Academic journal article The Cato Journal

The Competitive Education Industry Concept and Why It Deserves More Scrutiny

Academic journal article The Cato Journal

The Competitive Education Industry Concept and Why It Deserves More Scrutiny

Article excerpt

The present U.S. education system is shaped by a political process in which constituents collectively determine how to produce education. Political campaigns, lobbying, and voting establish schooling options, how to pay for them, and determine the rules governing access to each school. Competitive markets, in contrast, use tools like contract enforcement, profit-loss, and choice among competing alternatives to decide what is produced, how it is produced, and how much it will cost. A market process, therefore, would not just revise the rules governing access to existing schools, it would also determine what new schooling options would exist in the future.

In the United States, the K-12 education system contains all of the inefficiency and stagnation symptomatic of collectively run enterprises. Low quality, high costs, a lack of innovation, and misaligned or even perverse incentive structures are the most apparent problems plaguing the U.S. system. All of these problems are the result of the political accountability and collective management process that drives the system.

Thousands of reforms and hundreds of millions of dollars worth of tinkering with the system have failed to yield any significant improvements. Consequently, the bureaucratic and political control of public schools has come to be increasingly recognized as the root of the problem. Indeed, several states (as well as a number of countries) have enacted reforms intended to instill market processes into the education enterprise. Unfortunately, none of these reforms contain all (or even many) of the key elements of a competitive education industry, and are, therefore, too limited in scope and too tightly regulated to serve as a model of what a true market would be like. These reforms do, certainly, benefit a few children and they can foster some helpful, limited rivalry, but the system still lacks the key elements of a competitive market, the revisions cannot bring about the real competition and market forces that exist in most other sectors of the economy.

Key Elements of a Competitive Education Industry

Limited school choice reforms such as modest tax credits or narrowly targeted vouchers cannot establish a CEI. At most they yield some limited rivalry effects. A true CEI requires at least the following elements: (1) minimal regulation of private schools, (2) unbiased, low formal entry barriers, (3) opportunity to specialize, (4) low informal entry barriers, (5) nondiscrimination in funding, (6) minimal uncertainty about the scope of the market, (7) no price controls, and (8) a minimal number of informed and mobile customers.

Minimal Regulation of Private Schools

To prevent fraud and promote efficient disbursement of any tax revenues that parents can use to defray private schooling costs, governments must establish school eligibility criteria and payment policies. It is imperative, however, that these administrative necessities not lead to regulatory strangulation of market forces. Administrative efforts must prevent fraudulent use of vouchers or tax credits in an accurate, timely manner. Otherwise, only rules that apply generally to businesses and nonprofit producers are appropriate; rules like building codes, zoning, safety, and anti-discrimination laws. Recognition of private accrediting organizations may be sufficient for the government to ensure that only genuine, law-abiding schools receive tax dollars.

It is important that decisionmakers and activists recognize the serious consequences of having the government go beyond the bare minimum of oversight needed to efficiently disburse funds and deter fraud, and separately to manage the government-owned schools. To prescribe in detail what the vast majority of families will generally demand anyway has few benefits and high costs. Such micromanagement would eviscerate key CEI processes. Neglect of socially valued subject matter by some families, and tolerance of some unpopular differences in what is taught, is much less costly (Arons 1997). …

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