I was talking with someone recently about the bizarre British practice of allowing the A-level exams to be set by competing exam boards. It’s bizarre because of the well-known agency problems in examinations: The customers are the schools, whose interest is in high marks, not in effective exams. So we get government ministers persistently fulminating against watering-down of exams.
This is typically presented as a capitalist approach, reflecting the British enthusiasm for market-based solutions instead of big government. In fact, while this solution has the trappings of capitalism, it suffers all the theoretical and practical defects of socialism. As I understand it, those who theorise the superiority of capitalism tend to focus on the diffusion of decision-making to the periphery, where the expertise resides, and the virtues of aligning incentives with goals, which is far more efficient than central planning. Then comes the bracing effect of competition to achieve those goals.
In this case, the natural incentives of those looking to make a profit by selling their product to schools are clearly misaligned. Yes, they can fruitfully compete on accuracy and speed of marking, but the essential content and rigour of the exams is a race to the bottom. (This might not be the case if they were providing distinct qualifications, that might be competing for influence with universities. There is the competing International Baccalaureate, adding an extra level of complexity, but the multiple exam boards are supposed to be producing evaluations of the same qualification, the A-levels. We have a similar problem with university degrees, where there seems to be a pious fiction that “first-class degree” is an absolute standard, whether from Imperial or London Metropolitan; but this is clearly not taken very seriously.) The bottom is set by elaborate government regulations — central planning — and all the competitive ingenuity goes into formally hitting those standards while maximising the marks. (I don’t know if this is really true; but that is what you would predict, theoretically, and it would explain the downward spiral of A-levels.)
Common Infirmities 