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Supply, Demand, Charters & AEI

Back in April, the American Enterprise Institute released a paper by Michael McShane. Balancing the Equation: Supply and Demand in Tomorrow's School Choice Marketplaces offers a more nuanced view of a charter-choice landscape than the free market acolytes at AEI have presented in the past, but it still reads like an exercise in unicorn farming.

McShane understands some of the problems pretty well. After opening with a picture of how a charter-choice world would be so lovely, McShane moves on to what he sees as the big issues.

But school choice is not guaranteed to succeed. The extent to which it will depends on how well it is able to create a functioning marketplace where the demands of parents are matched to the supply of schools. If barriers exist for schools to enter the marketplace, or if financial or regulatory hurdles make participation not worth their while, fewer options will be available for students to choose from. If parents cannot access information on schools to help them differentiate schools' offerings and performance, the central drivers of quality and diversity will be hamstrung.

So McShane moves on to consider what needs to be done on each side of the supply-demand pipeline.

unicorn farm.png


McShane believes that the big issue here is information. Charters need to do a better job of getting more information, better information, the right information out into the market. He brings up Maslow's hierarchy, suggesting that parents will follow the standard pyramid when considering a school-- safety first, academics next, other stuff later. Consequently, he sees only limited use for school report cards, and suggests some other avenues. In particular, he sees parent-to-parent communication as effective in establishing a world in which parents choose a school based on rich, deep information about which school would best meet their child's needs.

But McShane is either being disingenuous or he has just lived too long in a thinky tank.

Markets do not run on information. Markets run on marketing. The free market does not foster superior quality; it fosters superior marketing.

McDonald's, Coca-Cola, Standard Oil, Bank of America-- none of these corporations have dominated their marketplace by spreading information about their products and services. There is no market sector in which customers are moved primarily by information. Succeeding in the marketplace often involves carefully controlling and withholding the information that customers receive. In fact (and this should trouble the boys at AEI), often the real information that is available is available only because government regulation and intervention require it (think nutritional info at fast food places).

No charter school will ever say, "Let's get a complete, thorough informational package out there so that families can make the best decision from with the umpteen schools in this market." What the charter will always say, like any good business, is, "How can we best present ourselves to convince the greatest number of families to choose us?"

There is no incentive for any entity operating in a free market to make sure that customers have access to complete, deep, thorough information. It won't help them get customers, and, much to the chagrin of economists through the ages, that sort of data-driven analytical rational analyses is not how customers make decisions anyway.

McShane does make some other more familiar recommendations, such as suggesting that "parents need help advocating programs that help their children... Organizations that want to help parents select schools should also think about how they can help connect parents with the political process." Presumably he is thinking more of Eva Moscowitz bussing her parents and students to Albany to lobby for her charters, and thinking less of the families and students of Newark taking to the streets in a vain attempt to get anybody in power to pay attention to them.

In fact, some of McShane's work here is really marketing advice-- which buttons to push in your school report card, which way to approach parents to influence their choosing behavior.

He also talks about "matching students and schools" which is an interesting way of putting it, a shade to the side of actual school choice. In fact, he cites the OneApp system of New Orleans, a system that effective screens out families that lack the resources or background to navigate the system, allowing schools to be selective without looking selective. So, talk of information aside, it would seem that McShane is talking about driving demand by more effective targeted marketing.


McShane frames this as the problem of turning a monopoly into a free market, so he's wrong right out of the gate-- public education is not now, nor has it ever been, a monopoly. And even if we agree that public schools are a taxpayer-operated monopoly, no monopoly break-up has ever involved making the old monopoly operator provide all the financing of the new "competition." When Microsoft was being threatened with a spanking for being a monopoly, nobody ever suggested that a fitting punishment would be for Microsoft to pay the bills for Apple, Corel, and every other software maker in the marketplace. But somehow the "breakup" of the taxpayer-funded "monopoly" of public schools involves having the taxpayers pay the bills for every school that wants to "compete" with public education.

Remember when charters used to make the argument that they could do more with less? Those days are gone. Most of McShane's argument for the supply side is that charters should get more money.

They should get more money to build things and train people in better ways. For McShane the training is important because private schools keep organizing themselves in the same old way. He does not deduce that there's something about that old way that people who are actually teaching in schools continue to find effective; no, instead he concludes that we need more people to be trained Some Other Way so that charters can be Really Different.

McShane also takes on regulation, arguing that one-size-fits-all regulation combined with mission creep leads to regulations that suppress all manner of individuality and variety. I wish I had more space to talk about this part of his argument because it is an awesome argument against Common Core and the Big Standardized Testing boom.

He is concerned that the tendency is to over-regulate charters. I'd argue that such over-regulation is absolutely inevitable and guaranteed. The progression has been, and will always be, just like this:

1) Charters open in a free market environment

2) Charters marketing plan = whatever we can get away with to hook customers in a crowded, competitive marketplace

3) Some charters will go way too far (aka lying, cheating, fraud, theft)

4) Regulations will be created to rein them in

Education is an important service delivered to society's most vulnerable citizens. If you put something like that on a money-stuffed open market, you will either get high levels of regulation or high levels of misbehavior.

You will probably also, after a time, have emerging big players who will make sure their friends in government regulate a market that is harder to enter to protect their stake. The free market, from oil to railroads to telephones to cable to software, creates an intense pressure to destroy itself.

Buy the farm

I get the rosy picture of free market fans like the AEI crew-- a world where there is a robust field of varied, high-quality independent schools, and parents sort through them by consulting clear, rational, fact-filled materials to make sensible decisions and select the school that will best serve their children. I myself like to imagine a picture in which I live in a beautiful mansion surrounded by a huge lawn that never has to be mowed, am regularly invited to travel the world to play tailgate trombone, and have a full head of hair. Also, I would like to own a unicorn farm. I think my dream is more closely connected to reality.

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