Saturday, April 28, 2007

U.S. Becoming Less Competitive

As a follow up to my post detailing how the US is becoming less competitive as a center for global manufacturing - even when compared to other developed nations, a March 26, 2007 Forbe's article "Crouching Tigers" confirms that European nations are favoring corporate tax cuts and deregulation (although they still have a long way to go).

Pay attention to the graph, folks.

If you think the Republicans are business-friendly, think again. "Compassionate" progressivism in tax cuts, with corporations and the rich bearing more of the national tax burden is nothing more than punishment of the good for being good.

Friday, April 27, 2007

The Ten-Cent Solution

In our mixed economy, where many industries are partially or sometimes wholly socialized, I find a curious phenomena. Such industries are rife with myths designed to perpetuate the socialized status quo. And because there are few examples of free-market solutions, the debate about the problems and issues with these institutions includes only weak or outright straw men arguments for the free market.

Take education, an industry which is roughly 90% public (i.e. socialized), according to the Council for American Private Education. Myths of the need for public education abound here. Some include:
  • All children, regardless of means, need a "full service" K-12 education, one that includes many teachers, a full range of possible course choices, extra-curricular activities, and capable facilities. (The implication is that not everyone can afford such a necessary education and so it must be a socialized institution)
  • Teachers are never paid enough for the "value" they bring to society by educating our youth, and this observation is true of all teachers regardless of performance.
  • Private schools are an "upgrade" from public schools and as such are typically only relevant to the rich. Indeed, there is no way private schooling could educate the poor since it must rely on such a weak source of income to fuel its curricula (which of course can only suceed if it is "full service")
  • Education is a societal need, and as such it is a "loftier" responsibility than mere commerce is capable of handling.
I've heard all of these arguments for public schooling, and it is sheer bunk. Were it not for the fact that the public school system has a near monopoly on the industry, it would take only a few hard examples to show the flaws in these arguments and to show the capable, education industry that the free market could build in place of socialized education.

Enter a clear example of the success of the free market, not in educating the rich, but in educating the poorest of the poor in the poorest countries in the world. In a March 2007 Atlantic article, The Ten-Cent Solution, one researcher has found a hidden grey market for education among the poor of Hyderabad, India, and other third world cities.

In Hyderabad, a city of more than 6 million people, Tooley and his team—confining their search to poor areas lacking amenities such as running water, electricity, and paved roads—counted 918 schools. Only about 40 percent were run or financed by the government; 60 percent were private. Of those, some were “recognized” by the government, but most were officially unknown to the authorities. These black-market private schools were smaller on average than the other kinds—but they still accounted for about a quarter of all the children in any sort of school. Remarkably, some of the slots in these private slum schools were offered free or at reduced rates: The parents of full-fee students, desperately poor themselves, willingly subsidized those in direst need.

This flourishing educational enterprise is all the more surprising once you understand that India has deliberately discriminated against private education—forbidding for-profit schools, for instance, and requiring schools to be run as trusts rather than proprietorships, and limiting their ability to borrow. Despite these handicaps, private education for the very poor has evidently thrived...

As Tooley relates it, the response of the international development community to his research has been less than enthusiastic. Even if private schools are much more prevalent than we had previously thought, he’s been told, they are obviously no good. Standards in such schools are bound to be low.

But the development community seems to be wrong about that, too. On the whole, dime-a-day for-profit schools are doing a better job of teaching the poorest children than the far more expensive state schools. In many localities, private schools operate alongside a free, government-run alternative. Many parents, poor as they may be, have chosen to reject it and to pay perhaps a tenth of their meager incomes to educate their children privately. They would hardly do that unless they expected better results.

Better results are what they get. After comparing test scores for literacy and basic math, Tooley has shown that pupils in private schools do better than their state-school equivalents—at between a half and a quarter of the per-pupil teacher cost. In some places, such as Gansu, China, the researchers found that private schools serving the poor had worse facilities than comparable state schools; in Hyderabad, they were better equipped (with blackboards, desks, toilets, drinking water, and so on). Regardless, the tests so far show that private-school students do better across the board.

I love examples like these. Here in one example you have clear refutation of most of the myths above, and additionally a clear demonstration of the bias of advocates of socialized medicine against private education, even in the face of hard data. Here is the reality:
  • What particular education is of value is contextual. That is, it depends on the needs of the child being educated and the particular means of his parents. And so the market will respond by offering all sorts of options for education, allowing the individual to choose which options best fit his means, and capabilities. Just as I can select from a myriad of cars each fitting a particular utility and means, so parents would be able to select a product that fits their needs and means. The idea that a Ford Focus is inferior to a BMW 7 series is laughable. To a man of modest means the Ford Focus may be exactly what he needs, and correspondingly exactly what he can afford. And so the Ford Focus of education, one that includes "literacy and basic math" (The Three R's) may be just the thing that the poor need given their particular context.
  • The value of the service provided by a teacher is also contextual, and the best way to reflect this value is by a direct fee for service model, with parents paying a teacher.
  • All teachers are not created equal, and the best way to get excellence in teaching is to reward it. The best way to do that is through the profit motive. Teachers who can demonstrate their value will then command a great proportion of share and a great price for their services. This works at all levels.
  • And finally, the free-market does a better job with education at any level. Period.
The myth that education is too lofty and important to be left to commerce belies the evidence as scarce as it sometimes is. Education is important. And it is for that reason that it is exactly something which should be left to commerce.