Monday, March 7, 2011

Failure is a Necessary Option

An often repeated and overused phrase is, "Failure is not an option."  How ridiculous!  In fact, the reverse is not only true, but it is a necessity.

One major problem with the public school system is that failing schools do not close.  In fact, a failing school usually gets more funding the next year in order to "turn it around."  Ask yourself if this policy really makes long-term sense.  What sort of incentives are being created when failing schools are given expanded budgets?  An axiom in economics is that people respond to incentives.  If we pay people more for failing schools is it any wonder that we get failing schools?

In the private sector, the customer is sovereign.  The customer chooses what to buy (or not buy) and no one can force such a decision on another.  An entrepreneur who is able to please his customers receives continued business as his reward.  Hopefully, with proper management, profits also accrue to the entrepreneur.  However, if the company does not please the customer, regardless of reason, the business suffers.  Maybe there was rudeness, maybe the product was shoddy, or maybe the price was too high, the reason doesn't matter because the end result is the same: the loss of business.  When the customer is not pleased with the entrepreneur, he takes his business elsewhere.  The entrepreneur had better shape up quickly or the venture will close its doors and the resources will be transferred to others who are better at satisfying customers. 

The continuous process of pleasing customers continually shifts resources to those who are the most efficient users and most effective satisfiers.  This phenomenon is relatively new; it has only been around for the last couple of hundred years.  During this short period of history, we have achieved higher living standards for more people than at any other point in recorded human history.

When we step away from the market and into the world of public provision of goods and services, we see that it operates by a whole different set of rules.  In the public sector, the government collects the revenue to operate the institution.  However, it can't simply hand someone billions of dollars and say, "Go educate some kids."  Along with the dollars come the rules and regulations.  These reorient the focus of the employees and managers away from "customer" and toward the rulebook.  Additionally the same system strips away all vestiges of competition between providers of education.  The children are assigned schools; the parents are not allowed to choose.  Imagine if such were the case with phone and Internet providers.  (Actually I can imagine it, because it was the law of the land for decades.  What was the result?  Poor quality, high costs, lack of convenience, ugly phones, and attaching an answering machine was considered illegal because it was "installing a foreign device.")

Our public education problems are far too complex to simply say that the answer is competition between our schools, but don't discount that simple phrase too quickly.  Imagine the impact the following three changes would have on our public schools:

  1. allow parents to choose which school to send their child to;
  2. attach the dollars to the child so that a school's budget is based upon the number of students that enroll at their location; and
  3. allow schools that cannot cover its costs to close and be sold.
Such a proposal will cause the teachers' and administrators' unions to howl, but I am not concerned with protecting their jobs any more than I am concerned about protecting McDonald's workers' jobs when I go to Burger King.  In fact, our university system has this feature and it seems that we have a large and diverse set of higher educational institutions.

Competition will weed out the bad teachers and they should lose their jobs.  Competition will weed out the bad administrators and they should lose their jobs.  Competition will weed out the unnecessary overhead and reward quality.  It will reward good schools, good teachers and good administrators.  

Many think that competition is scary because some producers are winners and some are losers.  Unfortunately, too many people think this way.  I say "unfortunately," because this thinking is backwards.  There is too much focus on the providers and too little attention paid to the customers, the children.  When there is competition, the customers are the big winners.  And, paradoxically, the only way that we can guarantee a successful school system is if we make failure not only an option, but a necessity.


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