April 21, 2003


Journal of Economic Perspectives

Macalester College

1600 Grand Ave.

St. Paul, MN 55105



Dear JEP Editors:


          The Derek Neal and Helen Ladd articles (Fall 2002) are a disappointment.  Both focus excessively on highly restricted parental choice plans.  They accept or ignore major restrictions.  Neither considers the kind of large-scale unrestricted vouchers that would lead to a truly competitive education system.


‘Price Theory’ is the core of economic science, but it is absent from Neal’s discussion of “How Vouchers Could Change the Market for Education.”  He does not explain why policies that force schools to accept vouchers as full payment amount to price controls, much less list the significant, well-known drawbacks of price controls.  He makes no mention of how price change might prompt product diversification and innovation, regulate entry and exit into K-12 education and its sub-fields, force cost cutting, or have other dynamic effects that economists frequently acknowledge.  Product differentiation would be a very likely result of competitive appeals to diverse learning styles and academic interests.  But there is no mention of how specialization by schools might improve productivity, better motivate students, and decrease the de facto segregation that results from assigning children to neighborhood schools.  In addition, he fails to note that “random selection” of student applicants would reduce productivity by inhibiting specialization.


Neal notes that program details will matter a lot, but distracts readers from that important fact by spending several pages discussing studies of very limited programs.  In the process, Neal implies that the characteristics of the existing largely church-run, almost 100% non-profit private sector are insightful regarding “voucher schemes” generally, including large programs that might fundamentally change the private sector.  Indeed, since such fundamental change is the primary justification of large, unrestricted voucher programs, the characteristics of the current private sector are of little or no relevance to anything but highly targeted programs.


It is easy to assume that the top-ranked offerings of anything are at least good, and Neal falls into that trap.  Yes, the problems are especially severe in “public schools in large cities,” but there is little evidence of truly “good public school districts,” and there are good reasons to expect woeful inefficiency throughout the system.  After all, the current system is a triumph of hope over experience with market systems, the political process, and human nature.  The current system assumes that incentives don’t matter, that monopolies are the preferred way to deliver services, that the political process can and should decide what children will learn, and that the vast majority of children should be taught the same things in the same way.  Neal should have noted that, depending on the details, a voucher program is theoretically capable of creating a school system that does not have such serious limitations.


Without critical comment, Neal accepts the assumption of several recent studies that student ability is one-dimensional, and that private schools will all aim to recruit the most brilliant children while shunning the rest.  But even within the existing tiny, handicapped private sector, many schools already do the opposite.  Those studies assume that the most brilliant children are the least costly to educate and they boost future recruiting by elevating school prestige.  I’m not aware of studies that document the share of students likely to be uniformly brilliant, average, or low performing; that is, one-dimensional, but the assumed uniformity runs against my professional experience, and with the high degree of specialization that exists in our economy.  Most people are quite good at some thing(s) and average to low performing in other pursuits that division of labor allows them to avoid.  The assumption that brilliant children cost the least to educate is also dubious.  It is intuitively obvious only for our current system wherein schools cannot specialize, and instructional strategies target a mainstream far below the ability level of the top achievers in each subject.  The competition that would result from a large, unrestricted voucher program would force some schools to specialize in gifted and talented programs.  With the high expectations of gifted children and their demanding parents, I doubt such programs would cost less than programs targeted at the mainstream.


          Helen Ladd makes many of Neal’s mistakes, including the one-dimensional view of student ability, failure to discuss price change effects, and a static view of the private sector.  And like Neal, she spends considerable time describing the effects of our very limited, un-insightful programs, and makes little or no effort to disassociate the studies of those programs from her assertions about “large, unrestricted voucher program[s].”


The central problem is a very limited definition of “large, unrestricted voucher program.”  She never describes the key elements of a “large, unrestricted voucher program,” but implies a limited definition in her willingness to rely on studies of sharply targeted U.S. programs, New Zealand’s public school choice, and Chile’s restriction-laden program.  The failure to grasp the true scope of a “large, unrestricted voucher program” is reflected in her assumption that such programs would find most children in declining public schools even though private schools will “offer focused, coherent programs designed to meet the needs of students” and public schools will not.  Without substantial entry restrictions, such an assumption makes no sense.


She cited numerous examples from Chile and New Zealand to support claims about “large, unrestricted voucher program[s]” even though New Zealand’s system allows no entry, price change, or profit, and suffers stifling centralized control.  Chile’s voucher program also suffers stifling centralized control and allows no price change.  Apparently, she does not believe that entry barriers, price controls, or regulatory micro-management are important restrictions.  I strongly disagree.


The most shockingly careless assertion was that for-profit education firms’ failure to be profitable is proof that private firms cannot “operate more cheaply than public schools.”  What about the revenue side of the profit equation?  She overlooks the difficulty selling something that the dominant producer can fund entirely from taxation.  Having competitors that charge a price of zero severely limits sales and what private schools can charge.  What is amazing about such a severely tilted playing field is that many private firms eventually become profitable.  Others manage tolerable initial losses and expect profitability. The difficulty selling something widely available for no charge beyond taxes that must be paid is why private schools are now overwhelming non-profit, church-subsidized operations.






                                                                    John Merrifield,

                                                                              Professor of Economics


Acknowledgement:  I appreciate the critical comments of Milton Friedman and Gary Hoover, but I am responsible for remaining errors.


P.S.  Please use these addresses for correspondence: Jmerrifield@utsa.edu and

         COB – UTSA DT Campus, 501 West Durango Blvd., San Antonio, TX  78207