Saturday, July 28, 2012

Education, Government, Productivity, Teachers, Unions and China

The public sector pretty much opposes productivity gains. Look at Chicago schools, for example.

Chicago Teachers Union and city agree to hire more teachers, avoid future strike says this:

"While talk of a potential teacher’s strike from the Chicago Teachers Union (CTU) certainly seemed like a possible reality in the coming months, the CTU may have finally made an agreement with the city of Chicago this week. . . . it was reported that the Chicago Teachers Union has reached an official agreement with the city that may help prevent a future strike. . . . each side was—interestingly enough—able to walk away with a significant win.

Chicago Mayor Rahm Emanuel succeeded in getting his longer school day, which consists of a 7 hour day at the elementary level, and a 7 ½ hour day for high schools. In return, more teachers have been promised to be hired to help fill in the extra time spent in the classroom, with a particular emphasis on the arts, including classes like music, art, and foreign languages. . . .

Backed by Mayor Emanuel, Chicago Public Schools may soon have a longer school day, but more teachers and more jobs will be available as well. Those expected to be hired for the new teaching positions will be teachers who were laid off from 2010 and beyond, further allowing the CTU to provide more much-needed placements for its members.

However, a challenging question remains. While this education news is certainly good for both parties, the school district is still in a financial crisis. The almost $700 million deficit may struggle to pay these new teachers, while the topic of pay raises for teachers in the Chicago Public Schools (as well as the CTU) also looms over the system, students, and parents.

The hiring of these rehired educators in the school system is estimated at this point to cost anywhere between $40 million and $50 million year, David Vitale, the President of the School Board, reports.

“Management will work and figure out where [the funds] will come from,” he said. “This is eminent development… and we will come up with an answer [as] this is a priority.”

Nonetheless, it is always refreshing to hear of a win-win situation that allows both sides and parties on an issue find a compromise, particularly on the key topic of education and teaching the young minds of students in the United States."


Now let's look at what's happening in Michigan. It's a straightforward case of necessity being the mother of investion.

Going Broke for Reform is subtitled 'In Michigan, insolvency leads to school choice opportunity.'

"Muskegon Heights and Highland Park—two of Michigan's most insolvent school districts—this year are handing their classroom keys over to charter school operators to save money. That's good news for local taxpayers, but the biggest beneficiaries may be the kids.

Both districts were running deficits that approached two-thirds of their budgets, thanks to the double whammy of rising labor costs and declining enrollment. To help the districts avert bankruptcy, Governor Rick Snyder appointed emergency managers who under a new state law can break collective-bargaining agreements. While such flexibility was essential to get their books in order, it may not have been sufficient.

According to Muskegon Heights manager Don Weatherspoon, the district would have to slash salaries by 35%—reducing hourly wage rates to about $10—merely to break even. That would have likely caused a teacher walk-out. When the emergency manager for Detroit schools last month proposed extending a 10% pay cut for a year, teachers threatened to strike.

Mr. Weatherspoon and his counterpart in Highland Park figured that farming out their districts to charter school operators was a better alternative. Under their plan, the charters will receive per-pupil funding from the state like traditional public schools, but local property taxes will go toward paying down the district's debt. The charter operators will also bring some of their own money to the table.

While the fierce taxpayer watchdogs at the teachers unions bark about the government "subsidizing" private companies, the schools will be run as nonprofits.

The ones who really stand to profit are students. Both districts' schools rank among the worst in the state. Only a quarter of seventh-graders in Highland Park (in eastern Michigan near Detroit) and a third in Muskegon Heights (in the west near Lake Michigan) are proficient in reading. Fewer than 8% meet the state's math standards. While Michigan students can transfer to schools with open space, schools close enough are usually as bad, if not worse. The only option for most Highland Park students are Detroit schools, which have even lower test scores. Some "choice."

So now students will have a real alternative. School choice advocates hope (and union leaders fear) that the charter systems, which won't be bound by labor agreements, will serve as laboratories for reform. Muskegon Heights's charter operator Mosaica plans to experiment with new technologies in the classroom and pay and hire teachers based in part on their performance. As test scores improve, the charters hope to draw students from nearby cities, which could help the districts with their financial problems.

There's little to prevent other districts from converting low-performing schools to charters—other than political intransigence. A new state law uncaps the number of charters and exempts their employees from district collective bargaining agreements. Muskegon Heights and Highland Park only include a handful of schools, but ideally larger districts would authorize multiple charter operators in order to encourage competition among schools.

The two Michigan districts may be textbook cases of fiscal mismanagement, but they also highlight the opportunity that insolvency presents to innovate—if leaders will take it."


Chicago's business as usual approach is by no means a win-win for the taxpayers, parents and students. Even if we put lipstick on Miss Piggy, she's still a pig.

Perhaps government and unions will like the Chicago outcome, but not the taxpayers, parents and students.

And what about the teachers? What's best for them?

Well, my view is that the interests of teachers are much more closely aligned with taxpayers, parents and students than with the government and teachers union.

That brings us to the charter school approach being taken in the two Michigan cities. But whether it's charter schools or not, liberating teachers, parents and students to "do more with less" would work wonders. Why it isn't happening is due to the ties between teachers union officials and governments, and especially Democratic party led governments.

If individual teachers were given a choice between earning more money and improving student performance on the one hand, and hiring more teachers to pay more union dues on the other, my own view is that most teachers would opt for earning more money and improving student performance. The taxpayers, parents and students would prefer that outcome as well. We all want to do good work and have our good work appreciated as well. That requires good outcomes and the freedom to experiment with different methods of improvement. Teachers could do a great deal to solve our educational problems if they were free and incentivized to do so.

The Chicago approach of hiring more teachers and making the school days longer doesn't assure suggest better student performance. Just higher costs, more union dues and a greater number of teachers employed.

Simple Math

We'll assume teacher A is paid $50,000 and that teacher A has 25 students. $2,000 per student is the teacher cost.

Let's pay teacher A $75,000 to teach 50 students. $1,500 per student is the teacher cost.

What about the taxpayer? Well, if the student to teacher ratio were increased by 100% and teacher pay were increased by 50%, taxpayer cost would be reduced by 25%.

And the student? Well, he can benefit as well by getting a better educational result.

Online tools make that possible. It's a simple matter of what gets measured and rewarded gets done. Incentives work.

Teachers, parents and students, one and all, will respond to appropriate incentives if allowed to do so by governmment and unions.

Taxpayers will certainly agree to try something new.

A Focus on Productivity is the Key to Success

It's all about productivity. Output for input. And if the student performance increased by 50%, we'd achieve "more output" at a "lower input cost." A double whammy. Better products cost less to produce. It's that simple. That's productivity.

Today we don't measure cost per student and don't incentivize students, teachers and parents to become more "productive."

We hire more teachers to pay more union dues and strengthen the ties between the Democratic party and public sector unions. That's insane.


We need to have a clear sense of urgency about all this. Why? Read on and get a clear picture of the whole global competitiveness situation and the role of education.

Simply stated, global competition makes upgrading U.S. education outcomes urgent and imperative.

China's Collaring U.S. Employment makes the case for gut wrenching educational reform in America. If we genuinely want to "save the middle class," which we do, let's resolve to make huge improvements in our educational system and fast. And while we're at it, let's make things better for teachers, parents, students and taxpayers as well.

Here's what the all too sobering article says:

"The arrival of hundreds of millions of cheap, diligent Chinese workers in the global economy saw America trade blue-collar jobs for low cost T-shirts and toasters.

From 2000, the year before China entered the World Trade Organization, to 2011, the U.S. manufacturing sector shed 5.4 million jobs.

Demographic changes mean that China's labor force already has plateaued in size and soon will start to shrink. Manufacturing wages rose 20% in 2011, outstripping improvements in labor productivity. The price of U.S. imports from China has started to rise. That crimps the spending power of U.S. consumers and fuels inflationary pressure.

Rising wages also are eating into margins, reducing opportunities for U.S. investors to tap easy profits. Morgan Stanley analysts estimate Chinese exporters' profit margins have shrunk 20% to 30% since 2004. The real number could be even higher. Net margins for Hon Hai Precision Industry, producer of the iPad, fell to 2.4% in 2011 from 5.5% in 2004.

Compounding the woes of white-collar America, millions of cheap and diligent Chinese graduates will be jostling for a position in the global labor market. China is producing six million graduates a year and is expected to have 200 million by 2030, according to estimates from the World Bank.

A big increase in the global supply of high-skilled workers in the years ahead could have the same impact as the surge in low-skilled workers more than a decade earlier, denting employment and wage growth in the U.S.

None of this is immediate and not all of it is inevitable. Despite a 46% increase in manufacturing wages in China since 2008, the cost of U.S. imports has risen only 2.6%, reflecting firms' capacity to improve productivity and swallow smaller margins. Language and cultural barriers mean China's professional workers won't put a ding in the global workforce as easily as their factory worker parents did. Rising incomes in China also should boost U.S. exports.

Still, such a profound shift in the labor market of the world's most populous country won't leave U.S. workers unaffected. In the first stage of China's development, America's blue-collar workers lost their shirt. In the next stage, America's white collar could start to look a little grubby.

Summing Up

We have little time to waste in cleaning up our approach to education from K-12 through college.

We also have little money to waste.

It's time to free teachers, parents and students to do what needs to be  done.

Achieve outsized and continuous gains in productivity, both in costs and educational outcomes.

To do that we have to get the public sector unions and government bottlenecks out of the way.

Thanks. Bob.

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