A few days ago, an op-ed in the Wall Street Journal (WSJ) claimed to answer “what Uber and school choice have in common.” Courtavich, the author of the article, juxtaposes two industries–education and transportation–that are facially very different but whose underlying concerns may, in fact, be quite similar. The answer proffered by the article begins and ends with choice; but Courtavich fails to discuss with any sophistication the potential dangers that come with that choice.
Embracing Uber’s tagline, ”Choice is a Beautiful Thing,” Courtavich praises the power of Uber to provide choice in transportation, likening it to the provision of scholarships to underprivileged inner-city children. Furthermore, he condemns “entrenched interests,” points to the demand for Uber’s services and cites Uber’s market capitalization–a $17 billion valuation– as justification of Uber’s social value.
Yet, Courtovich completely misses the most interesting connection between Uber and school choice: both Uber and school scholarships reflect an attempt to bring a market-based solution to a domain usually believed ill-suited for markets. Both transportation and education are considered public goods–wherein willingness-to-pay tends to result in underinvestment, overinvestment, or general misallocation. Therefore, simply the fact that Uber has high-demand and is economically profitable does not imply that Uber is socially beneficial. That is because the proper concern with market-based solutions to public goods is not demand but supply.
Transportation infrastructure provides a positive externality: increased access improves the economic prospects of a municipality. In order for supply to be appropriate, it must not only supply enough in the aggregate but also properly allocate it. In a regulated taxi-based scheme, taxis may be obligated to cover unprofitable routes that can be cross-subsidized by allowing rent-seeking in other more profitable routes. However, an unregulated Uber-based transportation system does not necessarily ensure the appropriate supply. For instance, important routes may lack the frequency or price point to incentivize an Uber driver to operate that route. Choice does nothing to insure that private Uber actors will provide an individually unprofitable but socially desirable route.
The introduction of unqualified unregulated choice into education is even more concerning. Similar to the Uber reform of the market for transportation, market-based approach to education presents supply-side concerns. Less popular educational programs that cater to a certain demographic or whose demand is volatile may not be profitable or stable enough to exist in a market-based education system.
Additionally, simply because people demand a certain educational structure does not ensure the value of that education. Take for instance the rampant growth of the for-profit colleges that exploit information asymmetry to take advantage of the Veterans and G.I. Bill. While these schools have struggled recently, they still have a large market capitalization. For example, the Apollo Group, which runs the University of Phoenix, has $2.77 billion market capitalization as of September 30, 2014 and an enrollment that totals in the hundreds of thousands. The University of Phoenix is in high demand and is profitable. Contrarily, its educational benefit is questionable.
Lastly, education is also instrumental in developing virtuous citizenry. A simple demand system based purely on preferences does not necessarily or usually coincide with encouraging the good life. Not all preferences are equal.
Courtovich is right to condemn “entrenched interests” and encourage greater choice in transportation and education, but he ought to remember that choice is not invariably good.