December 28, 1994
"It's Crunch Time for Health and Education: Both are Run by Omnivorous
Bureaucracies which can Absorb Almost Any Amount of Money"
San Jose Mercury News
By Timothy Taylor
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FROM an economic point of view, the problem of reforming the U.S. education
system appears strangely similar to the problem of health finance reform.
Both areas have seen a steady rise in spending. Since 1960, for example, U.S.
spending on health care, measured on a per capita basis, has risen about 5 percent
faster than inflation every year. Similarly, real education spending per K-12
student has risen by about 3.5 percent per year for 50 years.
Demographic and technological pressures will create pressure for still higher
spending. In health care, an aging population, combined with the magical technologies
now being developed, will drive up demand. In education, the number of students
in K-12 schools declined between 1970 and 1990, making it possible to spend more
per student without raising overall spending. But now enrollments are rising again,
and combined with the allure of new tools for computerized learning, education
budgets are on the rise again.
In both education and health care, there is deep concern over what society
is getting for its money. In international comparisons, America doesn't look particularly
hale and hearty when measured on basic standards like life expectancy and infant
mortality. The U.S. education system doesn't seem up to the international competition,
either. In a recent book called "Making Schools Work: Improving Performance
and Controlling Costs," a group of social scientists led by Eric Hanushek
note: "Students from the United States perform worse than those from other
countries. Although some variation occurs across tests, there is little evidence
of significantly narrowing international performance gaps." These grim international
comparisons coincide with a litany of complaints from parents and potential employers
that many of America's high school graduates can't do simple calculations, or
comprehend the main ideas of a written document, or understand the meaning of
numbers in a table or chart.
It seems heart-wrenching and wrong that a person should suffer or die from
a curable medical condition. It is tragic to think of a child's life possibilities
being stunted by a poor education.
Little wonder that there is a temptation, with both health care and education,
to keep raising the amount of resources spent, especially if some of those resources
can be aimed at the disadvantaged. Both industries have powerful entrenched interests
- the doctors, nurses, and hospitals in health care, and the teacher's unions
in education - which usually argue for higher spending as the answer to any and
But a hard truth is that in this era of tight government budgets, large spending
increases aren't likely. An even harder truth is that the medical and education
industries are perfectly capable of soaking up additional resources without improving
anyone's health or learning.
In health care, much of the increase in costs over time is due to the use of
expensive new tests, treatments and technologies. However, it's not always clear
whether a complex new surgical procedure is better for one's health than two aspirin,
bed rest and chicken soup.
In education, extra resources often seem to go for goals like reducing class
size or giving teachers a raise for additional graduate work, even though there
isn't much evidence that these steps raise student achievement.
Both health care and education are run by omnipresent and omnivorous bureaucracies
which can absorb almost any amount of money.
So the policy problem, as economists see it, is to design a system where the
incentives are aligned toward using the existing resources to produce more health
In health care, despite the wreckage of Clinton's health care proposal last
summer, such a system is taking shape. All the serious plans for health care reform
encourage the development of institutions where many health plans will receive
a fixed amount of money - like a health maintenance organization - for agreeing
to treat each patient over the course of the forthcoming year.
Such institutions have an obvious incentive to hold down costs, since they
are paid only a fixed amount per person. When such plans compete, they will be
under pressure to main a high quality of service by customers, who have the ability
to switch to another plan, and by those who pay the bills, like large employers
who decide which plans to offer their workers.
In K-12 education, it's harder to see how a model of competition would work.
Limiting school budgets is easy enough. But it's harder for parents to judge their
children's education than it is to judge their personal medical care. Even if
parents have qualms about a school, switching schools is harder than switching
medical plans: the school year is inflexible; it's tough for kids to leave friends
and teachers; transportation presents problems. Moreover, education doesn't have
the equivalent of large employers who are paying directly for services, and demanding
value for money.
The acid test of any proposed school reform should thus be how it builds tangible
incentives for quality. In "Making Schools Work," Hanushek reveals a
suspicion that there isn't any blueprint for the perfect school. Instead, the
problem is to encourage schools to learn about how their programs work, to propagate
successful innovations, and to create a continuous process of change and adaptation
within the school itself.
This is a matter of carrots and sticks. What rewards will the best teachers
get, and how will the worst teachers be pushed into another line of work?
A final similarity between health and education is that in both cases, changes
outside the system may have more impact on health and learning than changes inside
Among health care economists, it is commonplace to note that changes in exercise,
diet and use of tobacco and alcohol will have a far larger effect on America's
health than any conceivable plan of national health insurance.
Similarly, if every child had decent meals, loving parents, role models of
adults with jobs, a safe neighborhood, and a home with conversation, books and
a television that was turned off most of the time, those changes would have a
far greater effect on learning than any conceivable school reform program.
Changing America's lifestyle and social problems is a tall task. But pretending
that medical and education professionals can cure these problems without help
from the rest of us isn't very realistic, either.
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