Saturday, March 31, 2012

India: Politics, Greed, and the Attack of the Superbugs

The emergence of antibiotic-resistant bacteria has become a growing problem. Sonia Shah has an article in Foreign Affairs that discusses what is perhaps the most dangerous of the identified bacteria as it has emerged in India: When Superbugs Attack: Antibiotic Resistant NDM—1 Is Undermining India’s Medical Sector.

Hospitals have traditionally been the most efficient locations for producing infections. The nature of the services provided and the population of sick people make the probability of infection significant. It is traditional to support most procedures with a regimen of antibiotics to avoid complications, but this has become a less than certain safeguard. An article in The Economist provides some needed background about these superbugs.

"The best-known is methicillin-resistant Staphylococcus aureus, known as MRSA. In America the Centres for Disease Control and Prevention says that around 94,000 people get serious MRSA infections each year and 19,000 of them die. Yet around one-third of people carry some form of S. aureus without coming to any harm."

"Most people who die from MRSA succumb to the toxic shock that sets in when their immune system goes into overdrive. This is triggered by superantigens, which are powerful toxins produced by the bacteria and which activate a large number of the human immune system’s T-cells in the bloodstream. Usually only a small number of these cells are released to hunt down and destroy an infection, with more called up as reinforcements if necessary."

The insidious characteristic of these bacteria is that not everyone who is infected will receive treatment, allowing the threat of further infections to continue.

The development of antibiotic resistance seems inevitable, but the timescale for development can be speeded up by overuse of antibiotics. Consider this chart from another article in The Economist.

The greater the use of antibiotics, the more prevalent are the drug-resistant bacteria.

Sonia Shah, in her article, tells us that the emergence of a superbug is already serious in a developed country. When it occurs in a country where quality health care is not available to large fractions of the population it can be a disaster.

"Taming the new drug-resistant pathogens requires ever more toxic, expensive, and time-consuming therapies, such as a class of last-resort antibiotics called carbapenems, which must be administered intravenously in hospitals. In the United States alone, fighting drug-resistant infections costs up to 8 million additional patient hospital days and up to $34 billion every year."

"Now, the emergence in India of a particularly nasty form of antibiotic-resistant bacteria, which renders even the last-resort drugs obsolete, could bring about an era of unstoppable infections."

What has developed in India is not just a single form of bacteria, but the emergence of a gene that confers drug resistance on any bacteria that it manages to invade.

"The gene that conferred this extreme drug-resistance was dubbed "New Delhi metallo-beta-lactamase 1" or NDM-1. Scientists found that, unlike other drug-resistant bacteria, NDM-1 bacteria are able to quickly and prolifically spread their genes to other bacteria, easily jumping the barriers of species and genus. The pandemic potential of such a microbe is enormous. Indeed, according to Tim Walsh, a University of Cardiff medical microbiologist who has been chasing the dangerous gene, NDM-1 infections already turned up in more than 35 countries last year -- often in the bodies of medical tourists, who had traveled to India or Pakistan for cheap surgeries and other procedures. And NDM-1 bacteria have also been found in drinking water and in puddles around New Delhi."

And what has been the effect of the emergence of this drug resistance?

"Then, in 2010, a study of a New Delhi-area hospital found that 24 percent of bacterial infections there could resist the last-resort carbapenem antibiotics. Thirteen percent not only resisted carbapenem drugs, but overcame 14 other antibiotics, making treatment options exceedingly limited."

India is fertile ground for evolving bacteria.

"In India, antibiotic use is virtually unregulated. Antibiotics are widely available without a prescription and, as in the United States, affluent people tend to consume the drugs whether medically necessary or not -- for everything from colds to diarrhea. Meanwhile, when ill, India's poor tend to scrape together a few rupees to buy a couple doses of antibiotic at a time, enough to quell their symptoms but not enough to clear their infections. Both patterns of consumption contribute to the development of drug-resistant bacteria. So, it is no wonder that, even before the new super-resistant strain was first documented, over 50 percent of the bacterial infections that occurred in Indian hospitals were resistant to commonly used antibiotics."

Part of the problem is a lack of investment in healthcare.

"....government spending on health hovers at around one percent of GDP a year, a proportion that critics condemn as far too low for a country with a prospering economy that is still heavily burdened by infectious disease. (Only Burundi, Cambodia, Myanmar, Pakistan, and Sudan spend proportionally less.) In India's finance-starved public hospitals, overcrowding is common and corruption rife. Nearly one-third of patients report having to resort to bribes just to get clean bed sheets."

Strangely, while public sector healthcare is starved, private sector care for the wealthy thrives.

"....the private health sector has boomed. Encouraged by government tax exemptions, corporate hospital chains such as Apollo and Fortis, which are owned by large pharmaceutical and technology companies, dot the landscape, islands of apparent sterility amid the grime. Now, 80 percent of total Indian health expenditure goes to private clinics and hospitals. Besides caring for India's affluent, many of these hospitals market their upscale services to ‘medical tourists,’ patients from the UK, the United States, the Middle East, and elsewhere, who fly to India for procedures that are cheaper and quicker there than they would be home. It is a growth industry that brings in hundreds of thousands of foreign patients...."

"It was in the bodies of medical tourists who had traveled to India and Pakistan that the new super-resistant gene was first discovered by British scientists in 2009."

The British were alarmed and announced that medical tourists might be at risk. How did India respond?

"Indian politicians, news media, and physicians cried foul, suggesting a conspiracy to undermine the medical tourism sector. India's National Centre for Disease Control spent days openly denying the public health relevance of NDM-1. Government authorities sent letters to Indian researchers who had collaborated with British scientists on the NDM-1 studies, demanding that they disavow their research. They also tried to prevent scientists from taking samples of NDM-1 out of India for research purposes."

It would be unfair to imply that India did not try at all to respond appropriately to the threat.

"As the controversy over NDM-1 swirled, in 2011 New Delhi convened an advisory committee on the issue of antibiotic resistance which floated a proposal to ban the sale of antibiotics without a physician's prescription, and restrict the use of last-resort IV antibiotics to highly specialized hospitals. But after pharmacists went on strike in August 2011, the proposal was withdrawn."

If India’s politicians are unwilling or unable to take appropriate steps, surely the pharmaceutical companies are hard at work countering the threats provided by these superbugs.

"According to the Infectious Diseases Society of America, the drug industry has actively avoided developing new antibiotics. This is a business decision: drugs that are prescribed for months and years, such as anti-arthritis or cholesterol-lowering drugs, and those for which patients and insurers will pay almost any sum, such as anti-cancer drugs, provide better return on investment. Antibiotics are costly to develop, only prescribed for a handful of days at a time, and, despite their curative powers, rarely fetch more than $100 per course. Further, all antibiotics eventually render themselves -- and the R&D investment behind them --obsolete, since their use inevitably creates new drug-resistant pathogens."

A chart from the article in The Economist provides the evidence.

Drug companies don’t seem concerned; politicians don’t seem concerned—what might the future hold?

"Nobody knows how many people may have already died from NDM-1 bacterial infections, nor how many more may sicken or die should the gene become more widespread. It may be that NDM-1 has to gain more notoriety and ‘get a lot more scary,’ as the Times of India put it last spring, before political will to do something about it coalesces. For now, experts such as Walsh estimate that NDM-1 bacteria silently lurk in the guts of up to 200 million people in India alone, evolving, exchanging genes with other bacteria, and being shed into the environment. In an interconnected world, they will not remain quarantined there for long."

Thursday, March 29, 2012

Pension Plans and the Quest for Earnings: CalPERS and Canada

We recently discussed the issue of pension plans and the earnings they are required to attain in order to meet their financial commitments in Pension Plans: What Might They Earn in the Stock Markets? The conclusion was that they would have an extremely difficult time meeting their targets through traditional investment strategies.

Many plans were adjusted over the past few decades to be consistent with rather rich pickings in stocks and bonds. The investment returns of that era are not likely to be repeated. Most US pension plans have earnings targets in the 7.5-8.0% range. A recent Wall Street Journal article discussed the struggles of the plans in the context of a decision by CalPERS, the biggest California public employees’ pension plan, to lower its earning target to 7.5% from 7.75%. This might see like a small change, but this rate exponentiates over many years in calculating required cash flows so it provides considerable leverage. Since pension benefits are guaranteed by state law in California, increased contributions by state agencies or employees will be required to cover the change in expectations.

"Peter Ng, employee benefits director in Santa Clara County, Calif., said the county's $240 million pension bill would jump by as much as 12% as a result of Calpers's lower assumed rate of return. About 15,000 park rangers, correctional officers and other county employees are part of Calpers."

CalPERS’ chief actuary had actually recommended a larger cut to 7.25%. How is the fund actually performing?

"Calpers, formally the California Public Employees' Retirement System, had a 1.1% return in the year ended Dec. 31. The fund's annual return was 8.3% for the latest three-year period and 5.1% during the past decade."

Given these numbers one might justifiably ask "How do you get to 7.5% over the long term?" The answer seems to be that you change your mode of investing in order to take advantage of the higher earnings available from riskier investments. If one visits the CalPERS website one finds a description of something called the Alternate Investment Management Program.

"The Alternative Investment Management (AIM) Program specializes in private equity investments. With over $49 billion of total exposure to this asset class, CalPERS is one of the largest private equity investors in the world. The AIM Program's goal is to perform as "the investor of choice" and leverage marketplace opportunities in order to achieve superior risk-adjusted returns. We accomplish this through three investment components - Partnership, Direct, and Fund-of-Funds."

CalPERS had $225 billion in assets as of the end of 2011. Consequently, the $49 billion in private equity investments is a significant fraction of the total. CalPERS has also moved into other nontraditional forms of investments.

A recent Reuters article focuses on the strength of Canada’s public pension funds and the aggressive investing posture they have assumed.

"Between them, CPPIB [Canadian Pension Plan Investment Board] and four other big Canadian players control over half a trillion dollars in assets, about the size of the total Swiss economy and more than the $410 billion managed by the Chinese sovereign wealth fund China Investment Corp."

These funds have managed to keep a low profile while they have been acquiring assets around the world.

"London's Heathrow Airport, toll roads in Chile, real estate from Manhattan to Sao Paulo, gas pipelines in the United States, water treatment plants in Britain, timberlands in Australia - all are fully or partially owned by pension plans of Canada's teachers, city workers and citizens."

Apparently, a period of general economic malaise is a good time to be wealthy.

"In an era of debt-laden cities, states and countries, there is no shortage of parties seeking investors for a highway, office tower or pipeline."

"’When governments hit the wall, the opportunities do arise. And they arise particularly in the infrastructure space,’ said Michael Nobrega, chief executive of OMERS, which manages the funds of Ontario municipal workers."

"In fact, pension plans and Chinese sovereign wealth funds are among the few players left with the liquidity to invest big, and the pension funds often have the edge."

The Canadian funds began operating in this mode in the 1990s, gradually moving resources from stocks and bonds to private investments in global markets. Along the way they have accumulated the staff and competence one would expect to find in private firms.

"A second reason for the Canadian inroads is the expertise of the fund's investment teams. CPPIB, Caisse and OMERS have as many as 800 each on staff to find attractive investments, put together bid proposals and close the deals."

"In contrast, U.S. funds tend to farm out sometimes huge amounts of capital to external managers because they lack the in-house talent to deploy the money."

The return on investment by the Ontario teachers’ fund is used as an example of how this approach has fared.

"’When statistics are published that show we earn 10 percent over 20 years and that for the past 10 years we've been the highest absolute return in the world and the highest value added return, people pay attention,’ he said."

"In 2010, the latest year for which figures are available, Ontario Teachers' had a rate of return of 14.3 percent."

If this sounds too good to be true—perhaps it is. When the global economy picks up and more players copy their game plan, the Canadians will be forced to move into riskier ventures in order to maintain such high levels of return. One will have to wait and see how this plays out. On the other hand, it is not clear that they have any alternative to the path they are following.

Those who are depending on pensions to carry them through their retirement years probably don’t like to associate the concept of risk with their plans’ investment strategies. They had better get used to the idea—there does not appear to be any other option.

Tuesday, March 27, 2012

Why Drilling for More Oil Makes No Difference

The chants of "drill baby, drill" are still occasionally heard. One is occasionally told that that we are floating on a sea of oil, but the government won’t let us get at it. The latter statement was encountered on the internet so it must be true. These rumblings get louder whenever the price of gasoline rises—on the assumption that we have some control over the price of oil. A recent AP article by Chris Kahn provides an interesting context in which to refute that claim: In a First, Gas and Other Fuels Are Top US Export.

Kahn provides us with this fact:

"For the first time, the top export of the United States, the world's biggest gas guzzler, is — wait for it — fuel."

"Measured in dollars, the nation is on pace this year [2011] to ship more gasoline, diesel, and jet fuel than any other single export, according to U.S. Census data going back to 1990. It will also be the first year in more than 60 that America has been a net exporter of these fuels."

Note that he is referring to refined petroleum products not crude oil. This is significant because it suggests that our refineries have excess capacities. For decades we have depended on refineries in Europe to provide us with fuel when demand exceeded supply.

"And there's a simple reason why America's refiners have been eager to export....: gasoline demand in the U.S. has been falling every year since 2007. It dropped by another 2.5 percent in 2011. With the economy struggling, motorists cut back. Also, cars and trucks have become more fuel-efficient and the government mandates the use of more corn-based ethanol fuel."

One might think that a high price for gas would tempt refineries to produce more and sell more, and thereby drive the price down. But that is not how the oil market works. Gas prices are driven by the market price for crude oil. This is an international market in which the US is a tiny player as a source of supply. The refiners, like all good capitalists, take their product where they receive the best price.

"Gasoline supplies are being exported to the highest bidder, says Tom Kloza, chief oil analyst at Oil Price Information Service. ‘It's a world market,’ he says."

"Refining companies won't say how much they make by selling fuel overseas. But analysts say those sales are likely generating higher profits per gallon than they would have generated in the U.S. Otherwise, they wouldn't occur."

If we produce more crude oil domestically, it will still be processed and provided to us at the price determined by the global market because suppliers, at every stage, will want the best price for their product. That will not be changed by our small increase in production. The price of gasoline will not come down based on our actions. If we should end up with an excess of gasoline, it will be sold to the highest bidder, not used to lower the price of our fuel. That is capitalism in action—get used to it!

Even though we cannot control the price of oil, increased domestic production decreases the amount of imported oil that must be purchased. That keeps more money flowing in our economy rather than shipping it overseas. That is a very good thing.

Monday, March 26, 2012

Pension Plans: What Might They Earn in the Stock Markets?

Most pension plans, both public and private, aim for an annual return on investment of about 7.5-8.0% in order to cover their anticipated future outlays. There has been considerable discussion as to whether that is an attainable goal. Most pension plans were initiated in periods when that level of return was reasonable, but that does not necessarily have relevance to the current and future environments.

Many pension funds have traditionally followed the advice given to individual investors: diversify the portfolio and include a small fraction of fixed investment securities to balance the more volatile investments in stocks. The yields from the two types of investments are not unrelated, but generally, stocks have fared better.

Those who like to try to quantify economic facts and relate them to some fundamental concept have come up with a quantity referred to as the "equity risk premium" to define the greater yield observed with stock investments relative to government securities for example. An article in The Economist provides a discussion of this quantity.

"The long-term faith in equities is based on the theory that investors should be rewarded for the riskiness of shares with a higher return, known as the "equity risk premium" (ERP). That risk comes in two forms. The first is that shareholders get paid only when other claimants on a company’s cashflow, such as workers, the taxman and creditors, have received their due. Profits and dividends are thus highly variable and can disappear altogether when times get tough. The second risk is that share prices are volatile, more so than bond prices."

The article provides this chart comparing the ERP over the twentieth century with that observed thus far in the twenty-first.

Equities have historically outperformed government securities by 4-6%. At first glance it might appear that stocks have recently become a bad investment, and there is more money to be made in government securities. While there is some truth to that claim, the situation is more complicated.

Consider the behavior of long term interest rates as expressed in the yields of US government securities.

Investing in these bonds would have been a good investment at almost any time in the past 30 years. The yields have been trending steadily downward. This means any previously purchased bond would have a yield higher than the current rate of return, which is a good thing, but more importantly, the market value of the existing bond will increase as interest rates fall. This has made fixed-interest bonds excellent investments.

This period of falling interest rates has coincided with a largely flat period of growth in stock values over the last decade—thus the negative ERP observed.

Given that we are interested in what earnings pension plans might accrue over the next few decades, we cannot necessarily base projections on the current situation.

The article’s author provides us with additional background. Reference is made to a study of the contributions to the historical ERP.

"The dividend yield comprised the vast bulk of the return. This was true across all the countries studied by the authors. Had investors consistently bought the highest-yielding quintile of equity markets over the past 112 years they would have earned an average nominal annual return of 13.3% compared with a return of just 5.4% for those buying the lowest-yielding quintile. High-dividend markets have also performed best so far this century."

This study indicated an average dividend return of 4.1% over the period 1900-2011. The observed dividend return in recent years is estimated to be 2.7% (worldwide). Could the currently lower dividends be an effect of stock price stagnation—or a cause of it?

"The importance of the dividend yield is ironic, given the lack of focus on the measure in most modern investment commentary. Many analysts argue that the dividend has been superseded by the share buy-back which (particularly in America) is a more tax-efficient way of returning cash to shareholders."

Could this be a case of economists, and their corporate counterparts, foolishly assuming that investors are rational beings? While a stock buy-back will drive up the price of shares—usually—the gain could disappear in the bat of an eye. On the other hand, a dividend check is forever. Investors are also smart enough to know that stock buy-backs benefit most those who consider shares as income (like corporate executives) rather than those who view stocks as a long-term investment (prospective shareholders).

There is a calculation that can be found here that projects stock returns backwards in time given the average common stock price change and an assumed dividend yield. A return of 2% was assumed, a value rather consistent with current times, but too low for earlier periods.

If one chooses to extrapolate the recent past to predict the future, then perhaps integrating over the last 20 years is a reasonable strategy. That would suggest a return of about 4.6%. A higher dividend level would increase that number.

Let us now return to the subject of pensions and their target returns. These plans should have made a fine profit on bonds due to the high interest rates of the past. That is a situation that cannot be duplicated in the future. Let us consider a conservative fund with one-third of its assets in government securities (yielding 3.6%), and the remainder in equities. To reach a goal of 8% return, the fund would have to accrue 10.2% on its equity investments—a rather dubious outcome given the recent past.

The author of the article references another attempt to estimate future equity returns.

"In another paper, Cliff Asness of AQR Capital, a hedge-fund group, uses his estimates of dividend yield and likely dividend growth to come up with a forecast for future real equity returns in America of around 4% a year."

One struggles to find estimates of returns on investment that can be consistent with the expectations of the pension plans. Of course this conclusion relates to traditional investments.

There will be more on pensions in the near future.

Wednesday, March 21, 2012

Enforcement of Drug Laws: Soft Power vs. Hard Power

Dealing with crime can become complex if society insists on creating laws to prevent behavior that a large fraction of the population believe is harmless. If a legal statute creates a situation where millions of people are law breakers, how do the policing agencies respond?

For this discussion we will dip into the wisdom of William J. Stuntz and his book The Collapse of American Criminal Justice, and that of Michelle Alexander and her book: The New Jim Crow.

As an example, consider drivers on our modern multilane freeways and interstate highways. Officials have specified maximum speed limits that most drivers consider too low. They know from experience that they can drive safely above this limit, so they do. And everyone does it. How should the highway patrol officers respond?

Most policing agencies default to what might be called "hard power" solutions. Hard power in this case means stopping speeding motorists and fining them for breaking the law. The hope is that others will observe the situation and decide to obey the law. But when faced with many thousands of lawbreakers, who do you single out for a fine? The core dilemma that derives from such situations is that law enforcement is necessarily up to the discretion of the individual policing agent, and thus inherently discriminatory.

An individual who is stopped and given a citation can rightly say "Why me? A lot of people were driving faster?" Police can have various explanations for why they chose to target a given person. It makes sense to target the few individuals who are driving at outrageous speeds, but they are hard to catch and one runs the risk of endangering one’s own life and that of innocent drivers in such a pursuit. Often there is some other characteristic that can be interpreted as a breaking of the law such as a tail light that is not working or a license plate that is out of date that is determinative. This is a relatively harmless form of discrimination if it is truly random. As we shall, see not all discrimination is random, and it is definitely not harmless.

Soft power approaches often involve an awareness of police presence as a means of discouraging unlawful activity. Instead of hiding from view and darting out to nab an unlucky driver, one could have patrol cars cruise the freeways at the speed limit (assuming they could constrain themselves). Not many people would chose to speed past a highway patrol car. This effectively limits the opportunity to break the law and does not involve arbitrary punishments.

We have had experience with other attempts to control what are viewed by most as victimless crimes. Stuntz compares the manner in which Prohibition was approached as a law-enforcement issue with the current manner of addressing the "War on Drugs." He might describe the approach to prohibition as a half-hard attempt. The law itself targeted only producers and distributors of alcoholic beverages. Home and religious use was not considered a crime. The nation was also given the chance to vote for the creation of this law with a constitutional amendment. And when the results of the law were deemed unacceptable, they had the opportunity to rescind the law with another amendment.

The War on Drugs was created by fiat of the Reagan Administration and had political motivations. It arose at a time of great concern about rampant crime, and politicians of all stripes jumped on board. It was decided early on that the term "War" was to be taken literally. It was also decided that both users and sellers would be targeted.

Drug use was nearly constant at about 10% for whites, blacks, and Hispanics. That means that today there are about 30 million lawbreakers out there. Who do you pick to target? Stuntz tells us who was selected.

"Discretion and discrimination travel together. Ten percent of black adults use illegal drugs; 9 percent of white adults and 8 percent of Latinos do so. Blacks are nine times more likely than whites and nearly three times more likely than Latinos to serve prison sentences for drug crimes."

Alexander tells us how this obvious discrimination was institutionalized and how it has affected the targeted black population. We will just dwell on a few points here and devote more time to Alexander and her excellent book at a later time.

The War on Drugs gave new meaning to the term "hard power." Funding grants were provided to local police agencies in what Alexander calls a "bribe" in order to induce them to participate. They were essentially paid to arrest people on drug charges. As with all outside funding sources, the localities began to depend on it and needed to show a sufficient number of arrests in order to renew their funding. Legislation also gave law enforcers the right to keep anything confiscated in a drug raid—a license to steal in many cases. The military was tasked to assist by making military weapons and intelligence available to local law enforcers. The assembly of SWAT teams became common. The major function of SWAT teams seems to be to conduct violent assaults in what should be simple drug raids—often on innocent people. Police were encouraged to use routine traffic stops as a means of interdicting drugs. Congress contributed to the war-like environment by created extremely harsh penalties for simple drug possession crimes. This was definitely a new way of enforcing the law.

At the same time, the courts gave essentially carte blanche to police and prosecutors to use whatever means necessary to send people to prison. And if your goal is to arrest and send to prison large numbers of people, where do you go hunting? Whether from conscious or unconscious racism, or as a business decision (number of prisoners per unit of effort), or as simple laziness, you target the population least able to defend itself—black neighborhoods.

Why hassle someone who might turn out to be somebody important, or someone who might actually be able to retain a lawyer? The system has become an assembly line whereby prisoners are brought in off the street, read their rights, and threatened with many years of imprisonment. Occasionally a lawyer is assigned but they have little time to do other than look for procedural defects in the arrest—there is no time to attempt to address guilt or innocence. The defendant might be told he is accused of a crime with a 20 year sentence, but if he pleads guilty to a lesser charge he only has to serve 3 years. That is the admitted purpose of harsh penalties—to induce people to plead guilty to a lesser charge. And it usually works. Think of how much time and money that saves the local government—and they don’t even have to bother proving guilt.

The system has been very efficient in processing blacks—mostly young males—into the status of criminals. Millions have been pushed through the system. So many have been processed that the costs of incarceration are beginning to exceed any attainable budget. States are discussing releasing early those who they had deemed a danger to society merely to save money.

Hard power methods never work except for the few cases of individuals who are in fact psychopathic and should be separated from society. It is encouraging to note that police forces are beginning to realize that they must change their ways and are trying soft power methods.

An article in The Economist focuses on one approach that has been successful.

"Police watched seven people sell drugs in Marshall Courts and Seven Oaks, two districts in south-eastern Newport News, in Virginia. They built strong cases against them. They shared that information with prosecutors. But then the police did something unusual: they sent the seven letters inviting them to police headquarters for a talk, promising that if they came they would not be arrested."

The goal was no longer just to arrest people—the goal was to stop them from selling drugs. The intention was to use social capital to exert pressure on them to change their behavior.

"Three came, and when they did they met not only police and prosecutors, but also family members, people from their communities, pastors from local churches and representatives from social-service agencies. Their neighbours and relatives told them that dealing drugs was hurting their families and communities. The police showed them the information they had gathered, and they offered the seven a choice: deal again, and we will prosecute you. Stop, and these people will help you turn your lives around."

This approach is known as Drug Market Intervention (DMI) and is attributed to David Kennedy, a criminologist at John Jay College in New York. Why the switch to his methods?

"Traditional drugs policing targets both users and dealers. This poses three main problems. First, low-level dealers are eminently replaceable: arrest two and another two will quickly take their places, with little if any interruption to sales. Second, it tends to promote antagonism between the police and the mostly poor communities where drug markets are found. Arrests can seem random....In some neighbourhoods, prison is the norm, or at least common, for young men. Police come to be seen as people who take sons, brothers and fathers away while the neighbourhood remains unchanged."

And the most important reason of all:

"Third, prison as a deterrent does not work. If it did, America would be the safest country on earth."

The philosophy behind Kennedy’s approach is to shut down the overt marketing of drugs and eliminate the undesirable outsiders that it attracts.

"Once these [drug markets] are entrenched, a range of problems follow: not just drug use and sales, but open prostitution, muggings, robberies, declining property values, and the loss of businesses and safe public spaces."

The goal of DMI is to restore health to community life. The police must play a continuing role for this to occur.

"After the first call-in, police maintain a visible presence in the targeted neighbourhood. Recalcitrant dealers are arrested and swiftly prosecuted (two of the four no-shows in Newport News have been arrested; the other two are fugitives). Complaints by citizens are dealt with speedily, to let locals see that the police respond and want to keep the area safe. That, in turn, makes locals more likely to call the police with complaints."

This procedure was first used in High Point, North Carolina in 2004. Since then it has been tried by more than 30 other communities. Will Newport News be successful in its attempt?

"It is still too early to forecast success, but on a recent weekday afternoon Marshall Courts and Seven Oaks were quiet and peaceful. Children played outside and people sat out on their porches. High Point’s market was shut down eight years ago. It has still not reopened."

This emphasis on maintaining a community presence is actually a return to traditional soft power methods that were once common in policing. Let us hope that more communities will find their way back.

Sunday, March 18, 2012

Two Migrations: Law, Police, and Urban Blacks

William J. Stuntz introduces us to many peculiarities and failures of the US legal system in his book The Collapse of American Criminal Justice. In one of the sections most relevant to us today he uses a comparison of two mass migrations, separated in time, to illustrate the historical and legal context facing southern blacks who participated in The Great Migration to northern and western cities in the twentieth century.

Understanding this historical process is critical. The incarceration of blacks (and Hispanics) in this country is on a scale that seemingly can only be explained by pervasive discrimination and injustice. Michelle Alexander has written an important book titled The New Jim Crow. Alexander argues that there is a continuity in intent and effect that transitions from antebellum slavery to postbellum Jim Crow laws, to the mass incarceration and associated deprivation of citizens’ rights that occurs today. It is her claim of intent to create/maintain a lower caste based on color of skin that must be faced. While many faults exist in our legal system, assigning "intent" to their creation has an implication so heinous that it must be assessed and either accepted or disproved—but not ignored.

We have previously discussed Stuntz’s view of our legal system in Justice and Law in the United States: Ideals and Reality. Anyone interested in the present topic would find that article of value.

Let us begin with Stuntz’s perspective.

In the seventy years prior to World War I about 30 million Europeans made the voyage to the United States and mostly settled in the big cities of industrial areas of the North and Midwest. In the first sixty years of the twentieth century 7 million blacks left the rural South for these same cities. Both the European migrants and the black migrants came from low-crime environments. Both migrations produced crime waves.

"These....crime waves differed enormously: the first was short-lived and mild, the second long-lasting and severe."

Stuntz believes there is no simple, single explanation for the different experiences that resulted from these two migrations, but there are clearly some factors more important than others. He examines economic factors, criminal punishment trends, and methods of law enforcement. Somewhat counter to intuition, he concludes that the changing approach and the changing attitude toward law enforcement were the major factors. He deemed it critical that law enforcement be viewed as having legitimacy by the citizens it was supposed to be protecting.

When the European immigrants arrived they might not be exactly welcomed, but they were viewed as valuable voters. At the time most cities were controlled by political machines that were willing to provide benefits to potential voters.

"....slots on the police forces were patronage jobs, filled by political machines that depended on the votes of the working-class immigrants whose streets most needed patrolling. Those urban machines also chose the district attorneys who prosecuted criminal cases and the judges who tried those cases."

This was still a time when

"The government had to prove not just that the defendant had violated the relevant criminal statute, but that he had done so with ‘criminal intent’ or ‘a guilty mind’ or, to use William Blackstone’s more pungent phrase, ‘a vicious will’."

This was also a time when jury trials still occurred, and the jurors were, in fact, still peers of the accused.

"These legal standards called for moral evaluation, not just fact finding. Jurors were free to acquit whenever criminal punishment seemed, on balance, unfair."

Many homicides were of the "bar fight" variety and jurors were free to decide if an event worthy of the label "murder" occurred.

"More than three-quarters of turn-of-the-century Chicago homicides led to no criminal punishment—not because the perpetrator could not be identified, but because no jury would convict."

Such a system was effective, not in eliminating crime, but in keeping it under control. And it should not be surprising that incarceration rates were also kept under control.

Stuntz believes the most effective attribute of this environment was that it provided legitimacy to law enforcement efforts. The law enforcers were often members of the community where crimes were committed. Members of the community were involved in the legal judgments that were obtained. Extenuating circumstances could be recognized.

It is one of the great ironies that this politically corrupt environment supported the notion of "justice" better than the current system in which the concept of "justice" is mostly irrelevant.

Stuntz concludes:

"....violence was not controlled chiefly through criminal punishment. In large measure, it was controlled through local democracy and the network of relationships that supported it."

When the blacks arrived in the northern cities they encountered a different environment. Although jobs were more plentiful, at least initially, and wages were higher, they were neither welcomed nor seen as a valuable class of voters. Social isolation via racism was much stronger than any anti-immigrant feelings of the earlier period. The political, law-enforcement, and demographic environments had also changed.

The great political machines were waning in influence, while the predominant white population was moving to the suburbs or, at least, to areas in which they would not be living with blacks. They took their political power with them. Police forces were becoming more professional and more politically driven as more district attorneys and judges became elected officials. The ties between police and the communities they were supposed to protect had been broken. Police, more and more, provided protection to the politically potent—often neglecting the high crime areas.

The blacks arrived providing the same conditions that caused an increase in crime in the earlier migration: a surfeit of rootless young men. But in this case there were no longer the same mechanisms available to keep it under control.

There were also other factors at work. Crime was increasing in the black urban areas, but it was also increasing nationwide. Strangely, this increase in crime rates was met by a greater tendency towards leniency in our legal system. The increase in crime, and the increased concern over crime, coupled with the perception of lax enforcement of law, was bound to generate a backlash. And then there came the urban riots of the 60s.

Consider this table provided by Stuntz.

"In the 1950s, 1960s, and early 1970s, in the midst of the largest crime wave in American history, prison populations fell throughout the Northeast, Midwest, and West Coast. By the early 1970s, imprisonment rates in those parts of the country were comparable to the lowest imprisonment rates in the twenty-first century Western world."

As the table shows, imprisonment was going to increase. It was the strength of the backlash that Stuntz considered astonishing.

"In the span of a little more than three decades, Americans first embraced punishment levels lower than Sweden’s, then built a justice system more punitive than Russia’s."

Reagan’s call for a war on drugs generated a massive expansion of the federal role in what had been a local issue, and created unprecedentedly harsh sentencing mandates.

"Stranger still, the next generation—the one that embraced Reaganism and declared an end to the era of big government—created a prison bureaucracy of unprecedented size and made it the centerpiece of the government’s efforts to control crime....Yet the same blundering government bureaucracies that could accomplish little save their own preservation were thought able to suppress mass markets in illegal drugs."

Stuntz considers these actions to be disastrous. Alexander provides more details of what this meant to any who might become "suspects."

Federal legislation, supported by an accommodating Supreme Court, gave unprecedented powers to police as aide in arresting, convicting, and incarcerating as many people as they could. The Reagan-era laws funded local agencies to prosecute drug crimes and they were given permission to keep any goods captured in a drug investigation. If you put a police department in the position of having its income depend on how many people it can arrest for drug possession, and give it a license to steal, you are going to see a lot of arrests and a lot of abuse.

When there is a situation where there are many more crimes being committed than can ever be investigated, such as recreational drug use, police have discretion as to whom they chose for punishment; it is only natural that their focus would fall on those least able to defend themselves—politically or with legal counsel. From Stuntz:

"Discretion and discrimination travel together. Ten percent of black adults use illegal drugs; 9 percent of white adults and 8 percent of Latinos do so. Blacks are nine times more likely than whites and nearly three times more likely than Latinos to serve prison sentences for drug crimes."

Let us now consider why legitimacy of law enforcement is viewed by Stuntz as so important.

"According to psychologist Tom Tyler, people obey the law, when they do so, because they believe the system of law enforcement to be fair and hence worthy of their respect. When the justice system seems legitimate to the young men it targets, those young men are more likely to follow the system’s rules. When that system seems illegitimate to those same young men, crime becomes more common, and controlling it becomes more difficult."

This contention has nothing to do with race or minority status. It is a universal effect. To convince oneself, one need only recall the era of prohibition and the widespread "criminal" activity that occurred because many people had no respect for that particular law. How many people would pay their full tax if they thought their neighbors were getting away with cheating on theirs?

Having gone through this history we return to Michelle Alexander’s contention that this "system of law" was produced with the intent of constructing a permanent lower caste based on color.

Based on what was presented here, I am not yet convinced of intent, although the claim of a caste being formed is convincing. Alexander will produce more evidence for her conclusion in a subsequent article.

For the moment let us remember the wisdom of this quote of unknown provenance:

"Never ascribe to malice what can be explained by incompetence."

Saturday, March 17, 2012

Manufacturing: What Happens when China is No Longer Cheap?

China watching is a professional pastime for many. One of the most discussed topics is the rising cost of doing business in China and what effect that might have on worldwide manufacturing. An article in The Economist addressed that issue: The End of Cheap China
"China now accounts for a fifth of global manufacturing. Its factories have made so much, so cheaply that they have curbed inflation in many of its trading partners. But the era of cheap China may be drawing to a close."

China’s major manufacturing areas are beginning to have to pay the price for its narrow focus on rapid growth.

"Costs are soaring, starting in the coastal provinces where factories have historically clustered.... Increases in land prices, environmental and safety regulations and taxes all play a part. The biggest factor, though, is labour."

Wages have been growing at double digit rates over the past few years, prompting one outfit, AlixPartners, to produce some optimistic projections that might indicate problems ahead for China, and, perhaps, a minor renaissance in manufacturing in the US.

There may come a time when manufacturing in the US is generally as cheap as outsourcing to China, but three years from now seems overly optimistic. The point is made that gradually industries should begin to reconsider their outsourcing strategies and match China against working in other countries, including the US.

This is already occurring in the most labor intensive areas where heading to Sri Lanka or Vietnam makes sense. However, China has been depending less and less on unskilled labor.

"Chinese wages may be rising fast, but so is Chinese productivity. The precise numbers are disputed, but the trend is not. Chinese workers are paid more because they are producing more."

For the products the Chinese are most interested in, the cost of labor is not the dominant concern. For example, one manufacturer considered moving his operation to Vietnam, but concluded it was best to remain in China.

"Labour was cheaper there, but Vietnam lacked reliable suppliers of services such as nickel plating, heat treatment and special stamping. In the end, PPC decided not to leave China. Instead, it is automating more processes in its factory near Shanghai, replacing some (but not all) workers with machines."

China’s infrastructure seems to have provided a secure lock on consumer electronics production.

"Dwight Nordstrom of Pacific Resources International, a manufacturing consultancy, reckons China’s supply chain for electronics manufacturers is so good that "there is no stopping the juggernaut" for at least ten to 20 years. This same advantage applies to low-tech industries, too. Paul Stocker of Topline, a shoe exporter with dozens of contract plants in coastal China, says there is no easy alternative to China."

Decades ago our business leaders and our high priests of economic theory decided that the US should withdraw from most areas of manufacturing because we would never be able to compete with the Chinese and others on labor costs. The result was the hollowing out of our manufacturing infrastructure.

The New York Times reports that Steve Jobs was asked by President Obama what it would take to bring Apple’s manufacturing jobs back home.

"Mr. Jobs’s reply was unambiguous. ‘Those jobs aren’t coming back,’ he said, according to another dinner guest."

"The president’s question touched upon a central conviction at Apple. It isn’t just that workers are cheaper abroad. Rather, Apple’s executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that "Made in the U.S.A." is no longer a viable option for most Apple products."

It appears that there will soon come a time when we will be paying a premium to have our gadgets manufactured in China because we have allowed our infrastructure to decay to a point where we cannot compete at any level. For this we have our far-sighted business people, our politicians, and our economic shamans to thank. Perhaps it was too much to ask of them to consider that if you keep transferring your wealth to another country that country might do something intelligent with it.

We got here because China was always a cheap alternative. It seems that China is no longer an alternative, but rather our only option. This is not a healthy situation to be in.

Thursday, March 15, 2012

Justice and Law in the United States: Ideals and Reality

William J. Stuntz provides a timely look at the sorry state of the criminal justice system in the US in his book The Collapse of American Criminal Justice. In the process, he provides the reader with a good description of the evolution of criminal law. A discussion of our Constitution and how the details therein defined the path we have followed is the subject today.

Stuntz defines two types of criminal laws. The first are substantive in nature: defining acts that are deemed criminal and the penalties that can be imposed for this behavior. The second are procedural in that they define which types of actions are available to policing agencies as they try to assign guilt or prevent crimes.

Writers of constitutions have to decide which of these types of law need constitutional constraints imposed upon them. It would seem obvious that both need to be dealt with, but that was not the case back in revolutionary times. Stentz provides an interesting contrast between two attempts to define a citizen’s rights to protection from a threatening government that were written at almost the exact same time: the US Bill of Rights (drafted by James Madison in 1789), and the French National Assembly’s Declaration of the Rights of Man and of the Citizen.

The French focused on protecting citizens from the imposition of unjust or unreasonable laws. Their document included phrases that would thrill libertarians today.

"Liberty consists in the power to do anything that does not injure others...."

"The law has the right to forbid only such actions as are injurious to society...."

The Bill of Rights, on the other hand, focused almost entirely on procedural matters.

"Procedure dominates these texts. Save for the First Amendment’s protection of speech and religion, nothing in the Bill of Rights limits legislators’ ability to criminalize whatever they wish. Save for the mild constraints of the Eighth Amendment [cruel and unusual punishments], nothing in the Bill limits the severity of criminal punishment."

States generally incorporated similar language in their constitutions.

"Along with the similar language that appears in state constitutions, these texts place substantive criminal law in the hands of politicians."

In Madison’s time, law was defined to be English common law as described in Blackstone’s Commentaries. This was law as defined by centuries of judicial decisions made in the context of trying to provide justice in balancing the arguments of the abused and the accused. The founding fathers apparently never dreamed that legislators would supersede this judicial system of law.

Stuntz points out a critical difference between the manner in which justice was dispensed in those days and where our procedural focus has led us today.

"In the eighteenth century as today, criminal defendants enjoyed the right to trial by jury. But that right meant something quite different two centuries ago: eighteenth century American juries had the power to decide questions of law as well as disputed facts...Jurors at the time of the Founding were not the mere lie detectors they have since become. They were moral arbiters; their job was to decide both what the defendant did and whether his conduct merited punishment. Criminal law meant whatever jurors said it meant: their will trumped even Blackstone’s text."

Stuntz argues that the focus merely on procedural constraints has had terrible consequences, because it has proven easy for legislators to create a legal environment whereby prosecutors can bypass the procedural constraints in search of criminal convictions.

"Using procedures to defeat defendant-protective substantive law is difficult, but using substantive law to evade or nullify protective procedures is remarkably easy—as is shown by the frequency with which American politicians have done it."

Stuntz tells us that criminal trial by jury has all but disappeared from our legal system, and when it does occur, it is so circumscribed by legislator-drafted law that neither the judge nor the jury has much leeway at injecting "justice" or extenuating circumstances into the proceedings. The process has been streamlined to facilitate the incarceration of suspected criminals.

"In 1974, 17,000 local prosecutors were responsible for some 300,000 felony prosecutions each year. Thirty years later, the number of local prosecutors had grown to 27,000—but the annual number of felony prosecutions had exploded, topping 1 million. In the earlier year, the percentage of felony convictions obtained by guilty plea stood at roughly 80 percent. In the later year, that percentage had reached 96 percent."

Perversely, attempts by the Supreme Court to ensure the protection of defendants’ right with procedural constraints such as Miranda rules caused a backlash that resulted in passage of more laws and more severe sentences for violating those laws.

Two factors aided prosecutors in extracting guilty pleas from suspects. First, the laws became more specific and eliminated any potential consideration of extenuating circumstances. Second, the severe penalties provided prosecutors with big sticks with which they could threaten suspects, and convince them to plea to a lesser charge. For example, a suspect with previous convictions in a three-strikes state can be threatened with the potential for life imprisonment or offered a few years in prison for pleading guilty to a lesser charge. The prosecutor may not have enough evidence for a conviction on the original charge, or he may simply not want to be bothered with going to court. The net result of such a situation is that a person ends up in jail without his guilt ever having been formally established.

The death penalty provides prosecutors with the biggest stick of all.

"Capital punishment’s largest consequence is not the few dozen executions that happen each year in the United States but the many life sentences imposed after plea bargains designed to avoid death sentences."

Stuntz describes the application of plea bargaining as a form of legal extortion.

"Outside the plea bargaining process, such threats would be deemed extortionate. Within that process, such threats were par for the course. That made guilty pleas, with harsh sentences attached, dramatically easier for the government to obtain."

Stuntz book makes the case that our legal system has become something it was never intended to be. Its evolution has led to the astounding circumstance wherein the nation as a whole is seeing dramatic drops in the level of criminal activity, yet exploding levels of criminal incarceration—predominately levied on one segment of the population—urban blacks.

There is much yet to be learned from Stuntz and his book.

William J. Stuntz was the Henry J. Friendly Professor of Law at Harvard University. He passed away just prior to the publication of his book.

Tuesday, March 13, 2012

Europe and the US: Dual Labor Markets and Youth Unemployment

A recent article in The Economist looks at youth unemployment in Europe and how it might be affected by the "two tier" or "dual" labor markets that exist in some European countries. Persistent high unemployment in the past was blamed partly on difficulties associated with terminating workers. This caused inefficiencies in the labor market that hindered progress. The solution was to create a class of workers that would be easier to terminate: temporary workers who would be given short-term contracts and could be either hired permanently or terminated easily at the conclusion. Employers saw an obvious advantage to this system and began hiring large numbers in this fashion.

The author uses Spain as the extreme example.

"As the unemployment rate approached 20% in the mid-1980s, the government introduced fixed-term contracts of between six months and three years, which were subject to lower dismissal costs than those for workers on open-ended contracts. At the end of a three-year contract firms could either convert a worker to permanent employment or send him packing. The reforms got results. Unemployment fell from nearly 18% when they began in 1984 to around 14% six years later."

"But the reforms had unintended consequences too. Temporary contracts surged, soon accounting for close to a third of Spanish employment. Workers churned from job to job: just 6% of temporary contracts were converted to permanent employment during the mid-2000s."

There are negatives for both employer and employees in this type of system.

"Volatility is but one cost of dual labour markets. Frequent job turnover makes households’ finances less certain, making it harder, for example, to save regularly for old age. More importantly, temporary employment discourages firms from investing in their workers. The cost to an employer of converting an expiring temporary contract into a permanent one is quite high because of a discontinuous jump in the cost of sacking the worker. So there is an incentive to get rid of him when his contract ends and to invest little in training him."

The author indicates that France and Germany have versions of a dual market that encourage the hiring of temporary workers as well. This chart is provided.

France and Germany are clearly doing better than Spain in terms of unemployment. Nevertheless, the author leads the reader inexorably to the conclusion that the easier it is to fire workers, the better it is for the economy.

"Germany’s labour market mirrors that of its peers. It, too, responded to eurosclerosis with flexible, second-tier contracts. Permanent positions protected by strong employment rules still dominate its labour market."

"Germany may have pursued wage restraint, but that is no easy route to prosperity. Indeed, dual labour markets are more likely to have the opposite effect. Permanent workers fearlessly seek higher wages, confident that job losses will fall first on temporary workers. Soaring Spanish unemployment has produced little wage moderation. During 2009 the pay of permanent workers rose by 4% in real terms."

And finally we arrive at this conclusion:

"And attractive as the German model is now, across decades American jobless rates are tough to match. The Anglo-Saxon preference for little or no employment protection may be the most effective at herding workers from declining industries to growing ones, driving job creation and innovation."

The emphasis is mine. The author seems to think that economics and economies obey fundamental physical laws and concepts that were effective "across decades" have relevance to the current situation. What worked in the US decades ago has little relevance to the current situation. One might look at the figures in the chart the author provided and conclude that youth unemployment is a function of the strength of the economy—period.

In an earlier article The Economist provided this chart comparing youth unemployment rates to unemployment rates for older workers.

If the US approach, which actually encourages companies to terminate workers when the economy slows, is better, one would expect to see some difference between the US and the rest of the world in terms of either total unemployment, or with respect to the rates of youth unemployment. In this context, the US and Spain look very similar. It would be hard to claim that youths have an advantage in the US economy. In terms of total unemployment rate, it would appear that the US, with its approach, is now just another country hoping that growth will overcome its structural problems.

This article served the purpose of reminding us that the US also has a "dual" labor market—one that is much more advantageous for employers than anything referred to here. In the US, companies have actually convinced young people that it is to their benefit to work for free for a year or two before even being considered for a low-paying, entry-level position with zero job security. This situation was discussed in The Fastest Growing Job Category: Unpaid Interning. If one wishes to create systems that are abusive to the young, Europe has a way to go to catch up with the US.

Sunday, March 11, 2012

Diane Ravitch, Education, Finland, and Poverty

Diane Ravitch has produced an article for the New York Review of Books, Schools We Can Envy, which is ostensibly a review of the book:
Finnish Lessons: What Can the World Learn from Educational Change in Finland?
by Pasi Sahlberg, with a foreword by Andy Hargreaves
Teachers College Press, 167 pp., $34.95 (paper)

Ravitch currently is Research Professor of Education at New York University and a senior fellow at the Brookings Institution. She was an Assistant secretary of Education during the first Bush administration and has written extensively on subjects related to education. She should be eminently qualified to provide a thorough review of education in Finland. Ravitch instead lets a bile-drenched assault on everyone and everything that she disagrees with in the education arena consume much of the text, and discusses the Finnish education mainly in terms of providing justification for her own biases. The Finns have a very successful system and it deserves better.

We have discussed education in Finland previously in Finland and Its Approach to Education. The Finns decision to start formal education of their children at the age of seven was discussed in Education in Finland: Are We Pushing Children Too Early?

Ravitch’s article referred several times to poverty, implying that it was a major source of our educational difficulties. This was a very good point, and it prompted a reconsideration of Finland and its methods within that context.

Jenny Anderson provided an interesting introduction to Finland’s education system in a New York Times article: From Finland, an Intriguing School-Reform Model. Her story centers on the same Dr. Sahlberg. She provides some notable quotes.

"Besides high-quality teachers, Dr. Sahlberg pointed to Finland’s Lutheran leanings, almost religious belief in equality of opportunity, and a decision in 1957 to require subtitles on foreign television as key ingredients to the success story."

"He emphasized that Finland’s success is one of basic education, from age 7 until 16, at which point 95 percent of the country goes on to vocational or academic high schools. ‘The primary aim of education is to serve as an equalizing instrument for society,’ he said."

The emphasis is mine. The notion that the Finns designed their education system in order to provide equality of opportunity for all of its children is easily lost in all the discussion about methods and procedures. Now consider again Ravitch’s emphasis on the importance of poverty in educational outcomes, and expand the concept of poverty to include not only income, but also cultural and social deficiencies. We cannot eliminate poverty and we cannot control the social and cultural environment in which children are enmeshed, but we should be able to use our education system to try to eliminate the deficits some children experience relative to others more fortunate. That is what the Finns set out to do, and as a by-product they ended up with outstanding educational outcomes.

Let us take a quick survey of the Finnish system, but this time within the context of serving as an "equalizing instrument for society."

Finland provides free universal daycare to children between the ages of eight months and five years of age. This daycare is not mandatory but 98% of children participate. A year of kindergarten-like preschool is provided to all at age six. Formal schooling begins at age seven.

These preschool years are critical in the development of a child. Think what it would mean if every child in this country could begin school with this shared experience. Each child would have grown up well-nourished, would have been introduced to the same rich learning and social experiences, and would have had the same preparation required for learning to read. The educational disparities caused by poverty, as we have defined it, would have been greatly eliminated.

Children develop and mature at different rates. Studies in Europe indicate that, independent of language, it isn’t until about age six that the majority of children have advanced to the point where they are ready to begin learning to read. These same studies show that trying to teach reading before the age of seven can be counterproductive. This approach is another means by which equality of opportunity is sought. Waiting this extra year to begin diminishes the ill-effects felt by slow developers.

Finland’s schools also avoid binning students into high performers and low performers as another means of protecting slow developers from what can become a lifetime of educational bias in our system. The egalitarian Finns instead encourage the fast learners to spend time helping the slower learners.

At age 16 or 17 there is a transition to a higher level of education that is equivalent to the final two years of high school and two years at a community college. In a manner reminiscent of the vaunted German system, there is a bifurcation into a "vocational" path and a pre-university path. Students have a choice, but they must be able to demonstrate capability to follow the university path. The Finnish system appears a bit less rigid than the German, making it easier to switch paths if desired.

The Finns recognize that a college degree is not for everyone. Unlike in our country, where vocational training is rare, Finland tries to provide options to fit everyone’s needs. And higher education in Finland is tuition free.

It is not practical, nor is it necessary, to try to reproduce the system in Finland. However, we should have it within our means to produce a daycare system for preschool children that would be available to all who chose to use it. That would be a critical step in preparing all of our children to enter and develop in our existing school system. This does not require the elimination of poverty, but it would eliminate many of the effects of poverty on our children and on our educational system.

One assumes this would be an initiative that Ravitch could applaud. If only we could get her and the other education professionals to quit arguing with each other and direct their energies along a more productive path.

Friday, March 9, 2012

Business School for School Principals: Does It Help?

Everyone seems to have an opinion about how to improve education in the US. Many with business experience claim that schools would perform better if they were managed better and took advantage of experience gained in running businesses. Others would counter that schools are nothing like businesses, and that experience gained in actually educating children provides the necessary guidance. An article in Bloomberg Businessweek by Alison Damast alerts us to an ongoing program developed jointly by the University of Virginia’s Darden School of Business and the Curry School of Education. It is referred to as the Partnership for Leaders in Education (PLE). It apparently runs programs aimed at assisting individual schools, school districts, and even statewide organizations.

The program’s website lists the following as components of the curriculum:

  • Understanding the school turnaround context and the fundamentals of successful turnarounds
  • Developing and communicating a vision that includes the need for urgent change
  • Establishing a culture of high expectations
  • Building effective coalitions and implementing shared decision-making
  • Using data to drive decisions and to monitor/measure the need for mid-course corrections
  • Identifying innovation opportunities and developing strategic plans
  • Teaching state/district/school administrators to think like leaders, not simply managers

This seems like typical business-school boilerplate, leaving one to wonder what this means in practice. Alison Damast provides some insight.

She provides the experience of one school principal.

"Kim Lowry, principal of South Elementary, a 500-student school in rural Kennett, Mo., was wary when her superintendent enrolled her in a part-time, two-year business school program. Her school had failed to meet benchmarks under the federal No Child Left Behind law and faced a state takeover. Business classes were the last thing she wanted to do with the money earmarked for improving her school. Says Lowry: ‘I was very resistant’."

Her attitude changed when she, with the help of program staff, returned to her school in the fall of 2009 with a plan.

"That fall she formed teams of teachers that scrutinized student performance, hired consultants to help improve scores on standardized tests, and posted the results of every student in the staff lounge, making teachers publicly accountable for their classes. ‘I took the best business practices and translated those into education,’ says Lowry, who completed the program in January."

And what about results?

"Her school now meets federal standards, and its test scores jumped by 26 percent in English and 29 percent in math while she was in the program."

It costs $75,000 for a program in which principals attend classes at Darden for a total of 20 days. In Lowry’s case that would seem to be a rather outstanding return on investment. The Education department is distributing funds that can be used to help schools like Lowry’s improve their performance. Damast tells us that many are turning to Darden for help.

"This year, 48 schools from Arizona, Utah, Nevada, Colorado, and New Mexico are among those enrolled in the program, and state education officials are participating alongside the principals."

The experiences of those who have participated have been generally, but not universally, quite good.

"After the Cincinnati Public Schools began participating in the program in 2008, the district asked successful administrators and teachers to coach counterparts in struggling schools, and established a program that paired local business leaders with principals. Cincinnati saw 14 of its 16 underperforming schools meet No Child Left Behind standards after the program."

"At the first 57 schools that completed the program, reading proficiency increased an average of 33 percent and math scores rose an average of 37 percent, Darden says. But schools in St. Louis and Kansas City, Mo., and on Indian reservations have seen mediocre or negative results, and a handful have withdrawn from the program after the first year."

Education purists might not be thrilled with this approach, but it seems to have generated enough success to justify what is a rather modest investment. Hopefully, there are no unintended consequences lurking in the background.

Wednesday, March 7, 2012

Could Democracy Become Obsolete?

It has become the conventional wisdom that democracy has established itself as the only viable path for a nation to follow in order to attain a stable long-term future. China’s experiment, for example, has been deemed a failure waiting to happen. But the world changes: societies evolve, capitalism evolves, political philosophies evolve, individuals evolve—even religions change over time. Is there any reason to believe that what we call democracy today will somehow withstand all the turmoil about it and continue to be viewed as the ideal form of government?

To be more precise, we will define democracy as a political system in which citizens, via their votes and other means of expression, select representatives to run the government for them. It is assumed that these representatives are at least somewhat answerable to the will of those who elected them.

Two recent articles have raised questions about the stability of democracy in a changing world.

In the New York Review of Books there is an article: On Intellectuals and Democracy by Tony Judt. This short piece was excerpted from his book Thinking the Twentieth Century which has recently been posthumously published. Judt died in 2010 from ALS (Lou Gehrig’s Disease) which rendered him ever more physically incapacitated as the disease progressed. His wife, Jennifer A. Homans, provided a beautifully written companion piece in the same issue, Tony Judt: A Final Victory, that describes what he went through in producing that book and two others in the two years between diagnosis and death. Anyone interested in Judt’s life and his work will want to read this.

The second article is by Vladislav Inozemtsev (VI): The Cultural Contradictions of Democracy. It appeared in The American Interest.

Both Judt and VI agree that democracy, as defined above, is not a prerequisite for a free and stable society. From Judt:

"If you look at the history of nations that maximized the virtues that we associate with democracy, you notice that what came first was constitutionality, rule of law, and the separation of powers. Democracy almost always came last."

They also believe that democracy bears within itself defects that can corrupt a successful society. Again, from Judt:

"The Churchillian dictum that democracy is the worst possible system except for all the others has some—but limited—truth. Democracy has been the best short-term defense against undemocratic alternatives, but it is not a defense against its own genetic shortcomings. The Greeks knew that democracy is not likely to fall to the charms of totalitarianism, authoritarianism, or oligarchy; it’s much more likely to fall to a corrupted version of itself."

In Judt’s view, materially-satisfied citizens have difficulty focusing on the common good rather than on their own immediate interests.

"Democracies corrode quite fast....They corrode because most people don’t care very much about them....The difficulty of sustaining voluntary interest in the business of choosing the people who will rule over you is well attested."

VI takes this latter thought even further.

"The point is that a citizen’s basic rights in Western democracies are secured more by laws and norms duly observed than they are by democratic action. In such circumstances voting becomes less freighted and consequential an act. It becomes something to do with spoils, not principles. Democracy becomes less important as the gains it once helped to secure become firmly institutionalized."
"Democracy presumes, or it ought to presume, civic participation in the creation of institutions; that is what justifies a citizen’s acquiring benefits from those institutions. Instead, the contemporary meaning of democratic equality has acquired a sense it never possessed before. It has ceased to be tethered to any sense of obligation and, especially in the social welfare democracies of Europe, has become a foundation for a categorical demand for the redistribution of material and social benefits."

The emphasis is mine. How often do people actually vote to raise significantly their own taxes? Do they vote driven by principle, or by the spoils of victory—lower taxes on themselves. Will comfortable citizens vote for a universal healthcare plan because it will help others—or will they vote against it because it might cost them a little extra? There is plenty of evidence as to the answers to those questions.

VI also raises a concern about democracy and the potential for human fairness in multicultural societies.

" democracy likely to be stable or effective in a country divided into ethnic or religious communities, especially in a situation where one stable majority and many minorities coexist? Protection for minority rights is all well and good, but can majorities be expected to respect limits on their own power and minorities to tolerate subordination in perpetuity? In other words, isn’t democracy in such circumstances a formula for civil strife and state collapse?"

One might characterize the entirety of US history as a series of attempts to deal with majority vs. minority conflicts. European countries stabilized as democracies after ethnic groups were separated and swept back to their home nations after World War II, but now are having troubles contending with immigrants from Islamic cultures. As the US has survived, so will the European countries survive, but what do their examples tell a new country about the positives and perils of democracy?

VI’s most interesting concern about democracy is its inability to deal with the issue of competence in a complex modern society. Democracy assumes that the average citizen is capable of understanding the issues of importance to be voted on. It also assumes that the representatives that a voter might choose are also capable of understanding the issues facing the country they wish to run. One must spend only a few minutes listening to the current political discourse in the US to become greatly concerned not only with the future of the country, but with the future of the world.

The nature of political discussion has been fundamentally altered. There was a time when people learned about social issues through discussions with neighbors. Now information is imprinted in our brains by the one-way flow from media sources. Unbiased media are afraid to separate truth from nonsense, while the biased media seek to indoctrinate, rather than to enlighten.

Given that universal suffrage was not responsible for the modern states we live in, its demise would not necessarily alter the basic societal characteristics that allowed for the emergence of democracy in the first place. VI suggests that democracies may eventually have to relax to a system in which issues can be voted on only by those competent to understand the issues.

"Perhaps a new, more multi-tiered version of democracy can be produced wherein certain citizens earn the right to participate in certain more difficult and complex decisions."

This issue of competency is real, but VI can suggest no viable mechanism for addressing it other than raising the general education level to unattainable heights. He suggests that technocrats may be a better option for running a country than elected politicians. But consider the economic state of the Western democracies. Would it be possible to turn matters over to an exalted group of economic theorists to determine a plan of action? Which group of exalted experts: those that believe that up is down—or those that believe that down is up? Technical experts can adhere to unreasonable theories and hypothesis as adamantly as any partisan politician. Like everyone else in government, they must be answerable to someone—even if it is a politician. The system has worked for generations.

VI fears that most citizens are unable to contribute to complex issues, while Judt feared that they had lost the interest and the will to concern themselves with the details. Perhaps it is being faced with a contentious and complex problem that is necessary to arouse the interest of an otherwise complacent electorate. In that context, handing issues off to technocrats is perhaps counterproductive.

Judt sees inherent problems for democracies, but believes they can be overcome.

"And the reason why we need intellectuals, as well as all the good journalists we can find, is to fill the space that grows between the two parts of democracy: the governed and the governors."

VI is pessimistic about democracy (he is Russian after all!) and fears for the worst. He brings up valid points, Perhaps his most compelling argument is the one that convinces us that there are many ways to construct a society—and it need not look like our own. We who, 150 years later, are still trying to bring the Civil War to a conclusion, should hesitate to tell others how to run their nations.

VI suggests that others have taken a look at the Western democracies stumbling about and have decided to try other things.

"Then something strange happened: New electoral democracies arose that were unaligned with liberal institutions. Last year, Freedom House named 115 countries as electoral democracies, but only 87 evinced Western standards of rights and freedoms. This would have been unthinkable half a century ago. We now have electoral democracies that are not liberal and we have liberal societies, like Singapore, that are not electoral democracies."

Good luck to them all.

Monday, March 5, 2012

Words Matter: How the European Union Speaks to Itself

The European Union (EU) consists of twenty-seven countries and recognizes twenty-four languages as being "official." One might expect that a lot of time and effort goes into the translation of the many documents that such an organization must produce. What actually occurs is more complex, and more interesting, than mere translation.

David Bellos, in his book Is That a Fish in Your Ear? Translation and the Meaning of Everything, explains how the EU deals with its multiple languages. After Bellos spends most of his book explaining how difficult it is to translate meaning from one language to another, or even within a language, the EU approach was rather surprising. The various treaties that established and expanded the EU contain this phrase:

"This treaty, drawn up in a single original in the [list of languages], the texts in each of these languages being equally authentic...."

The EU has decided that each country and each language is to be treated equally. This means that all critical documents created must be created in the language of each country. While, as a practical matter, there is a lot of translating going on, twenty-four versions have to be created in twenty-four different languages and each has to convey exactly the same meaning—a task quite different from mere translation.

"The language-parity rule has many interesting consequences. It means that no official EU text can be faulted or dismissed or even queried on grounds of it having been incorrectly translated from the original, since every language version is in the original."

There are four official working languages—German, French, English, and Italian—and committees will choose one for their discussions. The participants have to not only be multilingual, but they must also be competent in the subject under discussion. This generally means they must be experienced civil servants or have training in legal matters. Bellos provides an example of how a regulation might be produced.

"A panel or subcommittee meets to draft a regulation. It uses one of the four official working languages of the EU....but there are always other language drafters present. The first draft is argued over not only for content but also for how it is going to be expressed in the other working languages. The draft is then translated and the committee reconvenes with the drafters to smooth out difficulties and inconsistencies in the different versions."

One can foresee many iterations and much discussion in order to hammer out the full suite of language versions.  Clearly, this is a lengthy and expensive process.

"DG Translation (the translation division of the European civil service) currently employs 1,750 linguists and 600 support staff, and spends vast amounts of money to produce millions of pages of administrative and legal prose each year...."

Legal cases have a separate path through the language maze. The European Court of Justice in Luxembourg (ECJ) has a single working language: French.

"All documents used at every level by the court are either written in French or translated into French by members of the army of language professionals who work there."

Plaintiffs may bring their case in any language they choose, so that requires that all documents also be translated into that language.

"The legal decisions of the court are made by all or some of the twenty-seven European advocates general, one appointed by each of the member states. The ultimate authority consists of a set of distinguished judges collectively speaking and writing all twenty-four languages of the EU. They use French for lunchtime conversations, informal consultations, and committee discussion, but they give their all-important opinions on the cases before them in their home tongues."

"....since the rulings of the ECJ have force in the entire EU, legal opinions are not released and do not come into effect until they have been translated into all twenty-four of the official tongues. Every section of the 750-strong corps of lawyer-linguists at the ECJ becomes involved at some stage in every decision that is made."

This is a rather complex process. Bellos indicates that one does become proficient at homing in on legal language that translates easily, but disputes over meaning still arise and generate another complex and costly process.

In the beginning there were six states and four languages. There were very good political reasons for insisting on language parity. One has to wonder if those reasons would have been sufficient if the founders realized that eventually there would be twenty-seven countries and twenty-four languages. Some things just do not scale well. Apparently it is still considered politically important because each suggestion to simplify matters has been beaten down over the years.
Lets Talk Books And Politics - Blogged