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Give Choice a Chance?

By D. Eric Schansberg

Indiana State Senate Bill 60 (SB60) would allow parents to send their children to any public school in the state (if they take care of transportation). On the one hand, basic economic analysis indicates that this should be an improvement. It’s difficult to imagine contexts in which additional competition is a problem—at least for consumers and society as a whole. On the other hand, basic political analysis predicts that increased competition will not be as well received by producers.

Giving customers more options is the mechanism by which “market discipline” operates. In the context of education, if the local neighborhood government school is not performing well, then parents could opt for another school instead. For example, parents might be disappointed with the quality of the education provided or the quality of the accompanying service (e.g., staff are non-responsive). This ability to choose is especially important for those in the middle and lower classes—those who find private schools especially difficult to afford.

Moreover, competitive markets are noted for their ability and desire to address customer niches. With more choice, one would expect schools to specialize in certain subjects, to experiment with different teaching methods, classroom environments, and scheduling schooling, and to allow flexibility in dealing with controversial issues (e.g., intelligent design and opening prayers). Public schools do some of this now. But flexibility and attention to customer preferences would certainly increase with more choice.

That said, adding choice of this sort creates at least three problems. First, one would expect some public schools to compete aggressively for student-athletes—a mixed bag. Second, choice will almost certainly create a “rationing” problem—assuming that some schools would prove more popular than others. If there are more children than existing slots, then the school must make decisions about who to accept based on arbitrary principles. Or the school might increase the number of students enrolled, lowering quality. In a nutshell, there is not likely to be as much “choice” as one might hope or expect. Third, there are some potential fairness issues related to school funding. To the extent that schools are financed through local property taxes, someone paying fewer taxes may have their child’s schooling subsidized even more by those paying higher taxes—or those paying higher taxes may have the quality of their schools reduced by expanding enrollments.

The primary reason why improved choice could be a problem is that the added choice is still quite limited. Parents would still be choosing from among members of a cartel of government education providers. By analogy, the current system in education is equivalent to a U.S. Postal Service or a Bureau of Motor Vehicles where you would only be allowed to go to the branch in your neighborhood. Giving citizens more “choice”—the ability to visit different USPS and BMV branches—is almost certainly an improvement. Nonetheless, the USPS and BMV are still government-run enterprises with significant monopoly power. Notably, neither is a paragon of customer satisfaction or efficiency. In contrast, a system that provided rigorous competition between private providers would surely be more conducive to efficiency and satisfying customers. This could be accomplished through privatization (in the case of the USPS) or reforms like vouchers (in education).

While the economics of “choice” are somewhat complex, the politics are straightforward. As is typical, the experts in this arena (professional educators) are also the ones who stand to gain by opposing substantive reform (from keeping their competition as limited as possible). Predictably, the teachers’ union will oppose this and any reform (including Rep. Behning’s proposal to use tax credits to finance kindergarten for lower and lower-middle class families) that injects even a modicum of competition into their arena. Regrettably, the current system is far more interested in satisfying the suppliers than the consumers.

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