Market Theory of School Choice

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Market theory can explain much about our school productivity problem and is about to change schools radically.

Why does the United States, where private industries are the most productive on the planet, have such unproductive schools? Our per-student costs for K-12 schools continue to rise substantially and are third highest among two dozen economically advanced countries. Yet our students make the least progress in reading, science, and mathematics. Despite claims of breakthrough programs, unending equality exhortations, and Title I/Chapter 1 expenditures of $120 billion, the poverty gap in achievement has remained essentially the same for a quarter-century.

Market theory can explain much about the school productivity problem and is about to challenge and change schools radically. It takes seriously the common- sense idea that people rationally arrange their affairs to maximize what they value while minimizing their efforts, costs, and risks. If you think anyone is irrational, perhaps your views of values and costs differ from theirs. And shouldn't they as free citizens decide what seems best for themselves?

Rational choice is the fundamental assumption of market theory. It is a core idea in economics, the quintessential policy science, a discipline that follows its own efficiency precept by parsimoniously explaining much about individuals and society with only a few ideas. As exemplified here, it can account for many of the seeming incongruities of the school choice controversy.

Market theorists prize individual choice over government or expert decisionmaking. Who knows better than citizens what will satisfy our preferences for lunch or what to wear? Given unsubsidized choices, most of us prefer a private over a government restaurant. We may seek and even pay for expert advice—but we don't like expert orders.p>

Given unsubsidized choices, most of us would prefer a private over a government restaurant.

By definition, voluntary exchange between a buyer and a seller suits their preferences and makes them both better off; otherwise, they wouldn't exchange money, goods, and services. To the extent that their freedom to exchange is abridged by taxes and regulations, they are both worse off. They are entitled, not to happiness, but to its pursuit. If free citizens' tastes for food, leisure, health, travel, and education differ from those of others, they can spend their money and time accordingly.

Such thinking applies to current public-sector spending by local, state, and federal governments, which amounts to about 34 percent of American income. Market theory argues that citizens would be better off spending much of this themselves or having the greatest possible say in how it is spent. In this view, decentralized decisionmaking suiting local preferences is best.

Ultimate decentralization means not even local government but citizens themselves acting freely, alone or with others. If they see poverty, injustice, environmental degradation, or inefficiency, then, within the law, they can allocate their money and energies accordingly, with or without the assent and coalitions of other like-minded citizens. They shouldn't, however, be able to impose their morals or views on others, even if they represent government here to help us or experts who know what's best.

Overwhelming evidence for the value of individual choice can be found in comparisons of the quality of life in countries where citizens are more free to choose with that of countries where governments decide: South and North Korea, Taiwan and China, Puerto Rico and Cuba, and, after World War II, Eastern and Western Europe. Greater freedom assuredly wins.

Market theory argues that citizens would be better off spending tax dollars themselves, or having the greatest possible say in how they are spent.

Massive evidence also lies in comparisons of the public and private provision of goods and services. Studies in two dozen industries, such as transportation, show that private providers competing with one another provide cheaper, quicker, and more satisfying goods and services than do governments in the United States and elsewhere.

Rational choice, the premise of market theory, also explains why public and private interests seek to exclude competition in the hope of increasing their power and income while reducing their costs and risks. Easier it may be to win in courts or legislatures than in the marketplace. On grounds of expertise, patriotism, tradition, morality, safety, or other claims, special interests call on government to grant them legislative and judicial protections against competitors. But beginning a quarter-century ago, it became clear that the best thing for American car consumers was the new and unfettered competition Toyotas and Hondas gave Ford and General Motors.

Providers rationally persuade legislators to write complex regulations, which exclude new market entrants, which deter innovation, choice, and productivity. In this respect, government is hardly an insightful ally of the public. Rather, special interests use government as a tool to secure private benefits at a cost to others, especially those least able to represent themselves, namely, the poor and ill-informed.

Even professions, great and small, try to exclude competitors through laws and regulations. Physicians try to prevent nurses, pharmacists, and others from providing cheaper, more convenient, and desired service. New York City cosmetologists insist that hair braiding by African and Caribbean immigrants should be illegal without accredited and expensive training.

Special interests use government as a tool to secure private benefits at a cost to others, especially those least able to represent themselves.

Similarly, teachers' unions press for legislated entry barriers, which exclude poor, idealistic, and younger and older people with subject-major baccalaureates and expertise, one of the few predictors of teaching performance. These potential job competitors lack the money, time, and inclination for two or three extra semesters of conventional education courses and practice teaching.

Unions and other status quo interests say: Exclude for- profit and not-for-profit intruders and require conformity to complex federal, state, and local regulations. Unions negotiate tough contracts with complacent school boards that disallow justified dismissals and merit pay, employed in most industries to raise productivity. Backed by government, moreover, expert theorists often prevail even if parents prefer phonics to "whole language," direct teaching to constructivism, calculation to mathematical feelings, and rigorous standards to "authentic" self- and peer-assessments.

The antithesis of professional and expert choice, market theory, may sound radical. And it is radical in the original sense of the word, which is root. Market theory goes back to the American founders' insistence on citizens' freedom to choose. In this sense, market theory opposes Republicans who want to regulate morals and Democrats who want to regulate economic affairs. It is consistent with the old-speak meaning of "liberalism" emphasizing freedom and limited government.

Market theory goes back to the founders' insistence on citizens' right to choose.

School choice makes for incongruous allies, including some classic and modern liberals as well as some conservatives. Among them are those who want choice as a governing ideal, economists who want efficiency, entrepreneurs with new ideas to try, and religious and other parents who want to preserve their family values. They are joined by big-city poor and minorities who often face indifferent and inefficient school bureaucracies thoroughly tied by multitudinous strings that come with federal funds. Although these groups differ in their views, they aim rationally for the same ends, namely, charter schools and public and private vouchers which allow parent voice and choice.

School choice troubles both political parties. If it doesn't affect their particular industry, some Republicans favor competition. But suburban Republicans fear choice would bring poor kids to their schools, which was the undoing of choice legislation in California. Choice also splits the interests of the Democrats' two biggest and most reliable factions: the teachers' unions, which fear the competition that choice engenders, and African-American parents, who favor choice more than any other ethnic group.

Even while making inconguous allies, school choice has troubled both political parties.

A final seeming irony: Much of the rigorous research on school choice flowed not from conservative think tanks or schools of education, but from the Brookings Institution and Harvard University, both thought to be on the left side of many policy issues. Yet, coming from the left, market theory and findings have even more creditability. Economist Caroline Hoxby, for example, is a young Harvard superstar whose biography already has appeared in The New Yorker. Contrary to conventional claims, she showed that increased competition causes public schools to improve their efficiency and appeal to retain or regain their customers. Her recent papers may be found on the Internet at www.economics.

The political scientist Paul Peterson of Harvard's John F. Kennedy School of Government edits big, authoritative books about school choice that include proponents and opponents, both of which argue largely from evidence. Mr. Peterson also conducts true experiments, which are rare in education, a field that more often relies on precedent, anecdote, conjecture, and moralizing. He randomly assigned mostly poor students in Dayton, Ohio; New York City; and Washington to remain in their assigned public schools or to go to private schools of their choice. Parents and students in chosen schools were substantially more satisfied with nearly all aspects of their schools, even though the costs are typically half those of public schools. For Mr. Peterson's recent papers, see

We have reached the end of the beginning of the school choice conflict.

Such studies are insufficiently well-known by policymakers and educators. Joseph Bast and I have described much evidentiary research on market theory applied to education, which is available on the Internet at

We have reached the end of the beginning of the school choice conflict. We are now likely to see a protracted, intensified, and fascinating struggle of incongruous coalitions. Some see school choice as the civil rights struggle of the new century. Others, as the key to efficiency and technological innovation. Still others, as a way to preserve their family values or provide the curriculum and instruction they think best for their children. And for some in public schools, as their doom or dream. They all hold rational views.

Herbert J. Walberg is a research professor of education and psychology at the University of Illinois at Chicago and a distinguished visiting fellow at the Hoover Institution on War, Revolution, and Peace at Stanford University in Stanford, Calif.

Vol. 19, Issue 42, Pages 46, 49

Published in Print: July 12, 2000, as Market Theory of School Choice
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