The Only Solution Is Competition: An Exclusive Interview with Milton Friedman

The Only Solution Is Competition: An Exclusive Interview with Milton Friedman
December 1, 1998

George A. Clowes

George Clowes is a Heartland senior fellow addressing education policy. He served as founding... (read full bio)

It is one of the happy coincidences of history that Dr. Milton Friedman, the modern era's most forceful advocate of personal equality, was awarded the Nobel Prize for excellence in economics in 1976, the year marking the 200th anniversary of the signing of the Declaration of Independence and its revolutionary assertion "that all men are created equal."

Just as Thomas Jefferson's ringing words buttressed the colonists' fight to preserve their individual freedom against a stifling English government, Friedman's free market advocacy has provided the foundation for modern-day Americans to reassert their individual freedom against the encroachments of an over-inquisitive and over-protective government.

A native of New York City with a Ph.D. from Columbia University, Friedman moved to the Midwest to teach economics at the University of Chicago from 1946 until 1977, when he moved to California to became a Senior Research Fellow at the Hoover Institution at Stanford University. Widely regarded as the leader of the Chicago School of Monetary Economics, Friedman has published many books and articles on economics, most notably A Monetary History of the United States, 1867-1960, A Theory of the Consumption Function, and The Optimum Quantity of Money and Other Essays.

In addition to his scientific work, Friedman has written extensively on public policy, always emphasizing the preservation and extension of individual freedom. He has been a Newsweek columnist and narrated the ten-part 1980 Public Broadcasting System television series, Free to Choose. His books in this field include Tyranny of the Status Quo, Capitalism and Freedom, and Free to Choose, all written with his wife, Rose D. Friedman. It was Friedman who first proposed the idea of school vouchers in 1955.

Friedman also is chairman of the Milton & Rose D. Friedman Foundation for Educational Choice, formed in 1996 to address the Friedmans’ deep concern about serious deficiencies in the nation's government-run schools. The Friedmans believe that allowing parents a free choice of schools for their children would improve children's education and also lead to the separation of public financing from government administration of K-12 education. Professor Friedman recently spoke with School Reform News managing editor George Clowes.

Clowes: Other countries seem able to have government funding of schools and still get reasonably good results, but the US doesn't. Why don’t US schools produce high-quality education?

Friedman: In order to have satisfactory performance, you have to have a customer who needs to be served. The problem in our school system is that the customer is the teacher and not the student. US schools did a far better job when they were more dispersed and with less central control.

I think three things have combined to produce poor performance in US schools. To what extent they apply in other countries, I'm not sure.

The first is centralization, which means less parental involvement. When I graduated from high school, a long time ago in 1928, there were 150,000 school districts in the United States. Today, there are fewer than 15,000 and the population is twice as large. So I would put as Number One, the tendency to take things away from the neighborhood and the parents.

Number Two has been the so-called professionalization of schooling, in particular putting emphasis on the techniques of teaching rather than on the subject matter taught, which has led to a relatively low quality of entrants into the teaching profession.

The third is unionization. It's not an accident that 1965--which was around the date at which the National Education Association converted itself from a professional organization into a trade union--also marks the date at which there's a clear break in SAT scores, and in other measures of performance. From 1965, we've been going downhill and over that period the unions have become a monopoly, controlling the educational process.

So, centralization, professionalization, and unionization are what I say are the three horsemen that have produced the results. But if instead of three words you want one word, the word is monopolization.

Clowes: And those developments have reduced parental involvement and control?

Friedman: All three of them have reduced parental involvement and changed the goal from teaching children to keeping teachers satisfied. You have had a situation of monopoly in which the interests of the monopolists come first, and in which the customer be damned, as it were.

That's the case not only with the schools, but with any monopoly. We saw what happened in the case of the postal monopoly: When Federal Express and United Parcel Service were able to enter, we had a dramatic change. So that's part of the story here.

As to other countries, it varies a great deal. One of the countries that does very well is Japan. Contrary to the common notion, there is a very thriving private enterprise component of the Japanese school system. It is the after-school preparatory system which apparently deserves a lot of the credit for the effectiveness of the Japanese schools.

Clowes: Are they like the Huntington Learning Centers?

Friedman: That's right. Only it's on a very much larger scale in Japan than it is here--as yet. Maybe it will develop here.

Clowes: Many people argue that turning the public school system around is just a matter of putting the right leadership in charge--for example, Paul Vallas in Chicago, Rod Paige in Houston, and Eileen Ackermann in Washington, DC.

Friedman: There's no doubt that individuals have a great effect. There's no doubt that if you read the literature on what makes good schools, invariably there turns out to be one or two or three people who really are responsible for it. But that's not a system solution. That's a solution for particular places. There's no way in which you can have the whole system run by particularly able people.

The only solution is the same solution as we found everywhere else--which is competition. The essence of an effective television industry, an effective telephone industry, an effective computer industry, or an effective mail delivery industry--you name it--is competition. That's what we need to get in schools.

The key problem in getting competition in schools is that you have a system under which the states provide schooling in kind. And, therefore, somebody who wants to come in and compete has to come in and compete against somebody who, as it were, is giving it away. If you're trying to go into the business of selling chocolate and somebody down the street is taking money from you in order to give chocolates away, then you've got a difficult time making a business out of that.

The fundamental problem is to eliminate the competitive disadvantage of alternative methods of providing schooling. The only way you can do that, or rather, the most direct way to do that, is through a system of vouchers.

Clowes: Which the courts now are beginning to rule are constitutional . . .

Friedman: The Wisconsin Supreme Court, of course, did approve vouchers that could be used in parochial schools and the US Supreme Court let the decision stand. But that’s really a defeat and not a victory for us. Because if the Supreme Court had taken up the case and confirmed it, as I think they would, it would have set a national precedent and you would not have to do it in state after state.

Clowes: You've been a strong proponent of a universal voucher system, but so far there have been programs designed only for poor families, largely in the inner cities. What would be your recommendation for the type of voucher system to put in place--one that covers the full cost of private schools or one that covers only part of it?

Friedman: I'm in favor of covering only part of it. There are two reasons for that. Anything government can do, private enterprise can do for half the cost. If government spends $6,000 per child, then I have every confidence that a private competitive enterprise can provide better schooling for $3,000 per child.

A second reason is that I think that it is desirable that parents should have to pay some part of the cost of their child's schooling. What you get for nothing, you value at nothing. If you pay for it, that means something. So I am strongly in favor of a system that provides a fraction, not 100 percent, of the cost of tuition.

Clowes: That would be similar to the private voucher programs that people like Ted Forstmann and John Walton have put in place?

Friedman: Those programs vary a good deal. The original one in Indianapolis by Pat Rooney provided 50 percent of the tuition up to a maximum of $1,000. Some of the more recent ones are providing larger sums, and up to a larger fraction. I have no strong feeling about whether it ought to be 50 percent, or 60 percent, or 70 percent--it just should not be 100 percent.

I think the issue of low-income people versus everyone else is a very important issue. I once had a debate with Wilbur Cohen, who was at the time the head of the Social Security Administration, on the question of Social Security. That was 25 years ago, when I was arguing for privatizing Social Security. I criticized Social Security on the grounds that it was transferring income from low-income people to high-income people. Under Social Security as we now have it, on the whole, the people who have the low-income level pay taxes for more years and get benefits for fewer years than the people at the high income level. So it's a perverse distribution.

I've never forgotten Cohen's answer, which was very profound. He said "You are right. However, a program for poor people will be a poor program." Now, if you stop and think about it, you ask yourself: "Isn't that true?" Look at what has happened to public housing: It's a program designed for poor people--it's a poor program. Look at what happened to Aid to Families with Dependent Children: It was a program designed for poor people--it was a poor program.

Programs that are designed for the poor will be poor programs. You need to have a universal program to have the backing of society as a whole, in order that it can really be a part of the structure of society. So I support an entering wedge in the form of a program for low-income people, but I believe it would be a very serious mistake to stop at that point.

Clowes: So the limited voucher programs need to be expanded to include everyone?

Friedman: They need to be expanded to include everyone, in order to get the public at large in back of them and also in order to have a large enough field for competition.

Clowes: What about the issue of tuition tax credits versus vouchers?

Friedman: I have some doubts about tuition tax credits for the following reasons. I believe--most people believe--that taxation should be a method of raising funds to finance government spending. It should not be a tool for social engineering. Now how can I, who object to using taxes for social engineering for all sorts of purposes, argue that you ought to use it for this particular piece of social engineering because I'm in favor of it. So, on that ground, I'm very hesitant about tuition tax credits.

Clowes: One of the issues splitting proponents of choice is the question of how involved the government should be in education. There are some who are for the total separation of school and state, so that parents would have to be individually responsible for the education of their children.

Friedman: I agree with them as an ultimate ideal. But the question is, "How do we get from where we are to where we'd like to go?" It seems to me there's a zero chance that at any time in the foreseeable future we can make it from almost 100 percent state financing to 100 percent parental financing. It seems to me you have to face the question of intermediate steps.

As far as government involvement in education is concerned, the first issue that ought to be faced is not the one of vouchers for schools but the issue of compulsory schooling. Government today has a legal possibility of controlling private schools because of the requirement of compulsory schooling. If the government is going to enforce the compulsory schooling arrangement, it has to decide what is schooling.

It seems to me that many of the people who argue the way you're talking about ought to concentrate their fire on the question of whether we ought to have compulsory schooling. And again, if you're going to be a pragmatist, even if you have compulsory schooling, it ought to terminate at an earlier age. I think much of the harm being done in our present government schools is done because kids between fourteen and sixteen or eighteen--who have no interest in school but who might benefit a great deal from vocational education or from other kinds of training--are required by law to stay in schools not suited to them.

Clowes: What about the trend towards giving the responsibility for school funding to the state, while giving the responsibility for spending to the local level? Doesn't this approach divorce the raising of taxes from the spending of taxes?

Friedman: Absolutely. The only argument for it, the justification for it, is that so much of the taxable property is not residential. If taxable property were all residences, I don't think there would be any problem. But the problem is, you might have an area which has a bunch of factories. As a result, you can have a very large sum of money from a very low tax on the people who send their children to school. I think that's the only real issue that enters into it. Maybe what you ought to do is to say that schools have to be financed out of taxes on residential property. Period. Then you could do it locally.

Clowes: What do you think would be the single most effective step that state legislators could take to improve the quality of public education in their state?

Friedman: Well, this will sound crazy, but the most effective step they could take would be to eliminate all the special privileges they are providing the unions. These special privileges include: requiring that teachers be members of the union; providing the union with the automatic deduction of union dues; and broadening more and more the area covered by union negotiations. You ought to move back in the other direction and have union negotiations cover less and less.

The one thing that we have demonstrated is that whatever may be the public sentiment about vouchers and parental choice, when it comes to the elections, the money of the unions dominates. Here you have the Colorado case as the latest test. They started out with 70 percent in favor but in the actual election they ended up with 41 percent. What reversed that was the blitz by the union and the availability of so much money to the union--the union had much more money than the people who were trying to promote the initiative. We found that in California years ago, when the initial vote four to six months before the initiative was 70 to 30, the same as it was in Colorado. And the same thing happened again this year with the paycheck protection initiative.

That's why I've come to the conclusion that defanging the union is the most important thing you can do to promote a competitive system.

Let me add one more thing. I don't think people take a broad enough view when they look at what the consequences would be of introducing effective competition into schools.

There is, to the best of my knowledge, no industry in the United States that is as technologically backward as schooling, unless you want to call the Congress such an industry. The only way in which you're going to bring schooling into the twenty-first century is to have a private enterprise for-profit industry that will have the incentive and the initiative to serve its customers, that will experiment with various ways of doing it, and that will do it in such a way that their customers are satisfied.

I think it's a tribute to the good will and self-interest of the people who are involved in the current nonprofit private school system that they do as well as they do. But they have no great incentive to innovate or to initiate or to broaden their scope, whereas in a private enterprise system you would have a big drive. Most people do not recognize how large is the opportunity there.

We are spending something between $200 billion and $300 billion per year on K-12 schooling. If the private enterprises take a quarter of that, or half of it, you've got a $100 billion or $200 billion industry, which is not something to sneeze at. So there's a tremendous economic opportunity there, which is double-edged. It's an opportunity for the providers, and an opportunity for the customers to have a better product.

Clowes: And an opportunity for lots of industries that supply the for-profit education industry.

Friedman: The most obvious one is textbooks. We now have a terrible dumbing-down of textbooks. That's because, in the main, a single book is chosen for a whole state, and that book is always going to be the least common denominator. Whereas if you have a private, varied education system, there will be a market for an idiosyncratic book. Maybe it won't be any good, but maybe it'll be very good. With competition, you will not have this tendency to dumb everything down to the lowest common denominator.

George A. Clowes

George Clowes is a Heartland senior fellow addressing education policy. He served as founding... (read full bio)