Competition in the Education Industry

The debate on improving educational outcomes is centered on experts who believe in the public school system and experts who want competition between charter and public schools. This essay, authored by an economist with an interest in industrial organization, considers a different approach — competition among education providers inside public schools.

Intra-School Competition in the Education Industry


Many education reform advocates believe the most effective way to improve education is through the creation of charter schools. The evidence on whether charter schools actually improved academic outcomes for students is at best mixed.

An alternative potentially more efficient approach to facilitating choice in education would be to create a system where courses taught by outside private firms substitute for courses taught in the public school. Competition in the education industry could be similar to changes that occurred in the electric utility industry. Prior to deregulation, one firm controlled both the transmission and generation of electricity. Deregulation allowed many firms to provide electricity for sale. Similarly, in education it is possible for a school to allow outside teachers or small firms offering specific courses to compete for students inside a school or a school system.

The first section of this post discusses how in some cities charter schools now compete with public schools. The second section discusses the possibility of competition between education providers inside schools.

The Role of Charter Schools

A public charter school is a publicly funded school that is governed by a group or organization under a contract or charter but is not directly run by the local school board or municipality. The charter school is exempt from many of the rules and regulations governing public schools. A school’s charter is reviewed periodically and charters can be revoked. From 1999–2000 to 2009–2010 the number of students enrolled in public charter schools rose from 0.3 million to 1.6 million. Around 5.0% of public schools are now charter schools. Over half of charter schools are elementary schools. Around 55% of charter schools were located in cities.

This is not surprising because a large city or market could sustain more than one system while scale economies might prevent growth of separate systems in a smaller market.

The growth of charter schools appears to be fastest in cities where the traditional school system is viewed to be of low quality and is struggling. Charter schools can be created when public schools are closed due to poor performance. New Orleans, Detroit, Washington DC, and Saint Louis all place more than 30% of students in a charter school.

The evidence on whether charter schools actual produce better results than traditional public schools is mixed at best. Some recent studies indicate that charter schools often do not outperform traditional public schools.

Comparison of performance between traditional public schools and charter school may actually overstate potential improvements from the growth of charter schools because charter schools often are able to pick better students and expel poorer ones.

Competitions Between Course Providers

An alternative way to foster competition in the education industry would involve facilitating choice between teachers provided to schools through the school system and courses and teachers provided to students through private course providers. This could be accomplished by requiring public schools to give credit to approved courses taught by approved private firms.

There are several areas where intra-school competition among education providers might be used to improve educational outcomes.

The first area involves competition between a private firm and a traditional academic program when students who take the traditional academic program do not perform well on a standardized test. This solution is much less draconian than school closures a recommended option under the no-child-left-behind initiatives. First, School closures are unnecessary when academic problems are concentrated in only some academic areas. Second, school closures also don’t fix the problem if the new school also has academic problems or if the core reason for the academic failure is socio-economic problems unrelated to the school. Third, school closures, even when the school is underperforming tend be difficult and unpopular because communities want, take pride in and enjoy local schools more than distant schools.

The second area where intra-school competition among educational providers might result in large improvements in educational outcomes involves teaching of gifted and talented students and teaching of Advanced Placement courses. Lower income school districts tend to concentrate on basic academic programs and have less money to spend on gifted and talented programs and other advanced programs. The disparity between rich and poor districts could be lessened by using state and federal funds to provide advanced programs in schools where such programs are needed.

The allocation of funds would be guided by data. Funds would be used to provide enrollment in education providers and courses with proven track records. Funds would target programs at schools with low AP participation rates or low AP class rates.

The competition among education providers inside schools will often involve firms that primarily teach on line. There are several such firms some offering conventional programs.

Others offering gifted and talented programs:

Typically parents pay for these programs to teach children at home. Sometimes the programs are used to complement learning at traditional schools. Sometimes, when a child is home schooled, the program replaces a traditional school. These programs would be expanded if included as an option inside a school either in competition with some courses or in coordination with some courses. For example, the Johns Hopkins program has some excellent courses on applications of math that go beyond the basic concepts taught in high school algebra or geometry courses.

A third area where intra-school course competition might be extremely valuable involves adding more options in non-core academic subjects including music, computer science and foreign language. The focus of many educational efforts to bolster core performance in reading, writing and math has left many schools with insufficient resources for non-core subjects. It has been reported that over 80 percent of U.S. schools have cut music and art programs. Many experts believe these cuts are detrimental.

Foreign language courses are being cut in many school districts.

Currently only around 35 percent of high schools teach computer science.

The typical school system by necessity focus on basic skills. However, the “extras” music, art foreign language, and computer science are also important. Sometimes it is these extras that get kids out of bed in the morning.

What is the best way to fix an underperforming school? Close it and either bus kids or replace it with a new institution or start with the most urgent need and allow for competition between public school teachers and outside educational providers?

What is the best most economically efficient way to expand teaching of gifted children, music, art, computer science or foreign language in schools that are struggling to cover the basic subjects? Add funds to a struggling school budget and count on new direct hires or allow for an outside firm that specialized in a subject area to teach inside multiple schools?

The answers for an economist who believes in competition over monopoly and the potential gains from specialization of labor are fairly obvious.

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