Can the Free Market Provide Public Education?

Entrepreneurship Can Produce Good Education for a Mass Society


These remarks were presented at the Children’s Scholarship Fund conference “Freedom and Equal Opportunity in Education,” January 12, 2000, in New York City.

The short answer, of course, is: yes, look around. Right now, private enterprise and nonprofit organizations provide all manner of education—from comprehensive schools with classes in the traditional academic subjects, to specialized schools that teach everything from the fine arts to the martial arts, from dancing to dieting, from scuba diving to scrutinizing one’s inner self.

If we define “public education” as “what the government does now,” then it’s a trick question. Every school serves members of the public. For the sake of this discussion, we can ignore that the word “public” has been corrupted to mean “coercively financed through the tax system.” As an aside, there are signs that the words “private” and “market” are on their way to corruption as well.

The free market—and I include here both for-profit and nonprofit organizations—would provide even more education than it does now but for the “unfair competition” from government. Since government has a resource that private organizations lack—the taxpayers—it’s able to offer its services for “free.” They’re not really free, of course; in the government context, “free” means that everyone pays whether he wants the service or not. Clearly, as long as government can tax its citizens and then provide educational services to them at a marginal price of zero, much private education will never come into being. How ironic that government vigilantly looks for predatory pricing in the private sector when it is the major offender.

There is certainly nothing about education that should lead anyone to doubt that the market could provide it. Like any other product or service, education is a combination of land, labor, and capital goods directed at a particular objective—instruction in academic subjects and related matters demanded by a class of consumers, primarily parents.

Here’s where things may get contentious. Critics of market-provided education are uncomfortable with education’s being treated like a commodity, subject to supply and demand. In the marketplace, consumers ultimately determine what is produced. Entrepreneurs take risks to serve them. And fickle consumers show no mercy when something new and attractive comes along. Ask the shareholders of Boston Chicken, among others.

Why should parents alone determine what is and what is not acceptable education? But why not parents? To whose hearts are the interests of children closer? Besides, most parents would no more make educational decisions without consulting knowledgeable authorities than they would make medical decisions without consulting doctors. The uninformed-consumer argument against free-market education is a red herring.

Parents, and the private sector, should be free to determine what is and what is not acceptable academic education for the same reasons they are free to determine what is proper religious education. We don’t use the small number of neglectful parents as a pretext for government control or finance of religion. Nor should we use it as a pretext for government control or finance of schooling.

Defenders of government schooling have enlisted various economic arguments related to “market failure” to dispute the idea that parents in a free market should ultimately determine what educational services are offered. These arguments fail. Education does not have the characteristics of a “public good.” One person’s consumption of a given service can detract from another person’s consumption, and nonpayers can be excluded.

Nor does the positive-externality case succeed. Education obviously does have spillover benefits, but that is not enough in economic theory to justify government action. You would have to believe that the external benefits would cause education to be under-consumed unless the government subsidized it. No one has ever shown that. Nor could anyone. To believe that, you’d have to believe that parents engage in the following reasoning: I’d like to buy X amount of education for my child, but since society will benefit by my child’s erudition without paying anything for it, I’ll buy less than X amount of education. Ridiculous, isn’t it?

The argument that high-quality education is intrinsically too expensive for a significant portion of the population to afford also fails. A free market that can saturate society with refrigerators, microwave ovens, washing machines, and telephones—cellular and otherwise—can surely produce good education for a mass society. The key is entrepreneurship.

We think we know what education is and what methods work. And we do know some things. This sense of certainty might encourage us to think that education is best left to government. But we shouldn’t be so presumptuous, or we could wind up like the nineteenth-century Patent Office official who said the office should be closed because everything useful had been invented.

The world is open-ended. We don’t know exactly what we will learn tomorrow. As fallible beings, we can be sure that at any time, valuable information and opportunities are being overlooked. Scarce resources are being misdirected because our knowledge is incomplete. This is as true for education as for anything else.

What can we do to hasten the discovery and correction of error? We already have a method: entrepreneurship. What entrepreneurs do is search the landscape for instances where resources are being under-used, that is, devoted to the production of goods and services that consumers value less highly than other things those resources might be devoted to. What lures entrepreneurs to discover those instances is profit. Nothing approaches its power to stimulate discovery. Profit accrues when an alert entrepreneur, noticing what others have overlooked, switches resources from producing things consumers value less highly to producing things consumers value more highly.

The application of this principle to education should be obvious. Since we don’t know today all that we may learn about educational methods and objectives tomorrow, we need entrepreneurship in education. Government isn’t up to the task. Bureaucracy is the opposite of enterprise. It stifles enterprise. Government domination of education assures that the entrepreneurial innovation and creativity we are accustomed to in, say, the computer industry will be missing from education. There is no good substitute for the decentralized, spontaneous entrepreneurial process that full privatization of education would stimulate. But entrepreneurship has preconditions: freedom and private property on both the supply and demand sides. That means no government money. Asking for government finance is equivalent to the Founding Fathers’ asking King George to finance the American Revolution. He might have agreed—but it would have been a very different revolution.

Thus it is not only the case that the free market can provide education. We may conclude further that only the free market should provide education.


June 2000



Sheldon Richman is the former editor of The Freeman and, and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families.

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