August 7, 2013 1:31PM

Making a Market in Education

AEI's Michael McShane writes that America's "school choice" policies have thus far failed to live up to their hype and have not created real, vigorous education markets. That's hard to argue with. As McShane rightly points out, existing programs are still very small, mostly filling empty places in non-profit private schools that predate the programs' creation. The creative destruction of real market innovation has yet to make its presence felt, and the few new entrants to the marketplace usually look much like the old ones.

It's not entirely clear what McShane is proposing as a solution, but he offers a few hints:

New schools and school models need to be incubated, funding needs to follow students in a way that allows for non-traditional providers to play a role, new pathways into classrooms for private-school teachers and leaders need to be created, and high-quality school models need to be encouraged and supported while they scale up. In short, policymakers, private philanthropy, and school leaders need to get serious about what’s necessary to make the market work.

This seems to suggest the need for some sort of new school development organization, the picking of "high quality" schools by philanthropists for scale-up funding, and revisions to teacher certification rules. The first two would likely do more harm than good and the third can be improved upon by simply getting rid of government certification rules for private school teachers altogether.

On the first point, consider the very successful "functioning markets" to which McShane compares education. "New providers," he writes, "are constantly popping up up to replace enterprises that are not meeting the needs of consumers. Through that winnowing process we move from hulking black-and-white televisions that cost $269 in 1958 dollars — over $1,700 in 2012 — to flat-screen LCD HDTVs that cost $249 in 2012."

Indeed. And yet, there has never been a New TVs Development Organization. All of this innovation is the result of the unmolested operation of the free enterprise system. No government dirigisme was required to spur the creative destruction that gave us better TVs, phones, computers, grocery stores, coffee shops, book retailers, garden implements, running shoes, bathroom scales, or suntan lotions. If it ain't broke....

And while philanthropy has likely played an important role in protecting the free enterprise system that gave us all this innovation, philanthropists were not involved in picking which products and services should be brought to scale. That was left to the marketplace.

Nor do we need to speculate as to what might happen if philanthropists did pick which schools should be deemed "high quality" and scaled-up. We can simply look at their existing track record in the charter school sector, where they have played a major role. I did this in 2011, looking at the relationship between charter school networks' academic performance and their total receipts from philanthropic grants. Essentially, there isn't a relationship. The correlation between charter schools' name length and achievement is stronger---and it's weak, too. To drive its conclusion home, I called this paper "The Other Lottery," to evoke the random process by which oversubscribed charter schools must accept their students.

So, yes, we've yet to create a free educational marketplace at the K-12 level anywhere in the United States. But the policy solution to doing so is rather simple: encourage the growth of school choice programs that do not suffocate private schools with regulation, then sit back and watch.

There's a reason Adam Smith called it an invisible hand. You don't need a lot of very visible committees or technocrats pulling at the levers of government or NGOs to make the free enterprise system work. You just need freedom and the rule of law (okay, respect for entrepreneurs, too).