The Limits and Dangers of Philanthropy in Education

June 6, 2011

It’s hard to criticize people who generously give away money in the hopes of improving outcomes for other people.  But it is also important to recognize the limits and dangers of philanthropic activity.  Non-profits can help alleviate particular suffering and they can help promote beneficial ideas, but they cannot effectively substitute for markets.  Foundations, like the government, may try to engage in central planning, picking winners and losers in the market, but quite often they may end up perpetually subsidizing losers.  The only difference is that at least foundations do not back losers with money they have forcibly taken from others. Even so, a common pitfall for foundations is to fantasize that they know what works and what doesn’t rather than encouraging market forces to sort that out.  

This point is nicely illustrated by a new report released by Andrew Coulson at Cato today.  Andrew examines academic progress by students in different charter school networks in California.  He then looks at which charter networks receive the most financial backing from philanthropies.  He finds:

The results are discouraging. There is effectively no correlation between grant funding and charter network performance, after controlling for individual student characteristics and peer effects, and addressing the problem of selection bias.

For example, the three highest-performing charter school networks perform dramatically above the level of conventional public schools on the California Standards Tests, but rank 21st, 27th, and 39th in terms of the grant funding they have received, out of 68 charter networks. The AP results are worse; the correlations between charter networks’ AP performance and their grant funding are negative, though negligible in magnitude.

The problem is not that foundations need to be smarter in their giving, although I have written a book chapter on how they could be smarter.  The problem is that foundations are no substitute for market forces in identifying what works and what doesn’t for kids.  Rather than focusing on picking winners and losers, foundations should focus on pushing the idea that we need stronger market forces.  In particular, foundations could back the idea that we need a broader set of options for students (including charters); that whatever public subsidies exist for schools should be equal across all schools in this market; and that schools should be allowed to compete on price as well as quality.  The last item could be achieved with something like educational savings accounts that were recently passed in Arizona, where families could keep any savings between the state subsidy and school costs in an account to be used for future educational needs.  Another option is to allow families to top-off the state subsidy with their own funds.

The point is that foundations need to beware of the corruption that frequently follows the concentration of wealth and power, just like governments.  There is a danger that foundation officials will begin to imagine that they know what people should want, just like government officials, academics, and D.C. pundicrats often do, rather than allowing people to figure out what works for them.  Foundations, like government, can play a useful role by trying to create sensible rules for markets so that they can function efficiently.  They can also alleviate particular suffering and misfortune.  But if they start focusing the bulk of their money on picking winners and losers in the educational marketplace, they are very likely to get it wrong.  Central planning doesn’t work any better for foundations than it does for governments.

I should add that profit-seeking corporations are as prone to corruption as they concentrate wealth and power as are non-profits and governments.  The difference is that, absent government protection, corporations suffer the consequences of this hubris.  If they stray from their mission and become swollen with power-seeking administrative bloat, they tend to lose in the marketplace to leaner, more focused organizations.

The danger for non-profits (and governments) is that there is no similar mechanism of accountability.  If they back foolish ideas or suffer from administrative bloat, they never have to stop as long as they can continue to extract funds without demonstrating effectiveness.

Gigantism in the foundation world is a real problem.  Organizations, including Gates, Ford, Carnegie have the funds to keep foisting foolish ideas on people for a long, long time without any accountability.  And as they get big financially, they get even bigger in their staffing so that they become a self-perpetuating power-seeking bureaucracy, much like the government (except without taking funds by force).

For example, it is interesting to note that over the last decade the Gates Foundation doubled its assets, but it increased its staffing by almost ten-fold.  Empire building afflicts the non-profit and university world almost as much as government.  Wise foundations avoid building empires and focus on promoting sensible rules for efficient market operation as well as the alleviation of misfortune that occurs within markets.

Walmart Shareholder Meeting 2011

June 3, 2011

Today is the Walmart shareholder meeting.  I’ll blog later today about the event, as I have done in the past.

In the meantime you can read some of those posts:

Walmart Shareholder Meeting 2009

Union Busting — Good for the NYT, Bad for Everyone Else

The People’s Front of Judea Merges with the Judean People’s Front

You Mean Wal-Mart Isn’t Evil?

Walmart Shareholder Meeting

When All Politics is Personal

P.S.  Thanks to Eduwonkette for the photo.  I miss her sock-puppetry in the blogoshpere as well as her deficient photo-shopping skills.  But discredited bloggers don’t go away (I’m looking at you Diane), they continue as university professors and NYT op-ed writers.

You can pay African-American ministers not to encourage their parishioners to vote, like Ed Rollins, and then come back as the campaign manager for Mike Huckabee.  You can serially cheat on your spouses, like New Gingrich and then run for president.  And you can make false allegations against public officials, like Diane Ravitch, or use your anonymous blog to promote your own research, like Jennifer Jennings, and nothing happens. Oh well.

Creative Destruction in Education

June 2, 2011

I don’t have time to write a post as long as the topic deserves, so let me just start a discussion by making a claim…

For the most part, organizations are incapable of innovating.  Most organizations are founded with a particular mission and method for pursuing that mission.  If circumstances require that the mission or method be changed, organizations generally can’t do it.  They’ll just keep doing what they were initially established to do until they can no longer continue operating.

Progress occurs not by turning around failing institutions, but by replacing those organizations with new ones that have a better mission and/or method.  Of the original 500 companies included in the S&P 500 in 1957 only 74 (15%) exist today as independent companies.  In the private sector, innovation primarily occurs by replacing or fundamentally re-organizing organizations and not by “reforming” them.

And while U.S. real GDP has nearly quintupled since 1970, education achievement of 17 year-olds and high school graduation rates have remained basically unchanged over the same time period.  Perhaps the reason for progress in the economy but not in education stems from our willingness to allow new organizations to replace old ones in the private sector, but not in education.

Public school systems almost never close and the creation of new ones is highly constrained.  Plenty of our public schools are failing, but we almost never admit that they have failed and allow that organization to be replaced with new ones.

Let’s stop trying to fix Detroit, LA, or Chicago public schools.  Let’s let the reality of their failure become official.  They, like most organizations, cannot innovate.  They need to be replaced with new organizations with new missions and new methods of education.  That’s how we can reform schools — by replacing them.

Texas and the Lesser 49

May 27, 2011

(Guest Post by Matthew Ladner)

The Business Journals has some rather startling numbers on the past decade in private sector job growth.

Yes it has been an unusual decade with lots of private sector job destruction, and you could come up with a few other caveats, but this is looking like the 1970s all over again: the rest of the country is in the tank while Texas booms. This didn’t end well for Texas in the 1980s, when an oil bust led to an S&L/Real Estate collapse that spun Texas into a deep recession while most of the rest of the country recovered.

That said, that’s a mighty impressive chart for Texas residents, depressing for the rest of us.

The Long Knives Come Out

April 25, 2011

“Allen” raised a good point in a recent comment.  As money gets very tight at the state and local level, the interests of different public employee unions should start to diverge.  Firefighters, police officers, and other local government workers will have to bear the brunt of the cuts if education does not share in the pain.  During times of overflowing government coffers, it was easy to maintain harmony by spreading the money around to everyone.  As funds shrink it is nearly impossible to maintain harmony as each tries to shift the bulk of the cuts to the others.

We are beginning to see signs of this fracture among organized government employee groups.  The Fraternal Order of Police has decided to pick a fight with the American Federation of Teachers.  Well, actually the California affiliate of the AFT may have started the fight when they passed a resolution in support of the convicted murderer of a police officer, Mumia Abu-Jamal.  According to Mike Antonucci, America’s last and best investigative reporter on education:

 the resolution claims “the appellate courts have also refused to consider strong evidence of Mumia Abu-Jamal’s innocence,” references his “continued unjust incarceration,” calls on CFT to “demand that the courts consider the evidence of innocence of Mumia Abu-Jamal” and bring the issue to the AFT Convention “should he not have been cleared of charges and released by that time.”

In response Chick Canterbury, the president of the National Fraternal Order of Police, wrote a harsh letter to Randi Weingarten, the head of the AFT, saying:

This resolution, if it remains unchallenged by the AFT, would cast grave doubts on your leadership as well as pose serious questions as to the ability of the FOP to work with your organization at any level. On behalf of the more than 330,000 members of the Fraternal Order of Police, the families of slain law enforcement officers and the honored memories of the officers killed in the line of duty, I urge you to repudiate the resolution supporting this cop-killer.

Weingarten has replied:

We have taken the last few days to search the record, and except for this isolated action in California, we cannot find another incidence in which the AFT or any of our other affiliates have adopted a similar resolution. If such a resolution ever were to be raised at our national convention, I’m confident it would be soundly rejected.

Despite this effort to smooth over the cracks, this split may grow for reasons beyond Mumia Abu-Jamal.  These two unions understand that they will soon be engaged in a high-stakes struggle for resources.  FOP is trying to undermine the political standing of the AFT while also stifling support for a convicted cop-killer.

Hoxby Offers a Free Education

February 28, 2011

Check out this video of an hour long lecture by Stanford’s Caroline Hoxby reviewing economic insights into education policy.  They say that nothing is free, but this comes darn close to a free education.  It will only cost you an hour.

Check out the part on higher education at selective universities that begins around the 40 minute mark.

More on Scientific Progressivism

January 19, 2011

I just wanted to add a few thoughts to my post yesterday.  Readers may be wondering what is wrong with using science to identify the best educational practices and then implementing those best practices.  If they are best, why wouldn’t we want to do them?

Let me answer by analogy.  We could use science to identify where we could get the highest return on capital.  If science can tell us where the highest returns can be found, why would we want to let markets allocate capital and potentially make a lot of mistakes?  Government could just use science and avoid all of those errors by making sure capital went to where it could best be used.

Of course, we tried this approach in the Soviet Union and it failed miserably.  The primary problem is that science is always uncertain and susceptible to corruption.  We can run models to measure returns on capital, but we have uncertainty about the models and we have uncertainty about the future.  Markets provide a reality test to scientific models by allowing us to choose among competing models and experience the consequences of choosing wisely or not.  Science can advise us, but only choice, freedom, and experience permit us to benefit from what science has to offer.

And even more dangerous is that in the absence of choice and competition among scientific models, authorities will allow their own interests or preferences to distort what they claim science has to say.  For an excellent example of this, check out the story of Lysenko and Soviet research on genetics.  For decades Soviet science was compelled to believe that environmental influences could be inherited.

Science facilitates progress through the crucible of market tests.  Science without markets facilitates stronger authoritarianism.

China Envy

January 12, 2011

We are beginning to be envious of all things Chinese.  For some indication of this trend see the book on the superiority of Chinese mothers described (and mocked) in yesterday’s post.

I’ve seen this movie before when it was called Gung Ho.  And that movie sucked.  Is anybody else old enough to remember the late 1980s and early 1990s when media and policy elites were convinced that the Japanese had figured out better ways of doing everything and we needed to imitate them before we were crushed?  I specifically remember a bunch of education experts (and you know who you are) telling us that we had to imitate Japanese schools.  How did all of that work out?

I expect we are about to hear all of the same stuff, but this time it will be about the Chinese.  We need to parent like they do, eat like they do, run the economy like they do, etc… to imitate their success and prevent from being crushed by their superiority.

I don’t even believe the accuracy of the stereotypes we are supposed to emulate.  The Japanese were not all working together as if they were the same team.  Chinese parents do not all raise their children in the same way (nor do “Western” parents all do something different).  This is the worst kind of “pop” social science — incorrectly attributing the success or failure of a society to inaccurate stereotypes.

If you want a more accurate picture of China, see the photo at the top of this post.  And over the long run I cannot imagine that a centrally planned economy, like China’s, will be the one we need to emulate to prosper.  We have plenty of good social science to tell us that liberty, relatively free markets, and the fair rule of law are much better predictors of economic success.

Yes, China is gaining rapidly, but so did the Soviet Union when it fully mobilized its agrarian workforce into the industrial sector.  That type of growth levels off without markets to properly allocate capital, property rights to ensure that entrepreneurs can keep the fruits of their innovation, and liberty to critique the favoritism and corruption that undermine the fair rule of law.  China has been making some strides toward market allocations of capital, but remember that most of the banks are government controlled.  And property rights in China remain murky, which will hinder innovation.  And there isn’t much freedom to critique the government.  Without much more progress on these fronts I see little prospect of the Chinese overtaking us economically.

If you want to keep an eye on a rapidly growing developing country, I would look at India.  Yes, India is messy, complicated, and often inefficient, but that’s how freedom looks.  If they keep liberalizing their economy and politics, I see India growing much more rapidly over the long run.

Government Takeover of STEM

January 4, 2011

(Guest post by Greg Forster)

In his Sunday column, George Will advocated a government takeover of the economy. Well, not quite – but close.

Will points out, correctly, that the economy is really, ultimately driven by the discovery of new ways of serving human needs. From this, he concludes that the enormous government regime of subsidies (and consequent control) of “basic science” and other STEM (science, technology, engineering and math) research in universities must not only continue, but be dramatically expanded.

He makes the by-now standard argument for government control of STEM:

  1. STEM contributes to the economy through “basic science.”
  2. “Basic science” doesn’t yield useable results rapidly enough to show up on quarterly earnings reports.
  3. Businesses are incapable of seeing past quarterly earnings reports when making decisions.
  4. Therefore, only government (through its hired retainers in the universities) has a long enough time horizon to be entrusted with control of basic science, and hence STEM.

How is this wrong? Let me count the ways.

The error starts right at the beginning. “Basic science” is not what drives entrepreneurial innovation and economic flourishing. “Basic science” is part of the liberal arts and is not all that much different from the study of poetry. It’s about investigating the fundamental structure of the universe simply for the sake of understanding it – just like poetry, in a different way, investigates the fundamental structure of the universe simply for the sake of understanding it. Basic science not only doesn’t produce economic benefits on a quarterly basis, it doesn’t produce economic benefits at all (except insofar as it contributes generally to the maintenance of a humane culture). 

This matters because it is universities who fundamentally drive “basic science,” but not entrepreneurial innovation. There’s a reason Bill Gates had to leave Harvard to found Microsoft.

It’s entrepreneurially minded businesses that drive entrepreneurial innovation and economic flourishing. The assertion that businesses don’t support long-term innovation is false. Some do, some don’t. The ones that do are where the dynamism of the economy comes from. Google encourages employees to spend a set portion of their time working on side projects over which they have total control, and which are not expected to produce defined results; the Google News service was created as one such project. Yes, there are many businesses that can’t see past their quarterly earnings reports. But the solution to that is for a partnership of philanthropy and educational institutions to raise up a new generation of entrepreneurial leaders who can see past their quarterly earnings reports.

If business as a sector is congenitally and permanently incapable of long-term thinking, the United States is scrod, and we should all quit trying to save it.

The worst error is to think that government and universities are capable of better long-term strategic thinking than business. The opposite is the case. Just look at the outstanding examples of long-term strategic thinking we have before us in those sectors today – in government, $14 trillion debt with bailouts, nationalizations and endless Keynesianism (on the right and left) at home, and fecklessness and appeasement abroad; in the universities, a ridiculously unsustainable business model, the most dysfunctional labor policy (tenure) of any sector of society, and a total abandonment of the sector’s core function (education for human life) in favor of hyperspecialization of technical competencies.

The main difference between business and the government/university axis is that business occasionally does really take care for the long term.

Texas lends knife to suicidal California

November 24, 2010

(Guest Post by Matthew Ladner)

More great Kotkin on what is quickly turning into my favorite subgenre of economic discussion: Texas rules and Cali drools.