William Baumol, professor emeritus of economics at Princeton University, is the author of The Cost Disease: Why Computers get Cheaper and Health Care Doesn’t. The “cost disease” is a term Professor Baumol coined in the 1960s, but more recently it has become known as “Baumol’s disease” or “Baumol’s curse” for a very good reason. The disease has, over the last two decades, spread like a virus through all the social services delivered by governments, particularly education and health care.
Building on over 40 years of economics research, Professor Baumol has shown that while the cost of consumer products, such as automobiles and computers, has increased at a certain rate—a rate that is incorporated into the Consumer Price Index (CPI)—the cost of social services, such as education and health care, has increased at a much faster rate. Professor Baumol says that these social services are “condemned” to increase faster than inflation because the number of people providing and using the services continue to expand and they cannot be easily reduced.
In fact, the empirical evidence from a number of countries shows that increases in the cost of education represent an exponential growth curve, rising much faster than the CPI, which means that the increases are unsustainable over the long term. Particularly with an aging population and stagnant or decreasing productivity, provincial and territorial governments in Canada will be forced to slow the increasing cost of public education.
This backgrounder examines the costs of public education in the provinces and territories from 1999 to 2011, showing that the cost disease has, in fact, infected public education, but at different rates. Thus, provincial and territorial governments with more expensive public educational systems can learn from those with less expensive systems.