Perspective - August 2009 by OCPA

August 2009 â&#x20AC;˘ Volume 16 Number 8

Perspective

‘Cap and Trade’ Is Not the Answer

August 2009 Vol. 16, No. 8 Brandon Dutcher .................................. Editor Perspective is published monthly by the Oklahoma Council of Public Affairs, Inc., an independent public policy organization. OCPA formulates and promotes public policy research and analysis consistent with the principles of free enterprise and limited government.

OCPA Trustees Blake Arnold

Henry F. Kane

Oklahoma City

Bartlesville

Mary Lou Avery

Robert Kane

Oklahoma City

Tulsa

Lee J. Baxter

Tom H. McCasland III

Lawton

Duncan

Steve W. Beebe

David McLaughlin

Duncan

Enid

John A. Brock

Lew Meibergen

Tulsa

Enid

David R. Brown, M.D.

Lloyd Noble II

Oklahoma City

Tulsa

Aaron Burleson

Robert E. Patterson

Altus

Tulsa

Paul A. Cox

Bill Price

Oklahoma City

Jay T. Edwards

Patrick Rooney

Oklahoma City

Ann Felton

Melissa Sandefer

Oklahoma City

Norman

Josephine Freede

Robert Sullivan

Oklahoma City

Tulsa

Kent Frizzell

Lew Ward

Claremore

Enid

John T. Hanes

William E. Warnock, Jr.

Oklahoma City

Tulsa

Ralph Harvey

Gary W. Wilson, M.D.

Oklahoma City

Edmond

John A. Henry III

Daryl Woodard

Oklahoma City

Tulsa

OCPA Adjunct Scholars Will Clark, Ph.D.

David L. May, Ph.D.

University of Oklahoma

Oklahoma City University

David Deming, Ph.D.

Ronald L. Moomaw, Ph.D.

University of Oklahoma

Oklahoma State University

Bobbie L. Foote, Ph.D.

Ann Nalley, Ph.D.

University of Oklahoma (Ret.)

Cameron University

Kyle Harper, Ph.D.

Bruce Newman, Ph.D.

University of Oklahoma

Western Oklahoma State College

E. Scott Henley, Ph.D., J.D., D.Ph.

Stafford North, Ph.D.

Oklahoma City University (Ret.)

Oklahoma Christian University

James E. Hibdon, Ph.D.

Everett Piper, Ph.D.

University of Oklahoma (Ret.)

Oklahoma Wesleyan University

Russell W. Jones, Ph.D.

Michael Scaperlanda, J.D.

University of Central Oklahoma

University of Oklahoma

Andrew W. Lester, J.D.

Andrew C. Spiropoulos, J.D.

Oklahoma City University (Adjunct)

Oklahoma City University

OCPA Fellows Steven J. Anderson, MBA, CPA Research Fellow

J. Rufus Fears, Ph.D. Dr. David and Ann Brown Distinguished Fellow for Freedom Enhancement

J. Scott Moody, M.A. Research Fellow

Wendy P. Warcholik, Ph.D. Research Fellow

OCPA Legal Counsel DeBee Gilchrist Oklahoma City

OCPA Staff Forrest Claunch / Executive Director Brett A. Magbee / VP for Operations Brandon Dutcher / VP for Policy Margaret Ann Morris / Director of Development Sandra Leaver / Event Coordinator Dacia Dodson / Executive Assistant Clara Wright / Receptionist

1401 N. Lincoln Boulevard Oklahoma City, OK 73104 (405) 602-1667 FAX: (405) 602-1238 www.ocpathink.org ocpa@ocpathink.org

By Jay T. Edwards any in Congress are intent on imposing a tax on companies that produce carbon emissions so as to improve the climate and reduce global warming. The U.S. House of Representatives has sent this “cap and trade” bill to the U.S. Senate. Under the plan, acceptable levels of carbon dioxide emissions will be determined and capped by the government. Emissions over the cap will be taxed unless the offender can trade a credit with another company under the cap. This tax scheme stems from a growing concern about global warming and the effect on global temperatures by carbon dioxide in the atmosphere. Concern for global temperature is not new to my generation. In 1970, scientific consensus held that the planet was cooling and we needed to find more sources of energy or we would freeze to death. The 30-year cooling fear ended in the late 70s and was replaced by the now ongoing warming trend. Since the planet has warmed only one degree over the last 100 years, I wonder if Congress isn’t overly concerned about our planet’s ability to adjust its thermostat. According to global circulation models, if carbon dioxide concentration in the atmosphere were doubled it would only result in about a one-degree increase in average global temperature over the next 100 years. If the planet can adjust to our intrusions, it brings up the question about the need for carbon emission regulation. Most everything we do has a carbon footprint. Depending on how the “cap

and trade” tax is implemented, the cost of everything will go up. A low-carbon economy will be a major setback to our standard of living. Congress wants us to reduce our carbon emissions by 80 percent by 2050. Since fossil fuels constitute the greatest level of carbon emissions, reductions of this order cannot be achieved until we have viable alternatives for them. Consequently, with “cap and trade” in place and no alternatives for energy production, the government stands to raise huge sums of revenue from emissions. This will be useful in reducing the massive federal budget deficit but will devastate the economy. The solution does not lie in wind and solar power as alternatives for fossil fuels. To generate comparable electricity to a typical gas-fired power plant, a wind farm would require by most estimates about 40,000 acres of land. Solar land requirements are not much better. Currently, wind and solar satisfy about one-sixth of one percent of our energy demand. The president proposed to double that in the next four years. That means, if he can do it, the contribution will grow to one third of one percent. Meanwhile, demand is projected to grow by 30-plus percent in the next decade. Let’s hope brighter minds prevail on global warming and the impact of carbon dioxide before “cap and trade” becomes law. % Major General (Ret.) Jay T. Edwards, USAF, was the founding executive director of the Energy Center at the University of Oklahoma. He is an OCPA trustee.

To see how much “cap and trade” would cost your family, visit http://www.taxfoundation.org/capandtrade

September 17, 2009 C O N S T I T U T I O N D AY

Doubletree at Warren Place • Tulsa, Oklahoma 6:00 p.m. Reception • 7:00 p.m. Dinner • 8:00 p.m. Program

J. Rufus

Fears, Ph.D. World-renowned author, lecturer, and inspiring

professor of classics at the University of Oklahoma

“Securing the Blessings of Liberty to Ourselves and Our Posterity: Is It Still Possible?” N O N - P A R T I S A N

NON-COMPROMISING

Oklahoma Council of Public Affairs, Inc. 1401 N. Lincoln Boulevard • Oklahoma City, OK 73104 Office: 405-602-1667 • Fax: 405-602-1238 www.ocpathink.org • ocpa@ocpathink.org

Is Oklahoma Addicted to Federal Spending? By J. Scott Moody and Wendy P. Warcholik

klahoma’s share of President Obama’s federal “stimulus” package will come to approximately $2.6 billion over two years—or an average of $1.3 billion per year. This certainly sounds like a lot of money, but it pales in comparison to what the federal government already sends to Oklahoma. Unfortunately, Oklahoma is already highly dependent on federal largesse to keep a large part of its economy moving. If policymakers aren’t careful, the stimulus package will only worsen this dependency. Chart 1 shows the total amount of federal spending in Oklahoma from federal fiscal year (FFY) 1981 (the first year of available data) to 2008. In FFY 2008, Uncle Sam spent a whopping $31.758 billion in Oklahoma, or the equivalent of 24 percent of all income earned in the state (see Chart 2). Between FFY 2006 and 2007, the increase alone in federal spending in Oklahoma was $1.609 billion—even before the Bush or Obama stimulus packages! Federal spending grew 352 percent to $31.758 billion in FFY 2008 from $7.027 billion in FFY 1981. Even after adjusting for the growth in the economy,

federal spending grew as a percent of personal income by 11.6 percent—to 24 percent from 21.5 percent. Chart 3 breaks down federal spending by type as a percent of personal income. (Unfortunately, federal spending by type by state was not available until after FFY 1988 when these statistics were merged into a single report.) The single largest type of federal spending in Oklahoma is for “retirement and disability,” which consists mostly of Social Security spending. Between FFY 1989 and FFY 2008, spending on retirement and disability has declined as a percent of personal income by 7.1 percent—to 8.6 percent from 9.2 percent (percentage change may appear slightly off due to rounding). The second-largest type of federal spending is for “other direct payments,” which consists mostly of Medicare payments but also includes unemployment compensation, food stamps, and other expenditures. Between FFY 1989 and FFY 2008, spending on other direct payments has increased as a percent of personal income by 28.2 percent—to 5.7 percent from 4.4 percent. The third-largest type of federal spending is for “grants to state and local governments,” which consists mostly of Medicaid spending and, to a much smaller degree, the Department of Transportation. Between FFY 1989 and FFY 2008, spending on grants to state and local governments has increased as a percent of personal income by 32 percent—to 4.7 percent from 3.6 percent. Continued growth at this pace may soon see this category rival other direct payments. The fourth-largest type of federal spending is for “salaries and wages.” Nationally, this consists mostly of non-defense personnel. In Oklahoma, however, federal salaries and wages are dominated by the Department of Defense at $2.2 billion, versus $1.7 billion for federal civilian employees. Between FFY 1989 and FFY 2008, spending on salaries and wages has decreased as a percent of personal income by 40.5 percent—to 2.9 percent from 4.6 percent. Finally, the fifth-largest type of federal spending is for “procurement,” which consists mostly of the Department of Defense. As with salaries and wages, Oklahoma has an even higher proportion of defense procurement than the rest of the nation. Between FFY 1989 and FFY 2008, procurement has increased as a percent of personal income by 24.6 percent—to 2.2 percent from 1.7 percent. Though this is a large percentage gain, it stems from the fact that procurement spending was starting at such a low level. Overall, Oklahoma’s dependency on federal spending is alarming. Many of these programs are ones

State Government Needs Your Help News reports tell us that a revenue shortfall is likely for state government during the current fiscal year. Reduced allocations to state agencies are probable. No word yet on what Oklahoma’s taxpayers—who have no idea what it’s like to experience revenue shortfalls in their family budgets—think of this catastrophic development. Granted, Oklahoma has 66,084 too many state and local government employees when compared to the national average, but my guess is that taxpayers—none of whom have lost their jobs recently—will want to do everything possible to make sure government payrolls remain intact. Even though a tax hike is pretty much a nonstarter in Oklahoma, all is not lost: Oklahoma law allows citizens to make voluntary contributions to state government. The statute (§60-383) says that “gifts of cash or the equivalent of cash shall be made to and receipted for by the Director of State Finance.” So please, write the most generous check possible and send it to the Office of State Finance, 2300 N. Lincoln Boulevard, Room 122, Oklahoma City, Oklahoma 73105. Together, we can make a difference. —Brandon Dutcher

that Oklahomans likely would not have created or expanded if they had to pay for them directly. In fact, the federal government is actually subsidizing these programs with taxes paid by residents of other states. According to the Tax Foundation, Oklahoma receives $1.48 for every $1 sent to Washington, D.C. More disturbingly, a closer examination of the composition of spending points to a codependency between federal and state spending. The category of spending with the fastest growth was for grants to state and local spending, which contains Medicaid spending. Between FFY 1998 and FFY 2008, the federal portion of Medicaid spending in Oklahoma grew 112 percent—to $3.519 billion from $1.657 billion. This growth is problematic because for every $1 spent on Medicaid, Oklahoma’s state government must pick up approximately 27 cents of the tab. Yet, as part of the recent stimulus package, the federal government will lower the state’s portion of the Medicaid match over the next two years, with encouragement from Uncle Sam to expand Medicaid services as opposed to shifting the state dollars to other uses. Oklahoma’s policymakers should not listen to Washington, D.C., as it will only serve to make Oklahoma more dependent on federal largesse. Instead, policymakers should use this one-time stimulus money to enact reforms, especially in Medicaid, that will help wean Oklahoma from federal dependency. % Economists J. Scott Moody (M.A., George Mason University) and Wendy P. Warcholik (Ph.D., George Mason University) are OCPA research fellows.

This Outrageous Spending Must Stop By Mickey Hepner

hen most people find themselves deep in debt, spending so much money. The CBO estimates that the first thing they do is look for ways to cut their next year all federal government outlays will total spending. Unfortunately, the federal government is $3.5 trillion. They will be a little higher under the doing just the opposite. Congressional Budget Resolution approved recently. According to the Congressional Budget Office, the If we freeze total government spending at that level national debt this year will approach a record $8 we still would not balance the budget until 2015— trillion, with $1.8 trillion of that added this year alone. again assuming large tax increases in 2011. Still, Amazingly, just eight years ago our national debt was freezing government spending at $3.5 trillion annuonly $3.3 trillion, meaning that in just the past eight ally will shave nearly $4 trillion off the national debt years we have more than doubled the debt it took our in the next 10 years. Notice that under a government nation 225 years to amass. To make matters worse, spending freeze we would have the same national the CBO projects that the debt will continue to rise for debt in 2019 that we will have this year … we would the foreseeable future, nearly have stopped the madness. reaching $12 trillion by 2019, and It is important to remember that this includes large tax increases If we continue down a true freeze on government scheduled for 2011. spending does not mean that every this path of This must stop. program must be frozen. We can profligacy, we will Contrary to what some of our spend more on defense if we need only make our elected officials believe, every to. We can spend more on health children poorer. penny the government spends must care if we need to. We can spend be paid for in taxes on somebody, more on education if we need to. somewhere, at some time. If we do We can spend more on Social not pay the taxes today, and decide Security payments if we need to. to incur a debt instead, we are Under a spending freeze, though, simply passing the tax off onto every penny of increased spending future generations. in these programs must be offset This must stop. by penny decreases elsewhere in What is even more troubling is the budget. that the larger our debt grows, the Where can we cut? We can start larger the interest payments we with farm subsidies. The federal must make. The CBO estimates that government will spend more than by 2019 taxpayers will be paying $566 billion of $10 billion this year on farm subsidies, which the interest each year on our debt—more than the federal USDA admits mainly go to large, wealthy farmers, government spends on any current government instead of the small family farms. We can eliminate program except for Social Security and the military. tens of billions more by eliminating programs from Remember, when we make these interest payments the stimulus package that are not scheduled to begin we do not receive any government services. This is until after the economy already has recovered. And money we will be effectively throwing away. we eventually can save hundreds of billions by This must stop. seriously exploring ways to control entitlement The most troubling thing about having a growing spending. national debt, though, is that it slows the rate of There is no doubt that some government spending economic growth, thereby making future generations is important, necessary, and beneficial. There also is poorer. When governments run a debt, they must no doubt that we cannot afford the level of governborrow money to fund government programs. Yet, ment spending currently being proposed in Conwhen the government borrows money it is more gress. If we continue down this path of profligacy, we difficult for private businesses to borrow money, will only make our children poorer. Speaking as a making it more difficult for businesses to expand. This father of two young children who are counting on me process, what economists call the “crowding out of to protect them, I will continue to say that this must investment,” leads to slower economic growth and stop. % lower future incomes. Dr. Hepner (Ph.D., University of Oklahoma) is an associThis must stop. ate professor of economics at the University of Central The only way we can stop this madness is to stop Oklahoma.

Government Fraud: Bigger Than Madoff By Chris Edwards and Tad DeHaven

very year, criminals and cheats pilfer more than $100 billion—that’s $40 billion more than Bernie Madoff scammed off his investors—in federal benefits to which they are not legally entitled. Medicare, Medicaid, food stamps, refundable tax credits, and many other programs are targets for looting. Government fraud has been in the news lately because analysts are expecting major abuses of the Obama administration’s $787 billion stimulus plan. One Deloitte expert argued that “swindlers, con men, and thieves could siphon off as much as $50 billion” of stimulus funds, which are vulnerable because policymakers are under pressure to shovel it out the door quickly. Even more troubling is the potential for fraud and abuse created by President Obama’s other big spending proposals—particularly his giant healthcare plan. Obama wants to inject hundreds of billions more tax dollars into federal health care instead of fundamentally reforming Medicare and Medicaid—broken programs that are already subject to Madoff-sized larceny. That is incredibly unfair to those of us paying the bills. Take Medicare. The Government Accountability Office reports that the program makes about $17 billion in improper payments each year. And that doesn’t include problems in the new $60-billion-peryear prescription-drug plan, which is a juicy target for criminals. Harvard University’s Malcolm Sparrow, a specialist in health-care fraud, recently testified to Congress that official estimates are “lacking in rigor,” are “comfortingly low and quite misleading,” and exclude many kinds of fraud and abuse. He thinks that as much as 20 percent of the federal health-care budget is consumed by fraud, which would be $85 billion a year for Medicare. The bottom line is that the enormous size and complexity of federal health programs results in a huge waste of taxpayer funds. Medicare makes a staggering 1.2 billion electronic payments each year, making it highly vulnerable to cheating by health-care providers and organizedcrime rings. Criminals need only fill out the government forms carefully and the “claims will be paid in full and on time, without a hiccup, by a computer, and with no human involvement at all,” according to Sparrow. A perfect example is the recent case of a high-school dropout in Miami who was able to singlehandedly bilk Medicare out of $105 million from her laptop by submitting 140,000 separate claims for equipment and services. Medicaid is also a huge abuse target. The GAO

puts Medicaid fraud at $33 billion—11 percent of state and federal spending on the program. Again, that is likely a substantial underestimate. A former Medicaid investigator believes that up to 40 percent of New York State’s Medicaid budget is siphoned off in fraud and improper payments, but New York probably has a worse problem than elsewhere. Using Sparrow’s 20 percent estimate instead, Medicaid rip-offs top $60 billion a year nationwide. How does all this fraud and abuse occur? In many ways, including billing for services and medical equipment not provided, misrepresenting the services provided, and double billing. That last one is common. Another trouble spot is Medicaid’s nursing-home benefits, which are meant for people with low incomes and few financial assets. Since nursing homes are expensive, the program creates a big incentive for higher-income families to falsify their status and apply for the benefits. Indeed, a whole industry of financial consultants helps ineligible seniors hide their income and assets so that they qualify. The result is that the program loses about $10 billion a year to fraudulent claims. The bottom line is that the enormous size and complexity of federal health programs results in a huge waste of taxpayer funds. The inspector general of the Department of Health and Human Services recently told Congress: “Although it is not possible to measure precisely the extent of fraud in Medicare and Medicaid, everywhere it looks the Office of Inspector General continues to find fraud against these programs.” Medicare and Medicaid are the biggest fraud targets, but this problem plagues all government subsidy programs. Official loss estimates for other programs include $12 billion for the Earned Income Tax Credit, $5 billion for Supplemental Security Income, and $14 billion for unemployment insurance. All in all, the cost to taxpayers is well over $100 billion a year, which translates into a theft of $1,000 or more from every household in America every year. We think that there are good policy reasons to dramatically cut Medicare, Medicaid, and other benefit programs. But at the very least, the vast magnitude of graft in these programs should give every policymaker pause before pumping even more taxpayer money into the federal subsidy empire. % Chris Edwards is the director of tax-policy studies, and Tad DeHaven is a budget analyst, at the Cato Institute.

While researching private schools in India for the World Bank, James Tooley wandered into the slums of Hyderabad’s Old City and was shocked to find it overflowing with small, parent-funded schools. So began the adventure lyrically told in The Beautiful Tree and excerpted here—the story of Tooley’s travels from the largest shanty town in Africa to the mountains of Gansu, China. It’s the story of children, parents, teachers, and entrepreneurs in the poorest corners of the globe who, in response to failed public education, are not waiting for handouts. They are educating themselves—and succeeding under the most challenging conditions imaginable.

fter a stint teaching philosophy of education at mounting sense of self-criticism. the University of the Western Cape in South Then one day, everything changed. Arriving in Africa, I returned to England to complete my doctorHyderabad to evaluate brand-new private colleges at ate and later became a professor of education. the forefront of India’s high-tech revolution, I learned Thanks to my experiences in sub-Saharan Africa that January 26 was Republic Day, a national holiday. and my modest but respectable academic reputation, Left with some free time, I decided to take an I was offered a commission by the World Bank’s autorickshaw—the three-wheeled taxis ubiquitous in International Finance Corporation to study private India—from my posh hotel in Banjara Hills to the schools in a dozen developing countries. Charminar, the triumphal arch built at the center of The lure of faraway places was too enticing to Muhammad Quli Shah’s city in 1591. resist, but I was troubled by the project itself. Although My Rough Guide to India described it as I was to study private schools in developing countries, Hyderabad’s “must see” attraction, and also warned those schools were serving the middle classes and that it was situated in the teeming heart of the Old the elite. Despite my lifelong desire to help the poor, City slums. That appealed to me. I wanted to see the I’d somehow wound up researching bastions of slums for myself. privilege. As we traveled through the middle-class suburbs, I The first leg of the trip began in New York in Januwas struck by the ubiquity of private schools. Their ary 2000. As if to reinforce my misgivings that the signboards were on every street corner, some on fine project would do little for the poor, I was flown first specially constructed school buildings, but others class to London in the grandly posted above inordinate luxury of the shops and offices. Concorde. Of course, it was Forty minutes into the nothing more than I’d flight, as we cruised at been led to expect from twice the speed of sound my meetings in India and two miles above already—senior governconventional air traffic, ment officials had imcaviar and champagne pressed me with their were served. The boxer candor when they told Mike Tyson (sitting at the me it was common front with a towel over his knowledge that even the head for much of the middle classes were all journey) and singer sending their children to George Michael were on private schools. They all the same flight. I felt lost. did themselves. But it was New Faith, a private school in Kibera (the largest slum in Africa) still surprising to see how From London it was on in Nairobi, Kenya. Opposite page: Soweto Academy. to Delhi, Chennai, and many there were. Mumbai. By day, I evaluWe crossed the bridge ated five-star private schools and colleges that were over the stinking ditch that is the once-proud River very definitely for the privileged. By night, I was put Musi. Here were autorickshaws in abundance, cattleup in unbelievably salubrious and attentive five-star drawn carts meandering slowly with huge loads of hotels. hay, and rickshaws agonizingly peddled by painfully But in the evenings, sitting and chatting with street thin men. children outside these very same hotels, I wondered My driver let me out, and told me he’d wait for an what effect any of my work could have on the poor, hour, but then called me back in a bewildered tone as whose desperate needs I saw all around me. I didn’t I headed not to the Charminar but into the back just want my work to be a defense of privilege. The streets behind. No, no, I assured him, this is where I middle-class Indians, I felt, were wealthy already. was going, into the slums of the Old City. For the To me it all seemed a bit of a con: Just because they stunning thing about the drive was that private were in a “poor” country, they were able to latch onto schools had not thinned out as we went from one of this international assistance even though they as the poshest parts of town to the poorest. individuals had no pressing need for it at all. I didn’t Everywhere among the little stores and workshops like it, but as I returned to my room and lay on the were little private schools! I could see handwritten 500-thread-count Egyptian-cotton sheets, my discomsigns pointing to them even here on the edge of the fort with the program was forced to compete with a slums. I was amazed, but also confused: Why had no

one I worked with in India told me about them? The young men at the bean-and-vegetable counter hailed me and said there was definitely someone at the Royal Grammar School just nearby, and that it was a very good private school and I should visit. They gave me directions, and I bade farewell. But I became muddled by the multiplicity of possible right turns down alleyways followed by sharp lefts, and so asked the way of a couple of fat old men sitting alongside a butcher shop. Their shop was the dirtiest thing I had ever seen, with entrails and various bits and pieces of meat spread out on a mucky table over which literally thousands of flies swarmed. The stench was terrible. No one else seemed the least bit bothered by it. They immediately understood where I wanted to go and summoned a young boy who was headed in the opposite direction to take me there. He agreed without demur, and we walked quickly, not talking at all as he spoke no English. In the next street, young boys played cricket with stones as wickets and a plastic ball. One of them called me over, to shake my hand. Then we turned down another alleyway (with more boys playing cricket between makeshift houses outside of which men bathed and women did their laundry) and arrived at the Royal Grammar School, which proudly advertised, “English Medium, Recognized by the Gov’t of AP.” The owner, or “correspondent” as I soon came to realize he was called in Hyderabad, was in his tiny office. He enthusiastically welcomed me. Through that chance meeting, I was introduced to the warm, kind, and quietly charismatic Mr. Fazalur Rahman Khurrum and to a huge network of private schools in the slums and low-income areas of the Old City. The more time I spent with him, the more I realized that my expertise in private education might after all have something to say about my concern for the poor.

streets to schools whose owners were apparently anxious to meet me. (Our rented car was a large white Ambassador—the Indian vehicle modeled on the old British Morris Minor, proudly used by government officials when an Indian flag on the hood signified the importance of its user—horn blaring constantly, as much to signify our own importance as to get children and animals out of the way.) There seemed to be a private school on almost every street corner, just as in the richer parts of the city. I visited so many, being greeted at narrow entrances by so many students, who marched me into tiny playgrounds, beating their drums, to a seat in front of the school, where I was welcomed in ceremonies officiated by senior students, while school managers garlanded me with flowers, heavy, prickly, and sticky around my neck in the hot sun, which I bore stoically as I did the rounds of the classrooms. Some of the private schools had beautiful names. Like Little Nightingale’s High School, named after Sarojini Naidu, a famous “freedom fighter” in the 1940s, known by Nehru as the “Little Nightingale” for her tender English songs. Or Firdaus Flowers Convent School, that is, “flowers of heaven.” The “convent” part of the name puzzled me at first, as did the many names such as St. Maria’s or St. John’s. It seemed odd, since these schools were clearly run by Muslims—indeed, for a while I fostered the illusion that these saints and nuns must be in the Islamic tradition too. But no, the names were chosen because of the connotations to parents—the old Catholic and Anglican schools were still viewed as great schools in the city, so their religious names were borrowed to signify quality to the parents. But did they really deliver a quality education? I needed to find out. One of the first schools Khurrum took me to was Peace High School, run by 27-year-old Mohammed Wajid. Like many I was to visit, the school was in a converted family home, fronting on Edi Bazaar, the main but narrow, bustling thoroughfare that stretched out behind the Charminar. A bold sign proclaimed the school’s name. Through a narrow metal gate, I entered a small courtyard, where Wajid had provided some simple slides and swings for the children to play on. By the far wall were hutches of pet rabbits for the children to look after. Wajid’s office was to one side, the family’s rooms on the other. We climbed a narrow, dark, dirty staircase to enter the classrooms. They too were dark, with no doors, and noise from the streets easily penetrated the barred but unglazed windows. The children all seemed incredibly pleased to see their foreign visitor and stood to greet me warmly. The walls were painted white but were discolored

r. Fazalur Rahman Khurrum was the president of an association specifically set up to cater to private schools serving the poor—the Federation of Private Schools’ Management, which boasted a membership of over 500 schools all serving lowincome families. Once word got around that a foreign visitor was interested in seeing private schools, Khurrum was inundated with requests for me to visit. I spent as much time as I could over the next 10 days or so with Khurrum, traveling the length and breadth of the Old City, in between doing my work for the International Finance Corporation in the new city. We visited nearly 50 private schools in some of the poorest parts of town, driving endlessly down narrow

by pollution, heat, and the general wear-and-tear of continue my “field trip” in other countries. I was eager children. From the open top floor of his building, and excited to tell them what I’d discovered in the Wajid pointed out the locations of five other private back streets of the Old City of Hyderabad and to gain schools, all anxious to serve the same students in his their insights on the way forward. neighborhood. They weren’t at all impressed. I met with a group of Wajid was quietly unassuming, but clearly caring staff members in their pleasant offices, replete with and devoted to his children. He told me that his potted ferns and pretty posters of cute children. Most, mother founded Peace High School in 1973 to provide it was true, had never heard of private schools serving “a peaceful oasis in the slums” for the children. Wajid, the poor, and they were frankly puzzled about how her youngest son, began teaching in the school in schools charging only $10 a year could exist, except 1988, when he was himself a 10th-grade student in through charity. another private school nearby. And they told me that I had found some nongovernWajid having then received his bachelor’s in commental organizations working in the slums, opening a merce at a local university college and begun training few schools, that was all. They told me this, assuming as an accountant, his mother asked him to take over I was simply misguided, even though I had told them the school in 1998, when she felt she must retire from it was something else altogether. active service. She asked him to consider the “less However, one of the group, Sajitha Bashir, had blessed” people in the slums, and that his highest herself seen a few private schools in Tamil Nadu— ambition should be to help them, as befitting his although she insisted there were none in Karnataka, Muslim faith. where she was now doing a This seemed to have come study, so they weren’t a Private schools for the poor as a blow to his ambitions. His universal phenomenon. elder brothers had all pursued In front of the group, she are burgeoning across the careers, and several were now launched into a tirade developing world, and their living overseas in Dubai, against such schools. They quality is higher than that of London, and Paris, working in were ripping off the poor, she the jewelry business. But Wajid said, run by unscrupulous government schools felt obliged to follow his businesspeople who didn’t provided for the poor. mother’s wishes and so began care a fig for anything other running the school. He was than profits. still a bachelor, he told me, because he wanted to This didn’t gel at all with what I’d seen in build up his school. Only when his financial prospects Hyderabad—how could such people devote their were certain could he marry. weekends to science competitions and cyber-olympics The school was called a high school, but like others if money was their sole motivation? I was not at all bearing this name, it included kindergarten to 10th convinced and hesitantly related some details of what grade. Wajid had 285 children and 13 teachers when I I’d found. No one considered my information very first met him, and he also taught mathematics to the significant. Those who hadn’t heard of these schools older children. simply shrugged, and the meeting soon dissolved. His fees ranged from 60 rupees to 100 rupees per Afterward, Sajitha took me downstairs for coffee, month ($1.33 to $2.22 at the exchange rates then), clearly trying to be helpful in letting me see the errors depending on the children’s grade, the lowest for of my ways. kindergarten and rising as the children progressed So the private schools might be there, some might through school. even be better than the public schools, but that’s only These fees were affordable to parents, he told me, because they are selective. “They take the cream of who were largely day laborers and rickshaw pullers, the cream,” she said (and I had to force myself to market traders and mechanics—earning perhaps a remember that we were talking about parents earning dollar a day. Parents, I was told, valued education a dollar or two a day), leaving the public schools highly and would scrimp and save to ensure that their much worse off. children got the best education they could afford. Anyway, continuing the theme that only a few were any good, she continued, “Most of the schools are ddly, my “discovery” of private schools serving shocking, there is a shocking turnover of teachers, the poor was no discovery at all, or at least not to they’re not trained, they’re not committed, and the some people. proprietors know that they can simply get others beLeaving Hyderabad, I returned to Delhi to meet cause there is a long list of people waiting to come in.” again with World Bank staff before moving on to But her main problem, clearly based on well-

gave me a couple of references to look up. And she was right. I wondered at my own poor detective work in not having located these references before. Perhaps my own lack of recognition for what was taking place was excusable. In the writings she pointed me to, and subsequent ones that I found, discussion of private schools for the poor was somehow veiled, or referred to tangentially, and ignored in subsequent writings. It was certainly not headlined in any conclusions or policy implications—to which many of us lazily turn when we digest development writings. It was almost as if the writers concerned were embarrassed or bewildered by private schools for the poor. They could write about these schools in passing, but instead of their leaping out at them as something of great significance—as they had to me when I first “discovered” them in Hyderabad—they didn’t seem to impinge in any significant way on the writers’ policy proposals or future discussions. Even for those who didn’t deny the existence of private schools for the poor, everyone, it seemed, altogether denied their significance. The more I explored those references, the more baffled I became. It was one thing to argue that “education for all” could be secured only through public education supported by international aid if you were unaware of private schools for the poor. But as soon as you knew that many poor parents were exiting the state system to send their children to private schools, then surely this must register on your radar as being worthy of comment in the “education for all” debate? Apparently not. I read the Public Report on Basic Education (the PROBE Report), a detailed survey of educational provision in four northern Indian states, with growing amazement. It too was clear that “even among poor families and disadvantaged communities, one finds parents who make great sacrifices to send some or all of their children to private schools, so disillusioned are they with government schools.” Here was another source pointing to the phenomenon of private schools for the poor—why weren’t they better known then? The PROBE team’s findings on the quality of public schools were even more startling. When their researchers had called unannounced on a large random sample of government schools, in only half was there any “teaching activity” at all! In fully one-third, the principal was absent. The report gave touching examples of parents who were struggling against the odds to keep children in school, but whose children were clearly learning next to nothing. Children’s work was “at best casually checked.” The team reported “several cases of irresponsible

Praise for The Beautiful Tree “With this important and passionately written book, James Tooley has joined the late Milton Friedman as a name to be reckoned with in support of ‘market solutions’ for providing quality education to poor children.” —Hernando DeSoto, author of The Other Path “Schools for the poor are the obsession of James Tooley, an education specialist with a severe case of wanderlust. He came across an unexpected phenomenon: an unending line of small, no-frills private schools catering to poor kids. He found that, on average, they had smaller class sizes, higher test scores, and more motivated teachers, all while spending less than public schools. With the zeal of a convert, Tooley invokes the market’s ‘invisible hand’ to explain why private schools perform better: When parents pay the fees that keep a school afloat, he reasons, the school becomes more accountable to them. Tooley drowns readers in local color, detailing every ‘bright-eyed’ school child and every ‘thin drifting smog’ above a shantytown. Tooley’s passion comes off as genuine.” —Carlos Lozada, Washington Post

intentioned personal convictions, was the question of equality. Because some children, the poorest of the poor, are left behind in the “sink” public schools, the private schools were exacerbating inequality, not improving the situation at all, she said. For that reason, we must devote all our efforts toward improving the public schools, not get carried away by what was happening in a few private schools. For Sajitha it was clear: If many—or even a few— parents had higher aspirations for their children and wanted to send them to private schools, then “they should not be allowed to do so, because this is unfair.” It’s unfair because it makes it even worse for those left behind. This puzzled me. Why should we treat the poor in this homogeneous way? Would we—Sajitha and I—be happy if we were poor, living in those slums, and unable to do the best for our children, whatever our meager funds allowed? But I said nothing. As we parted, amicably enough, she told me that there was quite a bit of development literature about private schools for the poor in any case, and so I shouldn’t go on too much about my “discovery” as I had done today, as people would only laugh. She

teachers keeping a school closed or non-functional for several months at a time,” one school “where the teacher was drunk,” another where the principal got the children to do his domestic chores, “including looking after the baby.” The team observed that in the government schools, “generally, teaching activity has been reduced to a minimum, in terms of both time and effort.” Importantly, “this pattern is not confined to a minority of irresponsible teachers—it has become a way of life in the profession.” But they did not observe such problems in the private schools serving the poor. When their researchers called unannounced on their random sample of private unaided (that is, receiving no government funding) schools in the villages, “feverish classroom activity” was always taking place. So what was the secret of success in these private schools for the poor? The report was very clear: “In a private school, the teachers are accountable to the manager (who can fire them), and, through him or her, to the parents (who can withdraw their children).” “In a government school, the chain of accountability is much weaker, as teachers have a permanent job with salaries and promotions unrelated to performance. This contrast is perceived with crystal clarity by the vast majority of parents.”

parental needs. Those worried about how to extend access to education for the poor could usefully look to the private education sector as a way forward. By increasing what private schools for the poor already offer, such as additional free and subsidized places for the poorest, sensitively applied targeted vouchers could broaden access on a large scale. Crucially, because the private schools serving the poor are businesses, making a reasonable profit, they provide a pioneering way forward for investor involvement too. Investing in microfinance-style loan programs so that private schools can improve their infrastructure is one way forward. Providing investment for innovation in curriculum and learning, which, if successful, could be rolled out on a commercial basis, is a second possibility. And investing in a chain of schools—either through a dedicated education investment fund or through joint ventures with educational entrepreneurs—could help solve the information problem for poor parents and improve the existing educational opportunities. Educating the poor is a solvable problem. % James Tooley earned his Ph.D. from the Institute of Education, University of London, and has held educational research positions at the Universities of Oxford and Manchester and the National Foundation for Educational Research. Prior to entering educational research and policy he was a public-school mathematics teacher in Zimbabwe. Now an award-winning scholar featured in PBS and BBC documentaries, he has written several books, and his work has been covered in Newsweek, The Atlantic, The Wall Street Journal, and the Financial Times. He currently lives in Hyderabad, India, where he works with the entrepreneurs and teachers who inspired his book The Beautiful Tree.

rivate schools for the poor are burgeoning across the developing world. In many urban areas they are serving the majority of poor schoolchildren. Their quality is higher than that of government schools provided for the poor—perhaps not surprisingly given that they are predominantly businesses dependent on fees to survive and, hence, are directly accountable to

Entrepreneurial Spirit and a Mother’s Love By Patrick B. McGuigan

our decades of involvement in education—as a Some he met were Muslim, some secular, some volunteer, writer, and sometime teacher—have Christian or Christian-influenced, some libertarians blessed me with riches that cannot be measured in longing for freedom from government dictates and normal ways. irrational cultural norms. I have read stories to children at east Oklahoma All seemed to share the perspective of one headCity schools, then walked to lunch with a dozen giggling master, a man named Wajid at “Peace High School” children clinging to hands, fingers, and suspenders. I in India, who told Tooley he became a private school taught elementary, middle, and secondary students at educator because, well, “Sometimes, government is an alternative school for troubled and “at-risk” youth. the obstacle to the people.” Tooley took the name for I substituted at public, charter, and private schools, his book from a figure of speech Mahatma Gandhi meeting dreams and despair, trial and triumph. used in 1931 to describe ancient Indian traditions of I’ve lectured to sometimes idealistic and hopeful, learning and erudition. sometimes skeptical and bored, college students In 2009, members of the British Conservative Party, about history or drama, about writing or romance, or transformed in their worldview by Tooley’s book and about a call of the heart found in that tender tug from related studies, wrote with wonder in a recent manithe squeeze of a child’s hand to “read just one more.” festo: “In the poor urban and semi-urban areas of Frustrated with bureaucratic lethargy and angry Lagos State, Nigeria, 75 percent of school children with those who have surrendered to the despair of attend budget private schools. In the slums of inner-city poverty and family colHyderabad, India, 65 percent of lapse, I’ve found and then reported, schoolchildren are in private unJames Tooley found that sometimes in the most unexpected aided schools. These schools spirit and love in circumstances, examples of heroic charge very low fees, affordable to Hyderabad and in Ghana. service to children who lack stable parents on low wages. ... These I found them in north living environments. schools are run for poor people, by Tulsa and in east In the Deborah Brown Community poor people.” Oklahoma City. School in Tulsa and at public and And what are the results coming private schools in Oklahoma City, I from these schools serving the have witnessed the miracle of learning in defiance of poorest of the poor? life’s greatest obstacles. I have seen the future, or part Analysis of testing of 24,000 children in five counof it, at St. John Christian Heritage Academy, then tries found that even after adjusting for background, dreamed of justice for hopeful and productive people. “results achieved in private schools were significantly But for all our problems, nothing I have encounhigher, in every country studied and on every meatered in American ghetto schools or in the lives of our sure used, than in public schools.” Problems in their nation’s urban poor can compare with the squalor peer public schools were low motivation, lack of found in descriptions given by James Tooley in his accountability, and high rates of teacher absenteenew book The Beautiful Tree, excerpted in this month’s ism. Competition among the “budget private schools” issue of Perspective. provided “an incentive to keep standards high, in Tooley describes a remarkable odyssey uncovering order to retain their pupils.” productive but unregistered private schools all over It should surprise no one that, as Tooley’s book the world, places where the children of desperately jacket reports: “Both the entrepreneurial spirit and the poor parents make lives better through mathematics love of parents for their children can be found in every and composition, English and French, science and corner of the globe.” hope, while preparing for success in work and life. Tooley found that spirit and love in Hyderabad, in Tooley crossed stinking ditches, passed open Lagos, in Ghana, and in China. sewers, encountered reeking slaughterhouses, and I found that spirit and love in north Tulsa and in circled putrid fish boats all over the world, only to find east Oklahoma City. enclaves of excellence guided by great minds the Let’s unleash that spirit and that love. Now. It’s a equal of Marva Collins of Chicago and Tracy small world, after all. % McDaniel of Oklahoma City. The schools Tooley Patrick McGuigan (M.A. in history, Oklahoma State visited were islands of calm in the midst of turmoil, University) is an editor at The City Sentinel, a weekly newspaper in Oklahoma City. He is the author of two books “areas that lacked decent sanitation and clean water and the editor of seven. supply, adequate roads, electricity.”

Fire Drills and Straw Men By Brett A. Magbee

crisis mentality has taken over our nation. Increasing numbers of policymakers think if they holler FIRE, citizens will give them a mandate to implement a big-government solution, which at the end of the day merely exacerbates the original problem. In fact, the only thing such “fire drills” really do is to assist those same policymakers (who are doubtless in part responsible for the problems in the first place) in expanding their power and authority over taxpayers. Then there’s another strategy which policymakers utilize to maximum advantage. It’s called “the straw man.” It is used to avoid challenges to these biggovernment fire drills from free-market think tanks like OCPA. Wikipedia states, “A straw man argument is an informal fallacy based on misrepresentation of an opponent’s position. To ‘attack a straw man’ is to create the illusion of having refuted a proposition by

State Sen. John Ford (R-Bartlesville), chairman of the Senate Education Committee, discusses a new Friedman/OCPA study with OCPA’s Brandon Dutcher (right).

substituting a superficially similar proposition (the ‘straw man’), and refuting it, without ever having actually refuted the original position.” Call such tactics political “posturing” or “gamesmanship,” but either is clearly wrong because the use of fear and/or misdirection shortchanges taxpaying citizens from legitimate governance and in turn makes a mockery of the process of representative democracy. That’s why OCPA has gained the support of thousands of Oklahomans who are tired of politics as usual and seek a source of reliable, nonpartisan information and analysis they can depend on. They know OCPA always puts principle over politics. That’s why they support us. Do you? Your support expands our work and our outreach, which furthers our effectiveness and in turn encourages others to support us as well. So please, give generously today! %

Leslie Hiner, director of programs and state relations at the Friedman Foundation for Educational Choice, discusses education reform in the OCPA boardroom as journalist Patrick McGuigan (left) and OCPA trustee Bill Price listen.

State Sen. Clark Jolley (R-Edmond), vice chairman of the Senate Education Committee, stresses the need for scholarships for special-needs students. Pictured also are (clockwise) Ginger Tinney of Professional Oklahoma Educators; state Sen. John Ford; Peter J. Rudy of Oklahomans for Responsible Government; and David Dunn of the Oklahoma Family Policy Council.

At a recent state-capitol press conference, Christian D’Andrea, policy analyst at the Friedman Foundation for Educational Choice, outlines a new study published by Friedman and OCPA.

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“Oftentimes, in government, you don’t have the overall performance driver like you do in the private sector, which is profit. So we have to look at different ways to make sure we’re doing things as efficiently as possible.” Claremore deputy city manager Matt Mueller, quoted in a July 6 Tulsa World story. “For more than a year and a half, Claremore has been able to cut costs through outsourcing,” the World reported. “The municipality has outsourced two departments—fleet maintenance and planning and zoning/engineering—since November 2007 and is in the process of converting a third.”

“Interchangeable widgets.” U.S. Secretary of Education Arne Duncan, describing how teachers are treated under the industrial model on which teachers’ unions were formed

“52 percent.” The top tax rate for some Oklahomans if ObamaCare is enacted, according to a new analysis from The Heritage Foundation

“The lottery has produced addicts, led to fraud, and broken up families.” Senate Majority Floor Leader Todd Lamb (R-Edmond), quoted in a July 20 Tulsa World story, “Lottery revenue hasn’t hit jackpot”

Don’t Be a Tease Oklahoma’s own Greg Johnson, who last month was elected to a seat on the NEA Executive Committee, said in a speech to his fellow unionized teachers: “I challenge you to think of a world where there is no NEA.” “Hey, Obama has just nationalized nothing more and nothing less than General Motors. Comrade Obama!” Hugo Chavez, June 2, 2009

E “I suppose you can’t really blame Congress for trying to impose its wishes on GM. After all, the Constitution is silent on the matter of which branch of government furnishes the CEO of nationalized companies.” Cato Institute scholar Daniel Ikenson

“Not one single person has ever been killed by global warming. The number of species that have gone extinct from global warming is exactly zero.” OCPA adjunct scholar David Deming

“Why are these conservative and right-wing bastards picking on NEA and its affiliates?” Question asked (to raucous applause from schoolteachers) in a speech last month by National Education Association general counsel Bob Chanin