Everyone knows the story. It's Act 5, Scene 3. Romeo returns to Verona to find Juliet's apparently lifeless body. In despair, he kills himself. Then Juliet wakes up . . . oops.
I recalled the play's tragic finale as I read Sol Stern's City Journal essay. He's leaning over what he believes is the corpse of market education. . . . He's taking out his vial of poison. . . . "Sol, don't do it!" I yell helplessly at the screen. "Market education isn't dead!" And then it's over.
Assessing recent developments in American schooling, Stern concludes that "markets in education may not be a panacea — and . . . we should reexamine the direction of school reform." But Stern's conclusion does not, and indeed cannot, follow from his premises, because there isn't a single place in the United States where education has operated as a free market for the past 150 years.
Stern's mistake is to confuse the very unmarketlike "school choice" programs that exist today for real education markets. They're nothing of the sort. Consider some of the essential characteristics of free markets: prices determined by supply and demand, private ownership of businesses, low or no barriers to the creation of new businesses, few or no barriers to workers' entering the profession, unfettered consumer choice, minimal regulation, the opportunity for owners and investors to profit from their efforts, and payment by consumers rather than a third party. For true market forces to arise, these characteristics must exist on a large scale, with hundreds of thousands — or millions — of potential customers. Without such scale, the prospective return on investment is too small to raise enough capital for meaningful research and development, to generate the specialization and division of labor that afford consumers real choices, or to attract enough competitors to improve quality or lower prices significantly. Where education is concerned, these free-market ingredients are hobbled or absent altogether everywhere in the United States, regardless of the presence or absence of tiny "school choice" programs.
Unlike Romeo, Stern will happily survive his misjudgment. Unhappily, he is far from alone in erroneously conflating "school choice" with market education, and the widespread confusion on this point can — and unless corrected, will — kill the prospects for real market-based education reform in America. So let's look at one example that Stern offers as an illustration of how existing choice programs fall far short of free markets.
Stern laments that while the Milwaukee voucher program has given hope and a better education to thousands of low-income children, it has not dramatically transformed the city's public schools. There are two reasons why this observation is not an indictment of education markets. First, as noted above, the Milwaukee voucher program has never constituted a market and will not do so without massive expansion and liberalization. Consider that for the first eight years of its existence, Milwaukee's program was capped at about 1,500 students, and that for the next eight it was capped at 15,000. The cap only recently rose to 22,500. Now think what similar caps in the number of prospective customers would do to, say, the personal computer industry. Microsoft, Dell, and Apple would promptly vanish in a puff of regulation. Because of its tiny size alone, the Milwaukee voucher program cannot give rise to a competitive education industry.
The Milwaukee program also imposes rigid price controls on the use of the voucher: it must be accepted as full payment by participating schools. While not all economists today are classical liberals in full agreement with Friedman and Hayek, by now they almost universally deride price controls as counterproductive. Free-floating prices, determined by supply and demand, are the key information mechanism by which markets communicate to suppliers which services are most sought, and then incentivize and help finance the increased supply of those services. If the first CD players could not have been sold for $1,000, the research and development that made it possible to sell them for $20 today would never have occurred — much less the invention of the hard-drive-based and solid-state audio players that have now eclipsed them. High initial prices for new and better products make possible the eventually low prices for improved versions of those products. The price system is an absolutely essential prerequisite of free markets.
But even if Milwaukee's program were expanded and deregulated, it would not necessarily turn the city's public schools into paragons of excellence. When the automobile came along, it didn't improve the horse-drawn buggy. It replaced it. This is often the way in competitive industries: new and better products, methods, and businesses replace those that came before. When this happens, it is because consumers prefer the new over the old — a sign of market success, not market failure. This is the second reason why Stern is mistaken to blame markets for the absence of a millennial transformation in Milwaukee's public schools.
Obvious political and cultural factors make it difficult to pass truly free-market education reforms in the United States. Because of those difficulties, it is sometimes expedient to seek modest reforms that may eventually be amended to allow the creation of truly free markets. The problem arises when these modest reforms wind up mistaken for or misrepresented as the genuine article. It is only then, as we see in Stern's essay, that disaster strikes in the form of guilt by (false) association.
The school-choice movement does not need to reorient itself around curriculum design or standards. Free markets drive up quality by themselves, with no help from central planners. The computer on which I am writing is thousands of times more powerful and capacious than the one I used two decades ago. The price per gigabyte of iPod storage fell from $80 to $7 in its first five years. These improvements happened not because some government bureaucracy or Quango mandated them, or because technology manufacturers are overflowing with magnanimity, but because it served the interests of businesses to serve the interests of their customers. That is what markets do: unite the interests of producers with those of consumers. When we finally allow a free market to arise in education, we will see the same dramatic progress in that field that we have seen in every other. Batteries unnecessary. No central planning required.