Liberty & LEARNING

MILTON FRIEDMAN'S VOUCHER IDEA AT FIFTY

CATO INSTITUTE

Copyright © 2006 Cato Institute
All right reserved.

ISBN: 978-1-930865-93-8


Chapter One

The Role of Government in Education: Enduring Principles, New Circumstances, and the Question of "Shelf Life"

Guilbert C. Hentschke

One of the stiffest tests that can be applied to any policy is the test of time. That is particularly true in the field of education where the half-life of most school reforms seems to be only a few years, after which they are rejected or "domesticated" beyond recognition. To seriously reexamine the idea of vouchers proposed by Milton Friedman fully half a century ago is to confront two issues simultaneously: the inherent merits of the idea and the inevitable changes in circumstances and conditions between then and now. It is a twofold test of the inherent worthiness of the idea and its "shelf life," or the degree to which it is more or less compelling today after 50 years of societal evolution. Because so much scholarly attention has already been directed to the merits of the proposal and its specific manifestations, this essay focuses most of its attention on the second, or shelf-life, test.

In "The Role of Government in Education," Friedman constructed in 21 pages an argument on the appropriate roles of governments and families in the support for and provision of kindergarten through 12th grade (K-12) schooling, of which only several of the most fundamental features are summarized here. According to Friedman, government's primary role in a free economy is "to preserve the rules of the game by enforcing contracts, preventing coercion, and keeping markets free." As a result, he concludes that families' educational prerogatives can be justifiably overridden by governments on only three bases: if education can be considered a "natural monopoly," if there are significant "neighborhood effects," or because of what he terms "paternalistic concern for children and other irresponsible individuals."

Those issues, often ambiguously complex and substantially nontrivial, justify some but by no means all of the current involvement of government in education at both the compulsory and the postcompulsory levels. Based largely on the presumptions about education's neighborhood effects, arguments can be made for the state imposing minimum required levels of schooling and financing schooling. But it is difficult to see how neighborhood effects could justify the state's current involvement in "the actual administration of educational institutions by government." In the same paper Friedman also argued against both the financing and the provision of strictly "vocational" education, because of its presumed lack of neighborhood effects, a somewhat separate topic addressed near the end of this essay.

Furthering his basic principles, Friedman posits that the case "that perhaps comes closest to being justified by these considerations ... is a mixed one under which governments would continue to administer some schools, but parents who chose to send their children to other schools would be paid a sum equal to the estimated cost of educating a child in a government school, provided that at least this sum was spent on education in an approved school." "Let the subsidy be made available to parents regardless where they send their children-provided only that it be to schools that satisfy specified minimum standards." Thus, Friedman introduces the modern concept of educational vouchers for K-12 schooling.

At the risk of ignoring important elaborations, qualifications, and conditions of Friedman's proposal, suffice it to say that the central argument was to shift significant portions of government education subsidies from providers on the supply side of schooling to households on the demand side. Suffice it also to say that many of the subsequent arguments about Friedman's proposal (both pro and con) hinged more on assumptions about the likely effects of voucher-like proposals and on the relative merits of specific initiatives than on a reanalysis of the fundamental proposition of the appropriate roles of government and households in schooling.

Changes

Virtually all arguments about both-the proper roles for government and households as well as the likely impacts of specific voucher plans-include assumptions, assertions, and implications about the status and interactions of three topics: the nature of education itself, the proper role of households in pursuing education, and the proper role of government in fostering it. Assertions about those three topics form the three-legged stool of this analysis of Friedman's voucher proposal. Changes in those areas over half a century could well have changed the salience of Friedman's argument, prompting the question addressed in this essay: In what ways, if any, have changes over the last half century in education, households, and governments affected our views of and assumptions about vouchers and choice?

Changes in the Nature of Education

The nature of education has evolved in at least four ways over the last 50 years. First, education is a more consequential component of human well-being. We are now much further along the path toward a "knowledge economy" where the education of individuals is much more directly associated with their well-being and, by inference, with the well-being of the communities and countries where they reside. Human capital and social capital have eclipsed physical capital as a manifestation of wealth and engine of wealth creation. What is between our ears is now much more important than how strong our backs are or whether we live near natural resources.

Second, different levels of education produce, as well as reflect, growing differences in earnings. The differences in payoffs for different levels of schooling are growing greater and greater, not shrinking. Not only do higher levels of schooling have disproportionately higher payoffs, but higher levels of schooling are associated with greater opportunities for even more schooling. Schooling is at once the great equalizer, the key to future opportunity, and a key contributor to growing household economic inequality.

Third, what we used to consider a minimally "adequate" education is now much less than adequate. The minimally acceptable, "good enough," education bar has been raised significantly over 50 years. The "minimum level of schooling required to compete for improved life chances" is now clearly beyond what a typical high school education actually provides to its graduates. Also, for many students, several years of "college" education are required to acquire the knowledge and skills that they should have been able to acquire in high school but, for whatever reasons, did not.

Fourth, increases in early learning are more consequential than increases in later learning. We have come to understand over the last 50 years that increased learning at the "low" (early childhood) end of compulsory education has significant payoffs in school achievement, which raises the likelihood of individuals pursuing additional schooling and earning more as a result (private benefits), as well as payoffs in the form of subsequent public savings in remedial and special education, criminal justice, and welfare costs. The neighborhood effects argument for early childhood development programs is reinforced by the disproportionately high economic returns derived from them. "Investments in high-quality early childhood development programs consistently generate benefit/cost ratios exceeding three to one, or more than a $3 return for every $1 invested, well above the one-to-one ratio needed to justify such investments."

The arguments for extending public support of schooling beyond 12th grade are based on the same theories of investment in schooling, but the cost/benefit ratios of such investments are not likely to be nearly as robust. In both cases, the public and private benefits from increased schooling have grown significantly over the last half century.

Changes in the nature of education are, in effect, changes in the impact that education has on both the stock of human capital of households and the ability of governments to provide public goods, including education. Education is more important in our lives today because of its increased private and public returns, but changes in the nature of education affect households and governments differently.

Changes in Households

Households and their relation to education have changed during the last 50 years, in at least five interrelated ways. First, households recognize more than ever the significant and growing private returns to increased education and allocate increasing proportions of their disposable income to human capital development. During this period an entire "education industry" has come into prominence, providing a wide range of "private-pay" educational goods and services, including educational toys (LeapPads), tutoring services (Educate), and whole schools (Nobel, Aspen Education Group). Private investments in education are increasing in an effort to capture some of the returns to enhanced learning.

Second, households, along with communities, are now widely recognized as major "educators" along with schools-both positively and negatively. Both households and communities contribute significantly to the "social capital" available to children, and that influence on human capital development is at least as great as in the past and, if anything, growing stronger. "Neighborhood effects" has taken on additional meaning. Higher levels of individual human capital positively affect our "neighbors," but we now also better appreciate how neighbors in turn influence both the social and human capital that each of us acquires.

Third, because parental income and education levels are now more highly correlated, those factors have significant direct and indirect influence on the educational levels of children. The educational wealth of families is thus becoming more of an asset transferable across generations, not unlike family economic wealth, although analysts differ on the degree and the weight of different contributing factors.

Fourth, because inequalities in household income, wealth, and education levels are much greater today than half a century ago, the contribution that households can make to the education of their children is becoming increasingly variable at the same time that it is becoming increasingly consequential. Predictably, the economic and social investments of higher-income households are exacerbating differences in learning opportunities and outcomes among children and youth. More significant, household characteristics increasingly attenuate intergenerational social mobility, long the operational definition of the "American Dream." Although household education and income have not been the only factors involved, intergenerational stagnation in income brackets increased from 30 percent in the 1970s, to 37 percent in the 1980s, to 40 percent in the 1990s.

Fifth, regardless of income level and geographic location, and perhaps in response to dimming prospects for intergenerational social mobility, households have been willing to physically relocate to better their life chances, including improving their work and schooling opportunities. Similar motivations are driving migration across local jurisdictions and national borders-for example, in the Southwest and from Asia, from countrysides to industrial cores, among metropolitan areas from "brawn" to "brain" cities, from urban centers to suburban rings, and from low-performing to higher-performing schools. Although household choices of residence are income constrained, the pursuit of residential preferences is increasing in part because the consequences of not choosing have increased. Migration is not new, but the consequences of not migrating are. Where you live increasingly influences schooling and peer group quality, social capital development, and, therefore, life chances.

Changes in Government

Like households, governments see education as more consequential now than 50 years ago, and for generally similar reasons. Over the last half century government's emphasis on education has changed from sole provider to "only" primary provider and significant investor. Though public-sector enrollment as a share of total school enrollment has remained relatively stable at the margin, government bodies are increasingly accommodating the creation of alternatives to publicly provided schooling (from homeschooling to various school choice programs). Why? First, governments are now competing with each other and are thus compelled to respond, if only weakly, to household demands for improved schooling choices. Residential choice is both a cause and a consequence of intergovernmental schooling inequalities. If governments don't respond, they risk an exit from their jurisdictions of those households with the greatest desire for "improved" (or simply different) schooling options. Whether a particular government jurisdiction is, in the short run, better or worse off as a consequence of that residential "brain drain" depends largely on the makeup of its tax base and its public spending obligations. The basic point remains. Friedman's reference to governments as "the state," while technically correct then and now, masks the increasingly competitive nature of separate governmental jurisdictions. Cities, counties, regional government agencies, states, nations, and continental alliances all compete with each other to grow their tax bases and, thereby, their tax revenues. The primary means of achieving such growth is to attract "foreign" direct investment by touting the educational quality of their workforce and the quality of their educational infrastructure, among other features. The "public" nature of public goods is shaped more within than across jurisdictions, as governmental jurisdictions must worry first about the public within their borders, both as providers of tax revenues and as contributors to the public good within the jurisdiction. Public education goods that derive directly from private benefits of education (i.e., personal income that yields spending and taxable income) are of increasing concern to governments. From the perspective of government, public and private benefits of education are now more closely associated with each other. More of one generates more of the other. It's no longer so much "either/or," if it ever really was.

This is not to suggest that the public benefits associated with general citizenship are now less valued. Increased educational levels of citizens have always yielded numerous important, if not easily measured, public goods, or positive externalities, including increased propensity to vote and increased likelihood of volunteering. Rather it is to suggest that governments, like households and businesses, are compelled to compete more aggressively now than 50 years ago to achieve acceptable levels of human and social capital. Growth in both forms of capital is self-reinforcing and promotes still higher levels in the future. Increases in social and human capital also expand the tax base while reducing public costs associated with low levels of these forms of capital. Governments can increase social and human capital by "growing" them or by "attracting" them. For those reasons, and because of wage premiums associated with higher levels of schooling, governments have to provide improved educational options (among other public goods) if they are to compete successfully.

Second, in response to competitive pressures and sometimes over the objections of K-12 education officials, governments have gradually moved from a posture of 100 percent funding and sole provision to one of primary funding and provision coupled with greater emphasis on monitoring and overseeing the performance of all education providers. Not surprisingly, the supply of publicly authorized schooling alternatives, public and private, has begun to grow. When Friedman made his voucher proposal, Edison schools weren't even imagined, homeschooling was illegal in about two-thirds of the states, magnet schools had just made their debut, charter schools were unheard of, voluntary interdistrict transfer plans were in their infancy, virtual (online) public schooling did not yet exist, and neither did voucher plans for public and private schools. Today homeschooling is a legal option in all 50 states; districts are fashioning "choice policies" for parents in their districts; and charter schools, corporately owned and managed schools, virtual schooling, and voucher plans are growing-all foreshadowing Friedman's "healthy variety" of choices.

(Continues...)



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