Market Education Is Not a Theory

Two weeks ago, I sat beside Andrew Rotherham at a Cato Institute forum. After he provided several thoughtful, empirically-supported answers to questions on teacher training and certification, I was surprised to hear him declare that there is essentially no such thing as a truly free market in education, and that education must be extensively regulated to succeed (audio and video are here).

This evening, I read a blog post by Sara Mead, the Senior Policy Analyst with Rotherham’s Education Sector organization, in which she asserts that

Vouchers are all about allocation of children amongst spaces in existing schools and do almost nothing to expand the supply of high-quality options…. Some voucher proponents claim that making vouchers available will create market incentives that expand the supply of high-quality schools in these communities, but there’s not really evidence to bear that out.

One thing that these statements (and several others made in Mead’s post) have in common is that they are directly contradicted by decades of empirical research. Another is that they make no mention of that research. Rotherham and Mead do not seem to be disagreeing with the relevant literature. They seem unaware of it.

Taking the latter point first, there are two well-established nationwide school voucher programs, one in the Netherlands, the other in Chile. The first was created in 1917, the second in 1982. In both cases, the supply of private schools rose dramatically to meet demand. Roughly three quarters of Dutch students are now enrolled in private schools. In Chile, private sector enrollment doubled within the first decade and passed the 50 percent mark in December of 2005.

Sweden and Denmark enacted voucher programs more recently, and both are seeing the creation of new private schools as a result. Swedish private sector enrollment rose from 1 percent to 10 percent of the student population in a decade, and continues to rise. I discuss this issue at greater length in my chapter in the Cato book: What America Can Learn from School Choice in other Countries.

Turning to Mr. Rotherham’s assertion, I pointed out at our forum that there are vibrant, unregulated, rapidly growing education markets all over the world. In some areas, such as the U.S., Japan, and South Korea, these are niche markets – mainly after-school tutoring. In other parts of the globe, particularly South Asia and Africa, they are mainstream elementary and secondary schools.

In 2004, I reviewed the empirical research on the relative performance of market versus monopoly provision of elementary and secondary schooling. That research favors market systems in the areas of academic achievement, efficiency, responsiveness of the curriculum to parents’ demands, and even the maintenance of physical facilities. In the achievement and efficiency areas, where the most research has been done, the statistically significant results favor markets by a ten to one margin.

Subsequently, the Cato Institute published a paper by James Tooley and Pauline Dixon showing that private schools serving the poorest people on Earth, in the urban slums and rural villages of Africa and India, are doing a better job, at a far lower cost, than their government-run competitors. These schools are not simply unregulated. In many cases, their respective governments did not even know that they existed. They are also the fastest-growing part of the education sector in the developing world, already enrolling majorities of students in several of the areas studied – including several of the poorest areas.

It is possible that other policy analysts may review this research and find studies that I have missed. It seems very unlikely, however, that any such oversights or new contributions to the literature will reverse the clear pattern that has been established to date.

There is one other thing about which I am convinced: every education policy analyst commenting on market reforms should be familiar with the academic literature on the subject. The futures of millions of children hang in the balance.

Corporate Tax Rate Dropping to 28 Percent in England

Bowing to the pressure of tax competition, Gordon Brown announced that the corporate tax rate will be reduced by two percentage points. This is a very small cut, and it will be at least partially offset by other tax hikes (especially on manufacturers), so the United Kingdom is not exactly poised to become the next Estonia, Ireland, or Slovakia. Nonetheless, it is always amusing to see politicians who want higher tax rates being compelled to lower tax rates instead. Tax-news.com reports:

Chancellor of the Exchequer Gordon Brown surprised many yesterday by announcing a 2% reduction in the rate of corporation tax and a 2% cut in the basic rate of income tax, representing the first major cut in these taxes in many years. Brown has been on the receiving end of growing criticism of his handling of the public finances and his propensity to add complexity to an already unwieldy tax system, but many of the more cynical observers believe that the Chancellor’s generosity has more to do with securing his place as the next Prime Minster than it does with giving the UK’s tax competitiveness a much-needed fillip. Taking centre-stage in what is likely to be Brown’s last budget speech was the announcement that corporation tax would be cut by 2% to 28%. According to the Chancellor, this would bring the UK’s corporate tax rate below both the OECD and EU15 average. However, tax experts observe that while the Chancellor has given with one hand, he will claw back much of this lost revenue with the other through changes in capital allowances. …Paul Davies, UK Head of Tax at Ernst & Young noted that while the Chancellor appears to have finally woken up to the pleas of the business community for a tax cut, the overall result of the budget is a “mixed bag of changes that may affect different taxpayers in different ways.” “The cut in the main rate of Corporation Tax is welcome, showing that the UK is once again on a competitive path. This will reassure those companies thinking of moving offshore. However, the gain from the rate reduction will be more than clawed back by the change in plant and machinery capital allowances. As a result it is clear that the main beneficiaries of the rate cut will be in the service sector rather than the manufacturing sector,” he stated.

Regulatory Excess in the States

George Will’s Townhall.com column describes some of the more inane efforts to impose cartels at the state level:

In New Mexico, anyone can work as an interior designer. But it is a crime, punishable by a fine of up to $1,000 and up to a year in prison, to list yourself on the Internet or in the Yellow Pages as, or to otherwise call yourself, an “interior designer” without being certified as such. Those who favor this censoring of truthful commercial speech are a private group that controls, using an exam administered by a private national organization, access to that title. This is done in the name of “professionalization,” but it really amounts to cartelization. Persons in the business limit access by others – competitors – to full participation in the business. …in Las Vegas, where almost nothing is illegal, it is illegal – unless you are licensed, or employed by someone licensed – to move, in the role of an interior designer, any piece of furniture, such as an armoire, more than 69 inches tall. A Nevada bureaucrat says that “placement of furniture” is an aspect of “space planning” and therefore is regulated – restricted to a “registered interior designer.” Placing furniture without a license? Heaven forfend.

Will notes - quite accurately - that businesses are in favor of regulation when it means they can raise prices on consumers and/or disadvantage competitors. This is why there is a big difference between being pro-market and pro-business:

It is not true that businesses, as a matter of principle, want to fend off government regulation. Businesses have a metabolic urge to make money, which is as it should be. But when a compliant government gives them the opportunity to use government regulations to enhance their moneymaking, businesses’ metabolic urge will overpower any principles about the virtues of free (from government intervention) enterprise.

Update on Hillary 1984

The mysterious creator of the Orwellian YouTube ad about Hillary Clinton has been unmasked. He is Philip de Vellis, a strategist with Blue State Digital, a digital consulting firm with ties to rival Sen. Barack Obama. The ad ended with a plug for Obama, but the Obama campaign had denied any knowledge of it. Blue State designed Obama’s website; the company fired de Vellis yesterday. And Democratic operative de Vellis was properly chastened: “I want to make it clear that I don’t think that Hillary Clinton is Big Brother or a bad person or anything.”

Chemerinsky on Parker v. District of Columbia

On March 14, The Washington Post ran an op-ed by Duke law professor Erwin Chemerinsky. I sent the following letter to the editor in response:

Prof. Erwin Chemerinsky claims [“A Well-Regulated Right to Bear Arms,” March 14] that the federal court of appeals for the D.C. Circuit “interpreted the Second Amendment as bestowing on individuals a right to have guns,” and as “creating a right for individuals to have firearms.” Yet the court took great pains to explain that the amendment neither creates nor bestows the right to keep and bear arms. According to the court, “The wording of the [amendment] indicates that the right to keep and bear arms was not created by government, but rather preserved by it,” and that it is “a right that pre-existed the Constitution like ‘the freedom of speech’” [emphasis in original].

The fact that both Prof. Chemerinsky and the Post’s editorial page (which had previously criticized the court’s opinion) missed that laboriously made distinction suggests that they might have read the opinion more closely before criticizing it.

Prof. Chemerinsky also claims that even if courts conclude that the Second Amendment protects an individual right to keep and bear arms, the D.C. gun ban should nevertheless stand. He argues that the Supreme Court should not apply “strict scrutiny” to laws that curtail the right to keep and bear arms because he sees no reason to distrust legislatures in this area. Instead, he argues that the courts should apply the less rigorous rational basis test to such laws, which they have applied to laws restricting the constitutionally protected right to property. Chemerinsky concludes that the D.C. gun ban should be upheld as being “rationally related to achieving [the] legitimate government purpose” of reducing gun violence.

I see serious problems with Chemerinsky’s case. First, the Constitution gives no indication that some of the rights it secures should receive less protection than others. Second, even if one were to accept that premise, the right to self-defense is leaps and bounds more important than the right to property or the right not to be discriminated against by the government on the basis of race. Even if we accept that some constitutional rights are more equal than others, then by Chemerinsky’s rationale the courts should apply strict scrutiny because there is ample reason to doubt any legislative act that infringes on so important a right. Third, as my colleague Bob Levy points out, “In Carolene Products, economic and property rights are relegated to second-tier status, but the rights expressly secured by the Bill of Rights – like the right to keep and bear arms – get top billing. So Chemerinsky’s suggestion that rational basis applies is at odds with Carolene.”

Finally, the D.C. gun ban should not survive even the rational basis test. To do so, it would have to be shown that an effective prohibition on the use of firearms for self-defense is a reasonable restriction on the right to keep and bear arms. Such a severe law is not reasonable, because it leaves peaceful citizens defenseless against violent criminals. And neither is it a mere restriction of the right to keep and bear arms; it is outright repeal. If the rational basis test can be used to uphold the repeal of a constitutionally protected right, then neither that test nor the Bill of Rights have any meaning. Chemerinsky’s logic would allow the District to abolish private property so long as it had a “rational basis” for doing so.

But

“I’m for free enterprise, but –” You can hear it coming. “I’m against all these government giveaway programs, but –” It’s a common and frustrating experience for a libertarian, hearing a ringing declaration of principle followed by a qualification that the speaker doesn’t have any intention of giving up his own subsidy, regulation, tariff, or pet project.

Years ago, when I was raising money for a free-market business group, I remember one of those letters: “I agree with everything you say. Government is too big. Subsidies and regulation are impeding the operation of our free enterprise system. But the Hawaiian sugar industry is unique.” A friend told me once that he’d persuaded his father, a dentist, to become a consistent libertarian–except on licensing for dentists. What about licensing for brain surgeons? I asked. No, my friend said, I think he’s OK with letting the free market work there.

And now NPR has brought us the latest example. On the way home, my mind wandered as “All Things Considered” reported on a biodiesel refinery in Washington state. And then I heard a familiar opening line from the tech millionaire who is now the CEO of Imperium Renewables, which built the refinery.

I’m a pretty conservative guy, generally. I’ve voted Republican my whole entire life. And I’m very skeptical of the government’s role in any kind of market.

Wait for it, wait for it – you just know there’s a “but” coming.

But, in this case, there’s no other way to do it but with government support and mandates.

Turns out biodiesel is profitable with a federal tax subsidy of up to a dollar a gallon, and with the anticipation of restrictions on greenhouse gases. So a guy who’s normally “very skeptical of the government’s role” supports subsidies in this case because there’s “no other way to do it.” But that’s the whole point of markets and prices–to tell us what economic endeavors make sense. If Hawaiian sugar, or South Carolina textiles, or biodiesel fuel isn’t economically viable without subsidies, then that means it’s not the best use of our limited resources.

One of the values of a political philosophy–sometimes dismissed as “ideology” or “dogma”–is that it gives us a rule, a set of principles, for deciding such questions. We don’t have the time to look at all the data and decide what we think about every issue, and we’re certainly all subject to personal biases on the issues that touch us. There are lots of speakers I’d personally like to shut up, but if I remember that I do believe in the First Amendment, I realize I have to allow even offensive speech. I may want Amtrak to run fast trains between Washington and New York, or I may want to keep my own factory in business. But if I remember that the free-market economy produces the best results for all of us, then I will accept the outcomes of the market process.

People should think about the benefits of the whole libertarian system–free markets, free speech, freedom of religion, constitutional limits on government–whenever they’re tempted to say “I’m for freedom, but–”.

Sawing Through the Limb You’re Standing On

I was just asked by a business reporter about the state of economics education in the United States, and thought I’d share my response:

There are no national or international benchmarks for student achievement in economics, so it’s hard to precisely gauge Americans’ grasp of the subject. The available evidence is not comforting, however. An academic survey study conducted in 1990 compared how much Americans and Russians understood about the way markets work. It found no significant difference. Americans understood free markets no better than a nation of people with virtually no personal experience of them. That’s sobering. And since the heaviest academic emphasis of the last fifteen years has been on elementary mathematics and reading, there is little reason to believe that we have improved our grasp of economics in the interim.

This should come as no surprise, for a couple of reasons. First, and most obviously, the academic performance of U.S. twelfth graders is at or near the bottom in mathematics and science according to the Third International Mathematics and Science Study, when compared to the performance of students in other industrialized nations. We’re doing poorly in other subjects, why should economics be any different?

Second, it would be institutionally suicidal for a monopoly school system to do a good job of teaching market economics. The very fact that we continue to have a monopoly school system is retroactive proof that market economics has not been well taught. Monopolies, after all, tend to be frowned on by the economically savvy.

Note that this observation does not assume that government school officials are deliberately neglecting instruction in market economics. It simply posits that if they had been doing a good job of it, the system would already have been supplanted by one organized along free market lines.