The Desperate Need for Market Forces in Education

(Guest Post by Matthew Ladner)

Mark J. Perry provides a fantastic illustration of the tremendous power of market forces to improve the human condition. If a picture is worth a thousand words, here is three thousand for you:

So adjusted for inflation, a now obsolete piece of furniture television set that could bring in all of 12 channels and had no remote control and a terrible picture quality was going to set you back more than $5,000. What could you buy for the same amount of money today in constant dollars? Perry is glad you asked. Try this:

 

 

 

 

 

 

 

 

 

AND:

 

 

 

 

 

Now, as a good skeptic, you quickly recovered from your shock and asked yourself if this was a phenomenon restricted to electronics. Perry, as it turns out, has anticipated your question:

We live, in short, in an age wonders, except of course for areas of the economy heavily managed and financed by the government. In those areas, instead of radically improving products provided at continually lower costs, we tend to see expanded costs for no, little or ambiguous improvements. Take for instance, American K-12 education in the era of unionized workforces (HT Andrew Coulson):

We need to be far more thoughtful about incentives in the K-12 system if we want to serve the best interests of children and taxpayers.

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34 Responses to The Desperate Need for Market Forces in Education

  1. allen says:

    The question is, how do you get there from here? How do you introduce market dynamics on a widespread basis?

    That’s why I think charters are actually a much better solution to the problem of injecting competition into the education businss. At least initially.

    Charters are just a smaller, more easily-digestible bite for a lot of involved parties then are vouchers.

    For parents, once they understand a charter’s just another flavor of public school they know they’re not going to have to pony up and they’re comfortable. For charter operators, if they can attract the minimum necessary number of students they’re in business; no worries about scholarships for poor students or getting tuition payments or any of the accounts recievable stuff. If the kids show up so does the money.

    Private/parochial schools which accept vouchers accept them knowing that vouchers are right at the top of the public education lobby hit list and if they provision to accept all the voucher students that show up they do so with the understanding that powerful political forces are working ceaselessly to do away with vouchers.

    Voucher parents, I think, are less burdened by the poliical machinations then they are by the daunting prospect of showing up at a school, child in tow, that they couldn’t possibly afford without that voucer.

    • George Mitchell says:

      Allen,

      One answer to your question involves leveling the political playing field, such as Scott Walker is doing in Wisconsin. Public employee unions oppose any effort to introduce an education marketplace. Their disproportionate influence on the political process needs to be reduced.

      • allen says:

        I agree that the specific privilige extended to government unions of collective bargaining has to be rescinded as it just puts the unions at too great an advantage. But government unions, particularly teacher’s unions, will still be politically potent and thus at risk of re-establishing collective bargaining priviliges as long as the public education system is largely district-based.

        The school district provides a very convenient, and economically advantageous, organizing target for unions. Win one election and pick up hundreds, or even thousands, of new, dues-paying members.

        Charter schools, due to their independent nature, are a lot more expensive, on a member-acquired basis, then are districts. Get rid of districts and the teacher’s unions follow.

  2. matthewladner says:

    Allen-

    Good question. I certainly support charter schools, and I think they are helping to push the envelope, but I think that they are only scratching the surface of the possible productivity gains:

  3. allen says:

    No disagreement on the “scratching the surface” observation but you have to start somewhere and we’re starting from a state of a socialist “solution” being the overwhelmingly dominant market participant. That overwhelming dominance has skewed perceptions about how things ought to be done and what can be expected and it’ll take some time to shrug off both.

  4. GGW says:

    Matt, generally I agree.

    Question – what are good examples of service businesses that have undergone similar trajectories, with much better product (service) and much lower cost?

    For example, piano lessons. Unregulated education market. There is technology changing the sector. Agreed. But I’d guess the main product is still some old lady charging $X/hour, despite market.

    Has piano lesson price come way down over time? Is piano lesson quality way up over time? I have no idea. I’d guess — both about the same….

    I’m scratching my head to find unregulated service sectors that would be good analogs for K-12.

  5. Matthew Ladner says:

    GGW-

    Good question- education as traditionally delivered is very labor intensive, so I suspect the key to a productivity increase lies in substituting technology for labor to some as yet unknown optimal point.

    We are only in the early stages of feeling our way on this.

  6. allen says:

    Let’s not forget that the fastest growth among education professionals hasn’t been among teachers but among non-teaching staff. One could argue that such staff is largely useless since a similar institution – charter schools – gets by very nicely without their expensive services.

    Point being that cutting staff isn’t, nor has it ever been, a priority in the public education system. Quite the opposite. Success at every level of administration is not measured by money saved and personnel cut but but by money spent and a rising head count.

    Given those organizational dynamics is it really surprising that public education’s shown not a bit of increase in efficiency? There, by the way, is the explanation for the failure of earlier techonologically-based efforts to cut the cost of public education have foundered. Who needs efficiency when you can just threaten to get rid of art, music and sports along with the successful selling of the general perception that more money buys more education. The question then isn’t why hasn’t public education improved in efficiency but why would anyone think it might?

  7. Yasha says:

    I would enjoy seeing an overlay of the curve showing movements in the ratio of non-teaching to teaching staff in the same period. I would guess (and it is only that) that a substantial amount of the real increase in the period of the graph above is attributable to the rise in administrative personnel. I always go back to the November 1955 study of the British Admiralty and Colonial Office and Parkinson’s Law on the growth of a bureaucracy. If the data exist, it might be entertaining to see how closely the teacher/non-teacher staff growth matches the sailor/Admiralty staff growth in Parkinson’s study (and the equation he derived in his study – find it here: http://www.economist.com/node/14116121 )

  8. Matthew Ladner says:

    Allen and Yasha-

    I do know that back in the day, the ratio of teachers to non-teachers in the American public school system was about 2 to 1. These days it is close to 1 to 1 despite a vast increase in the teaching staff.

  9. Parry says:

    GGW makes an excellent point. I think you’re comparing apples to oranges when you compare K-12 education as a market to electronics, food, clothing, household furnishings, etc. In those other markets, I would bet that improvements in the technologies that underlie the manufacturing process, and opportunities to replace human labor with cheaper mechanical labor, largely account for the price and quality changes. It’s a lot cheaper and quicker to harvest crops with a machine than to pay a bunch of people to do it by hand.

    But you can’t substitute machines for people in K-12 education the way you can in those other industries. Matt does make the point that substituting technology for labor is likely one of the keys to seeing similar productivity growth in K-12 education, but I think the whole premise of this post is disingenuous. If it were the “public” in public education that was holding back this imagined productivity growth curve, one would expect to see private schools figuring out how to make the productivity happen.

    I am not arguing against choice in education, and I do think that expanded choice might move us more quickly to figuring out innovative ways to create a growth curve. But the underlying argument of this post seems to be that, if only we could create a market in education, we would see productivity growth similar to what we have seen in other markets. I think it is the underlying human-labor-intensive service nature of K-12 education that largely prevents the growth curve, not the “public” ownership of public education.

    Parry

    • George Mitchell says:

      Parry says “I think the whole premise of this post is disingenuous. If it were the “public” in public education that was holding back this imagined productivity growth curve, one would expect to see private schools figuring out how to make the productivity happen.”

      Wow. Where to begin? In Milwaukee, independent research documents that private schools do as well or better with low-income students, and those students graduate at higher rates, than their peers in public schools. Yet private schools operate at a fraction — I estimate 2/3 — of the cost of public schools. Those are clear productivity gains that would soar if there were a true open market.

      • George, the private school market has numerous advantages in cost – the primary one being they have no responsibility to provide additional, extremely costly services under the Americans with Disabilities Act. They have a right of refusal on their applicant base, and are dealing with no consumers who did not choose them. They don’t have to compete with Title IX requirements, nor do they have the same security concerns. The tit-for-tat cost between public private is a gross overgeneralization.

      • George mitchell says:

        Mike,

        You are not well-informed regarding the Milwaukee voucher program and special needs students. More in a couple weeks

      • mmazenko says:

        I am aware of the Milwaukee voucher program – and it has been both heavily praised and seriously criticized. But arguing that its vouchers have accommodated large numbers – or even any number – of special needs students, especially those with severe autism or behavioral/learning problems, is dubious. If you have data that reveals private schools are serving percentages of high needs students on scale with the public schools and doing it for a fraction of the cost, I would love to see it.

      • George mitchell says:

        Schools in the Milwaukee choice program may not reject voucher recipients who have special needs. Parents get to decide if the school can adequately serve their child. In contrast, many public Milw schools don’t accept special needs students, referring them to specific schools that do accept such students. Because this issue is rife with intentional and unintended distortion, data are unclear as to the number of special needs students in the voucher program. A potential source of independent information on the topic is the School Choice Demonstration Project at U of Ark. Researchers there are concluding a 5-yr study and are expected to issue reports soon.

      • George Mitchell says:

        From reports released Feb. 27 by the School Choice Demonstration Project:

        Special Education and the Milwaukee Parental Choice Program Report #35 February 2012

        Summary

        The SCDP analyzed the percent of students in the Milwaukee Parental Choice Program that would likely qualify for special needs services.

        The authors found:

        • 14.6 percent of the MPCP students we observed in both the private and public school sectors from 2006 through 2010 were classified as participating in special education while in MPS;
        • 7.5 percent of all MPCP students were classified as having disabilities when we used MPS administrator designations for students who spent any time in MPS and MPCP administrator designations for students who remained in MPCP;
        • 11.4 percent of MPCP students were described by their parents as having disabilities, based on responses to our parent surveys administered from 2007 through 2009 (i).

    • allen says:

      Right back at you, Parry.

      No one’s asserted that productivity gains on par with, say, the agricultural or computer sector can be expected immediately or even long-term with the introduction of choice to education. But far from showing productivity gains the public education system has shown productivity losses doing a lousier job with more people. The expectation is that whatever mysterious forces are, against the backdrop of vastly improved productivity in other areas, reducing the productivity of the education sector will be reduced by choice. I don’t think that’s an unreasonable assumption although the believability of the assumption has to viewed against a backdrop of the extant system to be properly appreciated.

      The first factor that has to be appreciated is the monopolistic nature of the current public education system. That’s made visible in the rising cost coupled with diminishing results of the current system. Also in the fierce resistance to any efforts to ameliorate those problems. There are folks who think there’s nothing wrong with rising costs and diminishing returns and are quite willing to do whatever they can to maintain the current system.

      That “screwing the customer” attitude is typical of monopolies because one of the attractive qualities of monopolies is a reversal of the free-trade relationship between customer and vendor. Rather then the customer deciding, quite maddeningly, that the latest offering by the vendor doesn’t meet their needs, and rejects it, the customer takes what their given. Any complaints fall, quite properly from the monopolists point of view, on deaf ears.

      The second factor is that there have been repeated attempts to introduce technology into public education over the years and they’ve all failed.

      From the phonograph right through to the Internet very nearly every technological innovation’s been examined for its utility in improving education. Every last one of them has failed.

      Is it possible that education’s such a special situation that, against a backdrop of wrenching technological change in every other area of human endeavour, education stands apart in it’s invulnerability to change? I suppose that’s a possibility as GGW and you, Parry, seem to be suggesting but I’m afraid the simple assertion isn’t enough inasmuch as there are a politically powerful bunch of folks who think there’s nothing wrong with the public education system that a tripling of budgets wouldn’t start to address. You really do have to come up with better reasons then “it’s different”.

      Occam’s razor suggests that the reason is simpler and not even a little mysterious. That reason is that in education, the folks in charge of determining whether to use or reject a technological innovation are much more strongly motivated to reject as useless or ignore, technological innovations then they are to embrace them.

      Who would drive technological change?

      Teachers? Yeah, right. The professionals at the bottom of the organizational pyramid? Who the heck listens to them?

      Administrators? They’re administrators, they can select technologies that improve the productivity of education but in the main, why bother? As an employee of a monopoly their motivations are much more strongly aligned with the protection of the monopoly then of making life difficult for the monopoly.

      Elected officials? Again the problem of motivation. Are their re-election chances improved by embracing productivity-improving, and inevitably head-count reducing, innovations or by rejecting/ignoring them?

      And to your point about the lack of technologically-based productivity improvements in the private school industry, they enjoy an umbrella provided by the public education system.

      Private schools aren’t driven to excel as a matter of survival since the overwhelming market presence is the public education system. The public education system sets the standard, which isn’t and doesn’t have to be, high. Private schools don’t have to be good, they just have to be better then the public education system.

  10. Matthew Ladner says:

    Perry-

    The point isn’t that we should expect the precise same trend that we see in these other areas. Rather the point is that we have seen precisely the opposite trend-a truly massive decline in the productivity of education spending.

    George makes a good point that MPCP gets better results at half the cost of the district. I call that a good start.

  11. A misuse of data to compare material products with instruction of people who may not be motivated or personally invested in the process. It’s the same argument as judging doctors on whether their patients live healthier lives or dentists on how many cavities their patients get or police by the behavior of the people on their beat.

    Of course, Matt’s heart is in the right place, and his ideas should not simply be dismissed.

    • Greg Forster says:

      But other areas of human services are making progress on productivity. You’ve already mentioned two of them: productivity is way up for both medicine and law enforcement, in both cases due to exactly the two factors Matt keeps calling for in schools: technological advances that substitute tech for labor, and structural reform of incentives.

      • mmazenko says:

        I don’t know that you can say productivity is up for either medicine or law enforcement, nor can you align data for professions that have much different goals. The United States versus the rest of the world in health care spending and results reveals much of the flaws in such comparisons.

        And, despite the criticism form people like George, I am not defending the status quo. But I am challenging the idea of cost-productivity between commercial products and education. It’s a flawed comparison for the reason I mentioned – student motivation and the complex systems that impact achievement.

    • George Mitchell says:

      Oh, never mind….I just read this from Mike:

      “A misuse of data to compare material products with instruction of people who may not be motivated or personally invested in the process.”

      I’ll set aside my commitment to provide him more information on Milwaukee. It won’t register.

      • mmazenko says:

        I’m aware of the Milwaukee system, George, but I don’t understand your dismissive nature. Nor do I see the connection between Milwaukee and my assertions about all the costs of public education that private schools don’t incur – most especially in terms of special education. But I am open to information, which is why I participate in such discussions.

  12. matthewladner says:

    Michael-

    Just how much effort have the King Kongs of K-12 politics put into reforming costly and ineffective regulations? It has been pretty rare over the past few decades to see major K-12 policies adopted without at least the passive acceptance or indifference of the unions. IDEA seems like a good example of this.

    On the flip side, it is obvious the major initiatives of the unions, like reducing class size, have been both very expensive and very ineffective at moving the needle on student achievement- thus the final chart in the post.

    • mmazenko says:

      I am not arguing that money is or is not a factor in the success of a school or in student achievement. It’s a more complicated issue than simply arguing more money should equate to higher test scores or that education costs should drop like the price of a color TV.

  13. Parry says:

    allen,

    Since you appear to have either not read or ignored the majority of what I said in my post — for example, my statement that “I am not arguing against choice in education, and I do think that expanded choice might move us more quickly to figuring out innovative ways to create a growth curve” somehow became me “seeming to suggest” the possibility that “education’s such a special situation that, against a backdrop of wrenching technological change in every other area of human endeavour, education stands apart in it’s invulnerability to change” — I am going to return the favor and ignore your post.

    I do, however, find Greg’s comment about law enforcement very interesting. I think that comparing K-12 education and medicine is somewhat problematic because of the enormous impact that technology has had on improvements in health care (drug research, medical equipment, etc.), but I think law enforcement might be a great analog: there is a heavy reliance on individual human capital, technology has had an impact but the industry is still primarily reliant on people-power, no one has yet introduced a dramatically superior industry model, and it is publicly funded.

    Has anyone explicitly compared the two industries and looked at lessons that education could take away from improvements in law enforcement?

    Parry

    • Greg Forster says:

      But the point here is precisely the role of technology. Matt is arguing that market forces would unleash technological innovation in the way we deliver education the same way technology has improved medicine.

      And law enforcement, too. I think you underestimate the role of tech-heavy reforms like the NYPD’s CompStat. You definitely underestimate the revolution in law enforcement since the mid-1990s if you really think that “no one has yet introduced a dramatically superior industry model.” Violent crime dropped precipitously and the rates have stayed down. Read Fred Siegel’s Prince of the City.

  14. Parry says:

    George,

    Follow up question. The primary point of this discussion, at least as I read it, is to compare productivity growths in other industries with productivity growth (or lack thereof) in public education. How have Milwaukee private schools achieved productivity growth? I know very little about Milwaukee private schools, but I would bet that if I walked into several of them I would see classrooms arranged in a remarkably similar fashion to public schools: teacher at the front, 20-30 kids sitting in desks and reading from a textbook. Maybe there are some spending efficiencies on the margins (which is surely not a bad thing), but that picture would not represent anything close to the changes we have seen in other industries used as an example in the original post.

    Making a slightly less-costly phonograph is not the same thing as switching to a cd.

    Parry

  15. matthewladner says:

    Parry-

    I’m sure if you walked into MPCP schools you would see exactly what you describe, but you would also be seeing schools that deliver a better overall education at one-half the taxpayer cost to attend the local school district. I am not claiming that MPCP is the end-all-be-all, but better at half the cost is not unimpressive. Coulson’s chart would look quite different if every school district in America delivered the bang for buck to equal MPCP. From a productivity standpoint it beats the daylights out of the district, but I suspect it only scratches the surface of what is possible.

    I think that MPCP schools continue to clamor for higher voucher amounts, and charter schools around the nation seek “funding equity” precisely because they are still delivering education in classrooms with 20-30 kids and a teacher.

    We are in the early stages of experimenting with substituting technology for labor in schooling, but we are in the advanced stages of an experiment in maximizing adult employment. I suspect that what we are going to see in the long run is a leveraging of technology in order to improve quality and make use of less but higher skilled labor.

    That is just a guess, but as long as we figure out the incentive piece, I am quite content to let things sort themselves out.

  16. [...] checking out Matthew Ladner’s guest post on Jay Greene’s blog in which he argues that we need to create more space within the education system for market forces [...]

  17. Parry says:

    “We are in the early stages of experimenting with substituting technology for labor in schooling, but we are in the advanced stages of an experiment in maximizing adult employment. I suspect that what we are going to see in the long run is a leveraging of technology in order to improve quality and make use of less but higher skilled labor.”

    Well said, and I agree. I guess that, having spent the last 18 years working in public education in one role or another (teacher, principal, consultant at a for-profit school reform company), and having logged a lot of hours trying to figure out ways to make that leveraging happen, I take both the optimism and the pessimism with a grain of salt. I approach school choice with optimism, but I am highly skeptical that K-12 education will ever see productivity growth curves similar to manufacturing industries. And I think that seeing some real-life examples of that leveraging happen would increase my optimism.

    Thanks for the conversation!

    Parry

  18. matthewladner says:

    Parry-

    Understood- just remember that we don’t need to match the electronics productivity experience. The first step is to stop the bleeding (say by spending the same and getting better results for instance).

    Here is a school level example of spending less but getting more:

    http://jaypgreene.com/2010/05/27/the-way-of-the-future-carpe-diem/

    Here is an example of how philanthropists made a huge difference in reforming an unproductive service by substituting technology for labor. Yes it took decades, and the people who did it will tell you horror stories of bureaucratic resistance and inertia, but within our lifetimes…

    http://jaypgreene.com/2012/01/20/a-green-revolution-for-k-12-education/

  19. Parry says:

    Matt,

    Thanks for the links. A buddy of mine works for one of the big computer companies as their ed tech guru, and he’s doing some pretty cool stuff around blended learning models, one-stop education portals, etc. I think it will most likely take decades, and plenty of bureaucratic nightmare, but I am bullish on the potential for K-12 education to be redefined in a way that helps kids and families.

    Parry

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