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Good Business IDEAS for Students

Business Ideas / August 2, 2022

Donald Trump never tires of reminding us that he is a businessman, and in Betsy DeVos, he has nominated a secretary of Education who endorses a business model for improving elementary and secondary schooling. The problem is, it’s the wrong model.

DeVos’ prescriptions include for-profit school management, taxpayer-funded vouchers to cover private school tuition and parental choice as the primary vehicle for regulation. Yet where such free-market remedies have been tried, they have yielded disappointing results.

The free-market model dates to an essay written by University of Chicago economist Milton Friedman in 1955. Friedman contended that the role of government in education should be limited to providing parents with vouchers to cover a fixed amount of tuition at schools meeting minimum requirements. If cost exceeded voucher value, payment by parents — or scholarship funding — would have to make up the difference.

To Friedman, vouchers would free students from inadequate neighborhood public schools and competition for students would improve school quality and variety. Likening education to groceries, Friedman wrote that much as consumers benefit from competition among supermarkets, parents and students would benefit from competition among schools. Friedman also maintained that vouchers would grant minority students an exit from segregated schools and that competition among schools would generate better pay for good teachers by increasing demand for their services.

These ideas first took hold in Chile in 1981. The year before implementation, 78% of that nation’s schoolchildren attended public schools, 15% attended private schools with government aid, and 7% attended elite private schools with no such assistance. By 2008, the figures were 46%, 47%, and 7%, respectively. Socioeconomic segregation had intensified, the academic achievement gap among disadvantaged children and their middle- and upper-class peers persisted, for-profit school management provoked protest and reform, and teacher pay remained low.

A similar story unfolded in Sweden, which adopted a full-fledged voucher system a decade later. When investors financed the opening of hundreds of for-profit private schools there, many native-born Swedes opted for the new schools, leaving immigrant children behind. Sweden’s performance on international educational assessments declined, for-profit school management provoked protest and reform, and teacher pay fell.

Only a few cities in the U.S. implemented voucher systems, but results in these cities — notably, Milwaukee, leading the way in 1990, followed by Cleveland and Washington — have also not vindicated Friedman’s forecast. A different way to offer school choice — publicly financed but independently managed charter schools — has proved much more popular. Introduced by Minnesota in 1992, charter schools now number nearly 7, 000 across the country, yet they too have posted uneven results, led to greater student segregation and in large part depressed teacher pay.

In no state has this been more true than DeVos’ home state, Michigan, which thanks to her efforts is home to far more commercially managed charter schools than any state in the country. After controlling for demographics, Michigan, according to a recent Urban Institute study, ranks 47th out of all states in reading and math.

The fundamental problem with the free-market model for education is that schools are not groceries. Education is complex and the immediate consumer, after all, is a child or adolescent who can know only so much about how a subject should be taught. The parent, legislator and taxpayer are necessarily at a distance.

Groceries, by contrast, are discrete goods purchased by adults who can easily judge each item according to taste, nutritional value and cost. Supermarkets can likewise be easily judged according to service, atmosphere and convenience.

Although the free-market model isn’t a good fit for schools, there are five business concepts that should be embraced by education reformers and policymakers.

Much as early stage investment in promising companies can deliver outsized rewards for investors, early stage investment in schooling can deliver significant rewards for society. Another Chicago economist, James Heckman, analyzed data from Michigan and North Carolina going back several decades and found that no other infusion of public dollars comes close to matching the rate of return of high-quality early childhood education.

Since the days of Henry Ford, business has understood “efficiency wage theory.” In 1914, Ford doubled the pay of assembly-line workers from $2.50 a day to $5. Economists later validated the results: It costs less to pay more, as employers attract and retain better workers and thus improve production and even reduce costs of both supervision and turnover. Studies show a similar tight relationship between teacher pay and educational outcomes.

An analysis of teacher salaries and student performance in science (at age 15) provides an example. The data come from the five Nordic and six English-speaking countries involved in the 2012 Program for International Student Assessment. The U.S. and Norway paid teachers 68% and 71% as much as fellow citizens with university degrees, respectively, and posted scores just below the PISA average. Finland and Canada, on the other hand, paid teachers 97% and 105% as much as fellow citizens with university degrees and posted scores far above the average.

Retaining good teachers and grooming administrators from within the ranks instead of handing over the reins to outsiders constitutes another significant lesson from the corporate playbook. As the business historian Alfred Chandler documented, great organizations develop talent internally. Education researchers have repeatedly shown, in particular, that teacher turnover impairs student achievement. In addition, as Los Angeles may remember from its experience with David Brewer, superintendents without classroom experience tend to be out of step with pedagogical needs.