ABSXXX10.1177/0002764215591182American Behavioral ScientistBuerger and Harris 591182research-article2015 Article American Behavioral Scientist 2015, Vol. 59(10) 1246 –1262 How Can Decentralized © 2015 SAGE Publications Reprints and permissions: Systems Solve System-Level sagepub.com/journalsPermissions.nav DOI: 10.1177/0002764215591182 Problems? An Analysis of abs.sagepub.com Market-Driven New Orleans School Reforms Christian Buerger1,2 and Douglas Harris1,2 Abstract One of the biggest changes in New Orleans after Katrina was observed in the public school system. In this article, we describe the massive overhaul of the public school system in New Orleans post-Katrina and examine the types of problems that this type of decentralized market-oriented system will be most likely to solve as well as those it may struggle with. As examples, we use problems facing New Orleans public schools, namely, student discipline, information sharing with parents, and especially the human capital pipeline, to illustrate the challenges a regulated market system presents. We then present and apply to those cases a general framework for thinking about which of these types of problems a decentralized system will be best able to solve. Keywords public schools, New Orleans, market model, Katrina Introduction Hurricane Katrina was one of the greatest tragedies in American history. With the New Orleans population scattered around the state and nation and the future of the city in doubt, state and local leaders realized that schools would be central to attracting 1Tulane University, New Orleans, LA, USA 2Education Research Alliance for New Orleans, New Orleans, LA, USA Corresponding Author: Christian Buerger, Education Research Alliance for New Orleans, 1555 Poydras Street, New Orleans, LA 70112, USA. Email: [email protected] Buerger and Harris 1247 people back to the city. Given the prior failures of the city’s school system, state lead- ers also decided that a radical new approach should be attempted. Within months of the hurricane, and even before most of the population returned, almost all the city’s public schools were turned over to a state agency, the Recovery School District (RSD); essentially all public school employees were fired; the teacher union contract was nullified; and attendance zones were eliminated. Eventually, almost all the schools were turned over to charter management organizations (CMOs). Each of these changes was highly unusual, and collectively, the shift was without precedent in American history. It even came with a new name, the “portfolio district” (Bulkley, Henig, & Levin, 2010; Hill, 2006; Levin, 2012), echoing the economic theories on which it was built.1 In the pre-Katrina period, New Orleans operated under a very different system. As in almost every other major U.S. city today, New Orleans public schools were gov- erned by a single, locally elected school board responsible for setting policy and hiring a superintendent to carry out that policy and manage schools. A teacher union negoti- ated with the board and superintendent over labor contracts that established employ- ment due process rights, work rules, and compensation schedules. Students were assigned to schools based on the neighborhoods in which they lived. While the RSD and a few charter schools existed pre-Katrina, the change represented a major shift from the traditional model, in which schools answer to local voters through demo- cratic accountability, toward regulated market accountability, in which schools answer primarily to parents and state government officials. One of the main concerns with such a market-oriented system is that it might make it harder to solve system-wide problems and therefore might make the city’s educa- tional structure less resilient to disaster and social dysfunction. Decentralization with large numbers of relatively small organizations requires coordination, which may make it difficult to solve problems. In competing against one another, for example, schools might ignore the way in which their actions affect other schools and students (“externalities”). By decentralizing decisions from a large district to a large set of organizations, such as CMOs and other nonprofits, it may be difficult for any indi- vidual organization to garner the resources necessary to solve large problems on its own (“economies of scale”). Finally, even when organizations are willing to work together and resources are sufficient, it may be difficult to negotiate and enforce agree- ments among so many organizations, all of whom are uncertain about what the others will do (“transaction costs”; Levin, 2012). But the above economics-based perspective is arguably too narrow to assess the efficiency and resiliency of the portfolio approach. In this article, we analyze the New Orleans school reforms by considering both the obvious advantages of decentralization—flexibility, productive competition, and openness to various school operators—and whether such a system can overcome the disadvantages of limited economies of scale, high transaction costs, and unhelpful competition. Put differently, can the multitude of organizations involved in running schools in a portfolio model compete productively and collaborate when necessary? Under what circumstances 1248 American Behavioral Scientist 59(10) will problems get solved through cross-organization cooperation? In addressing these questions, our analysis can guide policy makers in deciding which problems should be addressed through centralized government and which are more likely to be solved organically through informal cooperation among a large set of nonprofits. We analyze the changes in the New Orleans school system through the lens of a broader range of social science theories, encompassed in “actor-centered institutional- ism” (Mayntz & Scharpf, 1995; Scharpf, 1997). The framework defines institutions as a system of rules structuring interaction between actors based on legal rules or social norms (DiMaggio & Powell, 1983; Meyer & Rowan, 1977; Scott, 1995). Institutions help us understand the behavior of actors because they determine which actions are required, prohibited, permitted, and encouraged (Ostrom, Gardner, & Walker, 1994). Actors, the other important building block in this framework, are characterized by capabilities and action orientations. Capabilities are defined relative to specific out- comes, include all resources allowing an actor to influence policy, and are created by institutional rules that define competencies and grant or limit rights of participation, such as veto rights. Action orientations are perceptions and preferences toward a cer- tain policy (Scharpf, 1997). Actor-centered institutionalism turns out to be especially useful in understanding the New Orleans school reforms because it allows us to incorporate both individualis- tic theories from economics (economies of scale, externalities, and transaction costs) that Levin (2012) shows to be important, while also accounting for factors such as trust, politics, ideology, and the role of government, which we argue may be equally significant in analyzing which education roles or functions should be centralized or decentralized in a portfolio district. We describe the institutional settings pre- and post-Katrina by using two types of governance structures: markets and hierarchies. These categories help us analyze general strength and weaknesses of governance structures and compare them with the situation pre- and post-Katrina in New Orleans. We then provide examples of problems that emerged and how actors have responded to them. We conclude with a more general framework for understanding the relative advantages and disadvantages of decentralization—and specifically, the traditional school district and portfolio districts. Traditional School Districts as Hierarchical Governance The traditional American school district, sometimes described as the “one best sys- tem” (Tyack, 1974), is a type of hierarchical governance structure that responds to external shocks through centralized coordination and administrative controls (Powell, 2003; Williamson, 1975, 1991). In theory, when the world outside the orga- nization changes—due to an external shock, such as a hurricane—a hierarchical organization can adjust quickly as the top of the hierarchy has control over inputs and knowledge about the production process. Such a system can be efficient, espe- cially when leaders are benevolent and have the best interests of society in mind (Scharpf, 1997). Buerger and Harris 1249 Theoretically, hierarchies also rely less on legal means to resolve conflicts (Williamson, 1975, 1991). Because employee roles are malleable, roles and responsi- bilities can be adjusted with external conditions and internal needs. Employees and their superiors can exit their implicit contracts at any time without legal repercussions. The reliance on implicit contracts reduces transaction costs that come in market set- tings where responsibilities have to be clearly spelled out in explicit contracts, requir- ing more extensive negotiation, performance monitoring, and of course legal fees (Williamson, 1991). Transaction costs are lower with hierarchical governance where contracts are implicit and self-enforcing. However, hierarchical governance structures create limited incentives to produce efficiently (Williamson, 1975, 1991). Gains and losses cannot be attributed to a single unit or individual, and there is no direct competition to induce behavior in the interest of the organization.