Complexity

So I was discussing the idea of complexity with my Eco 1 students, this morning. I got onto the idea proper of Complexity in Economics via this paper by Chantale Lessard, a PhD student at the University of Montreal (I think).

By taking for granted assumptions about actors’ interests and interactions, economists leave out a very important part of social reality. Social reality is complex, contextual and constructed. Because of their socially constructed nature, understanding preferences and behaviors requires serious attention to social reality (Bourdieu, 2005; Leander, 2001; Small & Mannion, 2005).

Complexity thinking contributes to develop awareness of issues including uncertainty, contextual issues, multiple perspectives, broader societal involvement, and transdisciplinarity (Albrecht et al., 1998; Healy, 1997; Van de Vijver et al., 2003). The ability of complexity science to detail the various perspectives and highlight their ramifications makes possible a more explicit description of the priorities and interests that are taking part in their realisation (Van de Vijver et al., 2003). Broader conceptions, and related representations, of uncertainty can enable the elaboration of fundamental value distinctions embedded in different types of knowledge. This will be particularly relevant for contextual knowledge (Gatrell, 2005; Healy, 1997).

Complexity theory suggests that many types of knowledge are valid and useful for economic evaluation, and not just knowledge produced by traditional science (Munday et al., 2003; Øvretveit, 2002). For the field of economic evaluation, the use of complexity theory will involve the acknowledgement of complex, interdependent relationships with broader contextual, economic, social, cultural, political, and other non-technical factors (Healy, 1997).

I broke up the paragraphs (and you can find the references here). As you can see, it is not much as Economics; social policy, maybe. It’s a hard bloody paper to get through, it really is.

Complexity, then, is basically this: Economic analysis employs Economics. However we’re just a part of the provision of information – the decision-maker has to consider the more complex ‘real’ world. Lessard’s argument is that we ought to consider this in our analysis, because the reality/practicality of our conclusions and recommendations should be a factor in the recommendations we make. Which seems fair enough (to a degree).

What brought this about was this article in the Sydney Morning Herald, yesterday:

Private school lobby groups are divided over whether the Federal Government should continue its controversial funding arrangements for half the nation’s Catholic and independent schools.

A secret review by the federal Department of Education, obtained by the Herald, shows Anglican schools are opposed to continued funding of schools above their entitlements under the formula. However, the powerful Catholic system – in which one in five students in Australia are taught – wants to retain the “funding-maintained” category, which entrenches higher payments to its schools.

The federal funding system measures each school’s need according to the socio-economic status (SES) of the regions where its students’ families live.

According to the department review, half of all private schools are in the funding-maintained category and are funded above their entitlements under the SES formula. The overpayments will cost up to $2.7 billion over the next four years. The funding-maintained category “entrenches purely historical inequities”, the review says. “It is not consistent with the Government’s objective of funding all schools on a consistent needs basis.”

How does this work? In Australia, we have public schools and private schools (our hospitals are similarly laid-out). Public education is an extra-welfarist good, and funded from general taxation (meaning you pay income tax, and this is just one of the things the government provides). Private schools are exclusive, usually religious/denominational and, in general, wealthier. From the report upon which the SMH managed to get their hands [PDF]:

ses report

Yes, non-Government schools currently receive, on average, 57% of the Average Government School Recurrent Costs (AGSRC).

Ah. This was our starting point for discussion. What do we think of this?

Is it fair for non-Government schools to get this much public funding?

Now I focus, in the first class of semester, on there being no such thing as “fair” or “unfair”, in a positive sense. So my students know this. Given that we all pay taxes, and given that those taxes are for specific ‘things’, including public education. If wealthier parents decide to opt-out of the public school system, should they still receive public money?

This is like giving them a refund on some of their taxes – should they be allowed to, in effect, opt-out of those taxes, or should that just be a part of the opportunity cost of buying a more exclusive, more highly-regarded education for one’s child?

Most students raised their hand for the “not fair” – either because they believed that or because they thought I believe that (it’s often hard to tell).

By this time, of course, they were on the hook.

Is it fair for parents, however wealthy, to contribute to a service that they will not need?

Actuarially, “equity” is defined as getting from something the same share as your contribution. If one pays loads of the tax money into the government, one gets the same share of their goods and services in return. Therefore, should families with children in private education not receive some of the resources from the government after all? Most of my students responded that they should.

The paradox is that this is a normative issue – when equity is simply redefined, the problem appears quite different to the same people (this is why the issue never goes away).

Is it more efficient for the government to underwrite non-government schools?

Education delivers a positive externality to society – we are better off, the more educated our people are. As a result, government subsidisation is important – our governments enter the market to add the social external benefit of education to the private (monetary) benefit of education. This boosts demand, and results in the efficient outcome. Should the government care about the distributional effects of this subsidisation? If the criteria is efficiency, no.

Following this, what might happen if, say, the money was removed? Suppose it results in more students moving from the private sector to the public sector. Now the government must pay 100%, not 57%, of the AGSRC for the pupil. Which is less efficient. Better, perhaps, to leave them in the private schools with less government resources (albeit more resources overall); public schools in fact may benefit from this system, even while we decry its distributional consequences.

At the end of the day, whether this system is equitable or inequitable is a function of normative perspective; whether it is efficient or inefficient is a function of positive, but entirely too difficult, analysis. So we wander around in the grey area, always arguing.

Complexity! A student asked what about just lowering the contribution? The perfect response! What would happen is that the schools would still pitch a fit. And wealthy parents denied their sense of entitlement won’t like the party in government, and will raise money for other people.

This is complexity: the politicians, the decision-makers, are only somewhat interested in the economics of the decision and its consequences. They also have to operate as politicians, and the political consequences are, for them, far more serious. What price a less efficient allocation of education resources, or a less equitable allocation of education resources, when it means they remain in government?

For the rest of us, what if, by making this concession, and therefore retaining government, a given group of decision-makers manages to do more good across more areas of our society/economy? Is it not also worth the cost for us?

By the end of the conversation, my students were wishing they’d joined the majority of their classmates and just stayed in bed (quite heavy snow, this morning).

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