Lessons of Chile’s Voucher Reform

Inequality Increased, Test Scores Did Not Improve

By Martin Carnoy

Milwaukee has the only working voucher plan in the United States, but even beyond Wisconsin, conservatives and some liberals are convinced that privatizing public schools is the solution to the nation’s “education crisis.” Given American values about competition and choice, this sounds like a great idea, especially since the discussion is relatively unclouded by empirical data on educational systems where there is choice and privatization. Yet such systems do exist and — contrary to present claims — their experience suggests that voucher plans promise a lot but may actually be worse for children from low-income families, for whom the gains are supposed to be greatest.

According to conservatives, the main problem with public schools is that they are public — they are managed by government bureaucracies and staffed by unionized, tenured, and largely unaccountable teachers. They claim that if only we could hire private management companies to run public school districts or, even better, get a “voucher” or “school choice” plan going that included public and private schools, students would learn more and schools would cost less, or at least cost no more than they do now.

The political implications of the Milwaukee/Wisconsin voucher initiatives have not been lost on conservative strategists. In their latest political incarnation, voucher plans are being pushed especially hard among low-income, inner-city groups in other states (Cleveland, Ohio, for example), under the assumption that subsidized private education initially has the greatest appeal to parents most desperate for alternatives to poorly performing public education. As in Wisconsin, the strategy calls for jump-starting vouchers in the inner city and then spreading them state-wide.

The voucher argument is persuasive because of our underlying values about monopolies and competition. The purpose of school choice and vouchers is to break the “monopoly” of the public sector over education and to increase competition in the educational sector. Allegedly, this would lower the cost of schooling for a given amount of pupil achievement, or increase pupil achievement (school quality) for a given cost. But beyond these claims, school choice advocates claim that publicly subsidized private schooling would give the poor the same options as the rich, allowing low-income parents more equal opportunity to improve their children’s education by sending them to private schools. Vouchers would also allow for choice among educational options. For a democratic society, choice has a value in and of itself. So parents would feel that they had options, could choose the kind of school best for their particular child, and not be bound (especially for the poor, by financial necessity) to the neighborhood public school.

In the United States, empirical data to back the claims of educational gains from vouchers are limited to Milwaukee, and there the small size of the sample and dubious results have already created a rhetorical battle over their meaning. But voucher plans have been in place for many years in other countries. What do they show?

Fully subsidized private education has existed in Europe since the nineteenth century. In Belgium and Holland, all schools, whether private or public, get an equal amount of funding from the government for each student enrolled. More recently, the Conservative government in Britain, although shying away from instituting a voucher plan, did develop an Assisted Places Scheme in the 1980s, designed to help youth from low-income families attend the high cost independent private schools. And in 1991, the Conservative Party in Sweden implemented a nationwide voucher plan.

John Ambler, writing in the Journal of Policy Analysis and Management (“Who Benefits from Educational Choice: Some Evidence from Europe,” 1994) shows that in Britain, France, and the Netherlands, “the primary negative effect of school choice is its natural tendency to increase the educational gap between the privileged and the underprivileged.” Even though the gap already existed in public schooling, the European data suggests that providing subsidies for private education benefits higher-income families even more.

The Netherlands is especially interesting. All children receive a voucher, which can be used at either a public or private school. The private schools, however, are allowed to screen out children based on academic achievement and also charge “fees” on top of the voucher payment. Even though low-income children receive an additional 25% in their voucher as a way of compensating for their poverty, low-income students are generally congregated in the public schools and there are waiting lists to get into the “better,” more selective private schools. The students who end up in municipal public schools are mainly those who cannot (or cannot afford to) get into the more desirable private schools.

Mr. Ambler’s conclusions about the equity effects of privatization in Europe are based primarily on the socio-economic makeup of those pupils who take advantage of private education, not what happens to different young people from various social classes when they are in public and private schools. But there is a well-developed, long-operating voucher plan in Chile where pupils have been assessed regularly. The Chilean plan began in 1980 under the Pinochet military government as part of an overall Chilean “de-governmentalization” free-market package; it meets almost all the conditions of those who advocate “choice with equity,” including fully-subsidized, deregulated private schools competing head-on for pupils with deregulated municipality-run public schools in all metropolitan neighborhoods, from middle-class suburbs to low-income barrios.

One key feature of the Chilean plan especially important for conservative reformers was privatizing teacher contracts and eliminating the teachers’ union as a bargaining unit. Teachers were transferred from the public employee system to the private sector. So by 1983, even public schools, meaning those schools run by municipalities, could hire and fire teachers without regard to tenure or a union contract, just like any un-unionized private company. Another feature was to release all schools from the previously strictly-defined structure of the national curriculum and from national standards.

What were the results of this reform? The first was that even when parents’ contributions are included, total spending on education fell quite sharply after increasing in the early 1980s when the central government was paying 67,000 teachers severance pay as part of privatizing their contracts. In 1985, the federal contribution was 80% of total educational spending, and total spending was 5.3% of Gross National Product (GNP). Five years later, the federal portion was 68% of the total, and the total had fallen to 3.7% of GNP. Private spending rose, but not quickly enough to offset the 18% drop in real federal contributions. Most of the decrease in federal subsidies to education came at the secondary and university levels, where per student public spending dropped drastically.

The second result was that in Chile, as in Europe, those who took advantage of the subsidized private schools were predominantly middle-and higher-income families.

Like the Netherlands, Chile offers a voucher to all students. “Fees” often are charged at the private schools on top of the voucher, and private schools are allowed to screen students. Unlike the Netherlands, there are also elite private schools which do not take part in the voucher plan, where students’ families pay the complete tuition.

As a result of the voucher reform, there was a massive shift of students into private schools, in particular middle-class and upper-middle-class children. In 1981, for instance, 78% of primary and secondary students were in municipal public schools, 15% were in subsidized private schools, and 7% were in private schools that did not take part in the voucher plan. By 1990, of families in the lower 40% of the income distribution, 72% attended municipal public schools. In the next highest 40%, 51% of the families sent their children to public schools, with 43% in subsidized private school and 6% in paid private schools. And in the top 20% of income, only 25% had their children in public schools; 32% were subsidized private and 43% in paid private schools. With the 1980 reform, fewer public resources went to the poor and the middle class. But the middle class and the rich were able to meet the decline with their own resources and to pay the “fees” and tuition at private schools. The poor were not.

The third result was that the increase in pupil achievement predicted by voucher proponents appears to have never occurred. Scores in Spanish and mathematics from two nationally standardized cognitive achievement tests implemented in 1982 and 1988 for fourth graders registered a national decline of 14% and 6%, respectively. According to World Bank economist Juan Prawda, the test scores fell most for low-income students in public schools, but they also fell for low-income students in subsidized private schools. Middle-income students had small increases in test scores whether they were in public or subsidized private schools. Subsequent tests in 1990 showed increases over 1988 of 9% in Spanish and 11% in math, but this still left scores about the same as in 1982. Middle-income students averaged higher scores on these tests in private schools than in public, but lowest-income students tended to do better in public schools. University of Georgia political scientist Taryn Rounds’ estimates of pupil achievement as a function of type of school, location, parents education, and students’ socio-economic class using the 1990 test results confirm that lower social-class students did better in public schools on both the Spanish and math tests, and middle-class students did better in subsidized private schools.

Because low-income parents were less able to add private contributions to the voucher amounts, private schools in Chile were apparently not that interested in doing any better than public schools with lower-income pupils. If the declining scores in Chile’s municipal public schools mean anything, it is that increased competition had a negative effect on student achievement, and that the Chilean voucher plan contributed to greater inequality in pupil achievement without improving the overall quality of education.

Some analysts in Chile claim that subsidized private schools cost less because they have somewhat higher pupil-teacher ratios and pay their teachers lower salaries. But there is no evidence that this means that private schools are becoming more “efficient” while public schools lag behind. Indeed, if private schools are consistently “creaming off” easier-to-teach students, municipal schools may have to maintain smaller classes with more highly paid teachers just to stay even academically.


The fourth result was the need to recentralize influence over the educational system once a democratic government was elected in 1990. Under the Pinochet reform, government made no effort to improve the curriculum, the quality of teaching, or the management of education, since this was supposed to happen spontaneously through increased competition among schools vying for students. It did not. Neither did municipalities or most private schools come up with incentives for improving pupil performance. Low-income municipalities were at a special disadvantage because they, even more than other municipalities, lacked the fiscal capacity and resources for school improvement. And as soon as unions were legal again, teachers reorganized themselves, fought for higher salaries, and for the right to representation. Not surprisingly, they focused their demands on the central government, which oversees minimum salaries for both public and private schools.

The lessons for us here in the United States are obvious, but they are not the one that privatization advocates want known. Voucher plans increase inequality without making schools better. Even more significantly, privatization reduces the public effort to improve schooling since it relies on the free market to increase achievement. But the increase never occurs. Private schools may end up producing higher achievement than public schools, but they generally do this by keeping out hard-to-manage pupils, who get concentrated in “last-resort” public schools.

There is another lesson to learn from the Chilean case. At the end of the voucher road, the case for public schools becomes more, not less, difficult. The new democratically elected government, which by U.S. standards would be considered center/left, continues to blame public school bureaucracy and lack of market incentives for the low level of achievement in municipal schools. Once a voucher plan is implemented, many middle-class parents find that they like their children being separated from low-income students. Furthermore, teachers in public schools find that given the worsening conditions and lack of support, it is even more difficult to be innovative. This last lesson should spur public school advocates to support rapid and radical reforms of schools in inner cities now, and to emulate, sooner rather than later, those reforms that seem to be working for at-risk students.

Chile had a military dictatorship in the 1970s and 1980s that could impose vouchers from above and suppress opposition by force. In a democracy, it takes highly dissatisfied constituencies to produce reforms, even if they are not the ones who ultimately benefit from them. Conservatives have figured out that the most dissatisfied educational constituencies are the poor and will use them to dismantle public education.

Ironically, the privatization movement in the United States is gaining ground just when pupils from all groups, especially those most at risk, are making significant achievement gains and just when public school reform movements are reaching into inner cities to produce real change. To cite one example: between 1975 and 1989, the difference in average reading proficiency scores between African-American and white 17 year-olds went from 50 points to 21 points, or a gain of about half a standard deviation.

The best antidote to vouchers is to spread public school reform — fast.

Martin Carnoy is professor of education and economics at Stanford University. He is the author of two recent books: Faded Dreams: The Economics and Politics of Race in America (Cambridge University Press, 1994) and Fathers of a Certain Age (Faber and Faber, 1995).

This article is expanded from a piece in the July 12 Education Week.