Why have all the attempted education reforms met with so little success? To answer that question, it is useful to take a step backward and examine the nature of the various reforms that have been tried. All reforms designed to improve the quality of education fall into three categories: Those dealing with rules, those involving resources, and those concerned with incentives.

Rules reforms include such things as extended school days and year-round schooling, higher standards for teachers, school accreditation, national testing, state testing, dress codes, city or state "takeovers" of failing schools and districts, legislative proposals such as "Outcome Based Education" and "Goals 2000," and similar measures.

The category of resources includes such reforms as raising more money for failing schools, changing to different textbooks, wiring schools for Internet access, renovating or updating school facilities, and reducing class sizes.

Reforms based on incentives include parental school choice, greater competition for students among schools, more local and decentralized decision making, greater accountability for results and performance, and other market-oriented concepts.

Although rules- and resources-based reforms have failed to significantly improve the quality of education delivered by government schools, the potential of incentives reforms has yet to be tapped by education reformers. Instituting the proper incentives for performance has proven to increase quality as well as reduce costs in diverse areas of American society from commerce to higher education.

Unfortunately, the vital role that incentives play in encouraging efficiency and quality has been all but ignored in the K-12 government education system. Where incentive-based reforms—including government school choice and limited voucher plans—have been proposed, they have typically been so watered down during legislative debate that the end product fails to harness the full benefit of market-based incentives.

James R. Rhinehart and Jackson F. Lee, Jr., professors of economics and education, respectively, described the current situation in a 1994 report:

The absence of effective incentives on the part of those who consume and those who produce education explains the poor results we get. The consumers of education, the students and parents, have little power to influence what educators do. This feeling of powerlessness often results in apathy and neglect. The producers of education, on the other hand, have few direct incentives to satisfy students and parents. Educators are not consistently or tangibly rewarded or penalized on the basis of how well their students learn. Instead, they are rewarded on the basis of the number of degrees held, and years of teaching experience. Neither of these factors correlates very well with student achievement or satisfaction.

Educational decisions are largely political, and rest primarily in the hands of the state and local departments of education. Everyone from members of boards of education and superintendents to principals and teachers try to satisfy their superiors. Although educational leaders are often aware of community demands, nowhere are they forced to be responsive to the wishes of their student and parent clients. Educators actively try to influence school board members and state and local politicians because these people have the power to provide pay raises, job security, and better working conditions. Politicians, in turn, appeal to voters and special interest groups in an attempt to get reelected. Students and parents find themselves at the bottom of the hierarchy with little influence and even less clout.58

Economists have long identified the inherent problems in the government system of education. High costs, lack of choice, low quality, widespread inefficiency, and rampant dissatisfaction are the result of a virtual state monopoly on education. These characteristics have perpetuated a highly bureaucratic education system that is unresponsive to the needs and demands of students and parents.59

In order to rectify this undesirable situation, economists prescribe incentive-based reforms where rules and resources efforts have failed. "What you need is a true competitive situation through the entire industry," said an economist quoted in Investor's Business Daily. "All of these efforts at reforming public schools are too little, too late . . . far from sufficient to institute the kind of radical, systemic change that is required."60