Financial resources are a central policy lever for improving educational outcomes. As an investment in human skills, education can help to foster economic growth and enhance productivity, contribute to personal and social development, and reduce social inequality. But like any investment, education has returns and costs. After Chapter A examined the returns to education, Chapter B provides a comparative examination of spending patterns in OECD countries. By giving more emphasis to trends in spending patterns, Education at a Glance 2002 analyses how different demand and supply factors interact and how spending on education, compared to spending on other social priorities, has changed.
Effective schools require the right combination of trained and talented personnel, adequate facilities, state-of-the-art equipment, and motivated students ready to learn. The demand for high-quality education, however, can translate into higher costs per student, and must therefore be weighed against undue burdens for taxpayers. No absolute standards exist for measuring the per student resources needed to ensure optimal returns for individual students or society as a whole. Nonetheless, international comparisons can provide a starting point for discussion by evaluating the variation that exists between OECD countries in educational investment. Indicator B1 examines direct public and private expenditure on educational institutions in relation to the number of their full-time equivalent (FTE) students. It also reviews how OECD countries apportion per capita education expenditure between different levels of education.
Indicator B2 examines the proportion of national resources that goes to educational institutions and the levels of education to which they go. The proportion of national financial resources allocated to education is one of the key choices made by each OECD country; it is an aggregate choice made by governments, enterprises, and individual students and their families. Indicator B2 also shows how the amount of educational spending relative to the size of national wealth and in absolute terms has evolved over time in OECD countries.
Indicator B3 completes the picture of the resources invested in education by examining changes in public spending on education in absolute terms and relative to changes in overall public spending. All governments are involved in education, funding or directing the provision of services. Since markets offer no guarantee of equal access to educational opportunities, governments fund educational services to ensure that they are within the reach of their populations. Public expenditure on education as a percentage of total public expenditure indicates the value of education relative to the value of other public investments such as health care, social security, defence and security.
Cost-sharing between the participants in education and society as a whole is an issue that is under discussion in many OECD countries. This is a particularly relevant question at the early and late stages of education - pre-primary and tertiary - where full or nearly full public funding is less common. As new client groups participate in education, the range of educational opportunities, programmes and providers is growing, and governments are forging new partnerships to mobilise the necessary resources. Public funding is now being looked upon increasingly as providing only a part, albeit a very substantial part, of the investment in education. Private funding is playing an increasingly important role. To shed light on these issues, Indicator B4 examines the relative proportions of funds for educational institutions from public and private sources, and how these figures have evolved since 1995.
New funding strategies aim not only at mobilising the required resources from a wider range of public and private sources, but also at providing a broader range of learning opportunities and improving the efficiency of schooling. In the majority of OECD countries, publicly funded primary and secondary education is also organised and delivered by public institutions. However, in a fair number of OECD countries the public funds are then transferred to private institutions or given directly to households to spend in the institution of their choice. In the former case, the final spending and delivery of education can be regarded as subcontracted by governments to non-governmental institutions, whereas in the latter instance, students and their families are left to decide which type of institution best meets their requirements. Also the allocation of funds between public and private sources is examined in Indicator B4 .
The primary financing mechanism of education in most OECD countries remains direct spending on educational institutions. However, governments are looking increasingly towards greater diversity in financing instruments. Comparing these instruments helps to identify policy alternatives. Subsidies to students and their families, the subject of Indicator B5 , constitute one such alternative to direct spending on institutions. Governments subsidise the costs of education and related expenditure in order to increase access to education and reduce social inequalities. Furthermore, public subsidies play an important role in indirectly funding educational institutions. Channelling institutional funding through students may heighten institutional competition and therefore the efficiency of education funding. Since aid for student living costs can also serve as a substitute for work as a financial resource, public subsidies may enhance educational attainment by enabling students to study full-time and to work fewer hours or not at all.
Public subsidies come in many forms: means-based subsidies, family allowances for all students, tax allowances for students or parents, or other household transfers. Should household subsidies take the form of grants or loans? Do loans effectively help increase the efficiency of financial resources invested in education and shift some of the costs to the beneficiaries? Or are student loans less appropriate than grants for encouraging low-income students to pursue their education? Indicator B5 cannot answer these questions, but it does provide a useful overview of the subsidy policies being pursued in different OECD countries.
Chapter B concludes with an examination of how financial resources are invested and apportioned among resource categories ( Indicator B6 ). The allocation of resources can influence the quality of instruction (through the relative expenditure on teachers' salaries, for example), the condition of educational facilities (through expenditure on school maintenance), and the ability of the education system to adjust to changing demographic and enrolment trends. A comparison of how OECD countries apportion their educational expenditure among resource categories can provide some insight into the differences in organisational structure and operation of educational institutions. Systemic budgetary and structural decisions on allocating resources eventually make themselves felt in the classroom; they affect teaching and the conditions under which teaching takes place.