Don’t Fear the Free Market

In recent conversations, we have heard the view expressed that while free markets provide all kinds of goods and services, education is “different,” and a free market in postsecondary education would hurt students.

In this essay, we will argue that it would benefit all students.

A “free market” does not mean the complete absence of government. A fundamental characteristic of a free economy is a government that protects property rights. Consumers and sellers can engage in voluntary exchange (purchasing and selling goods and services). The government protects that freedom to trade.

In postsecondary education, a free market means the following:

First, government policy would not subsidize any particular kinds of education (as it does now) and, second, government policy would no longer inhibit any educational options. The government would stop giving or loaning money to students to enroll in approved postsecondary institutions and it would stop getting in the way of alternatives to traditional or current educational institutions (through government-approved accreditation, for example).

People (students and their parents) would buy the services they want from educational entities of many different kinds. Education would be a service purchased the way we purchase legal services, financial consulting, and auto repair.

It is widely acknowledged that in markets where buyers and sellers are free to choose what they want, competition drives costs down, improves quality, and gives each individual the widest range of choices. There’s not really much dispute about that.

However, over the years, most markets have attracted government intervention. Law schools must be accredited, for example, and lawyers usually have to attend a law school before even taking the bar exam. Those requirements raise prices while doing nothing to ensure quality. But let’s look at a few examples of industries in which a free market still operates.

One is the market for physical fitness. Consumers who want to improve their health and physique have a great array of choices, ranging from memberships in health clubs and purchasing expensive fitness equipment to buying sports shoes and inexpensive exercise DVDs. Fitness clubs are disciplined by the availability of alternatives, which include both other fitness clubs in the region and individuals’ other opportunities for exercise, such as walking or jogging or exercising at home.

Of course, viewed from the utopian perspective of perfection, the results are imperfect. Some people are in great physical condition despite spending little on fitness stuff; others are in mediocre-to-poor condition even though they spend plenty. But that is because people are making choices. No one is forcing them to do anything in the area of fitness, although advice-givers ranging from family members to newspaper columnists may recommend it.

Another example of a free market is music education, such as piano playing. Those who want to learn to play (or want their children to learn) have an array of options: individual teachers, local music schools, self-instruction materials, famous conservatories. Government doesn’t mandate or regulate or subsidize anything. Consumers choose the kind of instruction that best suits their needs and there is no evidence of serious dissatisfaction.

The market for postsecondary education could be every bit as open, diverse, and consumer-friendly as those markets.

But wouldn’t the price be too high? No. Without government financing, those who want a college education would become more cost-conscious because they would be paying the full cost. As a result, prices—tuition—would go down. There is increasing evidence that government loans and grants, which are provided only for accredited colleges, are among the chief forces fueling higher tuition.

 For students who cannot pay for school, even at the lower prices that would be inevitable, “human capital contracts” are likely to spring up, by which wealthy individuals sponsor promising students in return for payments later on. The Acton Business School already does something similar with its scholarships. When students have completed the course, they can repay the scholarship by paying 10 per cent of their annual salary until they reach the full amount.

And keep in mind that some people don’t really want a college education. What they want is a good point of entry into the labor force. A free market would provide that, too. A young man who doesn’t care for academic studies but can work with his hands would be better off if he learned a craft like welding, rather than struggling to get a B.A. in some soft field and then competing for an entry-level white-collar job.

It is true that for those who are willing to spend four years studying in college, the resulting diploma has been an important credential for entering the labor force. Today, however, the value of a degree is increasingly uncertain due to declining academic standards and grade inflation.

Other ways to signal competence are needed, and the free market can provide that.

It is already doing so through certification programs.

A good example is the National Career Readiness Certificate (NCRC) program that has been developed by ACT (the organization that created the pre-college skills test that is an alternative to the SAT).

The National Career Readiness Certificate (NCRC) is catching on with students and employers, as we find in this Elgin (Illinois) Daily Herald article.  More than seventy employers (mostly in the Midwest) now recognize the certificate and use it to assess potential employees. As the article notes, Illinois senator Richard Durbin visited Elgin Community College wanting to talk about college preparation, but discovered that educators there were more interested in the need for workforce development.

Veterans of the military are also using the NCRC to show that they have skills that prospective employers need, as we learn from this Fayetteville Observer story.

The NCRC certificate is designed to convince employers that high school graduates have the talent and skills to be excellent employees. A private company, StraighterLine, is about to do the same thing for college students.  As Jeff Selingo, editor of the Chronicle of Higher Education, wrote recently, StraighterLine “will offer students access to three leading critical-thinking tests, allowing them to take their results to employers or colleges to demonstrate their proficiency in certain academic areas.”

One of those tests, the College Learning Assessment (CLA), is widely used by colleges to measure whether students have learned analytical skills during their college years. Now that test will be available to individuals.

Thus, the times are changing—toward a freer market. Until recently, it was hard for new entrants to compete against existing colleges and universities because they are protected by government subsidies, accreditation, and regulations. Imagine how difficult it would be to create new health clubs if the government subsidized existing ones and provided grants to cover memberships.

But the advent of new technology—education via the Internet—is shaking up higher education and will ultimately loosen the grip of the government.  By developing low-cost distance education, new companies have found new markets, especially among working adults who want to get a degree without giving up their full-time jobs. For the most part, companies like Kaplan and the University of Phoenix (among many others) offer specialized degrees and certificates that are closely related to potential jobs. For-profit companies are now enrolling about 10 percent of all students.

The point of this essay is that a free market is not something to fear. In spite of all the government protection of traditional schools, we can already see on the horizon the shape of a freer market, with a more diverse array of educational offerings. If the government would back off from its effort to subsidize and control the market, students would benefit enormously. We would see for ourselves that a free market can respond to their needs more effectively than a government-dominated market can.