The Friedman Foundation for Educational Choice

Advancing Milton and Rose D. Friedman's Vision of School Choice for All Children

The Role of Government in Education (1962)

From "Captalism and Freedom" | 1962/1982

Formal schooling is today paid for and almost entirely administered by government bodies or non-profit institutions. This situation has developed gradually and is now taken so much for granted that little explicit attention is any longer directed to the reasons for the special treatment of schooling even in countries that are predominantly free enterprise in organization and philosophy. The result has been an indiscriminate extension of governmental responsibility.

Governmental intervention into education can be rationalized on two grounds: The first is the existence of substantial “neighborhood effects,” i.e., circumstances under which the action of one individual imposes significant costs on other individuals for which it is not feasible to make him compensate them, or yields significant gains to other individuals for which it is not feasible to make them compensate him -- circumstances that make voluntary exchange impossible. The second is the paternalistic concern for children and other irresponsible individuals. Neighborhood effects and paternalism have very different implications for (1) general education for citizenship, and (2) specialized vocational education. The grounds for governmental intervention are widely different in these two areas and justify very different types of action.

One further preliminary remark: it is important to distinguish between “schooling” and “education.” Not all schooling is education nor all education, schooling. The proper subject of concern is education. The activities of government are mostly limited to schooling.

General Education for Citizenship

A stable and democratic society is impossible without a minimum degree of literacy and knowledge on the part of most citizens and without widespread acceptance of some common set of values. Education can contribute to both. In consequence, the gain from the education of a child accrues not only to the child or to his parents but also to other members of the society. The education of my child contributes to your welfare by promoting a stable and democratic society. It is not feasible to identify the particular individuals (or families) benefited and so to charge for the services rendered. There is therefore a significant “neighborhood effect.”

What kind of governmental action is justified by this particular neighborhood effect? The most obvious is to require that each child receive a minimum amount of schooling of a specified kind. Such a requirement could be imposed upon the parents without further government action, just as owners of buildings, and frequently of automobiles, are required to adhere to specified standards to protect the safety of others. There is, however, a difference between the two cases. Individuals who cannot pay the costs of meeting the standards required for buildings or automobiles can generally divest themselves of the property by selling it. The requirement can thus generally be enforced without government subsidy. The separation of a child from a parent who cannot pay for the minimum required schooling is clearly inconsistent with our reliance on the family as the basic social unit and our belief in the freedom of the individual. Moreover, it would be very likely to detract from his education for citizenship in a free society.

If the financial burden imposed by such a schooling requirement could readily be met by the great bulk of the families in a community, it might still be both feasible and desirable to require the parents to meet the cost directly. Extreme cases could be handled by special subsidy provisions for needy families. There are many areas in the United States today where these conditions are satisfied. In these areas, it would be highly desirable to impose the costs directly on the parents. This would eliminate the governmental machinery now required to collect tax funds from all residents during the whole of their lives and then pay it back mostly to the same people during the period when their children are in school. It would reduce the likelihood that governments would also administer schools, a matter discussed further below. It would increase the likelihood that the subsidy component of school expenditures would decline as the need for such subsidies declined with increasing general levels of income. If, as now, the government pays for all or most schooling, a rise in income simply leads to a still larger circular flow of funds through the tax mechanism, and an expansion in the role of the government. Finally, but by no means least, imposing the costs on the parents would tend to equalize the social and private costs of having children and so promote a better distribution of families by size.1

Differences among families in resources and in number of children, plus the imposition of a standard of schooling involving very sizable costs, make such a policy hardly feasible in many parts of the United States. Both in such areas, and in areas where such a policy would be feasible, government has instead assumed the financial costs of providing schooling. It has paid, not only for the minimum amount of schooling required of all, but also for additional schooling at higher levels available to youngsters but not required of them. One argument for both steps is the “neighborhood effects” discussed above. The costs are paid because this is the only feasible means of enforcing the required minimum. Additional schooling is financed because other people benefit from the schooling of those of greater ability and interest, since this is a way of providing better social and political leadership. The gain from these measures must be balanced against the costs, and there can be much honest difference of judgment about how extensive a subsidy is justified. Most of us, however, would probably conclude that the gains are sufficiently important to justify some government subsidy.

These grounds justify government subsidy of only certain kinds of schooling. To anticipate, they do not justify subsidizing purely vocational training which increases the economic productivity of the student but does not train him for either citizenship or leadership. It is extremely difficult to draw a sharp line between the two types of schooling. Most general schooling adds to the economic value of the student -- indeed it is only in modern times and in a few countries that literacy has ceased to have a marketable value. And much vocational training broadens the student’s outlook. Yet the distinction is meaningful. Subsidizing the training of veterinarians, beauticians, dentists, and a host of other specialists, as is widely done in the United States in governmentally supported educational institutions, cannot be justified on the same grounds as subsidizing elementary schools or, at a higher level, liberal arts colleges. Whether it can be justified on quite different grounds will be discussed later in this chapter.

The qualitative argument from “neighborhood effects” does not, of course, determine the specific kinds of schooling that should be subsidized or by how much they should be subsidized. The social gain presumably is greatest for the lowest levels of schooling, where there is the nearest approach to unanimity about content, and declines continuously as the level of schooling rises. Even this statement cannot be taken completely for granted. Many governments subsidized universities long before they subsidized lower schools. What forms of education have the greatest social advantage and how much of the community’s limited resources should be spent on them must be decided by the judgment of the community expressed through its accepted political channels. The aim of this analysis is not to decide these questions for the community but rather to clarify the issues involved in making a choice, in particular whether it is appropriate to make the choice on a communal rather than individual basis.

As we have seen, both the imposition of a minimum required level of schooling and the financing of this schooling by the state can be justified by the “neighborhood effects” of schooling. A third step, namely the actual administration of educational institutions by the government, the “nationalization,” as it were, of the bulk of the “education industry” is much more difficult to justify on these, or, so far as I can see, any other, grounds. The desirability of such nationalization has seldom been faced explicitly. Governments have, in the main, financed schooling by paying directly the costs of running educational institutions. Thus this step seemed required by the decision to subsidize schooling. Yet the two steps could readily be separated. Governments could require a minimum level of schooling financed by giving parents vouchers redeemable for a specified maximum sum per child per year if spent on “approved” educational services. Parents would then be free to spend this sum and any additional sum they themselves provided on purchasing educational services from an “approved” institution of their own choice. The educational services could be rendered by private enterprises operated for profit, or by non-profit institutions. The role of the government would be limited to insuring that the schools met certain minimum standards, such as the inclusion of a minimum common content in their programs, much as it now inspects restaurants to insure that they maintain minimum sanitary standards. An excellent example of a program of this sort is the United States educational program for veterans after World War II. Each veteran who qualified was given a maximum sum per year that could be spent at any institution of his choice, provided it met certain minimum standards. A more limited example is the provision in Britain whereby local authorities pay the fees of some students attending non-state schools. Another is the arrangement in France whereby the state pays part of the costs for students attending non-state schools.

One argument for nationalizing schools resting on a “neighborhood effect” is that it might otherwise be impossible to provide the common core of values deemed requisite for social stability. The imposition of minimum standards on privately conducted schools, as suggested above, might not be enough to achieve this result. The issue can be illustrated concretely in terms of schools run by different religious groups. Such schools, it can be argued, will instill sets of values that are inconsistent with one another and with those instilled in nonsectarian schools; in this way, they convert education into a divisive rather than a unifying force.

Carried to its extreme, this argument would call not only for governmentally administered schools, but also for compulsory attendance at such schools. Existing arrangements in the United States and most other Western countries are a halfway house. Governmentally administered schools are available but not compulsory. However, the link between the financing of schooling and its administration places other schools at a disadvantage: they get the benefit of little or none of the governmental funds spent on schooling -- a situation that has been the source of much political dispute, particularly in France and at present in the United States. The elimination of this disadvantage might, it is feared, greatly strengthen the parochial schools and so render the problem of achieving a common core of values even more difficult.

Persuasive as this argument is, it is by no means clear that it is valid or that denationalizing schooling would have the effects suggested. On grounds of principle, it conflicts with the preservation of freedom itself. Drawing a line between providing for the common social values required for a stable society, on the one hand, and indoctrination inhibiting freedom of thought and belief, on the other is another of those vague boundaries that is easier to mention than to define.

In terms of effects, denationalizing schooling would widen the range of choice available to parents. If, as at present, parents can send their children to public schools without special payment, very few can or will send them to other schools unless they too are subsidized. Parochial schools are at a disadvantage in not getting any of the public funds devoted to schooling, but they have the compensating advantage of being run by institutions that are willing to subsidize them and can raise funds to do so. There are few other sources of subsidies for private schools. If present public expenditures on schooling were made available to parents regardless of where they send their children, a wide variety of schools would spring up to meet the demand. Parents could express their views about schools directly by withdrawing their children from one school and sending them to another, to a much greater extent than is now possible. In general, they can now take this step only at considerable cost by sending their children to a private school or by changing their residence. For the rest, they can express their views only through cumbrous political channels. Perhaps a somewhat greater degree of freedom to choose schools could be made available in a governmentally administered system, but it would be difficult to carry this freedom very far in view of the obligation to provide every child with a place. Here, as in other fields, competitive enterprise is likely to be far more efficient in meeting consumer demand than either nationalized enterprises or enterprises run to serve other purposes. The final result may therefore be that parochial schools would decline rather than grow in importance.

A related factor working in the same direction is the understandable reluctance of parents who send their children to parochial schools to increase taxes to finance higher public school expenditures. As a result, those areas where parochial schools are important have great difficulty raising funds for public schools. Insofar as quality is related to expenditure, as to some extent it undoubtedly is, public schools tend to be of lower quality in such areas and hence parochial schools are relatively more attractive.

Another special case of the argument that governmentally conducted schools are necessary for education to be a unifying force is that private schools would tend to exacerbate class distinctions. Given greater freedom about where to send their children, parents of a kind would flock together and so prevent a healthy intermingling of children from decidedly different backgrounds. Whether or not this argument is valid in principle, it is not at all clear that the stated results would follow. Under present arrangements, stratification of residential areas effectively restricts the intermingling of children from decidedly different backgrounds. In addition, parents are not now prevented from sending their children to private schools. Only a highly limited class can or does do so, parochial schools aside, thus producing further stratification.

Indeed, this argument seems to me to point in almost the diametrically opposite direction -- toward the denationalizing of schools. Ask yourself in what respect the inhabitant of a low-income neighborhood, let alone of a Black neighborhood in a large city, is most disadvantaged. If he attaches enough importance to, say, a new automobile, he can, by dint of saving, accumulate enough money to buy the same car as a resident of a high-income suburb. To do so, he need not move to that suburb. On the contrary, he can get the money partly by economizing on his living quarters. And this goes equally for clothes, or furniture, or books, or what not. But let a poor family in a slum have a gifted child and let it set such high value on his or her schooling that it is willing to scrimp and save for the purpose. Unless it can get special treatment, or scholarship assistance, at one of the very few private schools, the family is in a very difficult position. The "good" public schools are in the high-income neighborhoods. The family might be willing to spend something in addition to what it pays in taxes to get better schooling for its child. But it can hardly afford simultaneously to move to the expensive neighborhood.

Our views in these respects are, I believe, still dominated by the small town that had but one school for the poor and rich residents alike. Under such circumstances, public schools may well have equalized opportunities. With the growth of urban and suburban areas, the situation has changed drastically. Our present school system, far from equalizing opportunity, very likely does the opposite. It makes it all the harder for the exceptional few -- and it is they who are the hope of the future -- to rise above the poverty of their initial state.

Another argument for nationalizing schooling is “technical monopoly.” In small communities and rural areas, the number of children may be too small to justify more than one school of reasonable size, so that competition cannot be relied on to protect the interests of parents and children. As in other cases of technical monopoly, the alternatives are unrestricted private monopoly, state-controlled private monopoly, and public operation -- a choice among evils. This argument, though clearly valid and significant, has been greatly weakened in recent decades by improvements in transportation and increasing concentration of the population in urban communities.

The arrangement that perhaps comes closest to being justified by these considerations -- at least for primary and secondary education -- is a combination of public and private schools. Parents who choose to send their children to private schools would be paid a sum equal to the estimated cost of educating a child in a public school, provided that at least this sum was spent on education in an approved school. This arrangement would meet the valid features of the “technical monopoly” argument. It would meet the just complaints of parents that if they send their children to private non-subsidized schools they are required to pay twice for education, once in the form of general taxes and once directly. It would permit competition to develop. The development and improvement of all schools would thus be stimulated. The injection of competition would do much to promote a healthy variety of schools. It would do much, also, to introduce flexibility into school systems. Not least of its benefits would be to make the salaries of schoolteachers responsive to market forces. It would thereby give public authorities an independent standard against which to judge salary scales and promote a more rapid adjustment to changes in conditions of demand and supply.

It is widely urged that the great need in schooling is more money to build more facilities and to pay higher salaries to teachers in order to attract better teachers. This seems a false diagnosis. The amount of money spent on schooling has been rising at an extraordinarily high rate, far faster than our total income. Teachers’ salaries have been rising far faster than returns in comparable occupations. The problem is not primarily that we are spending too little money -- though we may be -- but that we are getting so little per dollar spent. Perhaps the amounts of money spent on magnificent structures and luxurious grounds at many schools are properly classified as expenditures on schooling. It is hard to accept them equally as expenditures on education. And this is equally clear with respect to courses in basket weaving, social dancing, and the numerous other special subjects that do such credit to the ingenuity of educators. I hasten to add that there can be no conceivable objection to parents’ spending their own money on such frills if they wish. That is their business. The objection is to using money raised by taxation imposed on parents and non-parents alike for such purposes. Wherein are the “neighborhood effects” that justify such use of tax money?

A major reason for this kind of use of public money is the present system of combining the administration of schools with their financing. The parent who would prefer to see money used for better teachers and texts rather than coaches and corridors has no way of expressing this preference except by persuading a majority to change the mixture for all. This is a special case of the general principal that a market permits each to satisfy his own taste-effective proportional representation; whereas the political process imposes conformity. In addition, the parent who would like to spend some extra money on his child’s education is greatly limited. He cannot add something to the amount now being spent to school his child and transfer his child to a correspondingly more costly school. If he does transfer his child, he must pay the whole cost and not simply the additional cost. He can only spend extra money easily on extra-curricular activities -- dancing lessons, music lessons, etc. Since the private outlets for spending more money on schooling are so blocked, the pressure to spend more on the education of children manifests itself in ever higher public expenditures on items ever more tenuously related to the basic justification for governmental intervention into schooling. As this analysis implies, the adoption of the suggested arrangements might well mean smaller governmental expenditures on schooling, yet higher total expenditures. It would enable parents to buy what they want more efficiently and thereby lead them to spend more than they now do directly and indirectly through taxation. It would prevent parents from being frustrated in spending more money on schooling by both the present need for conformity in how the money is spent and by the understandable reluctance on the part of persons not currently having children in school, and especially those who will not in the future have them in school, to impose higher taxes on themselves for purposes often far removed from education as they understand the term.2

With respect to teachers’ salaries, the major problem is not that they are too low on the average -- they may well be too high on the average -- but that they are too uniform and rigid. Poor teachers are grossly overpaid and good teachers grossly underpaid. Salary schedules tend to be uniform and determined far more by seniority, degrees received, and teaching certificates acquired than by merit. This, too, is largely a result of the present system of governmental administration of schools and becomes more serious as the unit over which governmental control is exercised becomes larger. Indeed, this very fact is a major reason why professional educational organizations so strongly favor broadening the unit, from the local school district to the state, from the state to the federal government. In any bureaucratic, essentially civil service organization, standard salary scales are almost inevitable; it is next to impossible to simulate competition capable of providing wide differences in salaries according to merit. The educators, meaning the teachers themselves, come to exercise primary control. The parent or local community comes to exercise little control. In any area, whether it be carpentry or plumbing or teaching, the majority of workers favor standard salary scales and oppose merit differentials, for the obvious reason that the especially talented are always few. This is a special case of the general tendency for people to seek to collude to fix prices, whether through unions or industrial monopolies. But collusive agreements will generally be destroyed by competition unless the government enforces them, or at least renders them considerable support.

If one were to seek deliberately to devise a system of recruiting and paying teachers calculated to repel the imaginative and daring and self-confident and to attract the dull and mediocre and uninspiring, one could hardly do better than imitate the system of requiring teaching certificates and enforcing standard salary structures that has developed in the larger city and state-wide systems. It is perhaps surprising that the level of ability in elementary and secondary school teaching is as high as it is under these circumstances. The alternative system would resolve these problems and permit competition to be effective in rewarding merit and attracting ability to teaching.

Why has governmental intervention in schooling in the United States developed along the lines it has? I do not have the detailed knowledge of educational history that would be required to answer this question definitively. A few conjectures may nonetheless be useful to suggest the kinds of considerations that may alter the appropriate social policy. I am by no means sure that the arrangements I now propose would in fact have been desirable a century ago. Before the extensive growth in transportation, the “technical monopoly” argument was much stronger. Equally important, the major problem in the United States in the nineteenth and early twentieth century was not to promote diversity but to create the core of common values essential to a stable society. Great streams of immigrants were flooding the United States from all over the world, speaking different languages and observing diverse customs. The “melting pot” had to introduce some measure of conformity and loyalty to common values. The public school had an important function in this task, not least by imposing English as a common language. Under the alternative voucher scheme, the minimum standards imposed on schools to qualify for approval could have included the use of English. But it might well have been more difficult to insure that this requirement was imposed and satisfied in a private school system. I do not mean to conclude that the public school system was definitely preferable to the alternative, but only that a far stronger case could have been made for it then than now. Our problem today is not to enforce conformity; it is rather that we are threatened with an excess of conformity. Our problem is to foster diversity, and the alternative would do this far more effectively than a nationalized school system.

Another factor that may have been important a century ago was the combination of the general disrepue of cash grants to individuals (“handouts”), with the absence of an efficient administrative machinery to handle the distribution of vouchers and check their use. Such machinery is a phenomenon of modern times that has come to full flower with the enormous extension of personal taxation and of social security programs. In its absence, the administration of schools may have been regarded as the only possible way to finance education.

As some of the examples cited above (England and France) suggest, some features of the proposed arrangements are present in existing educational systems. And there has been strong and, I believe, increasing pressure for arrangements of this kind in most Western countries. This is perhaps partly explained by modern developments in governmental administrative machinery which facilitate such arrangements.

Although many administrative problems would arise in changing over from the present to the proposed system and in its administration, these seem neither insoluble nor unique. As in the denationalization of other activities, existing premises and equipment could be sold to private enterprises that wanted to enter the field. Thus, there would be no waste of capital in the transition. Since governmental units, at least in some areas, would continue to administer schools, the transition would be gradual and easy. The local administration of schooling in the United States and some other countries would similarly facilitate the transition, since it would encourage experimentation on a small scale. Difficulties would doubtless arise in determining eligibility for grants from a particular governmental unit but this is identical with the existing problem of determining which unit is obligated to provide schooling facilities for a particular child. Differences in size of grants would make one area more attractive than another, just as differences in the quality of schooling now have the same effect. The only additional complication is a possibly greater opportunity for abuse because of the greater freedom to decide where to educate children.

Supposed difficulty of administration is a standard defense of the status quo against any proposed change; in this particular case, it is an even weaker defense than usual because existing arrangements must master not only the major problems raised by the proposed arrangements but also the additional problems raised by the administration of schools as a governmental function.


1. It is by no means so fantastic as may appear that such a step would noticeably affect the size of families. For example, one explanation of the lower birth rate among higher than among lower socioeconomic groups may well be that children are relatively more expensive to the former, thanks in considerable measure to the higher standards of schooling they maintain, the costs of which they bear.

2. A striking example of the same effect in another field is the British National Health Service. In a careful and penetrating study, D. S. Lees establishes rather conclusively that, “Far from being extravagant, expenditure on NHS has been less than consumers would probably have chosen to spend in a free market. The record of hospital building in particular has been deplorable.” (“Health Through Choice,” Hobart Paper 14, London: Institute of Economic Affairs, 1961 p. 58.)

3. See George J. Stigler, Employment and Compensation in Education “Occasional Paper” No. 33, New York: National Bureau of Economic Research, 1950, p. 33.

4. I am abstracting from expenditures on basic research. I have interpreted schooling narrowly so as to exclude considerations that would open up an unduly wide field.

Printed with permission from University of Chicago Press (1962, 1982).

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