Does privatization improve education? The case of Chile's national voucher plan

This paper examines the push to expand public funding for private education in the form of vouchers or charter schools. It assesses school systems where vouchers have been implemented on a large scale, and where private school supply has increased, focussing on the example of Chile.

Findings:

• the Chilean experience with a nationwide voucher plan suggests that “marketizing” education will increase school choice for a certain fraction of parents, but is unlikely to improve educational delivery for more than a small fraction of the school population
• Chile’s experience also suggests that vouchers increase inequality in the school system, mainly through peer effects
• the Chilean results are generally consistent with much smaller voucher experiments and other choice plans in the U.S. (Levin, 1998)
• assuming that the main motivation for privatising education is a profound belief that a public education monopoly restricts individual choice, then expanding choice improves public welfare even if it also produces greater inequality
• the main reasons that increased choice seems to lead to greater inequity are that “better” privately-run alternatives to public schools are more likely to locate in areas where they can attract “lower cost” students, and that many parents do not realise their first choice of schools. If schools operate for profit, or even as non-profit private organisations, it is almost impossible to prevent them from selecting where to locate and from selecting students
• one way to reduce the unequal side effects of vouchers is to target them. By limiting vouchers to low-income families, it is more likely that some high quality private profit or non-profit providers would enter the inner city market. But to achieve that goal, voucher values will have to be as high or perhaps higher than current public school costs per student, especially if the number of vouchers is larger than existing Catholic school excess capacity

The paper concludes that the original Friedman idea that private schools would deliver education equal in quality to current public education at one-half the price has never been realised in practice. Private providers will demand at least as much as per student costs in local public schools and will avoid taking special education students. The political question then becomes whether legislators will pass voucher plans that provide large vouchers to low-income families but not to middle class families.