Hoxby is Associate Professor of Economics at Harvard University and has conducted research examining the value of competition to public schools.

First of all, I don't think the crisis has very much to do with higher education, at all. I think most people feel pretty happy about the higher education system in the United States. People are really talking about K through 12 education. And when we talk about the crisis, I think it's important to talk about what the crisis is. We don't have an achievement crisis in the United States. We have achievement that is, perhaps a little bit better, maybe about the same, perhaps a little bit worse, than it was in 1970. So there's no "crisis" in the sense that achievement has been deteriorating.

However, we want out students to have the best education in the world. And a lot of countries have improved their education a lot since 1970, whereas we stayed about the same, maybe a little bit better. And I think, increasingly, we're feeling mediocre in the world of industrialized nations. We're not doing the worst, in terms of math and science and reading and writing, but we're certainly not doing the best amongst other nations with similar industrial composition.

So I think that's one of the worries. The other worry is that we've been spending a lot more on education since 1970. Education spending has gone up by about 85% in real dollars since 1970. So, I think that the spending has been going up because people want to have education that's getting a lot better over time, and having it stay about the same or getting a little bit better is not making people happy.

Now, you're an economist and, in general, to over-simplify, your theory is that competition within schools, between public schools and between different types of schools and public schools, improves schools over all. Is that, generally, your view?

I think that school choice or competition among schools has three major effects, or could have three major effects. One of them is what you just mentioned. It's an improvement in the efficiency of schools, and that really means that you get more achievement for the same dollar, or that if you spend more dollars, you're definitely going to get a big improvement in achievement for it. So that's one potential effect, and I think that's the one that we like to focus on the most because it's what we need the most. I think the second potential effect is that you could get schools that are more innovative or that are better matched to students' needs. And, again, that's somewhat similar to what we might see in the private sector, or you might see a company start-up that really serves consumers who have a certain niche demand. So that's the second potential effect. And the third potential effect is that it could change the way that students are sorted among schools, and that's something that we think a lot about, too, when we deal with school reform.

What do you mean by that? In terms of racial integration or other ways?

Racial integration is, perhaps, the most obvious example....Let's say we're a state and we're starting a charter school system. And we want to get the benefits of school choice, so we want to get more efficiency. We want to get better achievement for our dollars. We want to have some innovation. We want to have students who are better matched to schools, but we don't want racial integration to get worse.

What we need to do when we write the school policy is to say, "Look, a charter school that manages to achieve the same degree of racial integration as, say, the district around it, is going to get the top number of dollars that a charter school can get on a per-pupil basis." That might be, say, $6,000 in a state and, if it diverges a little bit from the racial integration of the district around it, it gets a little less money. If it diverges a lot, it gets even less money per pupil. Now, if you think about it, you could get to the point where you say, "Look. Here's a school that's all white or all black or all Hispanic or all Asian-American." It doesn't get anything per pupil. So it doesn't exist.

I think the nice thing about having a policy where that's written in at the beginning is that everyone has an incentive to pay attention to what we would consider to be social goals, like racial integration--not just black parents, not just white parents, not just Hispanic parents--everyone has that in mind. Everyone has an incentive to send their kids to a school that's more integrated....

One of the other fears [of opponants to vouchers]--and, as an economist, you might be able to address this--is that in a voucher program, you're taking away financial resources from a failing public school, transferring them to the private sector and leaving the public school in even worse shape. What do you say to that?

That's a strange argument, in a way. Let me just go through the logic. Typical per pupil spending in the United States is about $7,500 a year. That's average per pupil spending in public schools in the United States. And, the typical voucher in the United States is under $2000 a year. So, let's just say that we had a public school system and a voucher program came into place, and it was a typical voucher program, let's say $2000, typical public school, $7,500. Even if the vouchers came completely out of the local public school district's budget, every time they lost a student, they'd be losing $2000, but they'd lose a whole student and $5,500 remains behind. Approximately every time you lose about 26-27 students, you've actually gained a free teacher, in some sense, in a typical public school in the United States. So, I think in terms of just the finances, it's not clear that this isn't really a win-win situation. It's not quite that simple, but you're not taking very much money out of the public schools when you take out a whole student....

Many of the voucher programs that we actually have in place, of course, in the United States, don't take the vouchers from the local school district budget. That, in fact, is the norm, to NOT take the money from the local school district's budget. In that case, of course, the local district's budget is pretty much protected and it has fewer students to take care of. So it can spend that budget on reducing class size, on having better arts and music teachers, having some sort of tutoring or remedial education, expanding some form of extra curricular activities. It can do whatever it thinks is best with the money....

If you could describe it from your point of view, what would an ideal voucher system look like?

That's complicated, actually. An ideal voucher system would, first of all, be universally available. I think that that's important, that it be universally available....It has to be available to every student in the district or I think it's not meaningful. If you only have it available to a very small group of students, then there's always the concern that some small group is going to remove themselves from the school district and leave behind a big group of students who don't get to benefit very much from the voucher plan. And most of the big benefits of vouchers are probably from generalized competition, as opposed to benefiting just the students who actually take advantage of the voucher. So you want it to be universally available.

That being said, the size of the voucher should depend, somewhat, on the goals that we talked about, like the racial integration of the school that the student is going to. Whether the school has, if it's a private school, ...selective admissions or whether it admits students by a lottery or on a first-come/first-served basis, which gives it much less opportunity to select students. So you would want to give a larger voucher to a school that doesn't have an opportunity to do selective admissions.

The voucher should, definitely, be means-tested. That means that very well off families would get a very small voucher, perhaps even no voucher, if they were really well off and that poor families would get a larger voucher. The voucher also has to take into account whether a student is disabled or costs more to educate in some way, because you want disabled students to have opportunities to make choices, and they're only going to be able to do that if the voucher's big enough to cover the cost of educating them. We want schools to feel that that child is a child that it needs to attract. And, so that's one of the things that you want to build into an ideal voucher program, too....

One of the things that we've seen in charter schools developing in the areas you're talking about here, is that there's a tremendous range of the charter schools. Some of these charter schools are terrific and really deliver wonderful services and have to be accountable to the state for standards and so forth. And others, either because there's not a real strong accountability system in place or because it's just kind of a fly-by-night set-up, they aren't so terrific alternatives. But I guess the argument, then, an economist might make is that those would then fall by the wayside because they wouldn't hold up enough in the marketplace.

Right. One does not want students to go to schools that are fly-by-night schools, but parents have relatively good judgement about whether their children are getting a reasonably good education. And in a charter school plan, say, parents always have the option to return to their local public school. So, if they were happy with the local public schools and they send their child to a charter school to try it out and it doesn't seem like it's better, they usually withdraw the child and take him back to the local public schools. They may try a different charter school that is doing better, that has a better reputation with parents, but it's not as risky a venture as one would think because you're not stuck there in that under-performing charter school. You can go back to the regular public schools. You can try out a different charter school. And those schools that no parent wants are not going to survive very long. I think that's the beauty of the market....

Let me ask you sort of the macro picture here. Here's Shaker Heights, which is an upper middle class community, solidly upper middle class. And people there, in general, seem to have quite an investment in the education of their children and are willing to tax themselves enormously to pay for a very good public school system....Just down the road is Cleveland, a school district that, at one point, was $150 million dollars or so in debt. Schools were falling apart and there didn't seem to be the economic ability to generate the funds that were necessary to repair those schools, repair them physically and repair the education in those schools. Isn't the sort of crux of this problem, or one of the fundamental cruxes of the problem in education, this tremendous disparity in income that people have?

School finance or the degree to which a school system only reflects the amount of money of the people who live around it is, actually, a somewhat separate issue from school choice. For the last 30 years we've had very active policy making on what's called school finance equalization, which is the attempt to make sure that schools that serve parents who do not have incomes are actually able to spend about the same amount as schools who serve richer parents, or middle class parents. And every one of the fifty states has been very active on school finance equalization. Every state legislature has a program to equalize school finance and many state courts have been involved in it.

School spending has been equalized between rich and poor districts within a state to a great extent over the last 30 years. It is not perfectly equal, by any means, but average school spending has risen, as I said earlier, by about 85% in the United States, on average. And, the poorer districts have had their spending rise faster than that and the richer districts have had their spending rise more slowly than that. So they have drawn together, gradually, over time.

I think that it is important that schools that serve poor families have enough money for education, but if you look at a school district like Cleveland, the public school system is spending much more on a per pupil basis than any of the private schools that parents who take the voucher are going to have their children receive in those private schools. The disproportionate spending in the public school versus these private schools is, perhaps, 2 to 1, maybe 3 to 1 in some of the private schools; which suggests that it's not just about money. It's partly about the money and it's partly about making sure that the money is well spent.

Specifically, if you look at teacher salaries in the Cleveland public schools, they're far higher than in the Catholic schools. Catholic schools can't afford or aren't paying their teachers nearly the same.

...It's typical in the United States that private school teachers are paid about half of what public school teachers are paid. That's been what the ratio has been for quite some time....

If we've got these problems in K through 12, [and] we want to improve student performance, particularly in schools where students have been underserved, what should we be spending money on?

I think one of the reasons people are so focused on school choice as a reform is that people think that it will be one of the things that really improves student achievement in the United States. I think it has enormous potential to improve achievement. We have seen that when we allowed competition in other areas of American life, say, deregulated some industries, we've seen enormous improvements in efficiencies, which in schools, really means more achievement.

I think, as well, some of the things that we know about schools tell us how it is that choice would actually bring this about. For instance, we know that some teachers are just much more successful in educating students than other teachers. There are individual teachers who are just very good teachers and we can pick them out very easily in data. You can see that Mrs. Smith is just very good at teaching math year after year after year.

And what you want to have happen, is you want to have schools go after the Mrs. Smiths of this world, get them into teaching, keep them in teaching, make sure that they get the rewards that they need to stay in teaching. And, right now, schools don't have a very strong incentive to make sure that it's Mrs. Smith who's in the classroom and not someone else. And parents can usually pick out the best teachers. Many administrators can pick out their best teachers, but right now, the system doesn't have very many rewards for people who are the best teachers. I think that choice would put a tremendous amount of pressure on a school to reward its best teachers, because it would be attracting parents. It would be ensuring its own financial future by attracting parents. So that's one way in which choice puts pressure on a school to make the decisions that we think it ought to be making anyway....

In addition, not only are there some teachers who are very good at teaching, but I think there are some administrators--school leaders, I guess I would like to call them because not all of them end up in administrative positions--who just are tremendously good at organizing students, at understanding what a group of students need, at designing a curriculum that really works for a group of students, whether they are suburban students or whether they are inner-city students. Those people need to be empowered to a certain extent. They need to be allowed to exercise what is essentially a tremendous entrepreneurial and managerial skill. One of the things that I like about some of the choice schools I've visited, is that as soon as you walk into the building, you are aware of this management style--pedagogical style--way of getting the kids involved in the enterprise of learning. And it's not the same in every school, but you can feel when it's working.

We've also been in some--whatever you call them--alternative magnet schools, in other words, schools within the public system that have done the same thing. They say, ''We're going to have a science-based curriculum.'"'We're going to have a arts-based curriculum.'' And they usually have some terrific, very dedicated principal or administrator who has this vision and whose going to carry it through, no matter what the school bureaucracy has to say....But we've also had some of those people say, ''That's great because that's still within the public school system. We're not privatizing the system." And they prefer that.

I don't think it's an either/or situation. I think that the goal of school choice and school reform should be that every school in the United States is a school that's run by somebody who really cares about this enterprise and whose at good at it. And some of the schools are going to end up being private schools and many of them, probably the vast majority of them, in the foreseeable future, will end up being public schools.

What we hope is that the public schools will be able to improve, especially in response to competition, and that competition will empower the people in the public school system who know how to do this job. Many of them struggle against bureaucratic forces that don't make it very easy for them to do the job that they really know how to do. But, in a world with more competition, those people who know how to improve a public school are going to be much more valuable people and one hopes that they will get the power to do what they want to do. So they would stay within the public system. They would never move to a private school. And most of the students would probably stay with them in the public systems....

Vouchers, in particular, are kind of a polarizing issue?

I think that people get more polarized about school choice issues than they should get polarized about them. I think that many of the benefits of school choice are understood by both people who are against and for state vouchers for charter schools. In particular, people tend to be pretty willing to recognize that there are probably some benefits from competition. I think that Americans have a good relationship with competition. We know that it has benefit. I think that people tend to get more polarized on issues related to the sorting of students among schools, racial integration being one example, but by no means the only example. And I think, a lot of the polarization is unnecessary because I think that these issues can be managed if people sit down at the table at the beginning of a school choice reform and write down their concerns and try to build them into the policy. And so, I think the polarization there is really unnecessary. I think that people should come to the table and design a good policy. That's the answer.

What about the church/state issue? ...We've talked to several people about this who are involved on opposite sides of the lawsuit in Cleveland, for instance, over the voucher program because in Cleveland, most of those students are going to Catholic schools. So the issue is, should tax payer money be spent to send a child to a religious school? What do you think about that?

I think that the church/state issue is actually overblown when it comes to school choice for the following reason. Right now we have small, essentially experimental school choice programs. If you only have 1,000 students or 2,000 students in a voucher program, particularly if it's privately funded, and it might not be around forever, what you're going to see happen is that people will go to the existing private schools when these vouchers show up. The vouchers are not big enough to allow someone to build a new private school and we don't know that they're going to be around long enough for someone to want to build new private schools. So, children take these vouchers to existing private schools.

It so happens that most of the existing private schools that are very inexpensive are parochial private schools in the United States. But, if we were to have a school voucher policy that was more universal or more general, and if the size of the voucher were to be somewhat larger, instead of being $1500 or $1000, it were to be something closer to per pupil spending in the United States, even if it were only 2/3 of per pupil spending in the United States, it would still be high enough so that what we would get would be private schools that were created to take students who have vouchers.

New private schools?

New private schools.

Not necessarily religious schools at all.

...My guess is that if we were to have much more universal vouchers, most of the private schools that would come into existence would not be religious private schools. That's just my guess. I don't think Americans are sufficiently religious so that they want to have their children in religious education and they're willing to pay any sort of price for it. If you were to have a voucher program, also, that said you get a bigger voucher if you send your child to a school that doesn't have religious content then you do if you send your child to a school with religious content, I guarantee a lot of parents would choose the larger voucher and take their kids to church on Sunday, or to the mosque, or to the synagogue.

...Do you, personally, have any feelings, pro or con, on this issue of whether, in Cleveland, a child should be allowed on a voucher to go to a Catholic school?

...I'm not a legal expert. I can't say whether this is the right separation of church and state. What I can say is that I think the fact that most of the people who are taking the vouchers are going to religious private schools is not indicative of of their being constrained to take religious private education. I think they have secular options, like the community schools. They have the magnet schools within the Cleveland public school system. They can stay in the regular Cleveland public schools--and this is just one of their options. So I think no one's being constrained to take religious education....