School Vouchers – A Better Choice for the Future of America Lauren Dorman MGMT-6300 – Business Economics Assignment 5 May 2007 Thesis Statement School vouchers, which give parents the opportunity to select the public or private school of their choice using government dollars, will, by nature of competition, increase the performance of all schools. School vouchers would provide equity, equal opportunity, in education. Abstract American public schools, on average, are underperforming. Our children deserve the best education possible, and the future of our society depends on it. This paper will examine how a school voucher program, which provides parents with educational vouchers which can be used at the school of their choice, will foster competition in our educational system and increase performance at all schools. This paper examines the factors influencing student performance, how competition would drive improvements and a look at existing voucher systems in place today. Counterarguments against vouchers will be discussed and recommendations on how to implement such a system will be presented. Introduction America spends more per child on education and the results are not impressive. 1 The primary source of funding is from state governments, followed by local funding, then federal government funding. Since the majority of money is related to state and its respective localities, the average spending per child varies. According to the About U.S. Gov Info web site, the variance can be significant. “From a high of $12,981 in New Jersey, to a low of $5,008 in Utah, U.S. public school districts spent an average of $8,287 per student during 2004, according to the Census Bureau.” 2 Yet the quality of education in some areas of the country is frightening. While this may seem like a local issue or simply a parental concern, the problem is far more reaching. The quality of compulsory education in America is important not only to the child and their family, but to society as a whole. If we want today’s children to be tomorrow’s business people, care givers and global leaders, the quality of their education is paramount. Better educated individuals increase the quality of life and socioeconomic conditions for all of America. The US government, namely state government, is responsible for financing the education of children grades K thru 12. The primary model in effect today has the government not only financing compulsory education, but also administering the schools themselves. The government should not be responsible for the administration of educational intuitions. Instead, the role of government should be to set minimum levels or standards for education and provide the funding via vouchers funds to be used for educational services. The voucher amount would 1 Change gotta come, The Economist, 5/22/04, Vol. 371, Issue 8376, P 12-13 Robert Longley, About: U.S. Gov Info / Resources web site, (Last visited 5/13/07) http://usgovinfo.about.com/b/a/217115.htm 2 Page 2 of 10 be up to a maximum per child per year. Parents would then select the educational institute of their choice (provided the institute was approved via government standards). The voucher would cover up to a set value and parents could pay the difference if the facility selected charged a rate higher than that covered by the voucher. School vouchers would drive competition between schools, driving increased performance and the result would be better schools in America. While all children would benefit, black and latino children, often those students found in the underperforming schools, could benefit greatly by overall improvements in the educational system. “The state pays; parents choose; schools compete; standards rise; everybody gains.”3 Argument for the introduction of school vouchers: On average, a student’s education is funded by: 49% from state governments, 44% from local sources and the balance is paid by the federal government. 4 Those education dollars allotted follow the student, so the number of students attending a school dictates the dollars available to that school system. If a student leaves the school, the state and federally funded dollars follow the student. Any local funds stay within the school system. If number of students attending a school increases, theoretically the school will have a larger pool of funds available. The reverse is true when there are fewer students. States and local governments impose taxes on their citizens that are used to pay for the education of the children who live in those areas. Lower income, high unemployment towns and cities tend to have under-funded, underperforming schools. Middle and higher income families tend to settle in more affluent cities and towns which have well established and higher performing school systems. Adding to the disparity, middle and upper income families can choose to send their children to private school as they can afford to pay the tuition. In a sense, these families are paying for their child’s education twice: once in the form of taxes and again in the tuition fees paid directly to the school. In economist Milton Friedman’s 1955 paper, he advocated that the government’s role was not to administer schools. He claimed that “In such a free private enterprise exchange economy, government’s primary role is to preserve the rules of the game by enforcing contracts, preventing coercion, and keeping markets 3 Free to choose, and learn, The Economist Print Edition, 5/3/07, (last visited) http://www.economist.com/world/international/PrinterFriendly.cfm?story_id=9119786 4 Paul E Peterson, Harvard University, A Choice Between Public and Private Schools: What Next for School Vouchers?, Symposium: Public – Private Cooperation, Spectrum: The Journal of State Government, Fall 2003 Page 3 of 10 free.” 5 Luengo-Prado and Volij’s examination of school vouchers included a very sobering comment which applies to this discussion. They state that “education, it is argued, is a fundamental right which should not be allocated according to ability to pay. But if parental resources are unequal, a well functioning private market for education will result in differences in the quality of education that children receive. These differences in education imply differences in earning opportunities, which may be seen as unfair since they are beyond the child’s control.” 6 The recommendation of parental choice via school vouchers back in started in 1955. Friedman contends that the educational system is inefficient and that free market competition would improve the quality of our schools. “Free market competition can do for education what it has done already for other areas, such as agriculture, transportation, power, communication and, most recently, computers and the Internet. Only a truly competitive educational industry can empower the ultimate consumers of educational services -- parents and their children.”7 Allowing the parent to choose the school that provides the best educational opportunity for their child will drive overall performance. Friedman maintains that in every other industry which was opened to competition, quality and choice soared, and costs would go down. The opportunity to select the local public school, private school or even a public school outside the students’ neighborhood would be incentive for all schools to operate as effectively and efficiently as possible. If public schools are not drawing enough students, they would have to close. The risk of losing students should be motivation for lower performing schools to be creative in finding way to improve, and therefore keep, students enrolled. Successes in other countries Evidence from other countries shows that a school voucher program can be effective. Those students participating in the voucher program received a better education at a cost less than the traditional public educational system. Columbia: In 1990, Columbia established the PACES program which supports 125,000 students. Vouchers are assigned randomly due to demand exceeding supply. The results of this program show that voucher participants are: 15-20% more likely to finish secondary education, 5% less likely to repeat a grade, scored a “bit” better on scholastic tests and are more likely to take college entrance 5 Milton Friedman, The Role of Government in Education, Economics and the Public Interest, 1955, (last visited 5/11/07) Milton and Rose D. Friedman Foundation web site http://www.friedmanfoundation.org/friedman/friedmans/writings/1955.jsp 6 María José Luengo-Prado ,and Oscar Volij, Public education, communities and vouchers, The Quarterly Review of Economics and Finance Volume 43, Issue 1, 2003, Page 52 7 Milton Friedman, Why America Needs School Vouchers, The Wall Street Journal Eastern Edition, New York, N.Y., 9/28/00, pg A22 Page 4 of 10 exams. Additionally, the voucher cost to the system is around half the cost of private secondary education. Sweden: In 1992 Sweden passed educational reforms in which parents are free to select the schools their children attend. The child’s education is paid for by the government program that allocates the money for education. Students can select between public, private, religious, and for profit institutions. The only rule is that the school must accept children based on a first come, first served basis (schools cannot refuse to accept low ability children8) and the school cannot charge “top up” fees. (“Top up” fees are typically charges which overall increase the cost of tuition.) In Sweden most independent schools are not aimed at any special group of people (i.e. religion) and the socioeconomic makeup of students in the independent school compared to the public schools is similar. Since the program went into effect, 10% (up from 1%) are now attending private school.9 The private sector has joined the education ranks by opening for profit schools, expanding the number of schools to keep up with demand. This “eases” over populated schools with the private sector expanding to meet demand. The overall performance of Swedish students is above the OECD average.10 The Swedish education also reports little variation in the performance across schools. The Swedish experience relates closely to the theories of Freidman. “Here, as in other fields, competitive private enterprise is likely to be far more efficient in meeting consumer demands than either nationalized enterprises or enterprises run to serve other purposes.”11 Successes in the US: Similar results can be found in the few school voucher programs that exist in the US. Studies show that students participating in school voucher programs performed better and the cost was less than what governments would have paid for the child’s education. Since the students participating were randomly selected, outside influences such as home life and ability, are not factors that resulted in the students overall doing better. The Milwaukee and Cleveland programs are examples commonly examined, where a smaller number of 8 F. Mikael Sandström , and Fredrik Bergström, School vouchers in practice: competition will not hurt you, Journal of Public Economics Volume 89, Issues 2-3, February 2005, Pages 351-380 9 Free to choose, and learn, The Economist Print Edition, 5/3/07, (last visited) http://www.economist.com/world/international/PrinterFriendly.cfm?story_id=9119786 10 Ann Carlson Ericsson, Anita Wester, Equity Trends in the Swedish School System: A quantitative analysis of variation in student performance and equity from a time perspective, Swedish National Agency for Education Report 275, 2006 , Page 3 11 Milton Friedman, The Role of Government in Education, Economics and the Public Interest, 1955, (last visited 5/11/07) Milton and Rose D. Friedman Foundation web site http://www.friedmanfoundation.org/friedman/friedmans/writings/1955.jsp Page 5 of 10 randomly selected students succeeded. According to Friedman, “fewer youngsters in the inner cities dropped out of school and more acquired the skills needed for remunerative employment, economic levels would rise, street violence decline, and crime become less attractive to the young.” 12 A study based on the voucher program in New York showed that AfricanAmerican students involved in the voucher program, after 3 years, scored nearly two grade levels higher than their counterparts who remained in public school. Under the New York program, it was cheaper to educate “voucher” students than those enrolled in public school. The results are valuable because those participating are not different than their counterparts who choose not to participate. If students are doing poorly in a school and are given a chance to switch, they are likely to do so; just as if a student is doing well, they are likely to want to stay. Overall, the profiles of those opting for vouchers are similar to those opting not to participate. Vouchers are most attractive to those families who are not in a position to be able to take advantage of alternative educational opportunities. Public schools who fear losing students and funding are more likely to buckle down and improve their services than those without added competition. A study by Harvard economist Caroline Minter Hoxby has shown that schools in areas which were most intensely affected by the loss of students accepting vouchers increased their test scores much higher than schools not as intensely affected. Opponents claim that this is because the students were from a better background, family values. But when vouchers are distributed randomly, the affect of external influences are reduced. Counterarguments against school vouchers: “The 'competition hypothesis' is valid if two conditions are satisfied: ( 1) public school production causes inefficiencies in the provision of education; ( 2) promoting greater competition between public and private schools will reduce the inefficiency. “13 This position is held by reputable economists such as Peter Rangazas, an oppose of the competition theory. Economist Helen Ladd opposes the notion of school vouchers. In her paper, she disagrees that vouchers would benefit all but instead would cause harm to select groups. Voucher would (a) shift students out of public sector and into private, (b) generate greater polarization as students seeks to improve the quality of their peers and (c) increase competition for students.14 12 Milton Friedman, Why America Needs School Vouchers, The Wall Street Journal Eastern Edition, New York, N.Y., 9/28/00, pg A22 13 Rangazas, Peter, Competition and Private School Vouchers, Education Economics, Dec 97, Vol. 5, Issue 3, p 245 14 Helen Ladd, School Vouchers: A Critical View, Journal of Economic Perspectives, Fall 2002, Vol. 16, Issue 4, p 3 – 24 Page 6 of 10 Many middle to higher income families with school age or soon to be school age children select to live in towns which have higher quality schools. These more affluent towns tend to have higher property taxes and as a result provide more funding to their local schools. The more advantaged families would also be in a better financial position to elect to send their children to private schools. Those families with lower financial means do not have the luxury of moving their families in order for their children to attend better schools. When groups of lower income families end up in the same neighborhoods, the total tax dollars available for schools for is reduced, resulting in lower quality schools. Those students from wealthier socioeconomic backgrounds tend to have an educationally rich home environment and do well in any educational environment. Those from impoverished educational backgrounds tend to rely more heavily on the schools. Studies have shown that there is a positive correlation between socioeconomic composition of a school and performance of its students is truly reflective of what happens at home rather than what happens at school. However, there are positive influences: there tends to be greater dollars available for education, they tend to be able to attract higher quality teachers, etc. However, in the current public school model, successful schools have no incentive to expand and poorly performing schools cannot close without having placed all students in other schools. Ladd expressed the following concerns on school vouchers: 1.) Creates a hierarchy of schools – parents judge quality based on the abilities of the other students attending the school. 2.) When characteristics of the student body are important factors, there’s no simple strategy to make lower performing or disadvantaged students looks effective. This is often referred to the Peer Externality, where peer performance affects the performance of others. 3.) Successful schools will not wish to expand if it means lowering socioeconomic or ability levels of the student population (which makes it attractive in the first place) 4.) Schools with large populations of disadvantaged students will not be able to attract other students. Helen Ladd’s article argues that the successes seen in Milwaukee are not real successes. African American students attending catholic schools performed better than their counterparts who attended public school. Meanwhile whites and Hispanics did not post higher achievements. This variation in performance negates the value added by school choice. Her article also argued that the students in the program where not really random samples and therefore could not use this program as the unbiased study for pushing vouchers. She disregards the theory about competition driving cost efficiencies. She cites two for profit educational centers (Edison and Tesseract) as not making a profit, Page 7 of 10 arguing that if the private sector could educate our children in a more cost effective manner, they would be. She argues that a voucher program could possibly cost the government more than we are paying now because vouchers would be used by families who would have otherwise paid for private education. (Those that are paying twice today.) Teachers: Teachers and their unions are very much against a voucher system. They claim that competition would not increase quality. It would leave those in less fortunate areas, or those with disabilities behind. It is their opinions that they are the “professionals” and they know what’s best for our children. Peter Rangazas argues that in order to gain efficiencies, teachers, principals and superintendents need performance monitoring. Teachers and their unions may or may not impede this process. Another common opinion shared by teachers and their unions is that vouchers will reduce the funding available to those schools that really need it. The Freidman Foundation has studies which point to the opposite. “School choice programs do not drain money from public schools. Actually, they leave more money behind to educate fewer students. No state or city with school choice has seen its public school budgets go down.”15 This is because the local taxes will stay with those schools in the local area and would not be paid to schools outside the area. And the voucher dollars per student will be used at the schools they attend. The theory is that when there are more schools, class sizes can be reduced, leaving the school to use the same level of funding per student to teach more reasonable class sizes. Segregation Today, public schools are setup by neighborhood. The area in which live the student lives dictates the public school they will attend. If you live in a primarily white neighborhood, the schools will serve primarily white children. The situation is the same for latino and black neighborhoods. Some argue that a voucher program will drive more segregation rather than less. Campbell and West’s study of families electing to participate in such programs found this concern to be unjustified. “We find no evidence that Whites in districts with a high concentration of minorities are especially likely to be voucher applicants or takers.”16 The ABC’s of School Choice, 2006-2007 Edition, Updated 11/19/06, Milton & Rose D. Freidman Foundation web site, (last visited 5/11/07) http://www.friedmanfoundation.org/friedman/newsroom/ItemAbc.do?filterId=1 15 16 David E. Campbell , Martin R. West, Paul E. Peterson, Participation in a National, Means-Tested School Voucher Program, Association for Public Policy Analysis and Management, Journal of Policy Analysis and Management, Vol. 24, No. 3, Page 537 (2005) Page 8 of 10 In US studies, Campbell and West have found that “Taken as a whole, these results suggest that African Americans have a high level of interest in vouchers, but may experience practical obstacles when using them to enroll in private schools.”17 This may well be that the African American population wasn’t in a position to select private schools without the voucher funding. School vouchers should not be viewed as a program for lower income or minority children alone. Focusing on one segment would not drive the potential “customer” size to be great enough to really drive competition between schools. That requires greater numbers of participants in order to encourage the development of innovative schools and new methods of teaching. To date in the US, only a very small portion of the population has had the opportunity to participate in a voucher program. They have been limited, small scale implementations which need to be expanded. Constitutionality Critics argue that school vouchers are unconstitutional. The courts are deciding otherwise. In 1954 the Supreme Court ruled on the segregation case of Brown vs Board of Education of Topeka, Kansas. In that ruling, Chief Justice Earl Warren declared that the “separate but equal” had no place in America.18 In 2002, the Supreme Court ruled that school vouchers did not violate the separation between church and state. The justification for this ruling was that the government is not directly financing education through religious institutions. The government is providing the financing to the parent, and it is the parent who is ultimately selecting the institution. This distinction allows the separation between church and state to be upheld in a parental choice model. A voucher program will not drive all students to private religious schools, as some fear. Instead, parents will choose a school that teaches values that most closely reflect their own. If a family practices a specific religion, they may choose a school that teaches those values and ideals. For those families which are not actively practicing a religion, a private religious school may be not a factor. “The significance of religion as a factor shaping participation in voucher programs underscores that, under the status quo, private education is especially appealing to Catholic and Evangelical Protestant families.”19 Conclusion Today, most US voucher programs focus on low- income or disadvantaged children who do not typically do well in the public sector. This program needs to be extended to cover all compulsory school age children. Creating the right 17 David E. Campbell , Martin R. West, Paul E. Peterson, Participation in a National, Means-Tested School Voucher Program, Association for Public Policy Analysis and Management, Journal of Policy Analysis and Management, Vol. 24, No. 3, page 527 (2005) 18 Change gotta come, The Economist, 5/22/04, Vol. 371, Issue 8376, P 12 19 David E. Campbell , Martin R. West, Paul E. Peterson, Participation in a National, Means-Tested School Voucher Program, Association for Public Policy Analysis and Management, Journal of Policy Analysis and Management, Vol. 24, No. 3, 523–541 (2005) Page 9 of 10 school voucher model sets the stage for a better educated society and a better world. A US voucher program should establish the following standards: 1.) Schools must be approved by an Educational Committee which establishes minimum quality criteria and must meet minimum guidelines on curriculum. 2.) Vouchers can only be used for education – they cannot be cashed in or used for anything else. 3.) Voucher schools are not allowed to charge fees and tuition in addition to the amount of the voucher. 4.) Transportation to the chosen schools must be provided in order to avoid disproportionately affecting low income families. 5.) Voucher schools must admit students on a first come, first serve basis and cannot “select” their students based on ability or other criteria. 6.) Access to school choice information must be made available to all. The future of our nation rests on the shoulders of our children. As parents, professionals and citizens, all Americans are stakeholders in our educational system. With school vouchers the list of winners is long: better educated students; good teachers where there is more competition and a broader market for their services; existing private schools; educational entrepreneurs opening new schools; taxpayers since will be a decline in spending; employers who have access to a better pool of candidates and higher education who can reduce their remedial programs. 20 20 Milton Friedman, Why America Needs School Vouchers, The Wall Street Journal Eastern Edition, New York, N.Y., 9/28/00, pg A22 Page 10 of 10