expectations in terms of progress and examination results. There is increased surveillance and attempts to identify effective practice in terms of progress and attainment. In the 2000s this extended to a prescription of classroom practice and pedagogy. While practice remains largely traditional, there are elements of progressive student-centred teaching, but on the whole the latter, apart from among enthusiasts, was superficial. The importance of the social aspects of learning, such as discussion and dialogue, the importance of affect and motivation and the recognition of constructivist learning were recognised and mandated in official views of pedagogy. However, given the demands placed on teachers and the intensity, as a result of being held increasingly accountable for students’ results, these elements were only really implemented in a performative way, to please observers and inspectors rather than placing them at the heart of education.

The post-capitalism period (2008 – present) continues a neoliberal theme, but it does not hide the crisis beneath. Since 2010 the Coalition government and the  Conservative government from 2015, have extended the privatision projects brought in by previous governments. Academies are effectively outsourced education service providers to the state. There is increased emphasis on quantifiable outcomes to monitor the quality of the service provided by schools. In an attempt to make the educational commodity more clearly defined the student-centred aspects of pedagogy have been abandoned and even vilified. The emphasis has been increasingly on narrowly defined definitions of knowledge and the reduction of learning to a process of memorisation of increasingly complex facts. The crisis beneath this, within the post-capitalist school, is the overall reduction in teachers’ pay and conditions, longer working hours, excessive workloads and deprofessionalisation. The recruitment and retention of teachers is increasingly challenging. There are also deep concerns about the impact of intense school experiences on children’s mental health and wellbeing.

Economically, we move into a post-capitalist post-neoliberal world in which economic, technological, social and political forces are undermining existing approaches. Yet the government continues to press ahead with a privatised and marketised approach to education. What we need to do is develop schools and educational practices to respond to community needs in a more holistic way and to draw on contemporary understanding of learning in terms of culture, socialisation and cognitive development. We cannot return to public sector nationalisation of state education, but we must reduce the managerialism and hierarchical structures of schools and academy chains and improve the working conditions and professionalism of teachers. They can be mutualised as community co-operatives, to devolve decision making and to collaborate with communities. This is an antidote to the corporate managerialism of the neoliberal period. While schools cannot mitigate for wealth inequality, they can connect with local communities and help develop confidence and build social and cultural capital. Austerity (deficit reduction) is a political choice and not consistent with the post-capitalist period we find ourselves in (I elaborate on this in a previous post here).

The driving force in state education is political economy and by considering economic and political forces, not only can we better understand policy, practice and pedagogy, we can better design schools and learning to respond to the political economy in which we live.

There is plenty of money to spend on schools: a Modern Money Theory perspective

It is common and widely accepted that the UK’s finances are in a dire situation. The national debt has grown from £700 billion in 2010 and is set to reach almost £2 trillion in 2020. While the deficit (the difference between government spending and taxation) has been reduced from roughly £100 bn (2010) to £40 bn (2016), there is a commitment to turning the deficit into a surplus. As a consequence many people are willing to accept that we must tighten our belts, make savings and do what we can to avoid the out-of-control debt spiralling further. We do, after all, want to avoid passing on this debt to our children and grandchildren. So it goes.

According to the Institute of Fiscal studies, school spending is being cut by 8 per cent in real terms. Perhaps more. Over the last few weeks I have heard colleagues in the university as well as teachers, headteachers and parents acknowledge that this is necessary given the economic situation and prospects I have outlined above. We have to cut back on spending, we have to reduce the debt, we have to make sacrifices. We have to find low cost and efficient ways of educating children more cheaply. No frills, no expansive (or expensive) learning; the learning of facts in classrooms with austere compliance. For teachers, no professional development, longer hours and real-terms pay cuts.

After all, it all makes complete sense. It may be a bitter pill to swallow, but if we, as individuals, households or as businesses overspend we would end up with an unmanageable debt and we would go bust. It makes sense that the same applies to government spending. If the UK government overspends, day-to-day, we will, as a nation, go bankrupt.

Now here’s the thing, government spending is not an aggregated version of household spending. In our personal lives our spending is independent of our income. We are, for all intents and purposes, free to spend what we like; whether we spend less or more than our income. Clearly, if we spend more we will go into debt and if we spend less (which is almost an impossibility in the Watson household) we save, but fundamentally income and expenditure are independent of one another. Which is where there is big difference with government finances or what we might call macroeconomics. This is probably the most important thing to understand in getting a better grip of how a nation’s economy works.

The difference between you and the UK treasury is that you do not issue your own currency, the UK does. For every transaction with that currency, whether you are paying for schools or buying an ice cream (see Richard Hammond), there is a buyer and a seller. Because at any one point in time there is fixed amount of currency, for everything spent there must be something sold. Across the whole economy income must equal expenditure. There is at the heart of macroeconomics a conservation of the total amount of currency, because it is only the government that has the legal power to create or destroy currency.

Think of it like this, the government creates currency, the pound. If you work in the public sector you are paid in pounds, with which you buy things from the private sector. People working in the private sector get paid in the currency and also buy things. Currency is circulating around the economy (of course, households and businesses can save money buy spending less than they earn but I will come to this later). The mechanism by which the circulation of currency is controlled is through taxation, we have to return a proportion of our earnings through paying tax in that currency. But importantly the government has to create currency and spend it before there is anything to tax. Tax should not, therefore, be seen as a revenue source, but as a means of regulating the amount of currency in circulation. The source of a government’s capacity to spend is through the creation of its own currency. It is therefore recognised that governments, like the UK and US for example, cannot go bust because of their power to create currency and that they buy things in that currency.

These are the fundamental ideas in Modern Monetary (or Money) Theory (MMT) which draws on the ideas of both Keynes and Marx to consider macroeconomics in an alternative way. The starting point is the idea that within a nation with a sovereign currency all incomes must equal expenditure. A macroeconomic view of this income and expenditure balance is usually considered by breaking it up into different sectors. The private sector, the public sector and in trade with the rest of the world. With this we get the following simple equation:

Private sector surplus or deficit + Public sector surplus or deficit + Exports/Imports = 0

The private sector includes both businesses and households, it is desirable that this is in surplus, since the private sector should have reserves to cope with changes. The public sector surplus or deficit is the difference between tax revenues and government spending. It is the figure that governments and media like to bandy around and create such alarm with. But you can see that if imports are high i.e. currency is leaving the UK, and the private sector is running in surplus then we must have a deficit. And in fact, deficit is a normal way of operating the economy and should not be used as an indication of over spending.

What about the national debt? This not really a debt as such, it is equivalent to the accumulation of surpluses in the private sector. The government issues bonds to buy back the reserves created by the banks as a result of the deposit of private sector surpluses. In the UK this is mostly from large businesses and wealthy individuals since quite a lot of ordinary working folk are in debt.

So if deficit and debt do not constrain government spending can we just create money and be done? It is true to some degree, but according to MMT the constraint on spending is inflation. In other words if the government increases spending too quickly demand outstrips supply and prices go up. A government has to increase spending cautiously. At present, however, inflation is not a problem, it is very low and we can afford to increase public spending without worrying too much about inflation.

But an increase in spending would stimulate the economy, increasing economic activity and therefore growing the economy. One issue is to make sure that spending does not result in the accumulation of wealth by large companies and wealthy individuals. This is what has happened as a result of quantitative easing after the financial crisis and it is why the national ‘debt’ has grown.  As this is equivalent to the accumulations in the private sector. QE swelled the coffers of the rich. In order to make sure spending is more fairly distributed we need to consider things like universal basic income, progressive taxation and debt jubilees (paying off household debt).

I have taken you on a whistle-stop tour of MMT, there is much more to read and understand – which is what I continue to do. A good visual account can be found here. I have been reading Modern Monetary Theory and Practice: An Introductory Text by William Mitchell, L. Randall Wray and Martin Watts, which I recommend. The are blogs by Bill Mitchell, New Economics Perspectives. This lecture by L Randall-Wray is an excellent introduction too.

I conclude by outlining or restating — emphasising even — the implications for spending on schools. Debt and deficit are not the barrier to adequate spending on our schools. As the sixth wealthiest nation in the world we can afford to properly fund our schools. There really is no excuse. What is not clear is whether the government are economically illiterate/incompetent or have some other agenda i.e. the privatisation of schools. If you read The Price of Inequality by Joseph Stiglitz or Post-Capitalism:  A Guide to Our Futures by Paul Mason, they suggest the latter is almost certainly true. Capitalism is in a state of crisis, ensuring sustained profits is difficult and therefore companies are wanting to move into areas where governments can support revenue and profits, like transport, health and education. So-called neoliberalism. Expounding the belief that a nation’s economics is analogous to a household or business serves this: reduce the deficit and debt through outsourcing, markets and efficiencies. It seems most likely that government is being influenced by the self-serving who are defending the capacity of the wealthy and large business to accumulate capital.

It is important that we in education ask questions about the economic models that we are presented with. That we do no acquiesce in a state of ‘oh dearism’ and resignation. That we don’t find ourselves trying to mitigate for government cuts by overworking and burning out. It is important that we educate ourselves, challenge the government and act in solidarity to oppose.

I am happy to engage in discussion about the ideas I have presented here.

The variation in teachers’ pay in large Multi Academy Trusts

Following my analysis in previous blogs of the variation in teachers’ pay in England, I now look at the difference between pay in the larger academy chains and Multi Academy Trusts (MATs). I used data from the National Statistics School workforce in England (November 2015) data again and identified which Trust schools were part of. I look particularly at the larger groups in both primary and secondary. I make comparisons with maintained schools and academies in general. I would add that this analysis is preliminary, but is consistent with the analysis in my previous blog posts.

Primary

The following chart shows mean salaries in primary schools in selected large academy chains. Data labels indicate the number of primary schools in the chain. The maintained and academies and free schools bars are the average by type for the whole state sector.

meansalaryprimarybytrust2016

The following table includes conditional formatting comparing mean salary with maintained primary schools.meansalaryprimarybytrusttable2015

Secondary

The following chart shows mean salaries in secondary schools in selected large academy chains. Data labels indicate the number of secondary schools in the chain. The maintained and academies and free schools bars are the average by type for the whole state sector.

meansalarysecondarybytrust2016

The following table includes conditional formatting comparing mean salary with maintained secondary schools.meansalarysecondarytrusttable2015

 

It is notable that as with my previous analysis the mean salaries in academies and free schools is less than it is in maintained schools. This analysis shows that this is true for both primary and secondary schools. It is also important to note that MATs who appear to have higher than average pay are likely to have more schools in London. This is certainly true of the Harris Federation where the average pay is influenced by London weighting. However, it has to be acknowledged that the average inner London pay is higher than maintained schools. In my next post I will look at the differences in London and regional pay more closely.

Note:

Thanks to JL @dutaut who observed that AET have 67 schools but only 32 primaries and 30 secondaries: the missing ‘five’ are special schools. Where there are discrepancies like this the schools not included are special schools or all-through schools.

My data can be viewed here.

 

 

Why do teachers get paid more in maintained schools? – part 2

I have completed some further analysis using the underlying data from the National Statistics School workforce in England (November 2015) data. I have looked at the differences in teachers’ pay in secondary schools between Local Authority (LA) maintained schools and academies. The question raised in my previous blog was: why do teachers get paid more in maintained Schools than they do in academies?

Today’s analysis drew on the underlying data, where the mean full-time equivalent (FTE) pay for each school is presented. Questions where raised in respones to my previous blog about whether the differences was a result of different academy types i.e. converter academy [1] or sponsor led [2], or whether there was some effect owing to higher salaries in London, for example. My analysis here suggests not and it also supports the analysis I presented in my previous blog. It seems that if you are a teacher you are better off working in a maintained school.

The following chart summarises the difference between average pay in converter academies [1], sponsor-led academies[2], free schools and LA maintained schools.

meanftebyschooltype

The mean pay in maintained schools is over £700 greater than in academy converter schools and just over £1000 greater than sponsor-led academies.

Now to look at the differences in pay between the different types of schools types, in relation to London weighting, outer London weighting, London fringe pay and regional pay.

meanfteschooltypepayscaletable
School type, mean FTE pay. London and regional weightings

With the exception of outer London and London fringe, teachers are paid more in maintained schools. In these area pay is higher in the small number of free schools, maintained school pay is comparable to pay in converter academies. Consistently the pay in sponsored academies is less than maintained schools.

meanfteschootypepayscale

I have not yet determined why this is from the data. However, my previous blogs on privatisation would suggest that when a service moves out of the public sector there is a natural downard pressure on teachers’ pay and conditions. Perhaps we are seeing this here.

Notes

[1] Converter academies are successful schools that have chosen to convert to academies in order to benefit from the increased autonomy academy status brings. They were introduced in 2010 as part of the Coalition government’s plan to broaden the academy programme and eventually enable all schools to become academies. www.politics.co.uk/reference/academies

[2] Sponsored academies are usually set up to replace under-performing schools with the aim of improving educational standards and raising the aspirations of, and career prospects for, pupils from all backgrounds including the most disadvantaged.

Sponsors are responsible for establishing the Academy trust, the governing body and the appointment of the head teacher. They come from a wide variety of backgrounds including businesses, faith communities, universities and individual philanthropists. Outstanding schools and academies may now also become sponsors themselves in order to help less able schools to improve.
.
Sponsors no longer have to make a financial contribution, or establish or support an endowment fund, as in the past. However, the Government has said any financial contribution made “at their own discretion” would be welcomed as it would provide opportunities for pupils that are not supported through government funding. www.politics.co.uk/reference/academies

Teachers’ pay in academies and LA maintained secondary schools

Based on the school workforce data for 2015, teachers get paid less working in secondary academies than they do working in LA maintained schools.

teachsalaries2015

The difference looks relatively small on the above chart. But the differences are not trivial as shown below:teachersaldiff2015

Looking at the difference between teachers’ pay in LA maintained secondary schools and secondary academies as percentage of maintained school pay:

teachersaldiffpercent

In 2015, in an LA maintained secondary a teaching will be earning between about 1.5 per cent and 3.0 per cent more than a teacher in a secondary academy.

It is somewhat different for leadership. They get paid more in an academy than they do in a LA maintained school.leadershipsaldiff

Looking at the differences in more detail:

leadershipsaldifference

On the basis of the 2015 workforce census data, teachers get paid less in academies than they do in LA maintained schools. While leadership gets paid more in academies.

Why is this? My analysis of privatisation would suggest that privatising capital leads to the exploitation of the workforce. Is this what we are seeing here?

The exploitation of teachers

In this series of blogs, I have shown that, as a result of the Education Reform Act 1988, the school system has effectively been privatised. This is not been a simple matter of withdrawing public funding from schools and allowing them to operate as independents within a free market. It is quite difficult to see this process, privatisation is obscured, it is difficult to see the existence of markets or the production of commodities. Indeed, when I imagine a market, I recall the Saturday market in East Retford where I grew up, where produce and goods were bought and sold, it was visible and tangible. School privatisation (and it might be by design) is obfuscated. It is understandable, therefore, that when the idea that schools have been privatised is suggested, it is contested in some quarters, because it is not easy to see the exchange of goods, services and money. Still a valid case can be made as I set out previously.

Yet the consequences of privatisation can be predicted, and the conditions of our system evaluated. In my last blog, I looked at the expansion of two Multi Academy Trusts (MATs), in terms of increasing capital, and I explained that capital, in a freemarket, necessarily has to be accumulated. But I will be developing this further in future blogs when I consider the conditions and consequences vis-à-vis teacher workload, pedagogy and practice, professional development, the recruitment and retention of teachers, scholarship and research, school culture and school improvement.

In this blog I will look at the labour processes within the privatised school system and will show how privatisation – as the private capitalisation of schools – leads to the undermining of teachers’ pay and conditions. But before looking at the exploitation argument, I want to restate my position about the privatisation of schools, but in a slightly different way. Hopefully to clarify, summarise and substantiate my argument in previous blogs. From this I develop an analysis of how teachers are necessarily exploited.

The components of privatisation are: the exchange of goods and services for money, and that businesses or enterprises employ capital for production of commodities or the delivery of services. In a state-owned or public system of schooling there are no markets, the national community pools resources to fund schools. The processes by which this service is defined and regulated is through democratic oversight. In a privatised system the rationale is different, a quasi-market is established and what were treated as resources. in the public system, becomes capital. In public systems resources fund provision, in a privatised system capital is used to produce or provide commodities. The delivery of knowledge commodities is a fundamental aspect of school privatisation, as I discussed previously.

In the privatised school system, the school can be considered as the means of production, or more precisely as a means of providing service and adding value. The following process – where Marx probably had a factory in mind – explains how surplus-value is generated by adding value to the component parts. The role of the teacher in a privatised school system is to add value, through instruction, by the transmission of knowledge: knowledge as a commodity [1].

The transformation of a sum of money into means of production and labour-power is the first phase of the movement undergone by the quantum of value which is going to function as capital. It takes place in the market in the sphere of circulation. The second phase of the movement, the process of production, is complete as soon as the means of production have been converted into commodities whose value exceeds that of their component parts, and therefore contains the capital originally advanced plus a surplus-value (Marx, 1981, p. 709).

In terms of labour, surplus-value is the additional work an individual has to do beyond that which they need to survive. In a state-owned public school, the value of labour is set by the state after having engaged in collective bargaining with the teaching unions. The cost of running schools is therefore the cost of teacher labour, support staff, resources and the maintenance of buildings and equipment. In a publicly-owned system any additional work done by the teacher is for the public good. In a privatised system any extra work becomes surplus-value and is given over to the capitalist enterprise in order to generate further capital. When the education system is privatised, it becomes capitalised, the laws of capital come into play – that is, there is a need for capital accumulation by the capitalised school enterprise:

… through capital surplus value is made, and from surplus value more capital. But the accumulation of capital presupposes surplus value; surplus value presupposes capitalistic production; capitalistic production presupposes the pre-existence of considerable masses of capital and of labour power in the hands of producers of commodities (Marx, 1981, p. 873).

As a result of privatisation, teachers are under pressure to create surplus-value; there are constant pressures to accumulate capital and so teachers work harder, for longer, they have to be more productive and at reduced levels of pay, unless teachers collectively protect their pay and conditions. These underlying forces are obscured, the extra commitment required of teachers is usually justified in terms of raising standards. The altruism and public-spirited ideals of teachers are exploited to ensure that surplus-value is being increased. This is not to paint headteachers and MAT CEOs as personally avaricious, but once located outside of the public realm, the nature of capital and capitalisation does its work and turns public and community service into the perverse system of inequality and exploitation as described by Marx.

What Marx demonstrated was that if a capitalist system is left unchecked, and to run its course, capital becomes concentrated, i.e. the wealthy become wealthier. But those working in the system become progressively poorer and exploited. When this idea is translated to public services in neoliberal reforms, the workforce becomes increasingly exploited. In the last four blogs I have presented an analysis of the effects of school policy, beginning with privatisation through the Education Reform Act (1988), then looking at the commodification of knowledge, followed by the capitalisation of schools. I have now completed this analysis, drawing on Marx, and show how this leads to a negative impact on teachers’ pay and conditions. In the next blog I will consider the extent to which this is borne out in reality.

Notes

1. As I pointed out in previous blogs, this is a reductive view of the situation to point out underlying forces and does not reflect the wider commitment demonstrated by the profession.

References

Ball, S. J. (2004). Education for Sale! The Commodification of Everything? The Annual Education Lecture 2004. King’s College, London. Retrieved from
Marx, K. (1981). Capital: a critique of political economy. (D. Fernbach, Trans.) (Vol. 1). London ; New York, N.Y: Penguin Books in association with New Left Review.

Capital and privatised schools

This is part three of my series of blogs which presents a critique of the privatisation of schools in England. In the first part I argued how the Education Reform Act (1988) created, effectively, a voucher plan for schools, a market was created, with per-pupil funding and specification of what schools as private operators would provide as a service, through the introduction of a national curriculum and national assessments. Following this, and having shown how the market was created, in the second part I use Marx’s theory of political economy to show the creation of knowledge commodities. My purpose for introducing the idea of commodity is to show how schools have become capitalist enterprises, outside of the state, and in turn how this has an impact on teachers’ working conditions, pay and access to quality continuing professional development. Overall, in this series of posts, I want to show how the privatised state education system undermines the professional status of teachers. My discussion of teachers’ work will come in the next blog. In this blog, I want to concentrate on the idea of capital. My overall argument is that teachers’ working conditions, how capital works in market-oriented enterprises and the production and provision of commodities are interlinked components of privatisation.

So, in this post my emphasis is on capital in the context of schools. What I will show here, drawing on the work of Marx is that schools, or a chain of schools operating within a marketized system has but one option and that is to accumulate capital. But before sketching out that argument, I should explain the idea of capital.

What is capital?

The Oxford English Dictionary presents an interesting etymology. The first recorded use of capital is c1225 as relating to the head, something at-the-top, to represent the principal or chief or important person. It is interesting that these early references to the use of the term capital in English are representative of power and capacity to coerce subordinates. In the sixteenth century capital broadened its meaning to include financial assets and thereby implying a recognition of the close relationship of money and power. In the nineteenth century, it was to represent profit, advantage and power. The contemporary term, interestingly integrates two aspects, a financial component and power.

The classical political economists Adam Smith and David Ricardo, referred to capital but were not specific about its meaning or indeed its nature. While they both saw capital as related to production of commodities and so to labour value, but apart from recognising that individuals could accumulate capital, they did not give it further consideration. Marx, however, was more precise about what capital was, in the sense of its social function and dynamic nature. Marx, argued that capital could be money, commodities or the means of production. But it had to be in circulation, either money being used to buy commodities and subsequently sell them or, as commodities being sold to buy other commodities. Inherently within the notion of capital is exchange of commodities and money. Like Smith and Ricardo, Marx relates capital to production and the cost of labour. Therefore, within capital, there is a labour cost, since circulation involves commodities. The relationship becomes important when I discuss teachers’ pay and conditions in the next blog but for now I will park the idea here.

Capital provides the means to produce commodities and to buy labour to enable this process. In my previous post I presented an analysis of the commodification of knowledge. The National Curriculum and the existence of national assessment codify knowledge commodities. The work of a school is the transfer of knowledge commodities to students[1]. The notional contract between the student and the school is to provide a minimum addition of knowledge commodity to the child’s level of knowledge on entering the school. If the school does not fulfil its side of the contract the student can go to another school. Or, if the school is not fulfilling its notional contractual requirements, the government can ask another organisation to take responsibility.

If schools are seen as producers or as service providers in the delivery of knowledge commodities in a market, then the role of the leadership becomes that of capitalist. They have to deploy capital for the provision of the service, in other words they have to employ teachers and support staff and maintain the school buildings and market the school. But they also have to accumulate capital to expand and to maintain a competitive edge in the market.

Marx showed that necessity of capitalists to incessantly increase capital. Chapter 25 of Capital Volume 1 sets out a general theory of capital accumulation. In one sense the accumulation of capital might be seen in terms of a thirst for wealth, that no matter how wealthy you are that thirst cannot be quenched. This was the classical political economist view of capital accumulation posited by Smith and Ricardo. For Marx, with a view of capital as dynamic and as money and commodity in circulation, capital accumulation is conceptually richer. The need for accumulation is driven by the need to respond to competition, who themselves will be engaged in capital accumulation, and one significant form of capital accumulation is through expansion in order to try and dominate the market. In Marx’s day that would mean acquiring more factories. In terms of schools, it means that the capitalist school leader necessarily is driven to run more schools. It is this principle that largely underpins the growth of a Multi Academy Trust.

The number of Multi Academy Trusts has grown from 391 in 2011 to 846 by July 2015 (Hill, 2015). The Harris Federation of South London Schools and Ark Schools are two large and established academy chains. I will look at the growth of each of these in more depth. The Harris Federation has its beginnings under the Thatcher government and just after the 1988 Education Reform Act. Phillip Harris, who amassed wealth retailing carpet and furniture, was asked by Margaret Thatcher to take over Sylvan School in Crystal Palace and to establish a City Technology College (CTC) (Graham, 2013). The Harris Federation now runs 41 primary and secondary schools. It is a private limited company by guarantee, incorporated in 2007, with three subsidiaries: Harris Academies Projects Limited, HCTC Enterprises Limited and Harris Professional Services Limited. It held net assets of £343,416,000 in 2015 which has grown from £86,437,000 in 2008 when it ran 6 schools.

Ark Schools was established in 2004 and now runs 31 schools with net assets[2] of £369,539,000 (2015) which has grown from one school in 2006, its net assets were £2,292,000. Ark Schools is part of a group of operations Ark UK Programmes Limited, Ark South Africa Limited, Ark Zimbabwe Trust, Ark Uganda, Ark India and Absolute Return for Kids US, Inc (Ark US). Collectively these hold net assets of £19,389,000 and publish separate accounts to Ark Schools to satisfy the funding agreement with the Department for Education.

The growth of these and other Multi Academy Trusts has been largely achieved through the transfer of state-owned assets to these private companies. However, the accumulation of capital is usually a result of the surplus value generated by the workforce. That is the difference between the exchange value of the commodity (or service provided) and the necessary labour cost i.e. that which the worker needs to live on. It is not clear the extent to which capital is being accumulated by the growing Multi Academy Trusts since their growth, as I have said, is largely through the transfer of capital from the state. However, as I will show in the next blog the undermining of teachers’ pay and conditions can be attributed to the privatisation process. And as predicted by Marx, the exploitation of workers contributes to capital accumulation. In fact the central thesis of the three volumes of Capital is that if the freemarket and its invisible hand is allowed to prevail, capital accumulates and workers become increasingly exploited. I am applying the same thesis in the context of the privatisation of schools. First by showing that there is evidence for privatisation, second by showing that schools now involve knowledge commodities and third by showing, in this blog, the incessant and inherent need for capital accumulation within a capitalist system.

In the next blog, I look at how teachers’ pay and conditions become undermined in these conditions of privatisation. And how this has an impact on teachers’ access to continuing professional development and professionalism and professional standing.

Notes

[1] I appreciate how hard teachers work in providing a rich and fulfilling experience at school, as well as in providing pastoral support. My analysis here is abstracted to capital, commodity and labour.

[2] I accept that net assets are not equivalent to capital, but I am assuming that to illustrate capital accumulation these values for net assets are proportional to capital. The growth in net assets therefore indicates the extent of capital accumulation.

References

Graham, N. (2013, April 26). CarpetRight’s Lord Harris reflects on a lifetime in the rug trade. Financial Times. London.

Hill. (2015, August 31). The rise and rise of multi-academy trusts – latest DfE data. Retrieved from https://roberthilleducationblog.com/2015/08/31/the-rise-and-rise-of-multi-academy-trusts-latest-dfe-data/

The commodification of knowledge in schools

Stephen Ball’s well-known lecture on the commodification of education (Ball, 2004), publicised – to some degree – academic discourse on the nature of the privatisation of state schools in  England. Ball focussed on the establishment of a quasi market through the introduction of parental choice. I, on the other hand, want to consider here privatisation through the commodification of knowledge. The question I address is: can knowledge, in the context of compulsory education, be viewed as a commodity? And how does this impact on schools’ cultures and teachers’ pay, conditions and access to continuing professional development. Though the second question I will deal with in a subsequent blog. This also follows my previous blog Schools in England were privatised in 1988.

I will start by explaining what I mean by a ‘commodity’ in a more general sense. I will then go on to show that knowledge as a result of education policy has become a commodity.

The original meaning of commodity – that is before modern times – derived from Latin via French was, was ‘convenience’ or ‘of use to mankind’. In modern usage its meaning has developed to connote tangible items but of worth or of value. The attachment of value is important and recognised by classical political economists. As David Ricardo explained: “Possessing utility, commodities derive their exchangeable value from two sources: from their scarcity, and from the quantity of labour required to obtain them” (Ricardo, 1817, p. 1). Importantly, Ricardo links a commodity’s value to demand, use and scarcity, he also links value to the labour invested in the production of the commodity. Adam Smith developed this idea: “The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour therefore, is the real measure of the exchangeable value of all commodities” (Smith, 1852, p. 13).

The relationship between commodity and labour value is important in explaining how the privatisation of education has led to the increased workload and intensity of work and the reduction in pay and conditions. However, I don’t intend to develop that in this blog, although, it is important to remind the reader that my overall aim in this series of blogs is to show how the privatisation of education, that began with the Education Reform Act (1988), led to the undermining of teachers’ pay and conditions and reduced access to quality professional development.

So far my definitions of commodity suggest tangibility: a product or a precious metal. Marx however, expanding on Smith and Ricardo’s conceptions of commodity provides a less material but metaphysical conception:

A commodity is, in the first place, an object outside us, a thing that by its properties satisfies human wants of some sort or another. The nature of such wants, whether, for instance, they spring from the stomach or from fancy, makes no difference (Marx, 1981).

A commodity, in this respect, loses physical form and and can be an idea, a concept or knowledge. Ricardo and Smith conceptualise commodities as physical items that are exchanged in physical acts. Marx, in contrast, develops the social and psychological significance of commodity and exchange. And of course this leads to social and power relations around relative wealth and exchange.

Before considering the commodification of knowledge in the privatisation of schools. It is worth pointing out that the commodification of knowledge is not something that began as part of education policy in that last 30 to 40 years, it goes back at least a 100 years. Rose (2010) in his monumental history of The intellectual life of the British working classes suggests a transition between the nineteenth and twentieth centuries. For the working class in the nineteenth century the literary canon was accessible to the poorest in society, but in the twentieth century autodidacts found “…the cultural goalposts had moved, that a new canon of deliberately difficult literature had been called into existence. The inaccessibility of modernism in effect rendered the common reader illiterate once again, and preserved a body of culture as the exclusive property of coterie” (p. 394). Rose goes on to observe that “Like other goods, the market value of knowledge increases with scarcity…the exchange value of knowledge can be enhanced by creating artificial scarcities, monopolies, or oligopolies, through such devices as copyright, encryption, and professional accreditation” (ibid.) [1]. And so needs and wants have been created in respect to culture and knowledge as an economic imperative.

If you now relate this to my previous blog on the freemarket and the Education Reform Act (1988) (ERA), the introduction of Local Management of Schools (LMS) confers on education the production and sale of knowledge commodities. Knowledge commodities are identified by introducing performance indicators based on assessments. The introduction of the National Curriculum and four Key Stages, two at primary and two at secondary,  provided a mechanism through which age-specific and discipline-oriented knowledge could be specified. This is exemplified in the following extract from the original National Curriculum for England and Wales. It specifies the knowledge required by pupils to achieve a certain level in a particular aspect of mathematics. End of Key Stage tests were introduced through the 1990s, primarily in English and mathematics. As a result, throughout a child’s school life, there was a state mechanism of quantifying the acquisition of knowledge.

nc-1989-maths-at2-level-4
An extract from the 1989 National Curriculum for mathematics. Attainment target 2 (AT2) number, level 4 (DES/WO, 1989)

At the end of Key Stage 4, the General Certificate of Secondary Education (GSCE) was introduced to replace the O level (General Certificate of Education, GCE) and Certificate of Secondary Education (CSE) in 1988. This qualification continues to be taken by the majority of students at age 15 or 16 years old. The examination specification provides a detailed specification of ‘knowledge’ for a wide range of subjects. Although reforms in 2010 brought in by the Conservative and Liberal Democrat Coalition Government reduced the content of the original National Curriculum, the specifications of GCSE examinations continue to provide the codification knowledge at secondary level. The assessments in primary schools fulfil the same function there.

Having identified the way in which knowledge has been specified, quantified and codified in schools, I will now take this back to the concept of commodity and value, and relate this to mechanisms of marketization introduced with ERA. Ricardo, Smith and Marx related commodity implicitly to exchange value, not only must the commodity be identifiable as a tangible object or as codified knowledge, as I have just shown, it is necessary that there is some exchange for other commodities or for money. ERA and LMS provided the possibility of exchange through the introduction of formula funding and performance indicators (see previous blog). The establishment of a voucher scheme is equivalent to individual pupils buying knowledge commodities. Although this is not fully a freemarket system, because the exercise of choice is limited and there is no direct exchange of money between consumer and service provider (i.e. the school), the system is no longer a public provision but is marketized. I will show in a subsequent blog that this liberation, while not fully subject to the invisible hand [2], is sufficiently marketised to have a profound impact on the working conditions of teachers and on the culture of schools. Essentially, however constrained, schools are operating in a market selling a service which allows students access to knowledge commodities. The relationship is different to the school as public and community-owned service offering a broad education to the local community, in particular to their children.

If you want to get a sense of the pervasiveness of marketisation, consider the awareness of older pupils in their recognition that they are consumers within a marketised system.

Increasingly, the students are aware of their worth and I think that’s quite an interesting development…”I’m worth £2200 to this school,” is a phrase that I have known a Year 11 student say to me, as it was a bargaining [ploy] and there was one lady [to whom] I retorted that ..”£2200, You know, you’re not worth the trouble, go to Riverway, we don’t need £2200 of your trouble, or whatever it is” (Head of sixth form, FLightpath school, 1 July 1993: Gewirtz, Ball, & Bowe, 1995, p. 176 ).

What I have demonstrated in this blog is that knowledge can be viewed as a commodity. This has been done through policy, by codifying knowledge through national assessments and the national curriculum. the second component is the introduction of a market. The latter has been achieved by introducing per-pupil funding and performance indicators, which means payment is related to the provision of a service of specified knowledge delivery.

The subtle incremental policy changes have led to the privatisaton of schools, operating a cypto-voucher scheme for the purchase of quantities of officially defined knowledge. What I will show in the next blog is how the marketisation of schools leads to diminishing pay and working conditions of teachers.

Notes

  1. Theories of information supply and demand are presented by Goody (1968) and Douglas and Isherwood (1996). Goody describes how literacy was restricted in pre-print societies. Douglas and Isherwood conclude that there is a rational economic strategy to control access and exclude (both cited in Rose, 2010).
  2. The invisible hand was what Adam Smith referred to as the guiding forces of the freemarket.

References

Department for Education and Science/Welsh Office (DES/WO). (1989). Mathematics in the National Curriculum. London: HMSO.
Douglas, M., & Isherwood, B. C. (1996). The world of goods: towards an anthropology of consumption: with a new introduction (Rev. ed). London ; New York: Routledge.
Goody, J. (1968). Literacy in traditional societies. Cambridge: Cambridge U. P.
Gewirtz, S., Ball, S. J., & Bowe, R. (1995). Markets, choice, and equity in education. Buckingham ; Philadelphia: Open University Press.
Marx, K. (1981). Capital: a critique of political economy. (D. Fernbach, Trans.). London ; New York, N.Y: Penguin Books in association with New Left Review.
Ricardo, D. (1817). The principles of political economy and taxation. London: John Murray.
Rose, J. (2010). The intellectual life of the British working classes (2nd ed). New Haven: Yale University Press.
Smith, A. (1852). An inquiry into the nature and causes of the wealth of nations. London and Edinburgh: T Nelson and Sons.

Schools in England were privatised in 1988

The Education Reform Act 1998 (ERA) marked the point at which government started the process of privatising England’s state schools. Hywel Thomas, Emeritus Professor of Economics of Education, offered an analysis of ERA in 1990. Chapter 3 of the legislation set out profound changes to school financing, these measures are referred to as the  Local Management of Schools (LMS). The introduction of LMS provides the technological basis for privatisation.

Privatisation: public to private sector

It is important to be clear what privatisation means. The common definition is the process by which a public organisation is passed to the private sector. But it is necessary to clarify what I mean by public and private sector. To this aim I draw on Young’s (1986) definitions:

…the public sector [my emphasis] is used to describe those organisations created directly by government or by local authorities. Their status is usually statutory, or at least heavily dependent on the parent authority. They are financed mainly, and usually entirely, from public funds. Their work is directly linked to public policy, and their organisational structure is such that they are accountable to, and controlled by, ministers or local authority councillors  (Young, 1986, p. 236).

…’private sector‘ [my emphasis] is used as an umbrella term to describe what remains. It thus covers not just privately owned or publicly quoted companies, but interest groups, pressure groups, the voluntary sector, charities and the range of trusts, enterprise agencies and similar bodies that have emerged in recent years. In practice some of these organisations – like companies in which government holds part of the equity – straddle the boundary between the public and private sectors  (Young, 1986, p. 236).

 The voucher system – privatisation US style

A voucher system or voucher plan is a system through which parents are given vouchers in order that they can choose to spend them at any school, public or private, to buy education services for their children. The voucher plan effectively makes parents customers in an education marketplace where they can exercise choice.

Thomas (1990) argues that Local Management of Schools, as created by the Education Reform Act 1988, effectively created a voucher plan. While parents did not have full flexibility to exercise choice, for example, it was not possible to buy services outside the state system, it effectively created a market place with some choice. And turned schools into private-sector enterprises.

Thomas (1990) shows that LMS creates a voucher system through five legislative elements: financial delegation to schools; formula funding, open enrolment; staffing delegation and performance indicators. It is these five elements that recreate the state school as a private sector enterprise.

  1. Financial delegation schools were given day-to-day control over their budgets, where it was previously with the Local Education Authority. It is this move that subtly shifts the school into the private sector, according to Young’s definition above. It is grey, because the school does not entirely have control over its equity, but taken with the other four elements it clearly shifts from public to private. Headteachers and governors gained considerable power over their budgets, they had flexibility in respect to the selection of subcontractors for things such as maintenance and repairs. The essence is the locus of control shifted from public to private.
  2. Formula funding – this element marks the creation of a quasi-voucher system. Funding became pupil driven with 75 per cent of funds allocated by formula and the funds were required to be tied to a pupil. The stated aim was that ‘…schools have a clear incentive to attract and retain pupils’ (Circular 7/88, Para. 105) so emphasising competition and choice.
  3. Open enrolment – parents could move children to more popular schools and the funding went with them. This meant the creation of a quasi-market with schools effectively in competition.
  4. Staffing delegation – boards of governors gained the powers of appointment, suspension and dismissal. This links to future performance management as teachers become more accountable for pupils. Effectively teachers’ employment was connected to pupil performance. Even if, for the time being, the link was not overt, but mechanisms were created.
  5. Performance indicators – examination results and national assessment tests were used as quality indicators. There were two reasons for this: parents needed data to make choices and the government needed a mechanism for assessing the performance of a school through centralised accountability. The latter is an important separation from a shared public project to an outsourced private provision of education.

Final words

The Education Reform Act 1988 and the introduction of Local Management of Schools marked the beginnings of the privatisation of schools using the five elements set out above. This process has developed, almost seamlessly, regardless of political party, through to the present. Having identified the foundations of privatisation, in subsequent pieces of writing I plan to show how this has developed, to look at its impact on teachers’ workload and access to continuing professional development and to look at this in terms of wider political economy.

We should not kid ourselves that our schools remain in the public sector, they haven’t and ERA and LMS were the instruments that allowed it to happen.

References

Thomas, H. (1990). From Local Financial Management to Local Management of Schools. In M. Flude & M. Hammer (Eds.), The Education Reform Act, 1988: its origins and implications. London ; New York: Falmer Press.
Young, S. (1986). The nature of privatisation in Britain, 1979–85. West European Politics, 9(2), 235–252. https://doi.org/10.1080/01402388608424576