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Wednesday, August 08, 2012

Competition and the Public Sector

I often hear folks say that the root problem with public education is that it is a monopoly and that, as such, has no incentive to provide better service. This statement reflects not only a gross misunderstanding of the difference between the private sector and the public sector, but a gross ignorance of the facts. I'm really tired of this foolish talk and I'd like to put an end to it now. You can help by exposing the thoughtlessness of this idea every time the idea is mentioned.

I don't care who operates the mouth that gives voice to the idea that competition would be beneficial to public education. Yes, it is typically libertarians, free market true-believers, or just ordinary conservative ditto-heads, but it sometimes drips from the lips of other bumper-sticker sloganeers or their parrots. It doesn't matter who says it, the idea fails on its own lack of merit. There is no need for ad hominem retorts. Even if the idea were voiced by someone I (otherwise) admire and respect, they are wrong about this. I would say "You may be right about a lot of things, but you're dead wrong about this. That idea is completely without merit." As far as that goes, I would give support to anyone who spoke the truth on this matter even if I did not share their views on other matters.

Competition - at least fair competition - is beneficial in the private sector. It contributes to the efforts that businesses make to provide better products and services at better prices and terms to more customers in greater quantities. That competition is driven, like everything else in the private sector, by the profit motive. Companies that offer a better product or a better price will get more customers, book more sales, generate more revenue, and gather more profit. That's why they do it. If, through successful competition, a company creates more demand they can ramp up production to meet that demand or they can increase prices to increase their profit margin. They will get rich. That's why they do it - to make profit.

There is no profit to be made in the public sector. Absent that opportunity, there is no profit motive at the foundation of the whole competition model and the model doesn't work. If a public sector enterprise sees increased demand they just have more work to do, not more profit to gather. Public sector workers have no incentive to increase demand for their services. The public sector is not driven by the profit motive so private sector systems predicated on profit motive, such as competition, won't work in the public sector.

Moreover, schools - brick and mortar schools at least - are uniquely incapable of competition because they have finite capacity. Let's say that we were to create a free market in public education and everyone was free to choose whatever school they wanted. I see that half-baked idea advanced in the comments section of the Seattle Times nearly every month. How would that work? There are only 1,600 seats at Garfield High School, so how would they determine which of the 5,000 applicants get to enroll there? The libertarians don't have an answer to that, but the free market people do.

A free market requires a willing seller as well as a willing buyer. In the competition model a successful company has the option of raising their prices rather than increasing production. The free market solution to an over-subscribed school would be for the school to select the best students from among the applicants. It is not hard to see that the situation would quickly flip and, instead of schools competing for students, students would be competing for schools.

That is precisely what happened in Seattle when we had school choice here and it is still happening in some neighborhoods, such as Wallingford, where popular schools are located.

And where would the other students, the 3400 who didn't gain access to Garfield, end up? They would go to other schools. In the end, because the number of seats pretty closely matches the number of students, all of the students will find a seat and all of the schools will attract enough enrollment (either through choice or through default) to continue operations. None of the schools would go out of business.

MLK Elementary school had a particularly dismal record during the choice years. One year only 4 students named it as their first choice. The following year only 2 students named it. The year after that 0 students named MLK as their first choice for assignment. Zero. Not a single one. A more complete failure to compete simply is not possible. Yet the school had a full kindergarten class that year. It was filled with students who did not get assigned to their first choice and were assigned to MLK instead. No school lost the competition because there was not so much over-capacity that it was possible. Even now, when only about 400 students are enrolled at Rainier Beach High School, there is no serious talk about closing the school due to low enrollment.

Free market true believers, however, say that in a real free market things would be different. If the state simply issued vouchers and families were free to apply those vouchers at the school of their choice and if public schools - and a number of private schools - accepted those vouchers as payment in full, then, they theorize, entreprenuers would open schools to serve the communities that were ill-served by the public schools. These new private schools would spontaneously pop up to draw students away from the public schools. It's a charming theory. It manages, however, to ignore the realities of business such as barriers to entry. Where will these entreprenuers find appropriate buildings to house their schools? Where will they find principals and teachers to staff them? How will they know how many teachers to hire when they don't know how many students will show up? What kind of profit can they make - after salaries and operating expenses - if they only get the voucher as payment? Frankly, it's not a good investment. Accept a few students with IEPs and your profit opportunity is gone. Your liabilities are HUGE. The margin is too thin and the risks are too great. Want some evidence? Our private schools are already pretty full - the demand is currrently there - but we don't see a bunch of new schools spontaneously appearing now, do we. The opportunity already exists and no one is taking it, that's pretty good evidence that the businesses will not appear in response to the opportunity.

Finally there is the mistaken belief that public schools are some kind of monopoly. It's simply untrue. We all know that about 30% of school-age children in Seattle do not attend the Seattle Public Schools. They are in private schools, or home-schooled, or they are enrolled in public schools in another district. Families have those options plus they can choose among the schools in their home district. Even among public schools, even among the public schools within a district there is no institutional uniformity. The idea is laughable to anyone who knows anything about them, so the implication, that the same bland gruel is dispensed everywhere, simply isn't credible.

I would add the fringe belief that not only are public schools a monopoly, but that they are controlled by the teachers' union and operated with the express purpose of keeping union teachers employed. This kind of thinking requires a whole different tinfoil hat and falls outside the scope of this discussion. It is, however, contradicted by all evidence. All of it.

Now, with charter schools, we are hearing other themes around the benefits of competition in public education.

We're hearing people say that public schools fear competition. That's just silly. Public schools already have competition, from private schools, home schooling, online schools, and other public schools, and they have not shown even a hint of fear over any of those. It's never credible for one person to describe another person's emotional state. Most of us are barely aware of our own motivations or emotions, let alone reliable sources for the motivations and emotions of others. I have been a public school activist for over a decade and I have never seen any expression of fear in any district official. Certainly not over the prospect that someone might withdraw their child from a public school. Go ahead, is what they usually say. Don't let the door hit you on the way out. Remember, they have no profit motive and therefore no compelling reason to keep you as a customer.

We're hearing people say that charter schools will be so good that public schools will have to improve or risk losing all of their students. Or maybe just having the local example of an excellent school will inspire public schools to follow their model for success. That is how, these dreamers claim, the competition with charter schools will improve the public schools. As I have already described, the public schools don't care if you leave. Losing students - even a lot of students - is not a risk to them. And, believe it or not, all of the charter school models are known, whether there are local examples or not. Some public schools have followed the models of successful schools - public, private, and charter - whether there was a local example of the model or not. The proximity of the model is not a factor. If the public schools were going to emulate charters they would have done it already and building a nearby charter will not influence the decision.

The best refutation of the benefits of competition that I can offer is the actual experience here in Seattle. We had choice and competition, and people didn't want it. We replaced it with neighborhood assignment. Competition simply doesn't work in the public sector the way it works in the private sector because the profit motive is absent and every private sector solution, including competition, is rooted in the profit motive. How would it serve the TOPS community to takeover Madrona K-8 and create a TOPS II there? Not at all. No wonder they haven't done it.

9 comments:

Anonymous said...

LIttle time but two small things occur to me:

Democracies exist on the foundation of institutions. We need some institutions that remain stable and out of the for-profit model because they contribute to the common good. Public education for all is one of these. For me, it is a matter of faith. Just like I think health care, natural resources, infrastructure and energy should be public institutions and regulated for the good of the people.

2. We don't really have a free market anymore. Big box stores that are cloned from community to community drive out small businessess, mom and pop stores, and family enterprises. The same would happen to education. The big boys are salivating at the profits they will realize when they get all that public money for a service that will be as inconsistent and difficult to dispense as it is now. And we, the people, will have even less to say about it than we do now.

n...

Anonymous said...

Walmart "competition"?

Amazon "competition"?

Beyond that, the idea that the private sector wants actual competition is laughable.

Too big to fail, anyone?

Ha

Oompah

Jack Whelan said...

A couple of points:

The market in the long run always caters to those who can pay, and quality is something you'll have to pay through the nose for. No matter how charter schools present themselves to the public in the short run as the avenue for innovation and choice, in the long run, the only people who are going to get it are those who can pay for it. This is how it has always been and always will be.

But we figured out already it doesn't have to be that way. It's called the "mixed economy", and its main theorist is J.M. Keynes; it's a compromise that recognizes that the free market is good for some things, and that public ownership is good for other things. Education, health care, energy, transportation and communications infrastructure, are public goods that should be owned by the public. There are some things that just should not be sold for profit, and a democracy should have tools that insure a certain level of fairness and equity that the market can never deliver.

This public/private compromise brought us the broadest distribution of wealth in history in the decades after WWII, but Keynesianism was supposedly de-legitimated by the stagflation of the 1970s, and the Friedmanites and supply siders and extremist laissez-fairites who thought FDR was a communist saw their opportunity to send us back into the era of the robber barons. Reagan was their point man, and he didn't hesitate to seize the day. Good-bye fairness and equity. Hello boom and bust cycles and reversion to the economically stratified historical norm.

And while Friedmanism is on its heels in the academy, it still reigns in the capitol and in the media, not because anybody thinks it makes sense, but because it serves the ends of powerful interests.

In any event, the ethos of the last thirty years has been dominated by this 19th-Century, free-market, trickle-down, voodoo, Ayn Rand, and Gordon-Gecko style social darwinism. Any policy directed at promoting the public interest broadly defined has been de-legitimated as socialism, and will continue to be because the last thirty years has made any robust sense of the common good or public interest seem like old thinking, complacent thinking, status quo thinking, no matter how much sense it makes.

We are told instead to trust the creative destruction of the market. Well historically, it creates a lot of wealth for the few, and destroys it for the many. And now they want to apply this creataive-destructive market logic to the schools?!! Washingtonians, at least so far, have been savvy enough not to allow themselves to be hoodwinked by this charter/voucher nonsense.

I'm not going to rehash what Charlie and the others have said so well above, but the bottom line is that a private-sector, market-driven education system will create a stratified system. The system will gradually evolve to work like Medicare, where some people can afford to buy supplemental insurance to get better coverage. Other schools will cater to the poor, and will become stripped down, super-low-cost testing factories. They'll hire low-paid bouncer/proctors to keep the kids in line, and have all the instruction done on TV and computer monitors.

If you don't want your kid to go to such a place, then you can pay up and buy yourself a "charter school plus" (supplemented) for your kid. Eventually, like the healthcare system, costs will get out of control, supplemental "fees" will skyrocket, and any idea of delivering equity through public education will be a nostalgic fantasy.

Melissa Westbrook said...

I agree with most of what Charlie said.

We're hearing people say that charter schools will be so good that public schools will have to improve or risk losing all of their students.

And has this, over 20 years and 41 states, come to pass? It has not. And, in Milwaukee, home of vouchers for 10+ years, no better schools. It's nonsense to believe this will happen and we have the evidence to prove it.

Is there a profit motive? Well, yes there is because charters can (and do) make profits. But real public education has no profit motive because it serves everyone and can't manipulate who they serve (at least not like charters can).

I appreciate that we, as Americans, like options. But upending a system on the hope that we might have better options (and we know the success rate is so low) is not the way to go.

Jan said...

Well, shut my mouth, Charlie. I have to confess -- there is blood on my hands on this one. I have made the very argument that you disparage.

Here is my difficulty, though. Doing "hard stuff" (continually working to improve, meeting the needs of a widely variant population with shrinking budgets, adapting to changes in ethnicity, population, etc. -- is, well -- hard. And it is harder work than many people want to do, if they can somehow find a way to not do it. The downtown folks are the classic example. Engaging in "community involvement" is hard work. To do it well, you have to think through the communities who are impacted and need to be involved (just the local neighborhood? all of the taxpayers who vote in levies?, various ethnic or socioeconomic subgroups who might be particularly impacted? Then you need to figure out what "effective community engagement" with those communities best looks like under the circumstances (what choices can you legitimately offer? who will ultimately make the decision? Can/should there be a community committee, and if so, what size, who should be on it, what power will they have, how will they be selected? Etc. Etc. Etc. That is all before the really hard work of actually HAVING the meetings occurs. Now, what do you do with the suggestions? How do they get to the decisionmakers? If there are competing sides, how to air, report, and resolve the disputes? Now -- plan everything enough in advance that you can do all of the above before a decision is made.

On the one hand, is it any wonder that they don't willingly undertake this step? On the other, IF you offered me two competing public school systems -- one that featured robust community involvement, and the others like the SSD, which does little to none -- I would choose Door A. But -- we don't get a choice. Why? Because they ARE, in fact, a monopoly -- and so they don't have to compete with my imaginary public district that hires and trains their staff to do all this stuff. We have, for the last 20 years at least, struggled with how to make a monopoly responsive to its constituents, and we haven't succeeded very well, in my opinion.

I totally concede that our old choice system (which I liked better than the current assignment plan) tended to flip -- so that kids were competing for schools, rather than schools competing for kids. But I always thought that the problems were:

1. We had too few great principals -- lots of good teachers, but not enough great school leaders; and

2. No appetite for closing schools that no one was choosing. I think that if the understanding had been that schools that truly attracted no one would close and reopen as -- something else, the problems you cite at RBHS, MLK, Madrona, etc. would have been resolved. The best example I can think of is Bagley -- which was threatened with closure, and promptly went out, campaigned to be allowed to start a Montessori program, and "reinvented" themselves as a much more popular school with a strong drawing card. We will never know, I guess, but I think if you had told the Madrona principal that if her census stayed low, you were going to reopen that school as TOPS II, with a program similar to TOPS, a community garden, a strong arts and music program, and an all city draw (with a geographic preference for Madrona neighborhood kids), all those parents who left Madrona because they felt unwelcome would have showed up in droves!

I DO think that the monopoly nature of the public system permits people to "get by" with doing less than society requires to educate its kids. This does NOT mean that I think either charters or vouchers (as they are now constituted) are an effective answer. We need a paradigm here OTHER than "state-run monopoly with large centralized bureaucracy answerable to essentially no one (because the School Board won't do it)" and "competition predicated on low-cost/high-profit incentives." Neither is working well enough.

Economists for Education said...

It's also true that inexpensive, high quality education is a public good. Aside from the humanitarian aspects, purely from an economic standpoint, public education is fixing a market failure and providing a high return for doing that.

Companies want educated workers, but cannot bear the cost of providing the education themselves as workers are free to leave for other companies. Like roads and other public goods, the cost of education needs to be broadly shared, but then its benefits can be broadly enjoyed.

However, it is also a great deal for the taxpayers, as educated workers are higher paid workers, and higher paid workers pay more taxes. In fact, the CBO estimates the return-on-investment (ROI) of education spending at 10%. A 10% ROI is an excellent return, well beyond most other investments of similar risk, and well below the government's borrowing costs.

The free market and competition in a market providing public education is not possible. Public education is fixing a market failure, the inability of companies to provide education for their workers on their own because those companies would not be able to reap the full benefits of that spending. Public education is a public good.

Charlie Mas said...

Jan,

Thank you for your thoughts and your refreshing candor. I'm very happy to have your participation on this blog.

I agree with much of what you have written.

I agree that "We have, for the last 20 years at least, struggled with how to make a monopoly responsive to its constituents, and we haven't succeeded very well, in my opinion."

I am reminded of this by charter school advocates when I say that the solution is to reform the system instead of bypassing. The system is remarkably resistent to reform. We elected a reform-minded Board in 2007 but they were stymied by an anti-reform superintendent and anti-reform elements in the local establishment such as the Seattle Times. We are struggling to bring more reform-minded people onto the Board but, despite the spectacular public failures of the anti-reform establishment Board members, it is an uphill battle. Even then, the Board lacks any enforcement ability, so there's a lot of doubt about how effective they can be as agents for change.

I agree that the problems with Seattle's school choice were:

"1. We had too few great principals -- lots of good teachers, but not enough great school leaders; and

2. No appetite for closing schools that no one was choosing.
"

The District administration abdicated their duty to provide quality assurance and accountability. They sacrificed it on an altar to site-based decision-making. Even now, it does not appear that the central administration acknowledges their real mission. Instead, they are occupying themselves with a lot of things that they should NOT be doing.

The importance of the role of the principal is growing in my mind and I am gazing across a desert almost devoid of talent. Again, I don't think folks really understand the role all that well and I think a lot of people come into the job without any idea of what they are trying to do.

I agree that "We need a paradigm here OTHER than "state-run monopoly with large centralized bureaucracy answerable to essentially no one (because the School Board won't do it)" and "competition predicated on low-cost/high-profit incentives."

I have nothing new and nothing more to say about a the inability for the public K-12 education culture to hold anyone accountable or the unwillingness of the Board to do so.

Charlie Mas said...

Here's the thing about competition. It may give you more choices, but it doesn't necessarily give you better choices. Burger King and Jack in the Box are in competition with McDonalds, but are there any real quality differences among them? Do you really care if you eat a Big Mac, a Whopper, or a Jumbo Jack? Don't tell me that you do - because if you really did care, you wouldn't be eating any of them. Wonder why Tully's offers about the same sort of stuff as Starbucks? Because all organizations naturally reach a point of optimized equalibrium and that point is pretty much the same for all organizations. Tully's and Starbucks are pretty much alike and fast food places are pretty much alike because they are all playing the same game and the formula for success is the same for all of them.

The reason that most charter schools are no different from traditional public schools is three-fold:

1) The traditional public school structure has been refined over decades of trial and error and is close to optimal.

2) We are so deep in the culture that created the traditional public school structure - as are the creators of charter schools - that we don't even question the structure.

3) I wonder if a constantly raging revolution isn't too exhausting to maintain. It's really hard work and each year you have to start it all over again from scratch. No wonder charter schools have so much teacher turnover. They aren't allowed to reach an equilibrium point. When I write about optimal equilibrium I mean the best that can be sustained, not the best that can be achieved. I think that we need to acknowledge some human limitations to what is possible here.

Anonymous said...

Charlie's and Jan's analyses of our public school system are accurate. We have a lot of problems. But to throw out the good in search of the perfect is no solution.

Like everything in a democracy, institutions rely on public involvement. Schools are no different. If a constituency wants a better product, they have the best chance of getting it by actively demanding it.

That's why I like Nick Esparza so much. He doesn't have the flair for rhetoric and analysis of Jan or the vocabulary and knowledge of Charlie but he is in their fighting for what he believes. No, not always civil but his heart is in it and he's doing it the only way he knows. He goes down to board meetings and messages. I have only admiration for what he's trying to do.

The problem I see with "choice" is that it eventually becomes no choice. That's really what Jack has said above. In the end, it become stratified and the stratification becomes permanent. And we will have even less ability to change it for the better. Citizens still have some impact on public institutions. They will lose that once privatization occurs.

n...