Where do our school leavers go? A recent World Bank report estimates the net tertiary education enrollment in Sri Lanka to be about 11%, with 2.4% in public universities, 1% in public technical education and the rest or 8.5% attending various private institutions. (The Treasures of Education System In Sri Lanka, The World Bank, February 2005, Table 1.3).


How did the 8.5% out of 11% get to know about these private opportunities? The Technical and Vocational Education Commission makes a valiant effort to keep track of education and training opportunities in their sector. However, their data are not complete or up to date. Their publications are not widely available either. The University Grants Commission, the agency responsible for higher education can barely keep up with the affairs of the 13 public universities under its charge, let alone keep up with the increasing number of opportunities for receiving degrees in Sri Lanka, with most of them being local institutions offering foreign degrees. Those students attending private institutions probably got their information through the grapevine.

How do the 89% or so school leavers who are currently not in formal tertiary education acquire skills? Judging by the resume of a typical 16+ skill seeker or job seeker, these kids badly need some guidance in their further education. They seem to acquire various types of dubious credentials at significant cost. The Well-to-do can afford to try out several courses until they hit the right one. Others spend money their parents can ill afford for little gain, and stop after they run out of money. These students would have made wiser choices if better information was available to them. buy atarax

Other countries in Asia do a much better job of offering choices to their 16+ group and keeping them informed about these choices. The Studymalaysia Web site that sponsored by the government but maintained privately, is a comprehensive source of all tertiary education opportunities in Malaysia. It addresses financial concerns and offers career guidance as well. The University Grants Commission of India maintains a Fake Universities Alert for local students, and also gives information about private colleges and universities to local and foreign students through its Web site.

The Education Forum may fill part of the void by posting some information here on this Web site in a user-friendly format similar to studymalaysia.com. Have you already done any work in this area or do you have any thoughts on the topic? If so please share them here, or, stay tuned for more information.

Sinhala Version

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1.0 Introduction

Getting a child into Year 1 of school, government or private, has become a traumatic and unpleasant event. Principals are being arrested for taking bribes, court cases are being launched, parents stand in line through the night, and children are being coached to lie about where they live. The problem which was originally concentrated in government schools, has now reached crisis proportions even in private schools, with bribes being taken on top of the already very high admission fees and mandatory contributions. What should be a joyful life event has begun to corrode our morals and institutions.

This paper is intended to provoke discussion on this most important subject. It is not supported by extensive data analysis and is by no means the last word on the subject. The discussion questions at the end reinforce the point that the objective is to start a discussion rather than propose a solution. It applies hitherto neglected economic analysis to the problem, more than other valuable approaches. It was written on a dare, to show that the analytical tools that are being applied to reform of hard infrastructures (telecom, electricity, etc.) could also be applied fruitfully to soft infrastructures such as education and health. Sometimes an outsider’s intervention can break logjams in policy analysis. It is hoped that education professionals will absorb this shock magnanimously and advance the debate on their terms, allowing the author to get back to his normal preoccupations, hopefully in one piece.

Reference is made to international schools in the discussion because that is one area where evidence of the working of market supply and demand can be seen, not because they are seen as the solution. Please note that these schools should not be thought of in terms of Colombo International School or the like; there are dozens of international schools of varying quality scattered across the country, in shop fronts and various kinds of accommodations.

In the development of a workable solution, a more multi-disciplinary approach should be adopted, though the author strongly believes that economic analysis must serve as the foundation. While there are many other problems affecting the educational system (such as the over-reliance on examinations and rote learning), this paper focuses on the Year 1 admission problem and in particular on minimizing the pervasive corruption, influence, mistrust and unhappiness that currently characterize this important event in the lives of parents and children.

2.0 The problem defined

The above described symptoms point to a serious mismatch between demand and supply. But before applying market analysis, it is necessary to identify clearly what is being bought and sold in the market. It appears that parents (who are the “buyers” in the market for Year 1 admission to popular schools) seek an integrated bundle of services that includes:

1. High-quality educational services for the school career of the child (i.e., over a 13-year period);
2. Opportunities for the child to network with future members of economic, social and political elites and thereby to achieve upward social mobility (akin to buying membership in a club); and
3. Improvement of own social status through obtaining a difficult-to-obtain scarce opportunity.

The third component may be disputed, therefore evidence may be required. Given the relative fixity of resources (teachers, class rooms) and the intensity of demand, class sizes have increased from around 35 or less 30 years ago to close to 50 in the “popular” schools, not only in the Colombo schools but also in regional schools such as Dudley Senanayake MMV (formerly Tholangamuva Central College). Increased class size is universally recognized as a characteristic of reduced quality of education. The almost universal reliance on private tuition by students enrolled in popular government schools has resulted in the de facto conversion of the free education system into a hybrid free and fee-based system, partially because of the low quality of the educational services that are offered. The fact that demand for admission to these schools has not decreased despite the obvious deterioration of quality allows us to infer that few if any parents are getting component 1, and that components 2 and 3 may in fact be overshadowing component 1 in their calculus. Anyone who has had a conversation with a proud parent of a student recently admitted to Royal or Visakha can testify to the significance of Component 3.

Why has the problem become so acute, despite Sri Lanka’s low birth rate? The quantitative increase of the middle class (defined as those whose basic needs have been met; and who have resources for self-improvement) over the past two decades is an obvious contributory factor (see Annex 1, results of the Consumer Finance Survey conducted by the Central Bank of Sri Lanka). This was accentuated by the deeply ingrained faith in education as a means of social mobility. Underinvestment and inefficiency that are characteristic of government-supplied services, especially under conditions of low growth (defined as growth under 8 percent) exacerbated the problem. Improved access to transportation (see Annex 1) enabled parents to consider schools which required greater travel distances from home. In the early 1960s, parents living three miles outside Negombo, in Katunayake, considered that town too distant to send children to. Now the Katunayake schools are in danger of being closed down because most children from there are attending Negombo, Jaela or Colombo schools, using the ubiquitous van services.

The increased demand is not for all schools, but for popular schools. There is an ongoing process of consolidation whereby a small number of schools are becoming mega schools with enrollments in excess of 2000, while demand is dropping fast for small schools within their catchments.

3.0 Solutions

The nature of what is in demand suggests that the conventional solution of increasing supply in the face of increased demand will not be adequate by itself. Simply creating another “Royal College” (as was done in Moneragala, Polonnaruwa and Panadura, for example) or a “President’s College” will not do.

While it is possible to envisage improvements in the manner in which new schools are established, it is clear that a school however well endowed with buildings and facilities and however well staffed does not automatically deliver components 2 and 3, and will therefore not be in great demand from parents. In addition, parents have no guarantee that the new school will deliver high-quality education over the entire 13 year period. New schools that have achieved the status of “popular” schools such as D.S. Senanayake MV and Sirimavo Bandaranaike MV show that it takes much effort and 10-20 years to achieve this status.

3.1 Increasing supply

Increasing supply is a necessary component of the overall solution, but it cannot be the totality of the solution. When increasing supply, it is necessary to increase the particular kinds of school spaces that are in demand, and not those for which demand is rapidly declining.

A first step would be demand, population-growth and transportation analysis to identify the locations that would be most appropriate. If attempts are made to establish new schools either within the catchments of popular schools or where traffic patterns etc. do not create special reasons for making the new school attractive, they are likely to fail, as with Soysapura MV in Ratmalana. Forecasting demand is an inexact science at which private entrepreneurs who risk their capital on the decision are likely to do better than government bureaucrats or politicians. Contrasting the success of the Nugegoda Lyceum international school with the failure of the Soysapura school illustrates this point.

Providing buildings and facilities commensurate with a popular school is a pre-condition for the emergence of a popular school. A parent admitting a child to Year 1 has to trust the quality of a service that will be provided over a 13 year period. Buildings and facilities play an important role in signaling quality. Another mechanism of communicating quality is the Principal (e.g., Mr Alles at D.S. Senanayake MV; and then at Gateway). Good teachers are needed, and they can be attracted only with good salaries and superior working conditions. Carefully managed franchising may also be used to build trust and ensure that parents can be attracted to the new schools, a strategy that may have to be adopted after a certain point by the rapidly expanding Gateway and Lyceum chains.

Of course, all this costs money. Why the supply of popular school spaces has failed to keep up with demand has been the lack of money on the part of the dominant and legally entrenched supplier, the government, as well as waste and misdirection of limited resources (LBO). If the government does not have enough funds and/or is incapable of prudent use of what it has, private investment must be encouraged. The pace of investment in international schools indicates that this is an attractive area for private investment. However, the poor facilities provided by some international schools suggests that there is a problem of matching revenues with investment; and possibly a justification for some form of light-handed standards enforcement.

3.1.1 Public-Private Partnerships (PPPs)

The undercapitalization of some of the new international schools suggests that the expected revenue streams are not seen as adequate for investment that would yield an adequate level of quality. The financial difficulties experienced by some international schools as they seek to position themselves at various price points suggest that the Sri Lankan primary-secondary educational market is not capable of sustaining high prices, especially when the supplier has to recover both capital and operational costs. There are two possibly complementary solutions: public-private partnerships (management contracts) and vouchers.

In the former, the government gives the buildings and facilities (most likely of a under-utilized and troubled school) to a private supplier of school services (who will of course be selected on the basis of a transparent and well designed bidding process that gives weight to quality factors rather than money; it does not make sense to extract money from an already undercapitalized sector), who now has to recover only operational costs and the much lower investment costs required for refurbishment of facilities. The benefits given by government to the private supplier may be recovered through scholarship and bursary obligations and requirements for maintenance and refurbishment standards. Periodic rebidding of management contracts may provide incentives for efficiency.

Because the objective is the increase in supply of popular-school spaces and the introduction of some form of rivalry to the market that would improve performance, there is no point in converting currently well-functioning popular schools into PPPs. The PPPs should add to supply. Therefore, the schools that would be handed over to the PPPs are those currently lacking demand, but have the potential, because of location, size of the premises, etc., to become popular schools with more investment and better management.

In the case of operational costs, teachers’ salaries are the major component. Currently, many of the international schools draw from the pool of retired government teachers. This allows them to pay less than they would have to pay younger teachers because the retirees also enjoy a pension. The downside of this strategy is that the new schools are handicapping themselves in the adoption of new educational techniques appropriate for the 21st Century, by allowing the domination of the teaching staff by those trained and acculturated in a dysfunctional government educational system and whose age may in some cases be a barrier to openness to innovative thinking.

One way to address the operational cost problem faced by private educational service suppliers within the context of PPPs while at the same time lessening opposition from the teachers of the schools that will be managed under PPPs, is for the government to commit to continue paying the base salaries of the teachers, giving them the opportunity, but not the assurance, of being retrained and rehired by the new management.

The new managers may be required to spend a specific amount of funds on teacher retraining, which the former teachers will be entitled to participate in. The new managers will have economic incentives to recruit the former teachers, because the government will continue to pay their former base salaries irrespective of what new jobs they secure. This scheme may, at least, shift the economic incentives away from retirees to a younger group of teachers who may be a little more open to adopting new teaching techniques. This way or some other way, it is critically important that properly trained and oriented teachers be available for the new schools.

3.1.2 Vouchers

The other component of the solution to the investment/revenue mismatch is vouchers. The government can provide vouchers to certain categories of students which may be used as payment for educational services. To avoid complicated price controls within the context of a voucher system it is necessary to design it properly.

One of the problems with vouchers is the difficulty of enforcing eligibility criteria. This is especially serious in countries like Sri Lanka where record keeping is poor, government information unreliable and citizens are acculturated into understating income and wealth. Instead of creating difficult-to-enforce eligibility criteria there may be value in giving all children vouchers and allowing schools to charge over and above the voucher amounts subject to certain parameters.

Where would the money come for all these vouchers, one may ask. Any solution must work within the current budget allocated to education. Therefore the vouchers must be funded with money currently disbursed directly to schools. Money directly paid to schools will decrease. It is clearly a radical solution that requires extensive preparation and publicity.

3.2 Changing the funding system

This component of the paper deals with changes that need to be made to the popular schools (defined by a ratio of acceptances to applications). By removing some of the subsidies and advantages enjoyed by these schools at present, it is hoped that a degree of leveling of the playing field will occur and that government funds will be released for vouchers, establishment of effective standards enforcement units and so on.

Currently, all government schools are funded by central government raised revenues (in some cases, the central revenues are channeled through provincial governments). The intensity of demand for certain popular government schools cannot be captured by the school because of the existing rules. The rents are instead captured by the School Development Societies, the Old Boys’ or Old Girls’ Associations, the Principals, politicians and senior officials, and primarily by the land owners within the 2 mile radius of the school (the legal catchment of the school). Values of land and residential properties within the legal catchment go up because houses in that area come bundled with an entitlement to enter children to the popular school. Even if the properties themselves are not sold, their occupants can capture some of the value by charging for various persons to use their addresses for purposes of entering children to the popular school. In sum, the public (through the government) pay for the popular school, but most of the resultant benefits are captured by private parties.

A simple way to align the rents with the expenditures is a property tax to fully or partially fund the school. If the school is contributing to the high property values in its catchment, the property owners who benefit should contribute to the funding of the school. This system creates incentives for the property owners/parents to resist reduction of school quality and to actively participate in the management of the school. If property owners do not wish to contribute to the upkeep of the school, as when their children complete their schooling, they can stop paying the property taxes and capture their share of the increased value of their property due to improvements in the school, by selling their property to a family with school-age children desirous of admitting them to the popular school. To the extent that property taxes contribute to funding the school, the central (or provincial) government can withhold that amount and use it for other purposes such as the financing of vouchers or the upkeep of schools in areas lacking adequate revenues.

The above described system is that which is currently in place in the United States. Despite its congruence with basic economic principles, it has certain weaknesses. For example, the property-taxes system drives the already good schools to greater excellence, but makes it almost impossible for the poor schools to catch up: the property values in a school district with a low-quality school are low è there are no funds to improve the school è property values remain low. The only way that parents in such an area can obtain high-quality education for their children is to sell their present residences and physically move to locations within high-quality school districts. Since there is a significant difference between the property values, it is quite possible that some parents (and children) can remain trapped in a low-quality school district. The much lower propensity of Sri Lankans to sell residential properties has also to be taken into account in designing an effective property-tax based funding scheme for schools.

4.0 Role of government speman

The above analysis is based on conceptualizing educational services provided by schools as amenable to market incentives. The continued viability of the centralized provision of primary and secondary education by a massive government bureaucracy must be judged on it results. From a country that was known for the export of teachers and accountants (made possible by its educational system) Sri Lanka is now known for exporting housemaids. Its universities are not even mentioned in Asian rankings (except for the University of Colombo which occupied the 77th place in the 2000 Asiaweek Best Universities Survey that covered 77 Asian universities); and thousands of middle-class youths travel abroad to obtain a decent higher education. It is therefore reasonable to conclude that 50+ years of centralized government provision of primary and secondary educational services outside the market has been a failure.

It is not realistic to, or even necessary to, privatize the educational system in one fell swoop. Focusing on the problem of popular schools, the government should on one side gradually open the existing government funded popular schools to local governance and market forces through the use of property taxes and vouchers, and on the other increase supply through public-private partnerships financed through vouchers and school fees. The real costs of education, that include the costs of private tuition which is almost universal, need to be calculated and publicized. With judicious use of vouchers, it may be possible to offer high-quality educational opportunities through PPPs at prices not dramatically different from what is currently paid through a combination of bribes, development society payments, and tuition.

Education, particularly primary-secondary education, has many positive externalities (but it is not a public good as some claim, because it does not satisfy the criteria of non-excludability and non-rivalry). It also plays perhaps the most important role in maintaining social amity and cohesion through the offering of hope of social mobility. Therefore, it is not recommended that the government withdraw from the field of education. What is recommended is that government redirects its energies into the productive channels of standard setting and enforcement, PPPs, design and implementation of effective funding mechanisms such as property taxes and vouchers, and overall supervision of the sector, rather than the direct supply of educational services at which it has manifestly failed.

5.0 Discussion questions

1. Is market analysis appropriate for educational services?
2. This document focuses solely on the Year 1 admission problem. Can the problem be conceptualized properly without looking at other aspects of the educational system such as the Grade 5 scholarship exam, the overall exam-centered nature of Sri Lankan education, etc.?
3. Has the product been correctly identified?
4. Is it humanly possible to solve this problem, in light of the inclusion of status goods in the bundle?
5. School admission is a problem in many societies. Is the claim that it has reached crisis proportions in Sri Lanka correct?
6. Is the solution of increasing the supply of potentially popular schools feasible?
7. Can the solution be implemented in parts (i.e., PPPs without vouchers)?
8. Will the shift to a property-tax based system of funding the current popular schools create more problems than it will solve?
9. If a property-tax scheme of funding is not introduced, should the 2-mile rule be abolished?
10. Should the current system of giving admission preferences to all sorts of opaque categories, especially the category of past pupil’s children, be abolished and replaced by a computer-based transparent system?
11. Should all government-run popular schools get out of primary education, reserving all class spaces, including those freed up by the closure of elementary schools, to those who pass the 5th grade scholarship exam?
12. Is there a justification for reintroducing C.W.W. Kannangara’s central school concept (excellence in education and extra-curricular activities; residential; merit based admission; co-educational) in modern form, possibly named Kannangara Academies?
13. Are there any variations of these solutions that can be implemented other than by government?
14. How does the constitutional status of education (divided between the central and provincial governments) affect a solution?