Americas OPEC: The Public School Cartel

Dr. DiLorenzo holds the Probasco Chair of Free Enterprise at the University of Tennessee at Chattanooga.

Tennessee, New Jersey, and numerous other states have recently proposed or enacted state tax increases with the ostensible purpose of improving local public schools. Despite the fact that there is virtually no evidence that simply throwing more money at public schools will improve them, governors, state educational bureaucrats, teachers’ unions, superintendents’ associations, and politicians strongly support the increased taxes because, they claim, it is in the “public interest” to do so.[1]

Anyone who challenges these policies is typically labeled as greedy or grossly uninformed about the educational needs of Children. Listening to the public school bureaucracy, one gets the impression that this latter category even includes many parents.

The public school bureaucracy thus portrays itself as comprised essentially of selfless, benevolent public servants, in sharp contrast to stingy, self-interested taxpayers. Accordingly, the state supposedly needs to raise taxes because local communities are unwilling to do so, even for the good of their own children.

I believe a more accurate explanation of various campaigns for greater state funding of local public education is that such campaigns are a manifestation of how local government consists primarily of a collection of cartels—public school cartels, cable TV cartels, electric power cartels, water supply cartels, hospital cartels, and even parking lot cartels. Not surprisingly, since most municipal “services” are organized as monopolies, they perform as monopolists, gouging consumer/taxpayers with high (tax) prices while offering low-quality services.

Greater reliance on state funding of local public education, I will•argue, is simply a way of extracting further payments from the victims of the public school cartel—the taxpayers. If my interpretation is correct, then much of the rhetoric about how the public school monopoly is in the public interest is just that—rhetoric—which only serves as a smoke screen for what is essentially a price-fixing conspiracy against the public.

The Public School Cartel

A well-enforced cartel is one in which each member agrees to cut back on production in order to drive up the price of the product the cartel is selling. Fortunately for consumers, cartel “cheating” is so pervasive and inevitable that they rarely last very long. Historically, there are thousands of examples of private cartels that collapsed because their members cheated.

Unfortunately for consumers, cartelists in many industries have been able ‘to invoke the power of government to enforce their cartel agreements when private enforcement failed. The Civil Aeronautics Board was a government-enforced cartel agreement; the Interstate Commerce Commission enforced a trucking industry cartel; the regulation of hundreds of occupations, from taxi driving to morticians, is a way of enforcing occupational cartels. The list is almost endless. In return for campaign contributions and other forms of political support, politicians use the coercive powers of government to enforce “private” cartel agreements, all to the detriment of consumers.

Local public schools are monopolies since, by law, they enjoy a captive audience of students, are funded by compulsory taxation, and mandatory attendance laws force their “customers” to “consume” their “product,” regardless of how low quality it may be. School districts across the United States would like to enhance their monopoly power (and “profits” in the form of tax revenues) by acting as one giant cartel—at least within each metropolitan area—but are often unable to do so effectively.

The reason for this is opposition by taxpayers, both at the voting booth and by “voting with their feet.” For example, if there are 10 school districts within a metropolitan area, and one of them raises taxes significantly (or, equivalently, reduces the quality of education), it will be at a competitive disadvantage because many parents who believe their children can get just as good an education in lower-tax jurisdictions (or a better education for the same tax burden) will move.

If all 10 jurisdictions conspired to raise taxes, however, then the taxpayers would have to move to a different metropolitan area altogether to escape the tax or the decline of educational quality (or both). This form of taxpayer opposition is more costly to the taxpayers and is therefore more unlikely to occur.

Thus, in order to raise taxes as much as they would like, local governments must enter into a cartel arrangement. But like all cartels, they face the problem of “cheating” by other cartel members. That is, there is no guarantee that every jurisdiction will raise its taxes.

No jurisdiction will increase its taxes if it thinks the others won’t follow suit. Even though they all would like to raise taxes, each hesitates to do so. Moreover, the more members of the cartel there are, the more difficult it becomes to enforce a school district price-fixing cartel.

That’s where the state government comes in.

The state can act as a cartel enforcer for local governments, just as various regulatory agencies and other governmental entities have acted as cartel enforcers for private-sector cartels.

Specifically, raising state taxes and then redistributing some amount to local governments—after the state has taken its cut—is a way for local governments to avoid the cartel cheating problem. State governments are the enforcement mechanism to raise everyone’s taxes; taxpayers must then move to an entirely different state to vote with their feet. Obviously, this makes it much more difficult and unlikely that taxpayers will express their freedom of choice. The local government price-fixing cartel becomes effective, thanks to state government “enforcers.”

The Role of Government Propaganda

State politicians seek tax dollars as much as other politicians, but they are also aware that they run the risk of losing political support by advocating higher taxes. They want the higher tax revenues that they can use to enhance their political careers by claiming credit for “improving” public schools and declaring themselves the “education governor” or senator, or whatever. They must, however, from their perspective, deflect taxpayer opposition to their political plans.

To deflect taxpayer opposition, a formidable coalition of teachers’ unions, school superintendents, state educational bureaucrats, and state and local politicians is often formed to wage a propaganda campaign to confuse or wear down taxpayer opposition. They typically utilize the strategy of repetition: If you say it often enough, they’ll start to believe it.

For example, in Tennessee, per-student public school spending at the primary and secondary levels more than doubled from 1980 to 1990 while student achievement plummeted. This, of course, has been the trend in the U.S. for at least 30 yes—spending more and more on public schools for worse and worse results. Yet, in a campaign to raise taxes, the state educational bureaucracy endlessly repeated the argument that the “solution” to declining student performance is more spending.

Such propaganda campaigns can be effective, for most citizens are “rationally ignorant” of many public policy issues; they spend much more time on their personal affairs than on educating themselves about public policy. Joseph Schum-peter had strong opinions on this matter, writing in his classic book, Capitalism, Socialism, and Democracy, that “the typical citizen drops down to a lower level of mental performance as soon as he enters the political field. He argues and analyzes in a way which he would readily recognize as infantile within the sphere of his real interests. He becomes a primitive again. His thinking becomes associative and affective.”[2]

To make matters worse, much of the information about public policy alternatives that voters do receive is biased and self-serving, having been produced by special interest groups, such as teachers’ unions, or by government itself. Consequently, many citizens make public decisions based on false information.

Despite government and special-interest propaganda, however, many voters are aware—or at least suspect—that throwing money at public schools won’t work. To try to eliminate this skepticism, state governments often promise to “do it better” next time, particularly by “streamlining” the educational bureaucracy. The press secretary to the governor of Tennessee, for example, recently announced that in return for a proposed $1.3 bil lion tax increase (approximately $800 per year for a family of four), the state would make the local schools “run like a business” by requiring elected (as opposed to appointed) school boards that would appoint school superintendents, just as corporate boards of directors appoint chief executive officers.[3]

Such proposals are, of course, transparent propaganda. There are no real businesses that have a captive audience of “customers” guaranteed by law, are financed completely by compulsory taxes, enjoy the benefits of mandatory attendance laws (or something like them), and are exempt from onerous taxes and regulations that any potential private competitor must comply with. The phrase “business-like government” is truly an oxymoron. Transparent as the public school bureaucracy’s propaganda is, it is often enough to confuse a sufficient number of voters. It isn’t unusual for voter turnout in state or local elections to be 20 percent or less. Furthermore, public employees vote far more frequently than the average citizen; and since public employees can also bring in two or three other votes from relatives or friends, they disproportionately influence state and local elections.[4] Thus, the government needs to persuade only a relatively small number of marginal voters with its propaganda campaigns.

In sum, the purpose of such government propaganda campaigns is to convince voters that even though there is no evidence that public education will be improved, the “solution” is to spend more money. As Richard E. Wagner has explained, the function of government advertising campaigns “would seem to be to promote acquiescence in and to provide assurance about the prevailing public policies. The purpose of public advertising would be to reassure citizens that the fact that their public goods are composed of 60 percent baloney indicates good performance.”[5]

Government For or Against the People?

Imagine that the grocery store industry was organized like American public schools. Each family would be assigned to a single store where they must shop for all their groceries, and no competition would be allowed. Each family would pay an annual grocery tax of several thousand dollars and be required to enter the government-subsidized grocery store at least three times a week—whether they buy anything or not—because of “mandatory attendance” laws. Such laws would have been established through the lobbying efforts of our hypothetical grocery store monopolists who know that Federal and state subsidies depend partly on the average daily attendance in their stores. All cost overruns would be automatically covered by additional taxpayer sub sidies, and whenever costs outstripped the ability of local governments to provide the subsidies, a “food crisis” would be declared and the government would wage a propaganda campaign to raise taxes.

Such a grocery industry would be bizarre indeed, but this is exactly the way the public school monopoly is organized. The reason why, for at least the past 30 years, additional spending has led to nothing but lower student achievement was clearly explained by sociologist James Coleman: “To understand how the outputs of education could be unrelated to the school inputs [i.e., spending], it is only necessary to shift the context. In the industries of Eastern Europe and the Soviet Union, which like American public schools operate under state management without markets subject to the discipline of consumer choice, outputs are also little related to inputs.”[6]

The public school monopoly operates like a defunct Eastern European government monopoly: its “product” gets worse and worse, year in and year out, while the beneficiaries of the monopoly—educational bureaucrats and teachers’ unions—clamor relentlessly for more and more subsidies. The obvious solution to the collapse of socialism in Eastern Europe and elsewhere is privatization and free enterprise. Only by establishing private property and free markets can the formerly Communist countries hope to develop healthy economies that cater to the preferences of their citizens rather than to the political whims of their rulers, as is the case in all socialistic organizations, including the American public schools.

Politicians, bureaucrats, and teachers’ unions show their true colors when they organize powerful political opposition to any attempt to provide parents more freedom of choice in education, whether through vouchers or tax credits or the more genuine reform of privatization of government schools. It is American parents and taxpayers against whom the public school bureaucracy is constantly doing political battle, which calls into question the bureaucracy’s self-serving claims of being “public servants.”

A case in point of how the public schools have been a cartel designed primarily to benefit the public school bureaucracy, not the public, is the experience of Polly Williams, the Milwaukee state legislator and single mother of four who earned the support of the governor of Wisconsin and the state legislature for an experimental educational voucher plan. Her plan (which was implemented in the fall of 1990 but is subject to a court challenge) gave as many as 1,000 inner-city youths scholarships worth up to $2,500 annually that could be used at any school in the area, public or private. (The average per-student expenditure in the Milwaukee public schools exceeds $7,500.)

The plan was enthusiastically embraced by hundreds of minority parents as well as the state legislature and the governor. Parents found that their children could get a far superior education at sig-nificantly lower costs to Milwaukee taxpayers. This was as much a boon for the parents and students as it was a disaster for the public school bureaucracy. Powerful opposition, including an ongoing court battle, was provided by teachers’ unions and school superintendents—the protectorates of monopoly privilege.

Episodes such as this underscore the true essence of the public school cartel. It is a sad example of how government has increasingly become more the master than the servant of the people.

No one can reasonably argue that citizens shouldn’t have the fight to shop around for the best deals they can get for groceries, automobiles, clothing, appliances, recreation, and virtually every other consumer item. Even Mikhail Gorbachev has been widely quoted as saying, “Freedom of choice is a universal ideal.” This is clearly not true, however, for the public school bureaucracy, which makes every attempt to stand in the way of parents who wish to exercise the same kind of freedom in choosing the education their children receive as they do when choosing between Coke and Pepsi.

Needed: A New American History Lesson

The American Revolution was fought partly as a protest over government-sponsored monopolies that King George III tried to impose on the colonists. It would be a fine history lesson indeed for America’s school children to witness a second American revolution against monopolistic government, starting with the dismantling and privatization of the public school cartel.

1.   Erick Hanuscheck, “The Economics of Schooling: Production and Efficiency in Public Schools,” Journal of Economic Literature, September 1988, pp. 1141-77.

2.   Joseph Schumpeter. Capitalism, Socialism, and Democracy (New York: Harper and Row, 1950), p, 262.

3.   Chattanooga News-Free Press, March 9,1991, p. 5.

4.   Winston C. Bush and Arthur T. Denzau, “The Voting Behavior of Bureaucrats and Public Sector Growth,” in Thomas Borcherding, ed., Budgets and Bureaucrats (Durham: Duke University Press, 1977), pp. 90-99.

5.   Richard E. Wagner, “Advertising and the Public Economy,” in David Tuerck, ed.. The Political Economy of Advertising (Washington, D.C.: American Enterprise Institute, 1976), pp. 90-110.

6.   James Coleman, “A Quiet Threat to Academic Freedom,” National Review, March 18, 1991, p. 28.