Public problems, private solutions: school choice and its consequences.

• Jurisdiction: United States
• Date: 22 March 2005
• Author: Harrison, Mark

What is the best way to organize education and achieve the greatest social benefits? Specific matters as to how schools are run--such as class size, teacher certification, teacher salaries, student testing, homework levels, and the curriculum--are important, but the primary issue is whether these matters are resolved through the choices of parents in a market setting or through government decisions in the political process.

I argue that a market approach whereby schools compete and are directly accountable to parents works better than accountability through the political process. In fact, markets would fix many of the problems that afflict public education because most of these problems are inherent in government provision.

When decisions are made through a political rather than an economic process, issues are resolved on the basis of political clout and producer interests dominate. Competition from private schools is curbed because government schools receive much larger subsidies and the public sector can impose regulatory burdens on its competitors. Public education becomes overcentralized, there are few market incentives, and it is not responsive to parental demands. The results are inefficient and inequitable. Delivered through the political process, public education makes it difficult to encourage good teaching, harms the poor, and stunts innovation.

A market system in which suppliers are directly accountable to consumers would be the best means of encouraging good teaching, fostering innovation, and meeting the needs of disadvantaged students. Some benefits can be derived by instituting partial reforms that increase competition facing public schools, but the largest benefits would come from a full market system, with choice for consumers and open entry for suppliers.

The Problems with Public Provision

The poor performance of government schools is directly related to the poor incentives and lack of information inherent in government ownership. As a consequence, public provision leads to a lack of innovation, does not encourage good teaching, and disproportionately harms the poor.

Political Rather Than Market Incentives

The fundamental problem with public provision is that those who control government-owned schools (politicians and bureaucrats) do not have strong incentives or the information necessary to make efficient decisions. Instead, they pursue political, ideological, and personal objectives. As a result, the government may provide services to consumers that are valued at less than their cost of production and fail to produce more highly valued services. The needs of some groups, such as the disadvantaged, are easily neglected.

Under public provision there are no price signals to elicit and confirm consumer preferences and provide the incentive to meet them. Further, there are no direct feedback mechanisms to show whether decisions are correct or to improve performance. Often the government never finds out whether it provided the right types and amount of education.

Only a market test provides credible information on how parents value different aspects of educational quality and the relative importance they place on different educational objectives. A market test allows consumers to choose from a range of alternatives. Without a market test it is difficult to judge whether changes in public provision policies do more good than harm, and whether the changes go far enough.

Although test score statistics may give information on school academic performance, some parents may highly value factors not measured by test scores: Is my child safe? Is there a suitable music program? What if my child has a personality clash with a particular teacher? Only parents can weigh the value of these different factors. Experts may all agree, for example, that single-sex schools are better for academic achievement than coeducational schools, but some parents may prefer coeducational schools because they believe they provide better socialization. Further, the best option may depend on the particular child and family circumstances.

In the current system, decisions about public provision of education are made through the political process. This does not automatically result in policies that are in the best interest of children. For example, those in power may wish to extend their political power or redistribute income toward their supporters. Political control of schools may be used to benefit politically powerful special-interest groups rather than please consumers, promote the public interest, or help the disadvantaged.

In the United States, the main political factor favoring in-house provision is the clout of public employee unions (Lopez-de-Silanes, Shleifer, and Vishny 1997). When politicians use government-owned firms to distribute patronage, the firms tend to become loss making, cost inefficient, overcapitalized, and have high staffing levels and inefficient work practices. Political pressures to use government-owned firms to distribute political patronage make public provision more likely and less desirable. As Hart, Shleifer, and Vishny (1997: 1146) contend, "Avoiding excessive public spending on politically powerful interest groups is indeed one of the principal goals of privatization throughout the world."

Over the past few decades, special interests in education (which include teacher trade unions and education bureaucrats) have become better organized, have more political power, and have become more adept at using the political process. Public-sector teacher unions have a strong incentive to be politically active and influence the behavior of their employer, the government. In effect, they help elect their board of directors and management and play a role in determining the agenda for those facing them at the bargaining table (Freeman 1986: 42). The outcome of teachers' strikes depends on the mobilization of public and political opinion, not on economic pressure (Lieberman 1997: 110). For example, the government does not lose revenue during a strike, as would a private-sector employer.

Teachers unions "try to eliminate wage competition, restrict entry to the occupation, increase demands for services provided by union members and weaken their rival service providers" (Lieberman 1997: 29). For example, unions try to prevent government subsidies to, and impose regulatory burdens on, private-sector rivals. They attempt to monopolize labor markets, and so form an obstacle to the introduction of competition and choice. It is in their interest to maintain the monopoly position of government schools and a politicized process for determining education policy.

The evidence from the United States is that the growth in unionization and the centralization of school finance toward the state, rather than the local level, were responsible for the sharp decline in student academic performance in the 1970s and 1980s--mainly through the effects on government policies (Peltzman 1993, 1996). Teachers unions increase school inputs but reduce productivity so that their net effect is to decrease student performance. Unionization raises teacher salaries and lowers student/teacher ratios, but reduces student outcomes. The adverse effects of unions are magnified where schools are protected from competition (Hoxby 1996; Nechyba 1998; Easton 1988: 56-57).

Lack of Innovation

A second problem with public provision is the weak incentive for innovation and improved quality. Weak incentives to innovate are inherent in government ownership. As a result, spending on new technology and on research and development is low. When useful research is produced, those at the school level seldom use it. As Lieberman summarizes, "The fundamental problems with educational research are that there are no compelling incentives to conduct useful research, even to know what it would be, and no compelling incentives for educational personnel to utilize what little research of value may have materialized." (1)

Political incentives affect the type of research and development that is funded and the innovations that are adopted. For example, the power of unions often prevents the introduction of labor-saving technology. Indeed, even R&D expenditure on labor-saving technology is blocked despite its potential importance in such a labor-intensive sector.

A number of writers have commented on the lack of innovation in schooling, despite the substantial innovation in communications and information transmission and storage elsewhere in the economy. (2) One asks us to imagine time travelers from the 1890s visiting schools and hospitals of the 1990s and observing the difference in the use of technology. Surgeons would not recognize the modern operating theater but teachers would be immediately familiar with their surroundings (Papert 1993, cited in Caldwell and Hayward 1998: 6, 136). Education scholar Charles Murray (1997: 90) puzzles over why schools struggle to teach literacy in what should be a golden age of improvement. The lack of innovation in the public sector is often blamed on rules and bureaucratic limitations. They certainly make change difficult, but often arise because of the need to control risks imposed by decisionmakers who do not bear the costs of bad decisions.

Private ownership is a better way to deal with the incentive and information problems that plague the public sector. An owner has strong incentives to make investments that improve the ways, or reduce the costs, of using his assets because the owner reaps the rewards. Without ownership, the incentives to invest and innovate are lower because the inventor must get the permission of the owner to implement the innovation and share the benefits (Shleifer 1998: 137).

Public Provision Does Not Encourage Good Teaching

Another problem plaguing public provision of schooling is that it does not encourage good teaching. Under public provision, teacher conditions are dependent on the...