The Empty Aisles of Marketplace Reform

A decade-long experience with wide-open school choice in New Zealand should serve as a warning to those advocating the same here by EDWARD B. FISKE AND HELEN F. LADD

Many school reformers today argue that what public schools need is more competition. Force schools to compete for students in an educational marketplace, the argument goes, and everyone will be a winner. Schools will work hard to attract more students. Students and parents will have more options. The overall quality of teaching and learning will rise.


Whether this approach will solve the problems of schools serving high proportions of disadvantaged students is an open question--if only because the application of market principles to the delivery of public education has yet to be tested on a large scale in American schools.

To be sure, there are a few examples of "controlled choice" systems, such as Cambridge, Mass., and Boston, that give parents a choice of schools, subject to rules governing distribution of students by race or socioeconomic status. But the charter school movement, currently the most popular market-based approach to school improvement, is very young, with most charter schools in operation for less than three years. Voucher experiments, which would extend the concept of competition outside the public sector, are too few and too small to offer much evidence, positive or negative, about the impact of competition.

Fortunately, there is a place, actually a whole country, where market-based reforms have been in place long enough to draw some conclusions about their impact. The country is New Zealand. With a population of 3.8 million, the island nation is the size of a typical American state, and its national Ministry of Education is thus the functional equivalent of a state education department under our decentralized system.

New Zealand's experience is particularly relevant to the United States because it shares similar political, economic and cultural traditions and, like our nation, it has a substantial minority-group population, with Maori and Pacific Islanders making up 20 percent of the population.

What transpired in New Zealand should serve as a warning to those who put their faith in market-based reform.

Up-Close Observations
So how did New Zealand go about organizing its educational marketplace?

In 1989, under a plan known as Tomorrow’s Schools, the Labour government then in power abolished the national Department of Education, which had overseen state schools for decades, and turned control of its nearly 2,700 primary and secondary schools over to locally elected boards of trustees.

Virtually overnight, legal responsibility for governing and managing New Zealand’s state schools shifted from educational professionals to boards dominated by lay volunteers, and one of the world’s most tightly controlled public education systems became one of the most decentralized. The central government continued to fund the education system, negotiate teacher contracts and enforce accountability through an inspectorate system.

Helen Ladd and Ted Fiske trek in the hills near Christchurch on the South Island of New Zealand.

Two years later New Zealand ratcheted up the stakes of school reform another notch. A newly elected government of the National Party committed to New Right (neo-liberal) social principles abolished neighborhood enrollment zones and gave parents the right to choose which school their child would attend. Primary and secondary schools found themselves competing for students against other schools in an educational agora. Public relations and marketing skills became as integral to the job description of principals as knowledge of curriculum and the ability to manage a faculty.

We had the opportunity to observe these changes during five months in New Zealand in the first half of 1998. Our intent was to discover what lessons the Tomorrow's Schools reforms might offer for the United States and other developed countries interested in giving schools operational autonomy in a competitive environment. We learned quite a few.

The decision to give schools the right to make their own decisions in areas ranging from pedagogy to the hiring of principals and teachers was a popular move, and most, though by no means all, schools were able to assemble boards of trustees competent enough to carry out their responsibilities. Large numbers of parents also took advantage of their right to exercise choice, and even critics admit that the parental choice genie is now out of the bottle for good.

Mixed Outcomes
Whether thrusting schools into a competitive environment was positive or negative is a somewhat more complex question. The answer depends on where you look.

The educational marketplace seems to be working well in stable areas such as the Upper Hutt Valley, which runs for 20 miles north of Wellington and includes communities ranging from prosperous hillside enclaves like Stokes Valley to flatland towns like Taita that owe their existence to state housing projects. A commuter railroad links these towns with Wellington, carrying thousands of workers into the capital city each day and offering easy mobility to students who choose to enroll in schools at some distance from their homes.

For many years Upper Hutt College was the dominant secondary school in the upper valley, with enrollments that hovered around 1,300 students. It served students from affluent areas to the north and was known for turning out students who scored well on school-leaving examinations. By contrast, Heretaunga College, a high school located only a mile away, was the poor country cousin. It drew heavily from state housing projects to the south and, with rolls that rarely topped 900 students, seemed to lack distinction of any kind.

In the early 1990s, as the Tomorrow’s Schools reforms began to make themselves felt, the two schools became locked in a battle for students. Brian Robb, who had become principal of Heretaunga in 1988, set out to change the lackluster image of the school where as a young teacher he had taught social studies. He conducted focus groups to determine what the community wanted from its secondary schools and began promoting Heretaunga as a school that cared not only about test scores but about students’ overall welfare.

Robb mounted a computer literacy program for entering students and joined the local Rotary Club. He adopted a more stylish school uniform, wrote articles promoting the school for the local newspaper and began building relationships with the principals of primary and intermediate schools in the area. Perhaps most important, he conspicuously suspended some disruptive students to send out a pivotal message to the community about the school’s values.

Reversal of Roles
Meanwhile, Upper Hutt College was falling on hard times. Its principal alienated students and parents by what many regarded as his overzealous interest in the rugby team, and he was widely viewed--to use a favorite Kiwi phrase--as having stayed in office beyond his "use by" date. The school community was shocked by a series of student suicides. Although its examination results remained impressive, Upper Hutt came to be seen as an uncaring place and found itself shunned by many potential students and parents.

Soon the traditional fortunes of the two schools had flipped. Enrollment at Heretaunga rose from 864 students in 1992 to 1,030 in 1998, while the rolls at its competitor plunged to a low of 769 in 1996. That was the year that the Upper Hutt board of trustees brought in Peter Lee as principal and charged him with reversing the decline.

Lee took his assignment seriously. He signaled his concern for the quality of teaching in the school by visiting classes and demonstrated his intent to increase the quality of the educational experience for minority students by building a marae, or meeting place, for Maori. He took out newspaper advertisements promoting the impressive examination results of Upper Hutt students. Above all, Lee recruited vigorously and aggressively, even traveling abroad to recruit fee-paying students from Asia and Brazil.

Back home, Lee set his sights on students who were likely candidates to enroll in Taita College, a high school to the south, and he did not shy away from hardball tactics. His predecessor had initiated a controversial policy of sending a bus each day into Stokes Valley to make access to Upper Hutt easy, and Lee added a second bus. He also enlisted a board member who worked in the office of Avalon Intermediate School, a Taita feeder school, to surreptitiously obtain a list of the names and addresses of graduating students and then sent out letters inviting them to come to Upper Hutt.

When his tactics became known, Lee was roundly criticized by fellow principals. He later admitted that sneaking the mailing list was inappropriate behavior and assured the principal of Taita that he would not do it again. As for the busses, though, he remained unrepentant. "I was appointed to turn around a school," he told us. "If I have to raid Stokes Valley, I’ll do it. It’s the market working. I don’t particularly like the system, but it’s the one I’m in, so I’ll work it."

Popular or not, Lee's marketing and recruiting efforts paid off, and by 1998 enrollment at Upper Hutt, not counting foreign students, had crept back up to 829.

In spite of the flap about Lee's marketing methods, competition in the Upper Hutt Valley appears to have had an energizing effect. Students and parents took seriously their new right to select among competing secondary schools, and the resulting reversal of fortunes of the two institutions can be seen as a textbook example of an educational marketplace at work.

As Lee describes the new competitive environment, "One of the advantages of Tomorrow’s Schools is that it sharpens your focus. It makes you more conscious about the need to deliver quality education." Indeed, it may well be the case that the quality of education has gone up in many schools, although that cannot be quantified because New Zealand does not have a comprehensive national testing system.

Uneven Rules of Play
One factor that fostered vigorous competition in the Upper Hutt Valley is that the two schools were competing on a relatively level playing field. Elsewhere, however, the playing field is not so level. One place where it most certainly is not level is South Auckland.

South Auckland is a low-income area of New Zealand's largest city that shares most of the social pathology of distressed urban areas. A high proportion of residents are Maori and Pacific Islanders, many of the latter being recent immigrants with poor English skills. Health problems are rampant. The violence, alcohol and drug abuse, lack of self-esteem and other problems that characterize the area were powerfully depicted in Maori writer Alan Duff's novel and subsequent film Once Were Warriors.

Schools in South Auckland are characterized by low achievement, high dropout rates and other problems associated with poverty, and much effort goes into simply trying to keep pupils fit to learn. At Tamaki College, for example, health problems such as iron deficiency and high cholesterol levels are rampant among students, and a high percentage of students arrive without having had breakfast.

To deal with such issues, the school set up the Puna Waiora Health Center in a renovated classroom building. The center, whose name means Healing Spring, houses three fulltime staff members--a guidance counselor, a social worker and a nurse--and is financed jointly by the school, the Ministry of Education and social welfare agencies. A family physician visits the school on Wednesdays. The center runs regular programs aimed at managing anger and raising student self-esteem, and the three staff workers work together to identify and deal with problems such as violence or sexual abuse in the home, in some cases making referrals to the judicial system.

Tamaki and other schools in South Auckland had faced such problems well before the Tomorrow's Schools reforms of 1989 and 1991, of course, but being thrown into the educational marketplace exacerbated the problems. Thousands of families and students took advantage of the right to enroll in schools in other areas of the city. Declining enrollment meant that schools lost teachers, which in turn made it more difficult to offer coherent academic programs. New Zealanders refer to such schools as downwardly "spiraling."

In October 1995 one of New Zealand’s major broadcasting networks, Television 1, aired a prime-time program titled "The Forgotten Schools" that documented the shattering effect of the Tomorrow’s Schools reforms on several secondary schools in South Auckland.

The television reporters showed how enrollments and staff sizes at these schools had plummeted because of the large numbers of students opting for secondary schools elsewhere. They interviewed teachers and principals about their struggles to halt the spiraling, and questioned students about what it was like to feel trapped in a school that had been shunned by many of their peers and where half of the students ended up with no formal academic credentials. Among those interviewed was Eliza Osterika, a student at Tangaroa College who said she dreamed of going into medicine but quickly added, "At our school dreams seem so far away."

"The Forgotten Schools" was a milestone in public perceptions about the Tomorrow’s Schools reforms. For many New Zealanders it provided the first concrete evidence that the reforms had seriously compounded the difficulties of some schools. Aware of the impact that the program might have on public opinion, a nervous Ministry of Education chose the eve of the broadcast to announce the release of some previously promised funds to assist schools in South Auckland.

Government Intervention
Since then, the Ministry of Education has embarked on an escalating series of programs under the rubric of the School Improvement Project aimed at providing assistance to schools that turned out to be the losers in the educational marketplace, most of them in distressed urban areas.

At first, ministry efforts were aimed at improving the managerial capabilities of schools such as Tamaki and Tangaroa. This approach was consistent with New Right principles, dear to the National Party leadership at the time, affirming that the key to setting up a successful school system was to give schools operational autonomy and the right kind of incentives and then let them loose in an educational marketplace.

The schools in South Auckland had operational autonomy, and they also had strong incentives to offer a strong academic program and to attract students. In many cases they had manifestly good leadership and management. Despite all these assets, they still found themselves unable to compete successfully in the educational marketplace.

With political pressure mounting to come to the aid of failing schools and the students they served, the National government in the late 1990s gradually expanded central support to "losers" in the educational marketplace. Clusters and coalitions were formed and given financial support to encourage them to work together--not compete--in solving common problems.

Many government officials, especially those at the treasury, resisted escalation of the School Improvement Project because it had no basis in the theory of the educational marketplace. Autonomy, incentives and good management were supposedly the keys to educational success, and schools that could not get their acts together should just go out of business and be replaced. It turned out, however, that closing a public school was near-impossible politically, and there was no reason for any other group of educational entrepreneurs to expect they could move into a place like South Auckland and compete any more successfully than the spiraling schools.

By 1998, top ministry officials were ready to admit that however well the educational marketplace might be suited for places like the Upper Hutt Valley, it could never become the model for the entire country. "Some schools will never work under this system, and for them we will have to have a different system," said Brian Donnelly, the associate minister of education at the time. "Some will have to be back under direct control of ministry, and South Auckland will get a design for schooling that will be unique."

In December 1999, New Zealand voters decided that nine years of National rule was enough and elected a new government run by a Labour-led coalition. While tweaking the rules but otherwise maintaining parental choice, the Ministry of Education has now abandoned the rhetoric of educational marketplaces and in recent months has increased funds available to the School Improvement Project.

A Proxy for Quality
So what went wrong with the marketplace model for education in New Zealand?

Part of the answer lies in the criteria that parents use to choose schools for their children. A good deal of research shows that the key factor for New Zealand families, including many Maori and Pacific Island ones, is the economic, social and ethnic mix of students in schools they are considering. In the absence of systematic data on student achievement, parents assume that schools with predominantly white and wealthy student bodies are superior to those with less prestigious profiles. As Margaret Ngatai, principal of Rowley Primary School in Christchurch told us, "People see little brown faces coming in our gate and immediately think that it's not a very good school."

The use of student mix as a proxy for quality in evaluating schools has at least two important consequences in the educational marketplace. First, it means that schools that start off with a high proportion of low-income or ethnic minority students are at a competitive disadvantage right from the get-go. Such schools are doomed to declining rolls, while competitors serving more advantaged populations are positioned to see their enrollments increase.

Second, it contributes to a concentration of difficult-to-teach students in the less selective schools. Over time, schools such as Tamaki and Tangaroa, which had empty seats and were thus obligated to take all applicants, found that they were serving a higher and higher proportion of students with learning or behavior problems, students with limited English proficiency or students who had been suspended from other schools. In short, enrollment across the system became increasingly polarized by ethnicity, socioeconomic status and the extent to which students presented educational challenges.

Benefits Undermined
Perhaps the most important lesson that New Zealand's experiment with the educational marketplace has to offer to the United States and other developed countries has to do with the creation of winners and losers. That's exactly what competition is supposed to do--create winners and losers.

New Zealand's experience suggests that it is dangerous--even morally wrong--to organize a state education system in such a way that you know from the outset that, if the system works the way it is supposed to work, you will do great harm to some schools and families. Such a system might be justified if competition meant that all schools improved and winning and losing was relative, but this was certainly not the case in South Auckland.

Alternatively, such a system might be tenable if central authorities, knowing that some schools would soon start spiraling downward, stood ready to come to the aid of them and the families they served and to do so sooner rather than, as in New Zealand's case, later. Such an approach would, of course, undermine some of the alleged benefits of competition by lowering the price of failure.

The situation in the Upper Hutt Valley demonstrates that parental choice and competition among schools for students can have an energizing effect on public schools, but the plight of schools in South Auckland shows the other side of the coin. Whatever its benefits, the competitive model cannot be counted on to solve the problems of schools serving substantial numbers of disadvantaged students. To the contrary, it will exacerbate these problems.

Edward Fiske, former education editor of The New York Times, is a free-lance writer and consultant. He can be reached at 1723 Tisdale St., Durham, NC 27705. E-mail: efiske@aol.com. Helen Ladd is a professor of public policy and economics at the Terry Sanford Institute at Duke University. Their book, When Schools Compete: A Cautionary Tale, was published earlier this year by The Brookings Institution Press