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Like most parents in Chicago, I’ve been living out school reform with my child; he started in the Chicago Public Schools and is now at a Catholic high school. I teach finance part-time at University of Illinois at Chicago, so I see the range of abilities and preparation that Chicago Public Schools students bring to campus. And, as someone with a long interest in the role of money in society, I understand the role of human capital development in getting entire countries out of poverty.

I’m a liberal sort of person, despite my University of Chicago MBA. I have long been in favor of school choice; too many public schools do a terrible job of educating typical students and shortchange the people who need a good education the most. Why should a good education be limited to those who have money?

To my husband and me, a good school is one with rigorous academics, strong discipline, and a broad array of extracurricular activities to keep kids busy and engaged. We believe that schools matter and that our kid would not do just fine anywhere. We would prefer that our son go to college, and we want him to hold our own no matter where he goes. High school graduation is not negotiable. And so, we write the check for the tuition – and uniforms, team fees, and an iPad.

We like to think that our standards for schools are the right standards, but are they?

As of August 2012, The Chicago Public Schools is composed of 681 schools: 472 elementary, 106 high schools, 96 charter campuses, and 7 contract schools serving 404,151 students. (The official data have not been updated for schools that were closed at the start of this year.) The student body is 44.1 percent Latino and 41.6 percent African American in a city that is 32.9 percent African-American and  28.9 percent Latino. Furthermore, 87.0% of the students in the Chicago Public Schools are low income in a city with a median income of $47,371.

Consider this. The National Center for Education Statistics reports that male college graduates over age 25 earn $63,740 per year. High school graduates make $40,060; high school dropouts make just $29,440. In Chicago, only 60.6 percent of public high school freshmen make it to graduation. Of those, 54.4 percent enroll in college – or 32.9 percent of those who start as freshmen. A CPS student is more likely to drop out of high school than to go to college.

Here’s where the market issue kicks in. Many parents in Chicago want a school where their kid will be happy and stay through to graduation. They are concerned that academic rigor and strict discipline will drive their kids away from school and harm their long-term economic prospects.

Unfortunately, many of the people with high school diplomas don’t realize how unprepared they are. At the University of Illinois at Chicago, where a teach part-time, many admitted students don’t last through freshman year. For some, it’s simply a matter of not quite being mature enough, which affects graduates of every high school in the country. But others are overwhelmed by the workload in large, competitive introductory courses. They don’t know how to write or how to study. They have been taught to the test for so long that they don’t know how to take an exam any other way.

The conundrum is this: if we better prepare students for college, will we force more out of high school?

The market-based approach to school choice assumes that parents will abandon schools with weak academics. However, that assumes that academic preparation leading to college enrollment is the goal.  The U.S. economy needs more people who are able to do the work of a sophisticated, global economy. But many neighborhoods need more people able to meet the most basic job requirements. That diploma is key.

As our economy has evolved, it has fewer slots for people with only a high-school diploma, let alone a high-school dropout. The building trades have rigorous apprenticeship programs; anyone who wants to be admitted has to be capable of doing college-level work even if he or she does not want to go to college. Good union assembly jobs? Clerical jobs with health insurance and a pension?  Those administration jobs that have not been replaced by voice mail or word-processing software are now filled by college graduates who need to start somewhere.

The invisible hand of the market doesn’t come up with a single optimal solution; it comes up with several solutions that are optimal to different sets of consumers but not necessarily to society as a whole. We don’t want the same music, cars, or phones – so it is no surprise that parents don’t want to send their children to the same types of schools.

In business, the worst music, cars, and phones go off the market because they do not sell enough to be profitable. No one gets excited about Johnny Hates Jazz albums, AMC Matador station wagons, or LG Chocolate phones anymore because we’ve moved on to things that are better.

With schools, though, people don’t move on to one that is better: once you make a choice, you want to defend it, known in behavioral finance as anchoring. No parent would choose to send a child to a substandard school, right? So, by definition, no school is substandard. The fact that academic achievement is poor and other families aren’t choosing the school is simply that no one understands what a friendly, nurturing environment is in place.

The market approaches to education assume that bad public schools will improve or close. The reality is that parents and students often love their bad schools, and that’s even before considering such controversial items as teacher layoffs or politically connected charter operators.

People with money and education have school choice, and they exercise it by sending children to schools that emphasize academics, discipline, and extracurriculars – and that have the budgets for them. Some families pay tuition to get the schools that they want, while others move to suburbs with high property tax rates. Schools that offer rich people want they want are able to attract students and money.

The market is a powerful engine for efficient distribution, but it is not always the best at promulgating social goals. Individual choices are not always the best choices for society as a whole.