Moral Hazard in Education: False Hope and the Culture of Dependency

by Simon Lee of the Lion Rock Institute

I care about kids. I am a father of two. The most important thing to me is not about us, but our kids and their education.

Education, ideally, helps kids to be independent. In modern society, however, education is not about helping our kids to be independent but to make them dependent on a grand illusion.

Karl Marx says, “to each according to his ability and each according to his means.” Socialist utopia looks really egalitarian. But it’s only a myth. All socialist societies that I know of are highly structured and hierarchical. No socialist society is truly egalitarian. Socialism, therefore, as a truly equal society, is a myth.

When you examine the structure of modern schooling institutions, it is no surprise to find that schools resemble hierarchy of powers and classrooms are always in a state of “the many versus the few.”

Our kids, since their formative years, are conditioned to see the world as a hierarchy of powers and the struggle of the many against the few. As a kid, we were also told, that if we do good, do what we are told to, and behave, we would be rewarded, by a centralized power or authority.

This is not how markets operate, and definitely not how the world works.

From our experience, especially from those working in large organizations, we always find in organization charts, a tall order of supervisors, managers, and other bureaucrats with fine titles, resembling the structure of socialist organized regimes.

Ironically, we are made to believe that these internalized socialist planning means capitalism.

Capitalism is mutual exchange between consumers and producers. Capitalism is not a hierarchy, but a network of mutually beneficial relationships.

Anti-capitalists all over the world portray Goldman Sachs, Wall Street greed, and America Superpower as the symbols of capitalism.

Are these really what capitalism is about?

Let’s look at the anti-capitalist propaganda, spreading like a unstoppable fire in schooling institutions all over the world, top down from grad schools to colleges to high schools all the way to kindergartens: Big exploits the small. America bullies the world. Strong overpowers the weak.

Sometimes they even go to the extreme by antagonizing the relationship between humans versus animals, or even the living versus the non-living.

Instilling a fear of capitalism is the first step in establishing the reliance on the hierarchy, hence, ultimately obedience to authorities. But other than fear, there are false hope as well.

Everyone is talking about the bubble in the education sector, in particular what we call quantitative easing in universities diplomas.

Society as a whole cannot make people richer by printing more money. It is the same with universities diplomas. We cannot make society as a whole more productive or creative simply by sending more people to universities.

When schooling institutions are incentivized by government funding simply to reach a quota, to admit certain number students and to produce a given number of university graduates, quantity, not quality, becomes the concern.

It is the law of diminishing marginal returns at work. Over-investments leads to malinvestments hence counterproductive outcomes. An educated populace is definitely good. But a populace indoctrinated with fear of freedom and false hope of reliance can hardly be productive.

A productive economy requires risk taking. When governments subsidize risk taking, we have moral hazards. Government funded schooling institutions are moral hazards.

Moral hazard in education benefits the schooling institutions, just like moral hazard in banking benefits the banks. Depositors are given a false sense of security about their money in the banks. When depositors feel safe they leave their money in banks and banks gear up to earn leveraged income.

Banking is a highly lucrative business. So is schooling.

When students are given a false sense of security about the future, they vest their future on a piece of paper called diploma.

Let us reflect for a moment. Diplomas are valuable. Obtaining diplomas is a signaling process. But what are the intrinsic values of education?

Nowadays, schoolkids are conditioned to conform to the norm. Instead of discovering their individual strengths, our kids are ordered to do the same thing their peers do, only hoping to be neater and faster. When we complain that our kids have no entrepreneurial spirit, perhaps we should first ask what schools really teach.

In the old days, schools, especially trade schools for the working class, trained factory workers. And grammar schools train bureaucrats. It is not strictly speaking government bureaucrats, but bureaucrats in a more general sense, white collar workers who control and command administrative process in any organization.

When we look at our kids and tell them, “You’ve got to do something about your career. Career is a step by step process. If you follow a certain pathway, you will reach a certain point. The pathway begins at kindergarten, to elementary school, to high school, to college …”

Where can they go next? How about getting a job? When someone has been given a highly predictable path to follow throughout his formative years, it is understandable that they expect an equally predictable career.

We certainly need some bureaucrats in society and bureaucracy exists for a reason. But we do not need and cannot have too many of them. They are dependent on the risk taking, entrepreneurial, creative class.

Let us for a moment think about the most fundamental function of education.

Education, in its most ideal and basic form, is all about socializing kids into becoming adults. Socialization is a process to understanding relationships with other human beings. One of the most important relationship is our mutual understanding of morality, for morality can never be legislated. As an individual, as a human being, and as an adult, the understanding of morality is more important than obeying legislation without understanding the context.

However, schoolkids are made to memorize codes and are conditioned to behave in a certain non-disruptive manner. There is little opportunity for kids to understand and to internalize moral code. It is therefore not a surprise to find bullying such a pervasive phenomenon in classrooms all over the world.

Do we have any alternative? In The Theory of Moral Sentiments, Adam Smith stated that the best education is domestic education. Domestic education is the most natural while public education is unnatural.

Since the 19th century, school-age kids have been spending more and more time in schooling institutions, rather than being socialized with adults and peers organically.

If we truly believe that society is not a hierarchy but made up of individuals in networks of human relationships, schooling institutions deprive kids of the opportunity of getting in touch with the moral foundations of society.

Detached from the network of human relationships, society becomes more atomic, isolated and, generally speaking, people nowadays are more dependent on the established hierarchy of powers.

Having said that, I do see hope for our future generation. The internet is bringing change. Innovations like Facebook reframe how kids look at and understand society. For instance, we see for ourselves that having more friends on Facebook does not mean one is at a “higher level of social hierarchy”, but everyone enjoys more interaction from an expanded network.

At the end of the day, if there is a creative and productive generation coming up, then we do not have to worry about those minor public policy issues. We all know that the government cannot and will not solve any problem. The hope is that the economy will outgrow government and technology will offer solutions.

If our future generations are dependent on the hierarchy and they lack entrepreneurial spirit, we run into the risk of pervasive welfare populism. Welfare is not only about government programs. When we look at ourselves as individuals, being able to contribute to society, no matter how abject our material conditions, we strive to make our lives better. If we are schooled into believing that our livelihood depends on the benevolence of some higher authority, the dream of pursuing happiness is nothing but a thing of the past.

(Adapted from the presentation made on EFN Asia Conference in Hong Kong 2012)

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Editor of Capitalism.HK

Posted on April 26, 2013, in Lee and tagged . Bookmark the permalink. Leave a comment.

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