Entrenched interests often protect themselves at the expense of innovation. Barack Obama can’t reconcile that tradeoff. The president spent Wednesday in Wisconsin explaining his revolutionary $4.35 billion Race to the Top initiative, which will give states an immediate monetary incentive to reform dilapidated public schools.

Race to the Top is a part of the broader American Recovery and Reinvestment Act. While it constitutes only a small fraction of the $96.8 billion allocated to the Department of Education under the stimulus package, it will be money well spent.

The program itself is an innovative one—a creative way for the federal government to incentivize reform of public education without sacrificing its historically local character. It is precisely because of this local character, though, that city and state school boards have been so easily bullied by big teachers’ unions into maintaining the status quo. Race to the Top will not only counter the influence of unions but also defer to the longstanding autonomy of local school boards to implement policies of their own choosing.

Equally inventive is that, despite frequent accusations of socialism, Obama is injecting the program with a healthy dose of competition. Grants will only be awarded to as few as 20, or even 10, of the states that apply—a condition that can only benefit students as states attempt to find innovative ways to out-reform one another.

States that apply for grant money must demonstrate a will, capacity, and plan to create legal, regulatory, and technological conditions that foster reform in line with the president’s vision for public education.

The most radical and most specific detail of the program is also the one most aggravating to teachers’ unions—states that have so-called “firewall laws” will be ineligible. Due largely to the clout of teachers’ unions, many states maintain such legislation, which prevents school boards from factoring in student performance on standardized tests when evaluating teachers or assigning their pay grades.

Removing such laws and instituting merit pay would incentivize teachers to be innovative in the classroom and pursue methods that work while avoiding those that do not. Schools could also use test scores to identify trouble spots and intervene quickly. We are not suggesting that teachers necessarily ought to be paid less than at present or that they should be fired, only that those who produce the best results should be rewarded accordingly.

The president is also encouraging states to make establishing more publicly funded, non-unionized charter schools a priority in their grant applications. While not all charter schools have proven themselves better than traditional public schools, they are the laboratories in which to test innovative new models of education. Extensive experimentation is impossible in traditional public schools and is vital to solving the nation’s education woes. Race to the Top promises to forge an environment that will nourish and support the best of the charter schools rather than allow unions to stifle them.

Obama has stressed that if a state’s application has union support, it will win extra points when being reviewed by the Department of Education. With $4.35 billion on the table, legislators will surely look to have unions on board. This is a wise move that should help quell union discontent and prevent any disruption in schools.

Already in Wisconsin, the prospect of grant money has unions agreeing to allow standardized testing to be a factor in teacher evaluation so long as it is not used as grounds for firing. While this may lead to bad teachers simply cycling through the worst schools, this compromise is leagues better than the stagnation so characteristic of public-school policy. It is an encouraging sign that Race to the Top is already working before even a single dollar has been spent.