This book’s executive summary and introduction are available in Adobe Acrobat PDF format 
FEBRUARY 2002 | EPI Book
Market-based Reforms in Urban Education
by Helen F. Ladd
Executive Summary
Educational outcomes for many urban students are unacceptable: dropout rates are high, test scores are low, and fewer students go to college compared with their suburban counterparts. Among the many ideas for reforming urban education are those that fit loosely under the rubric of market-based reforms. They include various forms of public school choice, charter schools, voucher programs, and the use of education management organizations. Policy discussions about such reforms tend to be highly charged, with some people so strongly in favor of them and others so strongly opposed that no appeal to evidence is likely to change their views. This paper is not for them.
Instead, this paper is intended for those who understand that the issues surrounding the introduction of more market-based mechanisms into education are complex and who accept the view that evidence is useful in sorting through the issues. To that end, this paper uses the market framework of demand, supply, and market pricing to organize the extensive but disparate evidence on the effects of market-based reforms. The evidence includes not only analyses of experiences in the United States, which are still very recent and limited in scope, but also analyses of the outcomes of market-based reforms in Chile and New Zealand.
Overall, the evidence suggests that the economic model of markets does not translate easily into the provision of compulsory education. Nonetheless, many of the concepts underlying education markets, such as consumer choice, flexibility for schools, and incentives for them to raise the quality of education, are worth pursuing. The challenge for urban policy makers is to find ways to introduce these ideas while at the same time promoting the public interest that, ultimately, provides the rationale for a publicly funded and compulsory education system.
The match between market reforms and education is imperfect, and understanding the reasons for that imperfect fit is an essential first step in moving forward with effective reforms. The main factors generating the misfit are the following:
- Multiple interests. Large-scale market-based reforms in education tend to privilege the interests of individual parents and children. Yet any education system has many stakeholders with differing interests. The government, for example, has broad goals such as educating citizens and training workers while students, teachers, administrators, local communities, future employers, and other stakeholders all have their own claims on the system. The legitimate interests of the various stakeholders might well conflict, and so, by privileging one set of interests over others, the market approach to education fails to achieve an appropriate balance.
- Compulsory attendance. Closely related to the public’s interest in education is the fact that all children are required to go to school. As a result, public schools that are failing to meet the educational needs of their students cannot be shut down unless there are alternative schools for the children to attend. This reality means that a key mechanism of a typical market, namely the potential for firms to fail, does not function effectively in education.
- Parental perceptions of school quality. Because parents judge a school’s quality in part by the socioeconomic composition of its student body, the playing field of school choice is not level, and “good” schools are not easy to replicate. Schools serving large proportions of low-income and low-performing students are typically at a disadvantage in the competition for students and for high-quality teachers and staff. As a result, the students in such schools are likely to be worse off after a market-based reform than they would be otherwise. The problem is not simply that low-income families might have insufficient information about a variety of schools or might not be able to afford transportation to another school – although these factors are relevant. More fundamental pressures are at work, keeping competition from being healthy and productive, especially for the most vulnerable students.
Supporters of market-based reforms predict that, even if the reforms hurt some students, they could still be beneficial if competition for students made schools more productive overall and increased average achievement levels. The evidence, however, does not provide much support for this prediction.
The most powerful evidence on the effects of competition emerges from the extensive Chilean experience with a voucher system. Competition from the newly expanded private sector in that country generated small positive gains in achievement among some middle-class public schools in Santiago, Chile’s capital, and small negative effects in the rest of the country. Evidence from the U.S. is mixed as well. This mixed picture is important in that it clearly does not support the claim of those who argue in favor of more parental choice on the instrumental grounds that it will make an education system significantly more productive.
Not surprisingly, there is evidence of greater parental satisfaction and possibly greater student achievement for students who are able to exercise expanded options to choose other schools. Many U.S. studies show, for example, that some students, especially disadvantaged students, tend to do better in Catholic private schools than their counterparts in public schools, even after controlling for measurable differences in the students’ family backgrounds. Some questions remain, however, about whether researchers have adequately controlled for differences between the students who attend the two types of schools.
Recent privately funded voucher programs in New York City, Dayton, and Washington, D.C. minimize this evaluation problem because students have been randomly assigned to voucher and non-voucher groups. Analyses of these programs have found some positive achievement gains for students exercising the option of going to a private school but, somewhat curiously, only for African American students. Unfortunately data from the highly publicized voucher program in Milwaukee have not been made available since its expansion in the mid-1990s. The best of the early studies of achievement gains appear to show some gains in math but none in reading.
Supporters of market-based reforms also argue that the reforms will help to promote innovation and eliminate inefficiencies caused by bureaucratic red tape. Giving schools more flexibility is a goal of the site-based management programs in many public school systems and is one of the driving forces behind the charter school movement.
Experience with these new forms of school governance is at best mixed. Although Chicago’s experience with school site councils is often cited as a prime example of decentralized
control, that program had little success and has been subsumed under a highly centralized accountability system. As for charter schools, generalizations are hard to make given how new they are and the great variation in charter school laws across the country. Available data suggest that, despite the hopes for charter schools, the amount of innovation appears to be relatively modest, especially in teaching and learning.
An alternative approach for eliminating red tape is for public schools to contract with education management organizations. The oldest and most widely known is Edison Schools, which also operates charter schools. Evaluating the success of the Edison program has been difficult because the company controls all the data. External, arms-length evaluations are clearly needed.
Expanding the choices available to parents about where their children go to school would be desirable, especially for the parents of disadvantaged students whose choices are now so limited. In addition, providing more flexibility to schools has some clear advantages. However, any movement toward more parental choice and flexibility for schools requires safeguards. On the demand side, policy makers need to balance the preferences of parents against public interests. On the supply side, safeguards might include not allowing schools to select their own mix of students, limiting the number of charter schools, and implementing good support and accountability systems for schools. The struggling schools, in particular, will need enhanced resources and a greater claim on high-quality teachers and staff. Otherwise market-based reforms will generate a growing divergence between the “good” and “bad” schools to the ultimate detriment of not only the most disadvantaged students but also the education system as a whole.
