Ep. 49: Rethinking Regulation with Mike McShane

May 22, 2018

In this episode of EdChoice Chats, our Director of State Research and Special Projects Drew Catt discusses our newest research with the author and EdChoice’s Director of National Research Mike McShane. The new report is called Rethinking Regulation, and in it, McShane posits a four-step solution to optimizing how we regulate schools and education providers in K–12 education.

(You can download the full report from our research library by clicking: Rethinking Regulation.)

Drew Catt: Hello, and welcome to another episode of EdChoice Chats. I’m Drew Catt, and I’m here today with Mike McShane to discuss his latest work, a report called Rethinking Regulation. Thanks for joining us today, Mike.

Mike McShane: Hey, thanks for having me. It’s fun to be on this side of the microphone.

Drew Catt: Yeah, great. Let’s begin at the most logical place, which is what inspired you to work on this piece? What did you set out to discover?

Mike McShane: I have the opportunity to speak all around the country about school choice, so, to college students, to civic organizations, at academic conferences. And, almost inevitably, after every one of those speeches where I extol the virtues of school choice, someone comes up to me and says, “I’m the traditional public school teacher or I’m a principal or I’m somehow involved in public schooling, and if we were freed from the same regulations that charter schools or private schools were, we could be as every bit as good as they are.”

I have had the chance to think about that and thought, you know, that seems like an imminently reasonable proposition. I think that both our traditional public school sector and increasingly, our school choice sectors are being micromanaged by regulators. Regulators take numerous forms when it comes to this. Economists would tell you that the definition of regulation is just requirements that the government imposes on firms and individuals to achieve the government’s purposes. Those regulations could come in the forms of laws that are passed by state legislatures or the federal government or local school boards; it could be actual policies that local school districts or states construct; or it could be regulations that are drafted by state education agencies or local education agencies.

The sum total of all of these laws, regulations, policies, rules that are drafted by these organizations is an at times incoherent and stultifying raft of requirements that schools have to meet—many of which have little to do with actually meeting the needs of children. That was kind of the spark for all of this, and as I dug into it more thinking more about the types of things that schools are required to do just lead me deeper and deeper down the rabbit hole.

Drew Catt: Yeah, I’m sure that’s quite a deep rabbit hole to dive down. Who are your recommendations aimed at in this report, and are lawmakers the only ones who can affect the changes you suggest?

Mike McShane: No, the recommendations are aimed at lawmakers definitely because they are the people who write laws that codify a lot of these requirements. But they are also directed towards the primary regulators of schools, which are people in state education agencies and local education agencies. Those are the people that operationalize laws once they get passed. They develop a lot of the reporting requirements, a lot of the definitions. They clarify a lot of the things that happen in law. A lot is directed towards them.

There’s also a bit that’s directed towards the kind of quasi-governmental agencies that exist in education, groups like charter school authorizers or government bureaucracies that oversee private school choice programs. It’s directed towards them, as well. Basically, anybody that places requirements on schools, this paper is geared toward you.

Drew Catt: Yeah, okay. Before we delve deeper into this topic, some of our listeners might need a bit of a crash course. Historically, how has government justified increasing or decreasing regulation and education?

Mike McShane: Part of what I try to do in this paper is look towards other sectors that have deregulated or have rethought regulation throughout the years. I used two tacks to kind of center the work that I did, both of which are very old or reasonably old. One is Alfred E. Conn’s The Economics of Regulation from the 1970s, and one is Steven Brier’s Regulation and Its Reforms from the 1980s. Luckily, both of these volumes talk about the historical justification for regulation, and again they’re talking about sectors other than education, but many of them apply to education.

Some examples of this could be the control of monopoly power. Insofar as school districts act as geographic monopolies, rules are crafted by the federal government, by states, and by localities to shape their behavior and what they do. We have regulations to compensate for spillover effects. Those are, if we think of it from a context outside of education, if a factory pollutes a river, let’s say they’re making aluminum cans. When you sell that to the beer company, the beer company pays $0.05 for every can, but the true cost of creating that can is also borne by all the people downriver whose lives will be affected by the pollution that the plant produces.

In education, we see spillovers because children go out into the world and if they are ignorant, their ignorance affects all of us. There are other reasons: inadequate information, unequal bargaining power, moral hazard… And frankly, rightly or wrongly, a lot of it has to do with paternalism. There are also regulations around things like scarcity and fears of cream skinning.

I outline in the paper eight different historical justifications. I throw a ninth one in, which is this fear that existed before about excessive competition. It doesn’t really exist in other fields, but people still really seem to care about it in education. I walk through all nine of those and talk about both how they’ve been applied in other areas and how they’ve been applied in education.

Drew Catt: What is the regulatory process like now in education?

Mike McShane: I walk through two examples of how regulation is crafted. At the core of the regulatory process is something called standard setting. Again, if we think outside of the world of education, we think about regulations of automobiles, standards are set by what bumpers are supposed to look like, how seat belts are supposed to work, how head restraints are supposed to function, and rules are written forcing cars to comply with that.

The same thing is true in education. Standards are set around what children are expected to know by particular grades, how schools are supposed to function, and then rules are drafted to make sure that schools comply and meet those particular standards.

Another way that the regulatory process happens is through what’s called individualized screening. The first set is setting these broad sets of standards and then requiring the schools prove that they meet these standards. In other cases, regulators will act on case by case basis to try and determine whether schools and in some cases teachers are meeting the standards that they need to. Consider this the FDA approach. A new drug wants to come onto the marketplace, the FDA will look at it on a case-by-case basis of whether or not that should be allowed. This is something that we see in charter school authorizing where authorizers or state boards or local education agencies make a case-by-case decision as to whether or not those schools should be able to operate. Those are two ways in which the regulatory process actually plays out in education.

Drew Catt: Yeah. You suggest some steps to reform how we regulate education in this report. What’s the first step? Where should we start?

Mike McShane: I think the first and most important step is to rethink the standard setting process. I think that lots of folks have a mistaken view of how educational standards are set. I think they think that it’s disinterested experts that get together and have some consensus around what a fourth grader is supposed to know or what a fifth grader is supposed to know. As it turns out in a lot of these cases, states will get together a group of stakeholders and put them in a room and have them hash it out. In a democratic system where schools are supposed to represent the values of a community, I don’t necessarily think that there’s something wrong with that, but we should be clear that it’s that group of people’s opinions and that there may be people who dissent from that or want something different for their children.

Reforming the process by both an understanding of the limitations to how standards are currently drafted and a thought to how can we simplify and clarify standards. I give some examples of just the sheer number of standards that schools or children are expected to meet. How can we whittle that down? How can we say, listen, we want to focus on harm reduction, making sure that schools aren’t harming children, as opposed to micromanagement of schools.

Drew Catt: Yeah, and we still want to leave our listeners plenty of reasons to read your report, so I won’t ask you to reveal everything you’ve outlined in it, but how many steps are there? Can you give us a high-level look at the rest of these solutions?

Mike McShane: I argue that step one is reforming the standard setting process, and I give a few different ways in which states and local education agencies might be able to do that. The second step I walk through is trying to focus on the worst actors. Again, when you change your orientation from micromanagement to harm reduction, you realize it’s not necessarily the regulator’s position to try and deal with every single potentiality but rather to focus on trying to stop the worst things from happening.

The third step that I offer is trying to use carrots before sticks. Regulation, as Steven Brier argues, is a really blunt tool to try and accomplish what you want to accomplish, and as Conn argues essentially is a negative proposition where you tell people what they cannot do and then you check to make sure that they aren’t doing it. As a result if we actually want to promote better schools or promote particular types of behavior, it may be much more healthy to try and use incentives as opposed to regulation. I try to sketch out what exactly that would look like.

And then the last step is to try and encourage regulators to respect the hidden benefits of innovation. Unfortunately, oftentimes regulation is based around stuff that we can see, some things that we can quantify, things that we can measure. But a lot of values that we have in education around things like diversity, around things like innovation have hidden benefits. Regulation that prevents innovation from happening or stifling diversity can have real costs but costs that are hard to measure. I offer some ideas about how people can think about respecting these hidden benefits of innovation.

Drew Catt: Well, what you’ve told us so far sounds like a no-brainer. Why do you think reforms like this haven’t happened yet?

Mike McShane: I think a lot of this comes down to risk aversion. No one wants to be the person who says, “Oh, you got rid of regulation X, and then Y bad thing happened. This is all your fault.” The same thing might be true in the charter world. I spent some time talking about how people are much more worried about false positives than false negatives. They’re much more worried about saying that a bad school is good than saying that a good school is bad. They would much rather say, “Oh, we’ll keep out a couple of potentially good schools if it means keeping out a whole bunch of bad schools.”

I think that basically changing that view, perhaps becoming a little bit more comfortable with risk, understanding the costs of inaction, understanding these hidden benefits can change that orientation, but to answer your question I just think a lot of this comes down to risk aversion.

Drew Catt: Well, that makes sense to me. Now, a lot of folks might disagree that reducing regulations in education will make it better. They’ll also claim that the democratic process has brought us to the regulatory landscape we’re in today. How would you respond to those critics?

Mike McShane: The big thing for me is that thinking about regulation is essentially thinking about weighting trade-offs. There is no such thing as the right or wrong amount of regulation, there’s just levels of costs and benefits that each individual state, that each individual municipality or schooling system has to weigh out between them.

I would challenge, though, folks who think that we have the right level of regulations to really take a hard look at the education code of their state to look at the number of requirements that are placed on schools or, frankly, to ask educators that are tasked with keeping up with them whether they think that these regulations are actually helpful or harmful. I understand the inertia, the lack of desire to change them, but I think that we would see a broad based consensus that there’s too much micromanagement happening at the federal and the state and then even times even at the local district level.

Drew Catt: Yeah, and I’m sure a lot of states have seen a drastic increase over time in the number of regulations specifically to education. I remember from some of my previous presentations that I gave a couple of years ago I had a clip of Milton Friedman walking around a room showing the growth just in the federal register with all of the federal regulations growing over time, so I’m sure, as I said, that individual states have seen this on a much larger level with education.

Mike McShane: Yeah. I wrote a piece a couple years ago where I looked at just one legislative session in Missouri where I live and just the number of laws that were passed to try and regulate schools to change what they do. And then if you think that on top of those laws will be all of the rules that are written by the state education agency or the local education agency, and then on top of all of those will be the policies that local school districts or even that the state might create in order to comply with those, then you start to see just how much stuff we’re talking about here.

Drew Catt: Yeah. Well, this has been excellent. Is there anything we haven’t covered that you think our listeners should know about Rethinking Regulation?

Mike McShane: I think the big thing that I want this piece to convey to people is this idea of weighing trade-off. In my recommendation section, I offer a lot of different ideas of ways in which states or localities could try and cope with this. The idea of that section is not to be some kind of blueprint, you have to do this or you have to do that, it’s more of a way of thinking about solving these problems and working through this. There is no one-size-fits-all solution. I wanted to just give opportunities for people to think about it and to weigh the various trade-offs.

I think if read in that spirit, hopefully it will be something that is helpful for regulators, legislators, advocates and researchers to think about this problem.

Drew Catt: All right. Well, thank you so much for joining us, Mike.

Mike McShane: Hey, thanks for having me.

Drew Catt: And props also go out to our listeners for taking the time to learn a little bit more about this new study.

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