School choice: Spreading like a prairie fire

Thomas Landstreet CEO, Standard Research Corp.
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My home state of Tennessee is just one battlefield in the school reform wars. While Memphis charter schools are at the vanguard of the movement, Nashville’s local board of education just defied state law and disallowed a qualified charter application. This spring, legislation is likely to be proposed that calls for a statewide school voucher program, like those of Louisiana and Indiana. Word is, it will pass.

The school choice movement is extraordinary because it’s not inspired by any political figure. Instead, it’s an organic, grassroots parent movement inspired by extreme dissatisfaction with the status quo. It is a purely American protest movement, uniquely bipartisan and multicultural. But it’s more than a protest movement; it has become a successful, constructive change agent.

I can’t imagine an industry more ripe for restructuring than K-12 education. Governments run this monopoly, spending nearly $600 billion annually on K-12 education. Meanwhile, SAT scores recently hit a 40-year low. (Here come the parents with the pitchforks.)

Charter schools are “carve-outs” in which government funds are reallocated away from traditional public schools, and instead are directed toward charter schools. Charter schools are public schools that operate with more flexibility, especially regarding hiring and firing teachers. They are more nimble in experimenting with ways of improving education with scarce funds.

In contrast, education voucher programs are a more genuine expression of consumer choice. Here, the government gives parents the tax funds that otherwise would have been used in the public school system, and allows them to spend it in qualified ways on alternative providers. Although this approach isn’t purely free-market either — after all, the government sets criteria for eligible schools — it typically involves much more competition and choice.

Teachers’ unions in the public sector obviously react to charter schools and vouchers like Dracula to garlic. Their union contracts give them cushy pensions and make it almost impossible to fire poor teachers. The defenders of the status quo have come up with all sorts of reasons to oppose school choice. For example, they claim that vouchers siphon the best students away from the struggling public schools — leaving them in even worse shape — and that vouchers don’t really improve student performance, since the best students with the most motivated parents are going to be the ones participating in such programs.

Yet the best empirical studies say that vouchers help students in the new schools as well as the students “left behind” in regular public schools.

The most obvious explanation for this is that public schools are forced to improve when a voucher program introduces more competition. This result holds in other markets; why not in education? A brand-new study shows that charter schools can even draw from private schools — this shows just how powerful these reforms can be, and how they force every operator to shape up or lose students.

Another brand-new study from the Brookings Institution shows that among African-American New York City elementary students, those who were (randomly selected) to participate in a voucher program were 24 percent more likely to attend college than those who did not win the voucher lottery.

A recent PDK/Gallup poll shows that Americans’ support for school choice is at an all-time high. School choice favorability has jumped 10 percentage points since last year.

There are now approximately 5,600 public charter schools enrolling what is estimated to be more than two million students nationwide. The numbers equate to a 13 percent growth in students in just one year, while more than 600,000 students remain on wait lists. Georgia and Washington State recently joined the 43 states that allow charter schools. And legislatures in North Carolina and Texas, like Tennessee’s, seem likely to propose statewide voucher programs in the current legislative session.

Meanwhile, venture capital and private equity commitments to the private K-12 education industry have doubled in just the last two years. Investors have concentrated on online curriculum developers, online schools and charter management organizations (CMOs). CMOs are private companies that manage schools at the behest of not-for-profit charter school boards.

The market opportunity is staggering. If just 5% of the government’s $600 billion of annual K-12 education spending was privatized, it would create a new $30 billion industry. But the benefits to society are even more profound. (Education is a great way out of the ghetto.)

The only opponents to the school choice movement are America’s editorial pages and teachers’ unions. So far, they’ve been unable to slow this prairie fire. Let’s hope, for the sake of underprivileged children and their parents, that the same choice available to the privileged is made available to them. If privatization continues, look out above for achievement scores.

Thomas F. Landstreet, a former acolyte of Arthur Laffer & EVP of Laffer Associates, is co-founder of Tell-tale Capital Corp. as well as CEO of Standard Research Corp., publisher of “Connecting the Dots” institutional investment research.