Free & Clear: July 2014

Two decades of empirical research has shown that education reform will be the real winner if schools are allowed to compete for students.

By John Hood

Most academics don’t reshape their fields until they finish their Ph.Ds. Orris Herfindahl was an exception. While completing his in economics at Columbia University in the late 1940s, he came up with a simple but powerful means of depicting industrial concentration. He squared the market share of each company competing in it, then summed the resulting numbers. Another economist, Albert Hirschman, had devised a similar formula in 1945, but his interest had been measuring the relative economic power of large and small nations. In his 1950 dissertation, Herfindahl broke ground by using the formula to measure consolidation and competition in private industry. The Herfindahl Index — commonly called the Herfindahl-Hirschman Index — became a standard tool in economic analysis, industrial organization and antitrust enforcement.

In the 1990s, a new generation of scholars began using the Herfindahl Index to evaluate public services. In 1992, for example, Melvin Borland and Roy Howsen, economics professors at Western Kentucky University, measured how many elementary and secondary schools parents could choose from. The economists then used a regression equation to explore a potential link between school competition and student outcomes. They found one. Other scholars replicated their findings, which suggested that the more schools competed for students, the better students performed.

In a 2000 follow-up study published in the journal Education Economics, Borland and Howsen compared the effects of school competition with those of popular public-school reforms such as reducing class sizes or paying bonuses to teachers who obtain graduate degrees. They found such reforms “are relatively insignificant in terms of affecting student achievement.” Instead, policymakers should focus on institutional changes that promote the creation of schools and facilitate choice among them. They concluded that competition in the educational marketplace is the most important variable “in which increases in student academic achievement are likely.”

The reason for this detailed background is that in debates about education reform, personal passions and interest-group politics often displace rational discourse and sober scholarship. The assumption is that if you don’t agree with someone else’s idea for how to help students succeed in school, college, career and society, you must not care whether they succeed — or even want them to fail. It’s a bizarre assumption. Does anyone seriously doubt that higher student achievement would have broader social benefits?

On the touchy issue of school choice, in particular, opponents often contend that if you favor North Carolina’s recent decisions to allow more charter schools and to help poor and disabled students attend private schools, then you must desire the destruction of district-run public schools. But there is no need to resort to conspiracy theories to explain why many political conservatives, business leaders and other people support school-choice policies.

In other sectors — even those subsidized by taxpayers — there is widespread agreement that when too few providers offer a service, costs rise and quality suffers. The phenomenon occurs at hospitals and physician practices receiving Medicare and Medicaid payments, companies winning state contracts and nonprofits getting state grants for historic preservation or the arts. In addition, North Carolina has appropriated funds to students who attend private colleges and preschools, even those with religious affiliations, for decades. In each instance, there are government-run institutions engaged in similar work, be it health care, arts and cultural programs, or education. Few have thought it inconsistent to direct tax money to private providers while also funding public ones.

Perhaps it would be reasonable to treat public elementary and secondary schools as a special case if there was empirical evidence that K-12 education, unlike other services, 
is immune to or harmed by competition. But there isn’t. Borland, Howsen and other economists have used the Herfindahl Index and similar tools to show that choice and competition are just as valuable 
in K-12 education, if not more so. About two-thirds of studies on the topic published during the past quarter-century have found a positive relationship between school competition and outcomes such as test scores, graduation rates and career success.

Keep in mind that allowing more charter schools and offering means-tested vouchers are only two of many ways that policymakers could increase the number and diversity of school choices available to parents. Another would be to break up the state’s sprawling urban school districts into smaller, more-manageable units. Average enrollment in North Carolina’s school districts is more than 3½ times that of the average district in the United States. A different approach would be to encourage greater parental choice within school districts through open enrollment or controlled-choice programs.

School choice is only part of a broader reform agenda that includes raising academic standards and improving how North Carolina pays its teachers. But as the past two decades of research has demonstrated, increasing the amount of competition is essential for education reform to succeed. There is no monopoly on good ideas — which is why monopolies underperform, including in education.

John Hood is chairman and president of the John Locke Foundation. You can reach him at