Adam Smith Meets Albert Shanker

People are beginning to apply economic ways of thinking to one of America's largest industries: education. An economist can only applaud that trend. Yet the narrow focus of the current debate on "choice" as the be-all and end-all disturbs me.

Don't get me wrong. I support parental choice--at least within the realm of public schools. How could an economist oppose competition? (The use of tax money for private and parochial schools raises noneconomic issues not dealt with here.) But it would be a shame if the infusion of economic reasoning went no further than "more choice equals more competition equals better products at lower prices." While that is probably true, it is not the whole story. Once we start importing such words as "choice" and "competition" from economics into education, we should bring along some others, too: "rationality" and "incentives."

-- Rationality. Economic theory assumes that choices are made by rational and well-informed consumers who know their own interests best. It's a good working hypothesis in most applications, especially when you think about the alternatives. (Shall we assume the state knows what's good for me?) In the education "market," most parents are probably capable of making sound choices for their children.

But some are not. Some children are handi-capped by what might be called incompetent parents: substance abusers, criminals, the mentally incompetent, or people who are simply irresponsible or disconnected from mainstream society. While such parents can be found at all rungs of society, we all know that they are disproportionately present at the bottom of the economic ladder. So, when we talk about choice, someone should remember the poor children who will be left behind. That's not a reason to oppose choice, but it's cause for


-- Incentives. More than two centuries ago, Adam Smith discovered the secret to the success of the competitive marketplace: It lets you do well by doing good. In the standard economic model, the profit motive gives businesses a powerful incentive to produce quality products at low prices. There is no such incentive for public schools, but choice is supposed to mimic some of its best features by driving out weak schools. However, choice is just one way to provide performance incentives.

Teachers' union leader Albert Shanker has suggested an ingenious approach that he calls "incentive schools." The idea is to have a nationwide competition that schools--not school systems--could enter or not, as they pleased. The competition would last at least three years and be judged not by educational attainment at the end but by improvement over the period. Thus, to borrow the apt metaphor of Senator Tom Harkin (D-Iowa), schools that are born on third base would not be given credit for hitting a triple. The top 10% might be declared winners, and their staffs rewarded.

The design of the system shows that Shanker is a good intuitive economist. First, success is judged by performance--the end result, not how you achieve it. That is how manufacturers are judged in a market economy: We examine the car, not the factory. Second, the people who work in the school, not some outside authority, decide what changes to make. This would effectively empower teachers and principals just as America's leading companies are now empowering their workers. Third, he envisions substantial rewards for winning schools--perhaps in the range of $30,000 per employee. That's enough to create a surrogate profit motive.

But the search for incentives must not end with teachers. If parents are the "consumers" in this market and schools are the "companies," then educated kids are the product. But here the analogy breaks down. A car rolling down an assembly line has no mind of its own; things just happen to it. But learning does not take place unless the student cooperates. To some extent, of course, the teacher must be a motivator; this is standard ed-school stuff. But wouldn't the enterprise work better if students had real incentives to perform?

They don't now, except for the small percentage of students who aspire to the top colleges. Other high school graduates fall into two categories. Those heading for lower-ranked colleges know that some school, somewhere, will take them. It's the American way. Those heading directly for jobs know that their high school grades are unlikely to affect their placement. In either case, good grades carry little reward. And you have to work so much harder to get them! No wonder the average U.S. high school student spends a paltry 3.8 hours per week on homework.

This is where businesses could help. Suppose every company in the business week 1000 routinely asked young applicants for their high school transcripts--and used this information in hiring decisions. Students would suddenly perceive a payoff to working in school. If Adam Smith had it right, they would work harder and learn more.

Some might object that kids learn little in school that's useful on the job. If true, that's a shame. But, even then, companies wouldn't lose much by favoring kids who perform better in school. And they would do society a big favor.

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