The Legacy of Milton and Rose Friedman’s Free to Choose
Economic Liberalism at the Turn of the 21st Century
October 23–24, 2003
A Conference Hosted by the Federal Reserve Bank of Dallas

Session 1 Q&A

Q: How do you deal with the problem of “teaching to the test”? Specifically, whether testing as it is done in Texas will lead to too much exclusive teaching to the test at the expense of education in the broader sense?

A: [Paul Peterson] Nobody could teach to our tests because we gave them outside the regular school day on a Saturday morning and neither the public nor the private school used that test. So our study is not contaminated by that problem. Rick can address the broader issue.

A2: [Eric Hanushek] Well, let me give two responses to that question. The first is that teaching to the test has gotten a very bad name in my opinion. When I teach a class, I teach to the test in the sense that I have certain things that I want the students to know and I test those things. So, at one level that’s what we want. That’s why we’re doing the accountability system. If we have a test that is well designed to measure the goals and standards we have for our students, then let’s have teachers teach to that test. The reason why it’s gotten a bad name is that people are concerned that either the tests are not good enough or that they are on too narrow of a range of issues or subjects and we want more out of our school. Both concerns are legitimate. The current tests have not been as good as we might want although, for example, Texas has revamped their tests. The former test, the TASP test, I think was pretty good at the bottom end but not very good at the top end, so there was some distortion there. That’s been revised and we’ll wait and see how well they did. But secondly, what we found is that we have not provided the basic skills to a large portion of the population in the past and that’s what the tests are doing: saying let’s provide more of the basic math and reading and writing skills and science skills that students need to succeed in society. So part of that teaching to the test is absolutely by design and that’s exactly what we want.

Q: Two more related questions on the differential performance of the U.S. students versus their foreign competitors of these international comparisons. Do you have any insights into why students outside the United States do so much better on standardized tests, especially given the extensive state involvement in education in other countries? Or are there actually more private schools available to the students in these other countries?

A: [Hanushek] Well, this has been a puzzle frankly. You have very small numbers of differences in scores across countries, and there are lots of things that differ between Japan and the U.S., or between France and the U.S., so it’s very hard to take the international tests and say what accounts for the differences. We know that a lot of cultures place a lot more emphasis on education in the home than the average in the U.S. So that’s one of the explanations of what’s going on with the East Asian countries systematically doing better than the U.S. But on the other hand, there are other complications. The East Asian countries provide for national examinations that determine who gets into what college, which is very important. Students have an incentive to work towards those tests, whereas in the U.S. we don’t have the same kinds of incentives. But then there are lots of other differences, and so it’s a lot of speculation. Frankly, I think the international tests have been a bit misused by people who have a particular point of view. They will provide a comparison of two countries to support that point of view when scientifically it can’t be supported very well.

A2: [Peterson] There is only one thing I would like to add and that is I agree with what Rick said about a lot of these studies of the international data not being convincing. The best one out there is by an economist in Germany who concludes after looking at these data that the two factors that do the most to enhance performance on the international tests are, one, whether or not you have an examination when you graduate from high school, such as the A level or the O level in the British case, where you have to do very well on that test if you want to get into high quality occupations or to go on to university, because that gives incentives to students all through the adolescent years to prepare for this examination. And this isn’t a test that you prepare for. It’s very different from our SAT, which you cannot prepare for in theory. And this one is in theory, you must prepare for this test if you’re going to pass it. And the other thing is there is more choice in some places than others, like I mentioned earlier. The Netherlands has choice and that country has been really moving up in recent years on these tests. And the Japanese have this huge private sector. They have the official public schools, and then they have this afterschool program, which is basically private cram school (as they call it) and the Japanese, of course, are off the charts in terms of performance.

Q: Another question here on the popular support for vouchers. This is a constitutional question. The U.S. was founded on the principal of separation of church and state. Would vouchers be a more acceptable idea to the general public if the various proposals maintained this separation? This is not so much about what the courts say but the public’s affinity to the idea of the absolute separation of church and state.

A: [Peterson] Well, if the proposal is that we shouldn’t have religious schools, I think that the experience worldwide is that private schools almost always are going to be formed by religious communities. Religious communities are natural basis for schooling. That’s how schooling came into being. It was the missionaries who wanted to impart knowledge of the faith to the next generation. That formed schools in the first place. The secular schools we have today are really modifications of religious entities. And it’s extremely unlikely that you could sustain a choice-based system that would have a lot of variety in it of the kind that is envisioned by the Friedmans without allowing the faith-based communities to participate in that. Now, certainly you should have secular options available as well, and the interesting thing that is developing in Milwaukee is you’ve got the faith-based schools developing through the voucher program and the secular options developing through the charters, and they’re proving to be extraordinarily complementary. And the public schools have been responding. Milwaukee, I think, is the only major city in the country which now takes all of the dollars and gives them to each school on a per pupil basis: every school in Milwaukee now is funded on the basis of how many students it has. So even the public schools are now being forced to be more choice-minded. Also, they forced the teachers union to accept a change in their contract so that experience is no longer the only factor that determines whether or not you’re going to get hired at a school. So the choice-based system in Milwaukee is forcing all kinds of changes in the public sector as well. The church–state issue is going to be controversial in the United States context. Worldwide there is no other country that has this separation of church and state in education. The English don’t, the Germans don’t, the French don’t, the Dutch don’t, the Danish don’t, the Swedes don’t, the Australians don’t, people in New Zealand don’t. They all fund religious schools. The government does. In the United State we have a different tradition. But the voucher program, by funding the individual rather than the school directly, does avoid, the Zelman case says, this constitutional question.

A2: [Hanushek] Can I just add one quick comment. Part of the political battles are not lessened by that. If we see what’s going on in the debates over charter schools, the traditional forces of the public schools have been spending an enormous amount of political energy to limit and cripple the possibility of any competition through charter schools, which are all regular public schools and have no religious background. So the argument about religious schools in part is use any argument that you can to avoid competition, but when there’s nonreligious competition, you fight that too.

A3: [Peterson] It’s absolutely true that those families who applied for the lottery were families who were very concerned about their children’s education. The test scores of the children themselves are very low at baseline. They’re at the 20th percentile level on average. So these are very low performing students that we are talking about. They all are from low-income families but they’re families that are concerned. Most of the families are single-parent families, 75 percent of them are. So this is not the best and the brightest; this is a very challenged population that applied for these vouchers in the first place. Now, when we make the comparisons, we make comparisons between those who applied and won the lottery and those who applied and lost the lottery. So the comparisons are among equals in concern about their children as in all other respects. Now, you can say, “Okay, so vouchers only work for those families who want something for their children.”

Q: A lot of the discussion has been focused on vouchers at the secondary level. What about vouchers at the higher education level? This doesn’t seem to be as actively discussed. Any comments on that?

A: [Hanushek] Well, we have them. For the most part we have Pell Grants, which are federal grants to low-income students that they can take to public or private schools. In fact, one of the arguments that’s traditionally made is that the higher education system in the U.S. in fact confirms the arguments that were started in Capitalism and Freedom because at the higher education level we have a lot more choice across schools; we have a lot of vouchers. In fact, in the world, U.S. higher education is rated at the top. Foreign students flock into the U.S. to get U.S. higher education. Very few foreign students come to the U.S. to get to the K–12 education, other than thinking of that as an entry ticket into the U.S. in general.

Q: This ties in nicely with another question. So the U.S. does compare poorly with other countries at the end of high school. What about after the basic baccalaureate level, do U.S. students then catch up?

A: [Hanushek] Well, they don’t have good measures of what it means to catch up. It’s clear that people going through good U.S. colleges do well in the labor market and they’re succeeding, and so we don’t have that information. What we do know is that it appears that a large portion of our higher education energy is devoted to making up for where the K–12 students start. So there’s a lot of remedial education that goes on in higher education that is trying to just make up for the poor start. Now that seems to be working pretty well, as best we can tell. But you don’t have quite the same comparisons that you can make at the end of higher education to make it as objective.

Q: Is there any basis to the argument that the diminished role of local property tax financing of public schools contributes to their poorer performance?

A: [Peterson] Well, I think it’s quite remarkable that the biggest reform in American education today has been the reduction of local control in education. We went from all these little school districts out there, where most of their funding came from the local community of the local tax base and we had small schools. And we moved away from that, a situation where the state used to fund about 20 percent of the cost of education, to a situation where now about half of all the cost of education is being paid for by the state, and the Feds pick up 5 percent more or so. So the local share has been just steadily declining. And then also, with the emphasis on equity, it means that if you do more to raise money locally, then you’ll get less state aid, so it’s even less dependent on the local than even these numbers suggest. And there is the Tiebout model that I am sure many of you in the audience know about. The idea is that there’s choice among schools by choosing where you live. The argument then is that we don’t need vouchers because we already have public school choice, and you exercise this choice by moving from one district to another. It may have been that there was some of that in the past. There’s a lot less of it today. Carolyn Huxby says that in metropolitan areas where you have more of this you get more efficient public services. And where you have less of it you have bigger classes and lower student performance. So there is some evidence to suggest that the more we’re moving the finance to the state and the federal government, the more we’re putting controls on at the state level, the less dependent we are on local community control of the schools, the more we are moving away from a market like the situation in the public sector to the kind of socialist pattern that Milton talked about in his opening comments this morning.

A2: [Hanushek] I would just reinforce that quickly. One of the largest changes in school policy in the last 30 years has been the intrusion of courts into school policy, and its come largely from questions of school finance and how to finance different school districts from the state. It has led, as Paul mentioned, to an increase in the state proportion of funding. But more than that, with the state funding has gone state control. The ultimate experience in this along these lines I think comes in California where I am now a resident, where it is essentially a state-run system with no variation across the districts and it’s been a disaster. That shows up in terms of national test scores and so forth. Also, an experience that people in Texas know well is that there’s a lot of conflict that has been engendered with the courts trying to make school policy.

Q: What evidence or what data do we have on the efficiency of various incentive structures or schemes for teachers that can be tied to student achievement? Is it simply a matter of paying the teachers more or has there been much work done on designing the appropriate compensation packages?

A: [Hanushek] Well we know very little about this because there has been a strong effort to make sure that no incentives are introduced into the schools. Now a lot of school systems have tried what they call merit pay but what that means is two or three hundred dollars extra per year per teacher. Usually a teacher will actually, not just do better, but take on extra responsibilities, and in fact this hasn’t had much effect. So it’s used as evidence that no incentive scheme could ever work in schools. I think we’re going to start seeing a lot more incentive schemes introduced in the schools and a lot of experiments with them. It’s a simple fact that in 80 percent of our labor market people make judgments about the quality of workers and of allowing pay and rewards according to the quality of their workers. It’s only basically the public sector, largely in schools, that we eliminate any possibility of judgments about the quality of workers. I think that this is going to break down because the arguments against it just seem so incongruous to the population.

Q: Licensure procedures—how do they differ across the United States, and between the United States and other countries around the world?

A: [Hanushek] Well, let me start with across the U.S. There are variations in licensure procedures around the U.S. but as I mentioned in my remarks, probably the most persistent reform in the U.S. is to make it tougher to become a teacher. To increase the number of courses that teachers have to take, to put different testing into the procedures and so forth. In fact, there’s a strong movement in many states to require teachers to have a master’s degree before they are certified. Some states already do that—New York state, for example, already does that. There’s no evidence, let me say that slowly, there is no evidence, that master’s degrees improve people’s performance in the classroom. And yet we’re requiring it. So what does it do? It makes it more costly to become a teacher, it cuts down on the number of people who would like to be teachers, it increases the price of somebody teaching for a little bit of time, and then going on into something else because that’s not possible. I personally have the view that we need to follow chapter nine of Capitalism and Freedom and move back from all of our requirements now, with a judgment about who does well in the classroom as being the requirement for who’s in the classroom and not who jumped enough hoops in their training. Now internationally, there are a large number of countries that have different licensure restrictions and requirements to get in that have not, to my knowledge, been receding but in fact have stayed constant. But again this comes down to a question of how do you best make international comparisons, and I’m not a very big fan of just comparing France vs. the U.S.

A2: [Peterson] I think that the states are more similar than they are different in their licensure requirements and they are all definitely moving in the direction of saying that you have to take a certain number of courses in the area of education in order to be able to teach. The big vested interest here are these schools of education, colleges of education, for whom this creates a captive clientele. By restricting access to the labor market unless you go through these hoops, you reduce the supply of labor, but it also is a big deterrent for talented young people who might want to go into teaching, even if only for a short period of time, but do not want to take courses that are perceived to be of little value. A lot of charter schools now are able to avoid some of these licensure requirements, and you do see a tendency of charter schools, as well as private schools, to hire teachers that are more subject-matter oriented and less formally trained, and also teachers who have gone to more selective colleges that are more concerned about the quality of their student body. One of the things we have seen is a decline in the apparent quality of people who say they are going into the teaching profession. When you take the SAT test you can say what profession you’re planning on going into, and those who indicate they’re planning on going into teaching, the average test score for that group has been declining. That’s probably due to the fact that job opportunities for women have greatly increased—there are many alternative jobs out there for women today that didn’t exist 20, 30, 40 years ago. So the talented women, the talented group, is looking to other ways of doing what they want to do with their lives. The response of public policy has been to increase licensure rather than to really address the underlying questions of how can you make this a rewarding profession. It’s not a rewarding profession now because it’s so lockstep in its design. You progress slowly up a ladder, dictated solely by experience, and merit is not given any kind of recognition. And so talented people go elsewhere, and today it’s more so than ever because of the changing job opportunities for women.

Q: Is there any relationship between school size and student performance just looking at public schools alone?

A: [Peterson] I’m not as knowledgeable on this literature as my colleague is, and he says that the weight of the evidence is that the smaller school is better. That’s not such a well established proposition that you can say the literature is in full agreement on it, and maybe Rick doesn’t agree. The analysis that my colleague has done has shown that the wage return from another year of schooling in a small school is much greater than in a large school, and he just completed that study but it’s yet to be finalized, so it’s still not definitive.

A2: [Hanushek] I think the evidence is a little confusing. There’s not really strong evidence one way or another on school size having that distinct impact on student performance.

Q: What about the role of athletics in promoting gigantism in public schools? Is this detrimental to choice?

A: [Hanushek] This is very important in Texas.

A2: [Peterson] Here’s my basketball theory of public education. The basketball theory goes this way. This came to me because I took history from the basketball coach in the public school in Montevideo, Minnesota. He wasn’t a bad coach; our team made it to the state tournament. The students who were on the basketball team, he must have given them pretty good instruction. In history class, he never attended class; he always went down to the smoking room with the janitors and smoked down there. But it was okay because right next to my desk was the condensed version of Toynbee’s history of the world, whatever that was called. And so I read Toynbee that term and so maybe that was better. But I don’t think anybody else learned anything in that classroom because everybody was doing so much talking. But he also was the physical education instructor and what would happen in Phy Ed is, we would all go out there and stand around. First of all, we’d spend 15 minutes getting ready for Phy Ed and then we’d have to shower at the end, and the 30 minutes we were out there, we all stood around and one person had a basketball and the rest of us stood around and watched him. And that, I think, is Phy Ed in America. I don’t think this was special; I think this is the way it is. Now, why is this? Well, if the basketball team does well, the whole community feels great and you can raise money for the school. So there is a huge incentive for schools to have good teams that have to be effective in a competitive environment. That leads to resources coming back into the school. So, it’s only natural to concentrate your resources, or your energies, on producing outcomes that will benefit the system. The Phy Ed program, you know, who cares about it. Nobody cares about it, so why do it? But isn’t that just the way it is in general, that if you have a few students who you can get into the ivy leagues, you can brag about that to the local news media and you can say we’ve got a great school. But then how about all the rest of the kids—they just get lost. Now this was, I think, Rick’s really important point, Insofar as we are now saying every child is to be tested and all of those scores are to be released to the public and every parent is going to know how their child is doing, then maybe schools will have incentives to be concerned about all of their students and not just the basketball stars or the academic stars in the school.

A3: [Hanushek] Let me just say a couple things on athletics. I spent some time recently with Arkansas, which is trying to reform its accountability and finance system, and then also talked a little with the people in Texas. I would have thought that athletics cut the other way, in the sense that the first act of Gov. Mike Huckabee in Arkansas, who is really interested in school reform, was to propose a school consolidation bill. And he was almost run out to Texas because of this because it would eliminate some of the athletic teams if you consolidated schools. So I thought in general it would cut the other way. The other point, though, that I think is important is that parents in communities have complicated interest in schools, and with more choice we might have some schools that sort of emphasize athletics and we would live with that to allow other schools to emphasize completely more academic things that other parents want. That’s one of the aspects of choice. One of the aspects of choice of higher education is not that every college and university in this country is great. There’s no evidence of that, but there is evidence that the people are getting a lot more of what they’re individually demanding.

Q: Has there been a large increase in the ratio of education administrators to teachers over the past 40 years?

A: [Hanushek] Well, the proportion of funds that go to teachers’ salaries, out of total spending, has plummeted over the last 100 years. Now, it’s a little bit hard to tell how many are administrators and how many are doing other things but it’s clear that salaries of classroom teachers is a much smaller proportion of what we are spending on education.

A2: [Peterson] The one thing that we haven’t mentioned is that licensure also kicks in at the level of the principal and higher level administrators. We have all these doctoral programs out there and educational administration programs, which are very large, very substantial, very important as a source of income for a lot of colleges. Why? Because you’ve got to have these degrees in order to become a principal or to become a higher level administrator. And this means then that you can’t bring in to education very easily people from other occupations who have management skills that they’ve demonstrated in other areas unless they’re willing to go through this long arduous process, which usually means you have to be a teacher first in order to become a principal and then you’ve got to acquire all of this additional stuff. So it could be even more serious of a problem at the management level of the public school system—the licensure problem may be even more serious there than it is at the teacher level.

Q: Suppose the voucher program were to be introduced. Where is the money going to come from.? In an election year, no one wants to say raise taxes. So where will the funds come from? Are you going to cut homeland security or defense?

A: [Peterson] Basically, the idea of a voucher program is that it doesn’t cost a dime. In fact, you might even save money on it because it’s really just changing the way you spend your education dollar. You just say, instead of appropriating the money and handing it around to the schools and kids go to these schools, you just say all this money will go to the family and on each child’s back will be $8,000 or whatever sum of money it is. It’s the same sum of money. It’s not any new expenditure. Now, that’s the theory of it, right? Rose, I’m sure that’s exactly the way you and Milton have thought about it, but what does happen in practice is that in order to get a voucher program under way, one of the compromises that has to be reached is the public schools have to be held harmless. So if you’re going to have vouchers, the public schools have to get all the money for the kids they’re not teaching. Say 5,000 kids leave. Well, the public schools still should keep all the money for those 5,000 kids even though they’re not going to be teaching them. That’s the way the argument goes in the state legislative debates, and so unfortunately a lot of voucher programs do cost more money. But the reason is totally political. It has no economic reality to it.

Q: Why can’t we just demand public schools provide a better performance and simply fire the poor teachers and administrators as we would in business and hire new ones?

A: [Hanushek] We’ve tried to do that, in the sense that we’ve not quite fired them but we’ve tried to restrict it to make sure that they’re only good. That’s what licensure is about, to make sure only good people do it. Past that, when we get down to teachers, there is a huge reluctance to ever remove a teacher. In many states state law stands behind the teachers. My favorite is, I think it’s about eight years ago now, there was a front page New York Times article about a New York City teacher who was incarcerated at that time for having sold cocaine to his junior high students but still retained his employment rights because he had, in fact, followed all of the procedural avenues that were available to him to protect his job and was in jail but still had the right to go back to a school district. So we’ve built up a system which is so bound up with defending all current teachers and all current administrators from any removal that nobody ever removes more than one teacher in a lifetime. There are some principals that work to remove principals. But they never remove more than one in a lifetime just because these rules are there, and that’s part of providing choice. And that’s one of the arguments, by the way, for competition. Those kinds of rules cannot stand up to competition if there’s outside competition which is offering a system that doesn’t protect all of the bad teachers.

A2: [Peterson] You know I would not want to say there’s a lot of bad teachers, but I do think it’s extremely corrupting to have even one bad teacher or two bad teachers in a school. It’s like having one bad kid who is totally disrupting a classroom and you can’t do anything about it because you’ve got these rules that say you can’t deal with these disruptive forces. So you have this teacher who’s totally not doing their job. Everybody in the school knows that, and so it’s demoralizing for everybody else in the school. That’s why some of the most effective principals in urban settings are those who have the strength of character to address that person who is really doing a bad job and making sure that person leaves the school. Now, almost always, all that happens is that person leaves that school and goes to another one. It’s much easier to achieve that than to get outright dismissal. So the really effective urban principal works on removing those bad teachers, and that’s how they instill morale among the remaining teachers, because this principal was willing to put herself on the line, to really commit herself to the children’s education, because there’s nothing harder to do than to remove an ineffective teacher.

Q: I think this will have to be our last question. If we did have a fully funded voucher system, would private schools have any difficulty maintaining the high standards? If something is free, is it still valued?

A: [Peterson] That’s a good question. It really goes to the point as to whether or not you should have the vouchers that can be topped up by private contributions. IIn Milwaukee if you get a voucher, you can’t be asked to pay additional sums of money to your private school. So private schools just have mandatory “voluntary” contributions. Private schools really believe that families should put some dollars down. No matter how poor the family is, they should be putting some money down and so, yes, I think there would have to be additional contributions. I think private schools would be creative in thinking of ways of addressing that.

A: [Hanushek] I would have answered it slightly different and say that there are going to be some bad voucher schools, you know, that aren’t up to quality, just as there are a lot of bad public schools. You’re going to get a distribution of these quality schools just as you do in higher education. But that’s not an argument against vouchers, the fact that you have a distribution. I think you will maintain a large number of very high quality schools and you will push up the mean and the right tail of the distribution across the board, but you’ll still have a left tail.

Q: Milton, Rose, any questions or comments?

A: [Milton Friedman] I think it’s an excellent approach. One of the desirable things is that parents should contribute out of their own pocket to their child’s education. One of the bad rules of Milwaukee is the rule that the voucher has to constitute full payment to the schools.

Thank you, Rick and Paul, for a stimulating session. Thank you.