responsible for inferior schools, which consistently fail to meet standards.15 Without competition, poor parents lacking money to buy themselves better alternatives through the housing market have nothing to bargain with because they have no ability to reject their local school. Teachers and administrators—as well as the unions and public school systems they're part of—can use their monopoly power to exploit helpless communities, protecting and enhancing their own status and resources regardless of the harm done to needy students.
In contrast, according to this theory, schools of choice have to be better to compete and survive.16 And beyond their benefits to the parents who choose to transfer students to them and their contribution to breaking the chains of bureaucracy and teachers’ organizations, the theory continues, these new schools—combined with the threat that parents will pull their children out of weak schools—will force traditional schools, which are locked in ineffectual bureaucratic cynicism, to transform themselves as their existence and budgets are threatened, thus improving education for the children whose parents do not choose to transfer them.
The market theory is not a zero-sum theory, where some lose and others win; it is an optimistic, positive-sum theory. It posits both the opportunity for strong individual benefits that motivate the choice process and, at no additional cost, competition pressures that will improve the schools not chosen. This is the application of Adam Smith's “invisible hand” to educational reform. Smith's ingenious insight, leading to the founding of modern economics, was to understand the ways in which individuals competing to buy and sell things in open markets, all seeking their own advantage, can, with no intention of doing so, increase overall efficiency and productiveness. The market rewards producers who are effective and efficient and destroys those who are not, thus encouraging growing efficiency and fair prices. It also brings together the information and energies of both buyers and sellers and directs profits to where they will be most productively invested. Smith explained:
The invisible hand works without any awareness by the individual pursuit of profit. He [the individual buyer or seller] generally... neither intends to promote the public interest nor knows how much he is promoting it.... By directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain; and he is in this ... led by an invisible hand to promote an end which was no part of his intention .... By pursuing his own interest, he frequently promotes that of the social more effectually than when he really intends to promote it.17
The dominant theory of educational choice is an effort to directly apply this classic view of economic markets to the operation of public school systems, where the invisible hand will do things public decisions cannot. Anyone who has seen the vast selection of goods and services generated by worldwide competition or examined the difficulties encountered in the centrally planned command economies of Communist countries has to concede that markets can accomplish some remarkable things. Likewise, bureaucratic planning is a very complex task that has often produced goods of poor quality. These economic experiences are central to the argument of the market theory of school choice. But they are, of course, about commodities and products, not schools. And in all advanced societies, markets are highly regulated to prevent dishonesty, to assure fair competition, and to ban products that would cause harm to their buyers. As Smith himself recognized, government has essential functions to perform in administering and facilitating commerce and providing education.18 American conservatives tend to favor a more radical version of unregulated markets than did the founder of modern economics.
The Nobel Prize-winning economist Milton Freedman was a leading exponent of this theory of educational reform for half a century. Friedman, whose views have had an enormous impact on American conservatism, advocated school vouchers beginning in the 1950s, seeing them as equalizing opportunity through competition and choice. His statements were a mix of pure economic theory and a kind of antigovernment attitude that often flows directly from the basic premise that markets are inherently superior. “Our goal,” he said, “is to have a system in which every family in the U.S. will be able to choose for itself the school to which its children go.... If we had that system of free choice we would also have a system of competition, innovation which would change the character of education.”19
Calling the public school system “the single most Socialist industry in the U.S., leaving aside the military,” he said it was “a monopoly” whose harm was “exacerbated by the fact that it has been largely taken over by teachers unions, the National Education Association and the American Federation of Teachers.” He concluded that “reform has to come through competition from the outside and the only way you can get competition is by making it possible for parents to have the ability to choose.” Competition would lead to “the same kind of change in the provision of education as you have had in industries like the computer industry, the television industry and other things.”20 Failing schools, in this view, are like failing factories.
Friedman argued that markets would be particularly helpful to the disadvantaged: “The people who live in Harlem or the slums or the corresponding areas in LA or San Francisco, they can go to the same stores, shop in the same stores everybody else can, they can buy the same automobiles, they can go to [the] supermarket but they have very limited choice of schools. Everybody agrees that the schools in those areas are the worst[:] they are poor.” He also noted that “those of us that are in the upper income classes have freedom of choice for our children in various ways[:] we can decide where to live and we can choose places to live that have good schools or ... [pay] tuition at a private school. It seems to me utterly unfair that those opportunities should not be open to everybody at all levels of income.”21
Though it was inconsistent with the tradition of American education, the market theory linked widely shared antigovernment and free enterprise values. In a society where there has been little educational progress for several decades and where increasing numbers of students are locked into schools where few succeed, it is easy to understand why this theory has great appeal both to business-oriented conservatives and to families with children in failing schools.22 Since the civil rights era ended, almost all of the attention to choice policy has focused on the market theory, largely ignoring earlier theories relating inequality to exclusion and segregation. There was a change from presuming that inequality was based on social stratification and could only be remedied by a consciously integrationist use of choice (supported by other social policies to improve conditions for families) to assuming that inequality was caused by bureaucratic rigidity and the excessive power of teachers’ organizations and could be changed simply by offering unregulated individual school choices.
Assumptions of the Market Theory
The classic assumptions in market economics, which specify the necessary preconditions for true markets working efficiently, have to be tested against what is known about the actual conditions of choice in urban American schools. The idea that markets are both fair and efficient in allocating resources and opportunities is based on the assumptions that (1) all potential customers have equal and accurate information, (2) there is broad competition among many suppliers and therefore a strong incentive for each to offer a better product, and (3) all buyers have an equal chance to buy. With many buyers and many sellers, and especially with simple, standardized, easily understood products like bushels of wheat or bales of cotton, sellers are forced to compete on price because no one has significant control of the overall market. If all these conditions exist, the theory holds, the better providers will prosper, the worst will fail, consumers will get better products at lower prices, results will be fair, and political forces and special connections will not matter. Under this theory applied to education, the previous monopolistic institutions (public schools) will have to compete for students and become better because otherwise they will lose per-student funding and staff.
Key assumptions of the market theory were clear in the Friedman argument. According to him, the basic problem with education for poor and minority families in Harlem and elsewhere was the “socialist” monopoly controlled by unions and
