People Think of Something as Their Business When It Is Their Business
A WSJ interview with Bill Gates includes this pivotal observation:
“I believe in innovation and that the way you get innovation is you fund research and you learn the basic facts.” Compared with R&D spending in the pharmaceutical or information-technology sectors, he says, next to nothing is spent on education research. “That’s partly because of the problem of who would do it. Who thinks of it as their business? The 50 states don’t think of it that way, and schools of education are not about research. So we come into this thinking that we should fund the research.”
While it’s true that public school districts don’t spend a lot on R&D, a vast army of academics has been cranking out research in this field for generations. The Education Resources Information Center, a database of education studies dating back to 1966, boasts 1.3 million entries. So the problem is not a lack of research, but rather that most of the research is useless and that the rare exceptions have been ignored by the public schools.
Why? Because, as Bill Gates correctly observes, hardly anyone thinks of education as their business. And how do you get masses of brilliant entrepreneurs to think of education as their business? You make it easy for them to make it their business. When and where education is allowed to participate in the free enterprise system, entrepreneurs enter that field just as they do any other–and excellence is identified and scales up. It is a process that happens automatically due to the freedoms and incentives inherent in that system. More than that, it is the only system in the history of humanity that has ever led to the routine identification and mass replication of excellent products and services.
So what happens if you want market outcomes but reject the market system that creates them? You are left to re-invent the wheel… without the only value of pi that makes a circle.
You Look Mahvelous
“Bijan Pakzad, an extravagant fashion designer and boutique owner who happily and unabashedly made wealthy men look rich, feel rich and smell rich,” has died, reports the Washington Post. Mr. Pakzad explained that he catered to customers who “normally aren’t concerned about inflation.”
His slogan — “the costliest men’s wear in the world” — helped his opulent clothing store become known as the West Coast’s one-stop Savile Row.
While drinking champagne presented by white-gloved butlers, customers could shop for $2,500 silk pajamas, $1,500 cologne, a $24,000 mink-lined topcoat, a $19,000 ostrich vest, $55,000 crocodile luggage or even a $120,000 Mongolian chinchilla bedspread lined with silk.
Who could afford such clothes? Warren Buffett and Bill Gates? Yes, but they don’t look like they spend so much money on clothes. The Post names a few customers:
From the moment in 1976 when Mr. Pakzad first opened Bijan, his Rodeo Drive emporium, three words bedecked the entrance: “By appointment only.”
The locked-door policy made clear that Mr. Pakzad exclusively catered to men who had money, power or fame — and usually all three. His clients included President Obama, Frank Sinatra, Cary Grant, Stevie Wonder, Arnold Schwarzenegger and Michael Jordan.
Wait, President Obama? That’s not the same Barack Obama who told college graduates not to “take your diploma, walk off this stage, and chase only after the big house and the nice suits and all the other things that our money culture says you should buy,” is it?
Why Is Bill Gates Writing Code for a Coleco Adam?
Bill Gates is addressing the Council of Chief State School Officers today. According to the NYT, he’ll tell them to bite the bullet and start making sound budgetary decisions like rewarding teachers based on merit instead of time served, and not handing out raises simply for the trappings of higher learning, but rather for demonstrated prowess in the classroom. In principle, that’s good advice.
But it’s an ultimately futile effort, and here’s why:
Bill established himself early on as a pretty sharp computer programmer, and no doubt he still is. But there’s only so much you can do when the hardware you’re writing for is a pile of junk. Public schooling is the Coleco Adam of education systems.
The Adam was a pretty cute looking machine for its time (1983), but it had some fundamental flaws. Among other things, turning the power on or off had a habit of sending out electromagnetic pulses that fried the data on its storage tapes. Oops. Now a good programmer might figure how to mitigate the damage caused by that problem (I dunno, treat the two tapes as a RAID 1 array, maybe?), but then the machine also had its power-supply located in the mandatory (and noisy, and slow) printer that came with it. So if the printer had to be serviced, you were left with a paperweight. Hard to fix that one in software.
Dear Bill: Why the Distinction Between College and K-12?
At the Techonomy conference last week, Bill Gates declared that going to school would soon be obsolete, and that ”five years from now, on the web, for free, you’ll be able to find the best lectures in the world.” What’s interesting is that Bill was quick to note that he was talking only of higher education. K-12 education should still be tied to physical schools, he is reported to have added.
Certainly there’s a custodial aspect to the education of young children, but there’s no reason that electronic learning options cannot be combined with custodial supervision — and much more affordably than traditional schooling. Homeschooling already consists of hybrids of parent lessons, lessons taught by paid tutors and guest lecturers, web classes, etc. This flexible format could be generalized to serve a much broader range of students. So why not encourage the exploration of these new possibilities at the k-12 level, just as at the higher education level?
For Gates and Buffett, the Deity’s in the Details
As I write in the San Jose Mercury News today:
Bill Gates and Warren Buffett want the world’s billionaires to donate half their wealth to charity. If they’re successful with just their American peers, they’ll raise about $600 billion — an amount U.S. public schools spend in a single year. And therein lies a problem.
The problem is that one of their chief goals, shared by many of their billionaire peers, is to improve American education — an institution whose ultimate outcomes have not improved in four decades despite the infusion of trillions of additional dollars.
Buffett blames some of our educational woes on a “distorted” market system that rewards great investors ”with sums reaching into the billions,” while it “rewards a great teacher with thank-you notes.”
But the problem is not that our market system is distorted, the problem is that education isn’t part of it.
If we want educational excellence to be replicated and scaled up the way it is in other fields, we have to structure it as we have structured those other fields. Make it possible for the greatest educators to become billionaires, make it necessary for the worst to find different work, and let the former be separated from the latter through the countless choices of individual families.
“The Only Place Innovation Will Come From”
Yesterday, Bill Gates addressed 4,100 charter school leaders and activists and told them that their movement “is the only place innovation will come from.”
Certainly there are innovative charter schools–and others that deploy traditional methods with such skill and dedication as to achieve results far above the norm (think Ben Chavis’ American Indian Charter Schools in Oakland). But of course charters are not the only source of educational innovation, and, much more importantly, they are unlikely to drive the process of mass replication and scale-up of innovations responsible for the stunning economic progress of the past several hundred years.
Pick any field in which a brilliant innovation has been capitalized on and brought to the masses and you will likely find that it is capitalist–part of the profit-and-loss, free enterprise system.
There are occasional exceptions. The Jesuits introduced performance-based grouping in 1599, promoting students to the next grade whenever they had mastered the material of the current one, and managed to scale-up that policy internationally. But only free markets have created an ever-repeating cycle of innovation, replication, and dissemination that continues decade after decade, seldom pausing or reversing except due to some external calamity.
There are efforts afoot by business and financial leaders to emulate that cycle within the charter school framework. We should wish them well, but it’s a daunting task. As Friedrich Hayek explains in The Fatal Conceit, the web of freedoms, customs, and incentives we call free markets was not designed by earlier generations, but rather evolved inexorably over time. It is not a product of human planning, but of human nature.
Trying to reproduce the innovation, replication, dissemination cycle outside the free market system is like trying to make a wheel more round by increasing or decreasing the value of pi–and it’s just as unnecessary. We already have a system for accomplishing what Gates and the American public desire, why not use it? Why don’t we simply ensure that all children, regardless of family wealth, can afford access to a free education marketplace? The innovation and dissemination process will then take care of itself, as it does in every other field.
Patching up the Education Monopoly
The Eli and Edythe Broad and Bill and Melinda Gates foundations have sponsored a report, “Smart Options: Investing the Recovery Funds for Student Success,” on how to spend $100 billion of “stimulus money” on improving America’s schools, according to Jay Mathews in The Washington Post. Ideas include national standards, better teacher evaluations, special help for struggling students, and more.
But let’s try a thought experiment. Bill Gates made his money in software. Eli Broad made his money building houses. Imagine a slightly different universe, say one in which Henry Wallace and Al Gore had become president, and we had monopoly providers of both software and housing. How good do you think the software and the housing would be? And if the U.S. Department of Technology and the U.S. Department of Housing announced that they would be spending another $100 billion, what would happen?
It seems clear that the way to improve housing and software in that world would be to open the fields up to competition, or even to privatize them. A government monopoly provider of software would be lucky to have given us Minitel by now. And monopoly provision of housing was tried in much of the world during the 20th century, with poor results. So if we were afflicted with these albatrosses, surely we’d recognize that deregulation, competition, and privatization would produce better results by far.
So then why don’t we realize it when we’re afflicted with a virtual government monopoly on the provision of education? Why are zillions of smart people studying and debating how to improve the performance of a sluggish, stagnant, tax-funded government monopoly? Maybe we shouldn’t be so sure that we’d see the failure of the software or housing monopoly either. Whatever enterprise the government chooses to monopolize — and there’s really nothing inherent or inevitable about which enterprises that will be — will most likely become a massive bureaucratic undertaking, and we will find it difficult to imagine how the enterprise could be privately run.
But Bill and Melinda, Eli and Edythe, Jay, Barack — the evidence on monopoly vs. competitive provision of services is out there. To a great extent it’s the history of the 20th century. Check it out.
Love the Cards, Hate the Card Issuers
God hates the sin but loves the sinner, we are told. Americans have a similar attitude towards credit cards. They love the cards but hate the card issuers.
Naturally, President Barack Obama has picked up on this sentiment and wants the credit card companies to be “fair.” Reports the Washington Post:
The Obama administration yesterday called for an end to unfair credit card industry practices such as retroactive interest rate increases for any reason, late-fee traps that penalize borrowers with weekend or middle-of-the-day deadlines and teaser rates that last less than six months.
In a written statement released by the Treasury Department, the administration outlined practices it would like Congress to reform as it considers two bills that would crack down on the industry. One proposal would force card companies to apply payments above the minimum amount to the highest interest rate debt. To crack down on over-limit fees, the administration would also like Congress to require card companies to get customers’ permission to set up accounts so transactions over the limit can still be processed.
There are lots of reasons to criticize the practices of credit card companies, but many of the rules are simply mechanisms to charge riskier borrowers more. If you pay off your bill every month, you don’t pay the extra fees and interest. If you are more disorganized, short on cash, or both, you pay more.
Higher charges make it possible to provide more credit to more people. Of course, politicians believe in the latter but not the former. Banks should provide credit cards, make loans, and issue mortgages to everyone, irrespective of credit standing, at rates akin to those charged Bill Gates. Anything more is viewed as a variant of “predatory” lending deserving condemnation.
Maybe it would be best for some people not to buy so much on credit, but that isn’t — at least so far — the government’s decision. However, it would be more honest if government branded people with the Scarlet C and banned them from borrowing than prohibiting companies from charging higher rates and fees to reflect higher credit risks.
The credit card debate is stranger than most in Washington. Listening to critics you’d think that the card companies were dragooning people off the streets, forcing them at gunpoint to sign up for cards, and demanding that they spend money else their children will be kidnapped and sold into slavery. Precisely who was forced to accept and use these terrible cards with their terrible terms? No one.
Instead of posturing as defenders of the body politic, crusading politicians should, as my friend Don Boudreaux of George Mason University suggested, give up their day jobs and start credit card companies. These entrepreneurs then could offer consumers better cards with less onerous terms, making everyone better off.
Any takers?
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