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Monday, October 24, 2016

School Choice with Public Funds Is Government Choice

What if funds were voluntarily donated to fund schooling for all children?

Several studies have shown that private school choice programs save taxpayers money overall and even financially benefit local school districts. The primary reason for this: on average, private school tuition levels are lower than the state per pupil funding amounts allocated to residentially-assigned public schools.

Moreover, these private school choice programs generally fund students that wouldn’t have attended a private school absent the scholarship since funding is targeted to the least-advantaged students. While these types of programs are fiscally beneficial, accepting public funds can have serious unintended long-run consequences for private schools and children.

I typically support education reforms which decrease the monopoly public schools have on public funding. As discussed in any basic economics course, even within an imperfectly competitive system, minimizing monopoly power increases competitive pressures and leads to higher quality at a lower cost. However, we must not forget the basic principle of opportunity costs. What is wrong with publicly-funding private school choice programs, and what should we do about it?

More Public Funding = More Regulation

The main cost associated with accepting public funds is that the government is able to stipulate how the school operates.Allocating public funds to private schools increases competitive pressures in the short-run and leads to specialization, but this comes at a price we all must pay in the long-run. Whenever a private institution accepts public funding, that private entity gives up some of its autonomy.

The main cost associated with accepting public funds is that the government is able to stipulate how the school operates, similar to the current phenomenon in the public school sector. When the government is able to control how institutions operate, private schools become more like public schools, and the degree of specialization and educational choice exercised by families is reduced.

As a result, the quality of the educational experience is reduced for many students in the short-run, and for our entire society in the long-run.

Keeping Private Funds Private

Since this is an improvement, shouldn’t we still move forward with the funding scheme of current programs? I agree; any improvement from the current public funding monopoly is great, but there is a superior route to take. The only reason that the government is able to determine what happens in private schools is because private schools accept public funds.

But aren’t all public funds originally private? The government forcefully extracts funds from various individuals and puts those funds in a pot. Since funds are forcefully extracted and placed into a collective pot, they receive the public label.

What if these funds are, instead, voluntarily donated to fund schooling for all children? A critic would argue that since there are positive externalities to education, schooling would be under consumed if funded voluntarily. While that is debatable, we could still solve the problem with the right policy.

The optimal policy would let the taxpayer determine whether the government or a private charitable organization would handle their funds.The optimal policy would specify that the taxpayer still needs to pay the same amount that they would have paid in the original system. However, the key difference would be that the taxpayer would be able to determine which institution will handle the private funds: the government or a private charitable organization.

If the taxpayer chooses the latter, the funds will remain private, and a market for charitable funding would emerge. The charitable organizations that donate to high-quality, efficient schools and students-in-need will be successful; the others will improve or face a shutdown condition.

This system would remove the problems associated with labeling private funds as public. Most importantly, doing so would remove the necessity of a central body of elite bureaucrats deciding what the rest of society ought to do with their money and children.

Instead, individuals would make decisions with their own funds that are in accordance with their own best interests. Since the collection of these individuals is, by definition, the society as a whole, the collection of their decisions and interests will be in accordance with society as a whole.

  • Corey A. DeAngelis is the Director of School Choice at Reason Foundation and an adjunct scholar at Cato Institute.