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HEALTH & EDUCATION 78: The invisible voucher Internal markets in state education The problem: monolithic decision-making State provision in education tends to follow political, rather than economic, demand. When the service is paid for out of taxation, and provided by state employees, the individual citizen has little input, or opportunity for choice. Notoriously, the state service tends to be captured by producer interests or manipulated for political advantage, or both. It is politically difficult to reform these monolithic services. The public often has no experience of other possible structures. They like the fact that education is 'free' (meaning that schools are supported from general tax revenues), and accept whatever level of service the state manages to achieve. Too often, this is highly sub-standard. The idea: a market without money A viable alternative, pioneered in the United Kingdom, was the introduction of internal markets to bring some commercial and competitive pressures into the service, and to give the consumers at least some say in its provision. Reforms were set in train to change a top-down, centrally directed system into one determined much more by the inputs and choices of its recipients. Example: undoing the old school ties The old education system in Britain had collected tax money, and disbursed it through ministerial civil servants to local education authorities. At the end of the chain, the parents were given a free place for their child in a local school, which was all too often a school of poor quality. Richer parents simply moved house, into the catchment area of the better schools. The new system rested on three legs. In the first instance, parents were given the right to choose which state school their child should attend. The second leg allowed schools to opt (on the basis of a ballot of parents) for self-governing independence from their local education authority, and to allocate their own budgets as they saw fit. The third component introduced per capita funding, so that the funding available to a school would depend (for the most part) on the number of students it was able to attract. The effect of the three reforms (introduced in the Baker Education Act of 1989) was to create an internal market. Given school choice, parents opted for schools which gave traditional and rigorous education. These schools received the students, and the funds with which to expand. Low-quality schools found themselves obliged to listen to what parents wanted, or face falling rolls, reduced finance, and eventual closure. Even though the state schools were still funded out of taxation, the difference was that they had now to attract those funds in a competitive market. This meant that the top-down system became bottom-up instead, meeting the wishes of parents at the bottom rather than politicians and teacher unions at the top. Results: benefits despite limitations In practice, the reform was greatly muted by the pledge of Britain's Labour Party to reverse the system when it won power. The early spate of conversions to self-governing status tailed off as the next general election drew near, and never really picked up momentum again. Many schools thought it not worthwhile to go through the difficult and perhaps divisive process of seeking self-governing status if this were soon to be overturned after a change of government. Local education authorities, which would lose power and budget, resisted the idea, and helped interest groups to campaign loudly against it. Since schools were not all balloted at once, but one by one as they decided to put the idea to their parents, such campaigning was focused with force and precision, making each ballot a highly politicized affair. In 1997, the incoming Labour government carried out its promise to end the system and take schools back into local authority control. Although some of the lessons have been learnt, and state schools today are more diverse than they were before, the opportunities for parent choice and truly independent management have been reduced. However, a new class of 'Foundation' schools retains some of the features of the old system. Furthermore, broadly similar 'invisible voucher' arrangements work in other countries such as Denmark and the Netherlands, where the state pays some or all of the costs of education no matter which school the parents choose for their children (see the chapters Start Your Own School and That'll Do Nicely). Assessment: pity about the politics Despite the very limited way in which it was rolled out, the internal market and the 'invisible voucher' contributed to widespread improvement, and concentrated attention on the need for schools to achieve specified output targets. The publication of school performance results, which had been an essential part of the internal market - on the grounds that parents would need to see performance measures before they could exercise a choice - continues to focus attention on results. It has been followed by a wider acceptance that failing schools should (and school authorities) should be closed, or at least taken over by private providers in the shape of parent-led, mutual, or profitmaking companies. Internal markets have empowered the poor, who can now choose good schools for their children, without having to move to a more expensive district. Detailed studies by Steve Bradley and Jim Taylor reveal no evidence that the internal market and the competition between state-funded schools which it engendered led to any polarization, by which schools in the leafy suburbs got better while those in the poorer city centres lost their best pupils. But the research revealed that the competition for pupils produced significant improvement in examination performance as schools focused on this quantifiable measure. For more information
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Copyright 2002: Adam Smith Institute
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