Sunday, June 28, 2015

The Education Monopoly?

I fell into a twitter conversation a while back with Neal McClusky, the education guy for the Cato Institute, a libertarian thinky tank originally founded as the Charles Koch Foundation in 1976, though in keeping with libertarian principles, the institute has had some spirited arguments with the Kochs over the independence of the organization.

Libertarians have never been a fan of Common Core, and they generally frown on anything that comes out of DC. But they do love them some choice. McClusky made this distinction today:

Libertarians don't dislike pub "education." Dislike pub "schooling" - gov monopoly - b/c freedom is essential 

I questioned the "monopoly" label-- public education would have to be the lousiest national monopoly ever, with thousands of locally-run branch offices that cannot coordinate to save their lives. McClusky clarified that schools are local monopolies, and that citizens are forced to pay taxes for schools assigned by location.

I am generally not unsympathetic to the libertarian view. I am doubtful that top-down decisions coming out of DC will be helpful (though I also know that historically, some state make terrible choices if not federally co-erced). Unlike many of my progressive friends, I'm pretty sure that I wouldn't be sad to see the Department of Education go away. But while I found libertarian ideas appealing when I was younger, I've come to recognize that in practice, libertarian ideas look a lot like survival of the richest and best-connected. Libertarians comfort themselves with the idea that such extra power is earned and deserved based on merit. I remain unconvinced.

So if we end the local school monopoly and open the field up to the power of individual choice, what happens? I raised the question of Newark, an "all-choice" system that has spectacularly ignored the voices of individuals. McClusky says that Newark is state control, not freedom.

Libertarians aren't anarchists; they believe some regulation is required. But if we have erased local geographic boundaries to end the tyranny of the zip code, doesn't that actually shift the locus of control toward DC instead of away? (And if we hate the tyranny of zip codes, does that mean we should also stop hounding undocumented workers for just being born on the wrong side of another imaginary border?)

So who would regulate the new open market? Would we just let anybody open up any school and accept students from any place? Or would we have some quality control, in which case who would provide it, enforce it, and oversee it? Who would make sure that every single student in the country had access to a quality education and not just be consigned to Hot Potato High School (established and maintained at minimal cost for all the students that no charter wants)? Who would insure that no school could just suddenly close up? I mean, it's great fun when the invisible hand of the marketplace sorts out the winners and losers, but individual students do not have that kind of time to waste ("Yes, I have no real high school education because the market was stabilizing itself during my teen years.")

The mistake is in imagining education as a commodity to be sold, when it is a community service to be provided. It has not grown top-down, but bottom-up. The geographic restraints are a natural result of that-- people banded together to provide the service of education to themselves and their neighbors. Most communities also have "monopolies" on fire departments, sewage systems, police services, and water. None of these services would be improved by allowing for competition across geographical boundaries. What's more, creating such competition would be tremendously wasteful economically. It costs more to operate two or twelve homes than it does to operate one.

It is true that some "local communities" are too large to be truly local. I suspect there is some upper limit past which size becomes more of a problem than a help. I have no idea where that line is crossed, but I'll bet that New York, Chicago and many other metro systems are on the wrong side of it.

I'm aware that some libertarians are actually okay with some extra cost because they see the availability of choice as a virtue in and of itself. But in most communities, when people see that they are paying extra for redundant services, the pressure of the invisible hand is for consolidation. Certainly as individual districts find themselves cash-strapped across the country (often because many of their resources have been diverted to charter-choice schools), their reaction is to close existing schools, not open new ones.

I'm not an economist (but then most economists don't know jack about about education and that doesn't keep them from making pronouncements about it) but I'd love to read a scholarly look at the relationship between free markets and monopolies, because in my reading of history it certainly looks like the former often leads to the latter, and the process always involves government stepping in on the side of The People (hello, Ma Bell breakup) or on the side of the most powerful players (hi there, Affordable Care Act). 

At any rate, what McClusky and friends call a monopoly, I call a delicate balance between democracy, market dynamics, civic responsibility, and federal-vs-local powers in the act of providing a vital community service that we, as a country, long ago decided we would provide to every single citizen.

When a corporation starts winning in a free market, its priority does not become to preserve the free market, but to take it over, dominate it, and come as close to a monopoly as possible. I see three possibilities here:

A) Our current system-- a loosely connected network of locally-operated service providers.

B) A system of private corporations providing the service, eventually dominated by a handful, or even just one, corporation that controls most of the market (though certain unprofitable customer bases would be left to fend for themselves).

C) A heavily-regulated market created when the government steps in to keep B from going Too Far.

The dream of a vast network of private corporations locked in robust competition that pushes all to greater and greater levels of excellence-- it's a lovely dream, but I cannot think of a single industry or sector of the economy in which that has ever happened. Not one.


  1. Hey, Teaching Economist - this post is calling out for your brilliance, since you're apparently a new fan of this blog. In a few short inches of bandwidth, Mr. Greene has refuted pretty much everything you've ever posted. Rebuttal?

    1. lol Dienne, I was thinking the same thing. Where is TE?

    2. lol Dienne, I was thinking the same thing. Where is TE?

  2. I think the "upper limit past which size becomes more of a problem than a help" may even be true of Toledo, Ohio.

  3. Dienne et al,

    Sorry I am late to the party, but better late than never.

    The concern with competitive markets becoming monopoly markets is primarily a concern about economies of scale in education. I think Peter's concern with the monopolization of education in a world where parents can choose schools is unwarranted because there are not significant economies of scale in education.

    Consider post secondary education, for example. The oldest colleges and universities in the country are a good deal older than the country itself, so if Peter is right and there are returns to scale in education we would expect that this segment of education would have become highly concentrated, with a few large universities dominating the market. That is not at all what we see. The largest private university in the country, NYU, enrolled a little over 22,000 undergraduates (in 2011, the most recent figure I could quickly find) out of a total of 21,000,000 undergraduate students in the country. This tiny market share ( .1%) for the largest private university in the country suggests that there are no significant scale economies in higher education.

    Now if we look at private K-12 education we see a similar pattern. Some private schools have been around for multiple centuries, and yet have not come to dominate the private school market.

    Neither the post secondary experience or private school experience is consistent with only having the alternatives A, B, or C Peter discusses. I believe that option D, where we end up with a large number of relatively small autonomous publicly supported schools which will mirror the variety of approaches to education that are currently available to the relatively wealthy who can afford private education like Dienne.

    1. What about the large number of for-profit and non-profit-managed by-for profits that are not chartered by local districts and offer nothing special, and who do what costs them the least so they have the most profit, simply plunking students down in front of computers with crap curriculum on them and letting the students fend for themselves? There needs to be regulation so that doesn't happen. At the post-secondary level you've got the example of the Corinthian debacle, among others

    2. Rebecca,

      When you say large number, how many are there?

      There is absolutely no regulation against simply plunking students down in front of computers with a crap curriculum in private K-12 schools or post secondary education. Is that how private schools, colleges, and universities are typically run?

      Corinthian is dead because it did not work for the majority of students that enrolled there. It likely would work for others. I have one son that managed to teach himself enough economics, physics, computer programming, and environmental science to do very well on the AP exams without taking the appropriate courses (largely because the courses were not offered at the high school). Another son has become a very good frailing banjo player mainly by watching Youtube. This does work for some students, and I don't think prohibiting this way of education is in the interest of all students.

      In any case, Paul's concern is not that there would be many different charter schools that do a poor job, but rather that the education market would evolve into something like the large jetliner market where there are a couple of dominant players and another two or three on the periphery. I don't think there is any evidence that education has the large returns to scale that would needed to create this situation. I will be interested to see what he has to say if he chooses to respond.

    3. I think you mean Peter, not Paul.And I think he is also concerned about many charter schools doing a poor job, and being too much the same. Anyway, plunking people down in front of a computer with crap curriculum doesn't work for most students. It only happens when charters are trying to cut costs because making a profit is more important than educating students. So I'm not saying we need regulation dictating what format has to be used. I'm saying we need regulation that charters can't be for-profit so that students come first, not profit.

    4. I certainly think that requiring charter schools to be non-profit is reasonable. New York, I believe, has this requirement (though I think a few for profit relationships were grandfathered in).

      It is likely that Peter (thanks for the correction) is concerned with schools that do a poor job, but it seemed to me the thrust of the post was about the possibility of an "education monopoly". I hope that he will comment about the evidence I have given that there are not the returns to scale in education that would lead one to worry about the creation of an education monopoly.