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Monopoly, Competition, and Educational Freedom

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Unfortunately, while many scholars understand the nature and benefits of the free market in general, they seem to lack a firm appreciation of pure free-market principles in the area of education. An example was a recent speech entitled “Competition” that was delivered to the conservative Heritage Foundation by Gary S. Becker, the winner of the Nobel Memorial Prize for Economic Science in 1992. (The Heritage Foundation recently published the speech in pamphlet form.) But before we analyze Becker’s speech, let’s review the principles of monopoly, freedom, and competition.

Historically, a monopoly was a legally protected special privilege to provide a specified good or service. Protection from what? From the competition of others. Sometimes the good or service would be provided by government itself. Other times it would be provided by a private person or company. In either event, the supplier was comforted by the government-issued guarantee that no one else would be permitted to compete by providing that particular good or service.

What exactly was the nature of the protection that the government provided the monopolist? If a person dared to enter into competition, he faced arrest, fines, and imprisonment for violating the government’s decree of monopoly. The monopolist knew that the king’s agents would do whatever was necessary to protect the monopolist’s special, royal privilege to provide his good or service.

Monopolies characterized the Age of Mercantilism in the 18th century. Over time, consumers came to hate monopolies, because monopolists, knowing that there was no threat of competition, were customarily arrogant and, more often than not, provided a shoddy product.

Monopolies and the Industrial Revolution

With the publication of Adam Smith’s Wealth of Nations in 1776, people began seriously considering an alternative – the free market. Smith planted the seed that ultimately erupted into the Industrial Revolution. Monopoly privileges were repealed, and people were free to compete in the supplying of goods and services.

Faced with the constant threat of a better product from a competitor, businessmen in a free market had to treat their customers with courtesy. Because the customer could take his business elsewhere, businessmen knew that if they didn’t constantly improve their product, they would go out of business. With a monopoly privilege, the supplier was sovereign. In a free market, the consumer was sovereign.

Getting rid of monopolies

There are different ways to get rid of a monopoly. If the monopolist is a private firm, all that needs to be done is to repeal the law that prohibits competition. The repeal of the special privilege means that sooner or later the monopolist will have to compete with others for the business of consumers.

If the monopolist is the government itself, then there are two possible approaches to getting rid of the monopoly. Upon repeal of the monopoly law, the government might be permitted to continue competing against private firms. Alternatively, the government might open up the market by repeal of the monopoly law and also remove itself from that particular business.

For example, consider the U.S. Postal Service, which describes itself as an “independent establishment of the executive branch of the government of the United States.” It holds a monopoly to deliver first-class mail in the United States. No one is permitted to compete, and if someone tries, he is threatened with arrest, fines, and imprisonment. Everyone knows that first-class mail delivery is shoddy and the attitude of postal clerks arrogant.

If a customer becomes dissatisfied, there’s not much he can do. A person might argue, “Fortunately, we have competition within the USPS. If a customer becomes dissatisfied with one particular postal branch, he can go to another one.” In reality, however, we’re dealing with one monopolist that has several branches.

So, what would we do to free ourselves of the postal monopoly? One approach would be simply to open up the market and let other businesses compete in the delivery of first-class mail. Could the USPS hold its own in a competitive market? Probably not, but ultimately the consumers, as sovereign, would make that decision.

The other approach would be to open up the market by repealing the monopoly and, at the same time, end government involvement in the delivery of first-class mail. That would mean that mail would be delivered entirely by private firms.

Becker’s presentation

In his presentation to the Heritage Foundation, entitled “Competition,” Becker began by comparing monopolies with free markets, and concluded:

I believe that this appreciation of the value and benefits of competition, and the disadvantages of monopoly, ranks among the very greatest contributions toward understanding how economies and societies can better serve the interests of the vast majority of people.

Two primary examples that Becker used in his analysis were religion and education.

Historically, governments would favor an official, state-approved religion, support it with tax monies, and then prohibit or discourage, oftentimes brutally, other religions from competing. Becker pointed to the United States as an example of a place where this type of monopoly was prohibited, and he described the tremendous benefits that resulted from a competitive market in religion.

Becker began his analysis of education by recognizing that government schools “dominate” K-12 education, and he observed that “typically, students must attend the local public school in their neighborhood, although sometimes secondary school students can attend schools elsewhere.” He pointed out, though, that rich families can send their children to private schools and that middle-class families can move to better school districts. He observed that unfortunately “poor rural and inner-city families can neither afford private schools nor take advantage of competition among communities.”

Becker’s call for educational reform

Lamenting the poor results of public schooling, Becker pointed to three reforms that provide “school choice and school competition” to the educational arena: an expanded ability of people to choose among public schools; charter schools (where people form their own publicly funded schools); and school vouchers (which families use to send their children to private schools). “Vouchers,” Becker said, “are the best way to bring the innovations and competition of the private sector into a government-funded school system.”

Let’s examine the principles of monopoly, competition, and free markets in the context of Becker’s analysis of education.

Monopoly and the educational system

A true monopoly in education would mean that other means of providing education, including private schools, would be outlawed. It would mean that only the state would be providing education. Compulsory school-attendance laws would be likely to be a feature of the monopoly, but not necessarily so. (The monopoly could be like the postal monopoly – offering the service but not requiring anyone to use it.)

Becker stated that there are “those who support a monopolistic public school system.” However, there is no monopoly in the area of education in the United States (as, for example, there is in the delivery of first-class mail), and there never has been. And there is no one who favors abolishing both private schools and homeschooling. Although the state has “dominated” education (as Becker correctly observes), that doesn’t make the public-schooling system a monopoly. As long as private-sector alternatives to public schooling exist (such as private schools and homeschooling), a competitive market in education exists.

Becker correctly points out that many parents cannot afford to send their children to private schools. Again, however, that doesn’t make the state system a monopoly. Moreover, Becker fails to ask (and answer) some important questions with respect to the supply of education in the private sector.

For example, if people do indeed prefer a private education for their children, why haven’t more private schools simply entered the market to meet the demand, which would drive the price downward to a more affordable level? What effect do government licensure requirements have on freedom to enter the private-education market? In the interests of competition, wouldn’t the repeal of educational licensure laws be preferable to such reforms as charter schools and vouchers? After all, wouldn’t repeal of educational licensure increase competition in the supplying of education as well as reduce (rather than expand) governmental control over education?

What Becker seemed to be addressing in the area of education was not the problems associated with monopoly but rather the problems associated with a state-run educational system. And he seemed to view expanded choice of public schools, charter schools, and vouchers as “competitive” devices to improve both the public and private educational systems.

Religious freedom and educational freedom

Such being the case, Becker’s historical example of religion in the United States did not meld with his analysis of education. The solution in the religion arena was to completely separate church and state. That is, not only was a state monopoly in religion not permitted but also the state itself was prohibited from even competing in the area of religion. Religion was left entirely to the private, competitive market.

Let’s assume, however, that the state had remained in the religion business and continued to compete with private religions. (An analogy would be repealing the postal monopoly but leaving the USPS free to compete.) Applying Becker’s analysis of competition in education to the realm of religion would yield the following result: We would first lament the poor results of state churches. We would then suggest that in the interests of “religious freedom” and “competition,” people should be free to choose among the various state churches within different church districts. We would also call for charter churches, where people could set up their own independent, state-subsidized churches. Everyone would continue to pay church taxes, which would help fund church vouchers that would permit poor people to escape state churches and attend private churches. And all this in the name of “religious freedom” and “competition”!

What Becker unfortunately failed to ask (and answer) is: Why not apply what happened in the field of religion to the field of education? That is, why not fully separate school and state in the same way that church and state were separated? This would mean that the state would no longer be involved in education, that no one would be forced to attend school, and that no one would be required to financially support schools. Wouldn’t that provide true competition and free markets to the field of education, as it did in religion?

Oddly, Becker never even mentioned the idea of a purely private and competitive market in education. Rather than raise people’s vision to a higher level, as thinkers did in the realm of religion, Becker limited his horizon to retaining the entire educational system, both public and private, and improving it with such “competitive” devices as expanded choice among state schools, charter schools, and state vouchers.

Competition and government schools

Another problem with Becker’s analysis of competition was his assumption that such “competitive” devices can indeed improve the public-school sector. Simply because people are free to go to another branch of the USPS, it doesn’t follow that the branch they are abandoning will then provide better service. Moreover, we must keep in mind that funding for public schooling would continue to occur through the taxing process regardless of whether people were choosing another branch of the system. In other words, no state school would go out of business just because it abused and lost a few customers, unlike what would happen in a truly competitive market. Why didn’t Becker at least propose that school taxes be abolished and that public schools be required to compete in the marketplace just as any other provider of education?

The fundamental practical question that Becker failed to address is this: Can public schools be made to succeed at all? After all, while the public-schooling system isn’t a monopoly, it is a classic example of socialistic central planning. What if central planning in education is inherently defective? What if that’s the reason that public schooling, after more than 100 years of existence, continues to be a failure? What good does it then do to come up with more reforms?

More important, what if the reforms make the situation worse rather than better? For example, it’s entirely possible that receiving vouchers would place private schools under even more government control than before the vouchers were made available, even to such an extent that ultimately private schools became mirror images of public schools. Wouldn’t we consider that a step backward rather than an improvement?

Moreover, by incorrectly describing reforms of the state educational system as “competition” and “free market,” as conservatives often do, don’t we run the risk of corrupting the true meaning of such terms? Would it not be better, in terms of education, to describe these types of educational reforms as merely last-gasp efforts to make the state-dominated educational system more palatable and acceptable? Would it not be better to continue applying the terms “free market” and “competition” to a way of life in which all state involvement in education is ended?

Perhaps most important, in his reference to education, Becker unfortunately failed to raise fundamental moral questions. Why shouldn’t families, rather than the state, have the same authority over educational decisions as they have over religious decisions? Why shouldn’t suppliers be as free to compete in supplying education as they are in supplying religion?

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    Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.