Class acts: how charter schools are revamping public education in Arizona - and beyond.

• Author: Glassman, James K.

Three years ago, Arizona passed a law that allows almost any reasonably serious person to start a school and receive a little more than $4,000 in state funds for every student enrolled. Such "charter schools," as they're called, are public schools that operate with more autonomy than conventional ones - a vague definition, perhaps, but the best one available. Twenty-nine states and the District of Columbia have laws permitting them. In the short time they've been around in Arizona, charters have attracted more than 25,000 students, or roughly 3 percent of the state's public school population, and the number is still rising by 10,000 annually. Arizona, with one-fiftieth of the nation's population, has about one-third of its 780 charter schools. Arizona has twice as many charters as California, which has eight times as many children under age 18.

Over the past year, I've visited Arizona three times to see how well its charter schools are working. I especially wanted to find out whether charters were providing competition to traditional public schools and whether, in response, those public schools were trying to improve. I am not an expert on education - far from it - but I write about business and economics, and I've long suspected that one reason public schools fail is that, as government-protected near-monopolies, they lack the feedback mechanisms built into market systems. As a result, they can't get the sort of information that would help them do a better job. Ultimately, they're operated more for the benefit of administrators and teachers than for parents and students - for producers rather than consumers. When charter schools started pulling some of those consumers away from traditional public schools, my hypothesis went, the latter would have no choice but to get better in order to lure the kids back.

Although it's early in the process and the evidence is not yet conclusive, that's precisely what I found when I traveled to the Grand Canyon State. What's more, ira major goal of educational reform is to open the public school system to the salutary effects of competition, charters have more immediate political appeal than vouchers (which would allow families to use state money to send their kids to private schools) and are probably just as effective.

One dramatic illustration of how charters have forced traditional schools to respond was the full-page advertisement - yes, an advertisement - that the Mesa Unified School District ran in local newspapers last summer. The headline blared: "There's no better place to learn than in the 68 Mesa public schools!...Don't miss out!" Mesa, a fast-growing, prosperous city of 350,000 east of Phoenix, is a hotbed of charter schools, with 23 of them currently operating in the area. (The 68 schools to which the ad refers are traditional public schools - although technically all 91 schools are public.)

"We're not afraid of a little competition," says Judi Willis, a school district spokesperson. In fact, Mesa has no choice but to make its conventional public schools better. It's already losing about $10 million a year in funds that are going to charters. From 1996 to 1997, the total public school enrollment in Mesa rose by 1,870, with conventional schools losing 69 students and charters gaining close to 2,000. In fact, Mesa's charter schools have even been hiring school bus drivers away from traditional public schools, offering them 10 percent more pay plus a bonus.

In the Roosevelt Elementary School District in Phoenix, one of the poorest neighborhoods in the state, another superintendent, John Baracy, is feeling the heat as well. In his office at an administrative headquarters that is itself as big as a typical school, Baracy tells me that 300 students have left so far for charters - a drain of more than $1 million, or 2 percent to 3 percent, from his budget. He calls these departures "a wake-up call" and says he was moved to phone "our customers that left us" to find out why. "The main theme that's coming across is that we have not been sensitive to the needs of the parents," he explains.

The departure of students is the sort of unambiguous market signal that was heavily muffled before charters came on the educational scene. Baracy won't be specific about how he'll respond to student needs, but he's gotten the message. "It's an incentive for schools to reflect on themselves and reassess where they're at," he says, adding, "I'm a supporter of charter schools. If parents feel the opportunity is better with them, then they should have that option."

The precise effects of competition on educational quality are difficult to measure, but in a study released last year, Harvard economist Caroline Hoxby found that when families are given a "large increase" in the number of schools to which they can send their children conveniently - defined roughly as a jump from two schools to 10 - interesting things happen. First, per-pupil spending drops by about $400, or 7 percent. Second, increased competition improves measures of student performance - including test results, the probability of finishing high school, and future income - by about 5 percent. "The striking thing is the opposite directions of the spending and achievement results," says Hoxby. "This has powerful implications for productivity." None of this should be surprising: Lower costs and higher quality are the results that competition produces in the private sector. Why should public education be very different?

The first of the country's charter schools opened its doors in St. Paul, Minnesota, in 1992. Some 290 new charter schools were launched last fall alone, but the average state has only about two dozen, and in most cases established interests, led by the teachers unions, have placed restrictions on the freedom of educators to run the schools the way they want. These rules often go beyond...