Societies benefit greatly when governments ensure that most citizens are healthy and well educated. That is a nearly universal lesson of history. The question is, how this can best be achieved?
As we saw in last week’s column, while government action is needed to produce certain “public goods” such as education, public heath and safety, it is not essential that government carry out the actual production. It can build roads itself, with public employees and machinery, or it can contract out such construction to private firms.
For public goods such as education and health care, which are “consumed” by people while broadly benefiting society as a whole, there is a third option. Governments can give citizens vouchers that can be used to purchase such goods from approved suppliers. Rather than constructing a government hospital, citizens can receive the right to obtain specified health care from competing private providers, who will then be reimbursed by the government at standardized rates.
Medicare, the health plan for individuals eligible to receive Social Security, is an example of such a voucher plan. The original G.I. Bill, instituted at the end of World War II, is another. Federal grants and subsidized loans to college and technical students also fall into this rubric, though eligibility is not universal but rather limited by income.
Many economists prefer vouchers as the method for governments to ensure the supply of education, health and other individually consumed public goods. Why is this preferred to direct government provision or direct contracting with one or more firms to provide the service to everyone eligible?
The answer is that voucher plans generally provide the greatest consumer satisfaction, along with the most efficient use of resources. Provision by private firms introduces a profit motive that reduces waste. Letting citizen-consumers choose private firm introduces competition, which also motivates resource conservation and allows people with different preferences to receive the best services.
An ideal voucher plan would be available to all members of the target population who consume the particular good or service. The amount of the voucher would be enough to pay the full cost at most, if not all, providers. This was true for the first G.I. Bill and was largely true for Medicare during the first three decades.
If economists like the efficiency and consumer satisfaction of voucher plans, and if existing plans are so politically popular, why is there so much controversy about their application to K-12 education?
For some, the sticking point seems to be fears about violating the anti-establishment clause of the First Amendment, which says Congress will establish no common religion. This appears illogical to others, who correctly note that Medicare will reimburse Catholic or Jewish hospitals for gall bladder surgery or that Pell grants can be used at Baptist colleges or a Mormon University.
“Why,” they ask, “should the public object to households getting funds to send their younger children to parochial, Baptist, Dutch Reformed or Hassidic day schools when these children’s older siblings go off to Holy Cross, SMU, Calvin or Yeshiva armed with Pell grants, Stafford loans and sundry state grants for post-secondary education?”
“Not so fast,” say opponents. “Elementary and secondary education is mandatory, at least till age 16. And public schools usually have to admit all comers, something not required at the nearest state Tech or A&M much less at Baylor or Biola.”
“How does the fact that education in grades K-10 is required affect how we finance it?” respond voucher proponents. Many states require that children get vaccinations but do not specify that only government employees can give shots.
Moreover, voucher plans could easily be constructed to require participating providers to accept virtually any student. Educationally or behaviorally difficult kids could be given higher-value vouchers to encourage their acceptance.
“Taking money away from public schools to send some children to private schools does not make sense. Why not give more money to public schools so that the poorer ones can do as good a job as the best ones?” questions one side.
“We have done that, and it has not worked,” counters the other.
I think you get the picture. The debate on both sides centers on deeply held values and fears much more than logical coherence or economic efficiency. Voucher foes note poll results showing the general public opposes far-reaching voucher plans.
Advocates note successes in initial, limited trials. Unknowingly echoing Fidel Castro’s famous cry when tried for treason, they proclaim “History will absolve us!” The ongoing battle should be interesting to watch.
© 2001 Edward Lotterman
Chanarambie Consulting, Inc.