Thursday, December 12, 2002

The New Voucher System, Minus the Vouchers

This L. A. Times editorial discusses the perverse incentives created by a recent directive from the Department of Education (enabled by the No Child Left Behind Act), which says that "[s]tudents at the lowest-performing schools can transfer to a better school in the same district even if it's full. … The only exception is if the crowding would violate safety codes." The problem with this requirement is that it gives both good and bad schools exactly the wrong incentives. The bad schools have an incentive to get worse -- or at least not get any better -- so that students will leave. And the good schools have an incentive to diminish their performance in order to avoid attracting more students. As the Times editorial notes, "It's hard to see the benefit in turning good campuses into cramped encampments and in rewarding a successful principal and fine faculty by dumping more work and bigger class sizes on them."

These are the same kind of complaints often lodged against school voucher programs, but in this case they're right -- and they are a powerful indictment of the public school system, not market-based solutions. Can you think of any private industry in which consumers are regularly regarded as liabilities? In which growing demand for your company's product is a burden and a curse? Public schools have an incentive to reduce the number of students they serve because even when students are allowed to move (as under the new directive), they are not allowed to take their money with them. Under a voucher system, losing a student would mean losing funding, and attracting a student would mean attracting funding. Failing schools would have to scale down and fire under-performing teachers. Successful schools would receive regular infusions of cash, which they could use to expand their operations, buy new equipment and facilities, and make their valuable services available to more students. But none of this will be possible until we break the public school monopoly and create a functioning market in education.

ADDENDUM: To the extent that public school funds are allocated on the basis of enrollment, the Department of Education's edict could be an improvement over the status quo. The worst schools would be losing their funding as they lost their students. For the better schools, however, additional funds with additional students are not necessarily desirable unless the school has the discretion to expand using those funds. This is not something easily done in the command-and-control public system. Allowing students to take their money to private schools, rather than forcing the best public schools to accept them even if they think doing so would degrade the quality of education, would be a better move.

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