Benefits and Costs of Privatized Public Services: Lessons from the Dutch Educational System

Abstract

The possibility of privatizing education and other quasi-public services is under discussion in several countries. By privatizing I mean a government policy, such as a voucher or tax credit system, which combines public financing with private production of the service. Advocates of such a system in education claim it would bring the benefits of variety, choice, consumer responsiveness, and competition-induced efficiency to the schools. Opponents fear the supply of private school places might be inelastic and their quality uncertain; moreover, privatization might lead to a deterioration of the public school system and increased social segmentation, with the wealthy elite supplementing the government subsidies and securing a superior education for their own children. To throw light on these issues, this paper examines the experience of the Netherlands, a country which, in effect, has had a voucher system in education for many years. In Holland, education, and most health and social services, are financed by the government but delivered by private nonprofit organizations, often religious ones. This system developed as a response to diverse tastes about education, stemming from basic cultural (religious) differences, in a political setting where no group was in a position to impose its preferred kind on the others. This is consistent with a hypothesis I am testing in a multicountry study: that degree of reliance on private provision of quasi-public goods is positively related to cultural (particularly religious and linguistic) heterogeneity in democratic societies. As will become evident, the Dutch educational system avoids many of the possible pitfalls of privatization. This is due partially to particular mechanisms and regulations the Dutch have adopted to avoid these problems that could conceivably be replicated here and partially to broader