A Robust Education Marketplace Means Some Schools Will Fail

A couple of years ago, I was presenting at a small education conference in New York when someone asked what a success indicator might be for a dynamic, decentralized education marketplace.

“When we see some schools shutting down,” I responded.

In an education free market, parents are the customers. If they are not satisfied with a particular school’s offerings, they can and will leave — just as they would stop using any other product or service that doesn’t meet their expectations. If enough parents aren’t satisfied and leave, the school will shut down. This is a signal of a vibrant, competitive educational marketplace. It is the ultimate accountability metric.

It’s perhaps because true accountability in the education system is so rare that when it does occur it can prompt concern. That was the case with a new microschool in West Virginia that shuttered after just a few months in operation. Parents weren’t happy with their children’s program so they demanded, and received, a refund and the school closed. It was an example of the market working well, not poorly. As the Nobel Prize-winning economist Friedrich Hayek wrote in The Road to Serfdom: “Our freedom of choice in a competitive society rests on the fact that, if one person refuses to satisfy our wishes, we can turn to another.”

Still, this small business failure raised alarm bells because the families who attended the microschool received funds through West Virginia’s new school choice program, the Hope Scholarship education savings account (ESA), that enables families to access a portion of state-allocated education funding to use toward a variety of educational expenses, including microschools.

“Hailed by Republicans, and fueled by the spread of ESAs, microschools operate out of homes, storefronts and churches with a degree of freedom from government oversight. But the West Virginia episode shows that managing that freedom while maintaining public accountability can be a tricky balancing act…,” The 74’s Linda Jacobson recently reported, adding that the state Treasurer’s office is conducting an investigation and some advocates are calling for “guardrails” around education entrepreneurship.

Yet, the “public accountability” in this instance was full and immediate, thanks to a decentralized, competitive education market. The parents left and got their Hope Scholarship funds back, and the school closed. This is a far cry from the supposedly taxpayer-accountable West Virginia public schools which are among the worst performing in the nation and yet see increasing budgets.

“School choice is successful at growing good schools and closing bad schools,” said Katie Switzer, a West Virginia parent and ardent supporter of school choice policies such as the Hope Scholarship. “How long do you think it would take a poor-performing traditional public school to be closed or overhauled? Certainly more than a few months,” she told me, referencing how quickly the undesirable microschool closed.

Indeed, school choice policies can help to accelerate education entrepreneurship, catalyze innovation and experimentation, and make new K-12 schools and learning spaces more accessible to more families. Sometimes, these new schools and spaces will fail, just as 20 percent of all U.S. businesses do within their first two years, and nearly half do within their first five years. But surely it’s better to let bad schools fail than to preserve the status quo, which keeps them open in perpetuity.

The West Virginia microschool failure demonstrates a feature of the free market, not a flaw. The great strength of the market approach is that free people are able to freely choose products and services aligned with their individual needs and preferences and take their business elsewhere when they are not satisfied.

Any efforts to control new school startups or create “guardrails” around them will only slow educational progress and stymie entrepreneurship and innovation. As the economist Milton Friedman reminds us: “Underlying most arguments against the free market is a lack of belief in freedom itself.” Let’s believe in freedom — in education and beyond.

Editor’s note: This article originally was published by the Foundation for Economic Education.