More than a Lifeboat: an exclusive interview with John D. Merrifield

Published January 1, 2003

John D. Merrifield can tell you in an instant how many years ago Milton Friedman came up with the proposal to dramatically restructure incentives in publicly funded K-12 education by distributing schooling funds directly to all parents with vouchers redeemable at both government-run and privately run schools.

That’s because Merrifield was born in 1955, the same year Friedman first published the idea of universal vouchers. It’s a happy coincidence, since Merrifield also is a strong advocate of universal vouchers.

An economics professor at the University of Texas-San Antonio, where he has been on the faculty since 1987, Merrifield received his doctorate in economics from the University of Wyoming at Laramie in 1984. While best known for his work on school choice, Merrifield’s research interests and publications also include natural resource and environmental economics, international economics, and urban-regional economics. He is a frequent expert panelist/guest on television and radio, commenting on topics such as school choice, water resource management, the Endangered Species Act, clean air, and off-budget government spending.

Although he has been a long-time student of Friedman’s ideas, Merrifield’s interest in school choice grew as he observed an alarming lack of basic skills among many incoming students at UT-San Antonio. The day-to-day experiences of his wife, a special education and kindergarten teacher, added fuel to his school choice advocacy.

But what distinguishes Merrifield’s contribution to the direction of the school choice debate has been his willingness to question enthusiastic school choice advocates about whether voucher experiments like the one in Milwaukee can really tell anyone anything about the marketplace and market forces, since those features are largely absent from the program.

That rigorous questioning of whether market features are present in most school choice experiments led Merrifield to Education Policy Institute Chairman Myron Lieberman, who encouraged him to write a book on the matter. In 2001, Merrifield published his first book, The School Choice Wars (Lanham, MD; Scarecrow Education Press), which Milton Friedman praised as an “important book” that was “passionate and persuasive.”

Last year, Merrifield published the monograph, School Choices: True and False (Oakland, California: Independent Institute, 2002). He recently spoke with School Reform News Managing Editor George Clowes.

Clowes: What would a market-based approach bring to public education?

Merrifield: Genuine competition, not just minimal rivalry, and that is really the only true reform catalyst we have. The reason I can say that with some confidence is that we’ve tried everything else, more than once in most cases. Competition is what we need to bring about rapid rates of change. That’s what the market is known for–the relentless pursuit of improvement, strong incentives, punishing mistakes, and rewarding success. We have very little of any of that today in education, but that’s what we need and that’s what the market delivers.

Clowes: Isn’t it a bad time to be promoting a market-based system, when WorldCom and Enron have raised concerns about fraudulent practices in the private sector? And some people say New Zealand’s experiment with a full-blown educational marketplace didn’t work.

Merrifield: Well, markets don’t turn people into saints, but markets punish people quickly when they do something wrong. In fact, WorldCom and Enron are good examples of how markets correct themselves: People stop buying the stock, they stop buying the product, and the crooks go broke, go to jail, or both. That is quite unlike a government operation that’s found to be corrupt, where the system can persist for a long time.

There are two things about the New Zealand situation. First, there are a few problems, but the results aren’t terrible. Second, there’s nothing that resembles a market in New Zealand: 96.5 percent of the schools are owned by the government, which is more than here in the U.S. The government doesn’t shut down schools that parents prefer less than others, and it doesn’t copy and expand the ones that parents are oversubscribing. Also, there’s no freedom of entry, which is a key feature of any competitive market.

Nothing that we associate with markets, other than the ability to have a choice, is happening in the New Zealand school system. If the New Zealand school system is an example of a market, then the Soviet Union was full of markets. You could shop at any state-run store you preferred, but we know it wasn’t a market system.

If McDonald’s is producing all the fast food, you can shop at any McDonald’s you want but the Big Macs and the Quarter Pounders are all going to be pretty much the same no matter which store you go to. If you like Big Macs and Quarter Pounders, you’re going to be well-served, but if you don’t, you’re going to be poorly served. That’s the same problem we have in our education system now. It’s like having a choice of different franchise outlets of the same provider.

Clowes: What would a genuine market-based educational system look like?

Merrifield: The two key things we need to have are non-discrimination and the freedom to set prices.

Non-discrimination means no longer discriminating against families that prefer schools not run by the government. To do that, the school system needs to become child-based: Whatever amount of government support a child is entitled to under the law should follow the child to the accredited school of their choice–whether that school happens to be owned and operated by the government, or a church, or a nonprofit organization, or a for-profit business.

You would take the government budget, deduct some money for administering a choice-based system, deduct some more money to pay off old remaining bonded indebtedness, and divide what is left by the number of children. You also might make it a little higher for students in high school and a little less for students in elementary school. Then everybody would be wearing the same price tag, and they would carry that cash, that voucher, or tax credit–whatever the delivery mechanism for the government money–to the school of their choice.

The second key element is that the providers must be able to choose the price they charge for their educational services. If that price is a little bit more than the voucher or tax credit–or however the public subsidy is delivered–then schools must be allowed to charge above and beyond that subsidy level. Many current systems, like those in Florida and Milwaukee, disallow such add-ons, and that’s a devastating limitation.

People talk about how we can’t afford voucher programs, but the current expenditures on education already are enough to send every child in America of school age to all but the very, very best private schools. What we need out of the school system that we’re not getting now are incentives and specialization, and we can’t have either of those without choice.

Clowes: For schools to specialize in serving specific groups of students, they have to be able to set admission criteria. Don’t lottery-based admissions and first-come, first-served admissions make it difficult to specialize?

Merrifield: That’s right. It’s built into the legislation in places like Milwaukee, Cleveland, and Florida. That’s a mistake.

I forgive it in part because we’ve had a history in our country of people choosing things and doing things because of the color of somebody’s skin. But, first, we’ve come a long way from those kinds of attitudes; and, second, if the schools specialized, they would have many differences other than the composition of the student body that would affect parental choice.

In the current system, we have less diversity in school composition than we ever have had. If a parent is trying to choose where to live and which school their child is going to attend, the only difference in the schools, in many cases, is in the composition of the student body. All the rest–the curriculum, the books, and so on–is dictated by the government.

But if schools could specialize, then we’d have academic differences and pedagogical differences, and all kinds of other reasons to choose or not choose a school.

Clowes: Almost all of the voucher programs in place right now are targeted to children in low-income families. Some people think that if the income restrictions were lifted, the rich would take all the seats in private schools and leave none for the poor.

Merrifield: That’s the “Static World Fallacy,” the idea that there’s a fixed supply out there. That goes against everything we know about economics.

If there’s an increase in demand, the price will temporarily rise, entrepreneurs will flood in with new supply to meet that demand, and then the price will generally go down to where it was before, if not lower. That’s why prices need to be allowed to be flexible: to drive that process and have the initial increase to attract the entrepreneurs, which then brings the prices back down.

Existing programs are targeted to specific groups, but that’s a mistake. It’s not in anyone’s interest to target freedom. It’s least of all in the interests of low-income people to limit the increase in freedom or choice to themselves, because, if everybody has freedom, choice, and portability of the government money that supports them, the schools will get better faster, they’ll specialize more, and they’ll be more innovative.

Allowing the wealthy to use government money–their money, in fact–to provide their children with greater school choice doesn’t hurt anybody. It also doesn’t make anybody worse off to let people spend more money on education by allowing add-ons.

I feel confident that a $5,000 or $6,000 voucher or tax credit per child per year would entitle every child in America to a very, very high level of education. But if some want to spend $9,000 or $10,000 by adding a few thousand dollars more to their voucher, that doesn’t harm anyone.

Clowes: How do the different school choice options–vouchers, tax credits, charter schools, and so on–stack up in terms of their ability to deliver what you call the reform catalyst of competition?

Merrifield: One of the things that privately funded vouchers lack, in addition to just sheer dollars per student, is the likely staying power entrepreneurs need to make investments. You just can’t count on some philanthropist continually donating millions of dollars a year to private vouchers. An entrepreneur is not going to break ground on a new campus for that kind of money, given that it might evaporate in a few years.

Charter schools are a school choice option, but they’re still government institutions. There’s no provision for charging a price above the taxpayer amount, and they’re limited in how much they can specialize. That’s because they’re not allowed to exclude customers. Part of the problem with charter schools is we keep wanting to pretend that every school should be capable of serving every child. We need to give up that notion. Human beings are too diverse for that to happen.

We need to have choices, we need to have specialization, and we need to have some schools say, “Look, we’re specializing in special ed children, or children that like geography. Your child isn’t one of those, so we can’t admit him. But here’s the name of a school that does what he likes. Take him there.” It’s far better to have a school system with an outstanding choice for everyone than to have a school system that pretends that every school is OK for everyone.

With tax credits, the problem in the past has been that they have been defined to be non-refundable. Most families don’t have very sizable state and local tax liabilities to tap into, and so non-refundable credits cannot deliver very much money to provide incentives to entrepreneurs or to eliminate the discrimination problem.

However, a refundable tax credit would provide incentives and eliminate the discrimination problem. A $5,000 per child tax credit, for example, would work like this: “OK, Mr. Jones. You sent two children to a private school for $5,000 each. Since you paid $1,000 in state income taxes, here’s a $9,000 refund.”

I think that’s identical to a voucher. Voucher, tax credit–it’s all the same to me. Either method of delivering equal treatment of all children, regardless of which school they use, is OK with me.

Clowes: In developing legislative proposals for school choice programs, which model would you recommend legislators use as a basis to build on: Milwaukee, Cleveland, or Florida?

Merrifield: I wish they’d use the original Friedman voucher proposal as their model. The programs you refer to are all just rescue programs, or escape hatches. They’re all highly targeted and the funds that support the targeted individuals are less than if they attended a government institution. Even so, families are not allowed to supplement the voucher amount with their own funds if they’d like to spend a little bit more on schooling than the taxpayers are providing for them. I don’t see any of the existing programs as models to copy.

When I hear legislators saying, “We ought to just do Milwaukee everywhere,” that scares me, because it incorrectly redefines the problem. I’m not against the Milwaukee program per se, but using it as the model implies that we have mostly good schools and only a few bad ones. It implies that only a few children are getting a raw deal educationally and that we just need a little rescue program for them.

That’s not the problem we have. We don’t need school choice as a lifeboat; we need it as a reform catalyst. We have a low-performing educational system where some schools are better than others, but few are good. In the suburban districts, the schools are better, but not necessarily good. So when we talk about duplicating escape hatch programs, we’re defining too limited a role for school choice in our reform efforts. That may put school choice in a rut it’ll never get out of, because there’s nothing harder to change than a government program.

Now, a lot of people say, “We got into this mess slowly; we should get out of it slowly.” There are two problems with that. First, government programs aren’t very changeable. And second, you can’t incrementally shrink government. You can incrementally grow government–we’ve done that–but you can’t incrementally shrink it. Every place where government has been scaled back, it’s been done in a blitzkrieg, revolutionary fashion.

Clowes: Wouldn’t well-funded vouchers do that?

Merrifield: Yes, vouchers would change the system’s underlying elements dramatically, and that’s what is needed. That would change the incentives overnight.

If we allowed the money that schools currently spend–more than $8,000 per student–to be child-based, that would produce an explosion of entrepreneurship, and there would be so many schools available they probably all would be about half-full. That kind of vast overcapacity is an unmistakable signal that the price is way too high, and so I suspect we wouldn’t see any pressure to raise the level of per-pupil funding for a long time.