Viewpoint: The education competition myth

Schools, unlike restaurants, must be “consumed” every day by design.  So, the choice of any family to pick schools is inherently limited–in many cases, the cost is just too high to travel every day to a distant school.  So, even if there is a “choice” theoretically or legally, there may not be one, practically speaking.  And, even if changing schools were practical, it can only be done at limited times.  Most parents would properly resist switching their children’s school in the middle of the year, and in any case switching schools in the middle of a school year is generally detrimental to a student regardless of whether they are switching to a “better” school.  Parents would also not consider switching schools at the end of every school year–further limiting the ability of competitive forces to effect a change.  Admittedly, one of the ways families can vote with their feet is by moving homes, but because where someone lives is the result of many factors (and practically, a family can only move a limited number of times), great friction still exists and any competitive pressure would operate only over a long period of time, if at all.

So, here’s the rub–with very high “switching” costs, it’s unrealistic to believe that even if one school were obviously better than another, students would have the seamless ability to pick the “better” school if physical distance is at all a factor.  What happens instead is the classic “cherry picking” effect, whereby parents who have the means (time, money, or other resources) are better able to commit to sending their child to a different school, while those without the means in practice have no such choice.  So, if your customers can’t really switch, competitive pressure is limited and very slow at best.  If anything, the pressure that should exist on poor-performing schools would be masked by the fundamental stickiness of the customers, and we create a potentially worse situation because we assume that competition will work its magic–when in reality we’re ignoring poorer performing schools whose customers ultimately have no choice.

Even for the parents who can exercise this choice, the situation is not all positive. If we give an incentive for them to travel to a more distant school, we potentially make it more difficult for them to actively participate in their children’s education–by volunteering at school, on PTAs, and just being present on campus, especially in the lower grades.  Often one of the main factors separating high performing schools from their lower performing counterparts is the partnership a school has with its parents.  Choice associated with greater physical distance only hampers this partnership.

Provider Capacity–In addition to having an environment where customers can seamlessly switch providers, another condition of successful competition is the requirement that the competitors can add capacity to meet the new demand (and/or raise prices) from these new customers who vote with their feet.  That’s relatively easy for most businesses, but fairly difficult for a school whose service capacity is largely based on its physical capacity (and certainly a public school can’t regulate demand by price).  And there is a limit to the number of schools that can practically be in the same community before the student population is so far divided among those schools that diseconomies of scale would dwarf the potential benefit of competition (making it more akin to a “natural monopoly,” which I discuss in more detail below). So, at best, even if competitive pressures were to exist and customers could switch seamlessly, the actual providers–the schools–could only change very slowly to meet such demand.

Existence of Clear Success Metrics–The next condition of competition is to have a scoreboard.  Unlike Charlie Sheen, you have to be able to define what is “winning.”  In business, this is fairly simple.  A corporation’s duty is to maximize shareholder value.  So, putting any other measure aside, one wins by increasing one’s stock price and providing a strong return to investors.  Of course, this is related to other business fundamentals such as revenue, growth, margin, and other metrics, but at least almost everyone in business agrees on the set of metrics that make up the scoreboard.

This is not true in schools.  People often point to standardized test scores, but as metrics they are limited in many ways, including the fact that standardized tests measure only a small fraction of the value that schools deliver, and test scores more often reflect the population of the students than the quality of the school or its teaching.

And perhaps most importantly, the value provided by schools is created over–and is only evident over–a very long time horizon, making it extremely difficult to effectively compare institutions.  Yes, all things being equal, higher scores are better than lower ones, but a singular reliance on them is not only deficient, but dangerous–at the end of the day, it doesn’t actually tell you how a school is teaching, and certainly does not indicate how your child is learning.

Lastly, we must ask to whom such value is delivered.  As a stockholder in a company, it is fairly clear that I personally receive value when my stock’s price goes up, whereas the stakeholders in the success of public schools are much more diverse.  Of course, the student receives a bulk of the value, but so does everyone else in the community.  In fact, the entire value proposition of public education is based on the notion that the public is better off when it pays to educate all of its future residents. How do we measure the value flowing to everyone else?  This is the nature of a public good and why we provide the service through tax revenue rather than through direct purchase from the consumer.  I am the first to say that we need a better set of metrics to measure the value being created by schools, school districts, and even individual teachers.  But in the absence of a clearly defined scoreboard that measures the multiple dimensions of value delivered to the multiple beneficiaries, parents really don’t have full, complete, and comparative information to make informed “buying” decisions that theoretically drive such competitive pressure.

Want to share a great resource? Let us know at