Kurt Johnson

Below is the article that Matt Kaye wrote (and I helped with) for the Wharton Journal:

On the Wharton GIP trip to India students visited a model primary school in Bangalore. The school is highly selective, has a 98% attendance rate with strong test scores, and is home to the best-behaved students that this author has ever seen in any part of the world.

The remarkable part of our visit is that these extraordinary positive and disciplined children all come from local slums; the average home is 100 square feet with a montly income of $15 supporting five people. Students frequently come from families dealing with alcoholism and other severe dysfunctions.

Bangalore, the heart of “India’s Silicon Valley,” is home to the Parikrma Humanity Foundation. The Foundation manages four private schools for the poorest of the poor children in the city. There is no shortage of opportunity: Bangalore’s slums contain over $1.2 million people and are growing by 10,000 people per day (largely due to migration from rural areas). Resident children lack opportunities to lift themselves out of poverty through education.

For example, 70% of students who attend traditional government schools in the slums drop out before the 8th grade, and absenteeism can reach 85%. Students often drop out to help support their families, but even those who graduate are often illiterate. The economic revolution in Bangalore has little direct impact on these students, as 90-95% of all Information Technology jobs go to graduates of private schools.

Against this grim backdrop, Shukla Bose, the former CEO of RCI, started the Parikrma Foundation in 2003 and has grown it to four schools with over 600 students aged 5-14.

Parikrma has had astounding success: using an English-based curriculum, the schools boast a 98% attendance record with an attrition rate of less than 1%. The curriculum aims to build skills and character through traditional means, real-life experiential programs, and the arts. The program directly impacts hundreds of children who attend the Foundation’s four schools in Bangalore but, equally importantly, it serves as a model for improving the other 900,000 schools across India.

In pilot programs where Parikrma has assisted at existing schools, 10th grade pass rates have jumped from 10% to 50%. Ms. Bose has brought her deep experience in corporate management to achieve this.

Because Parikrma serves as a proof of concept, it is important to prove that outcomes are a product of the Parikrma model rather than cherry-picking high potential students from the slum. The school does not compete with local government schools; instead, it canvasses slums to find children whose families are not planning to send them to school at all, in effect taking the least desirable candidates and completely transforming them.

The Parikrma children come from diverse backgrounds, many of which involve neglect, abuse, and complete lack of medical care. Some are orphans and some have alcoholic parents.

Education is only one aspect of Parikrma’s Circle of Life; the three other components are nutrition, health care, and family care. Since balanced nutrition is critical to the children’s physical and intellectual development, the schools provide each child with two full meals and one snack every day (90% of total daily calorie needs are provided during the school day).

Additionally Parikrma provides immunizations, regular check-ups, and hospitalization when necessary. Since many children come from traumatic and abusive homes, the school has professional counselors on staff to help the children address emotional and mental health issues.

Finally, Parikrma assists children’s families by offering alcohol and addiction programs and connecting parents with local employers and microfinance organizations.

Parikrma’s goal is to support the children until they are at an age and skill level to earn a decent living. Through their 360° Development Program, they aim to level the playing field for the poorest urban children in India. Parikrma will enable its children to break their cycle of poverty and contribute to the thriving Indian and global economy.

India’s reputation as a low cost location to do business extends to the Parikrma model. The Foundation estimates that supporting one child in their program costs approximately $330/year; this compares very favorably with US urban public education (New York City: $13,000/year per student) and private education (Wharton: $42,180/year plus bulkpacks). Put another way, one MBA student’s Wharton tuition could support about 125 students in Bangalore for a year.

During the India GIP, the Wharton group met some of the most influential and prominent people in India, from the Chairman of Infosys to Prime Minister Manmohan Singh. However, our most personal and meaningful lesson on the current problems and bright future of the nation came from the children at Parikrma.

We were so impressed during our visit that GIP participants contributed over $7,000 to Parikrma after we returned home - enough to support an entire school for over a month.

If you would like to learn more about Parikrma, please visit www.parikrmafoundation.org.

On the recommendation of The Economist, I’m reading Global Crises, Global Solutions (Bjorn Lomborg, 2004).

The compilation identifies education as a critical issue for worldwide improvement. The readings generally show very weak correlations between increased spending on school inputs (infrastructure, teachers) and positive student outcomes, leading me down this tangent of thought: if an individual school really wants to improve its rankings/status/productivity, the efficient path is to view competition for students as a zero sum game and make investments in attracting better students instead of improving the education process. The competition for better outcomes by an individual institution is largely won or lost the moment a student commits to going to school.

p.203: “Much of school-specific variation depends on the fact that student household background characteristics vary across schools….This means that the maximum amount of student performance [on Brazil’s PISA exam] that could be explained by everything about the schools is 20% of the observed variation in student scores This poses large problems for the researcher in trying to disentangle the causes of higher student performance as modest amounts of sorting by parents and students into schools can lead to large bias in estimates of the relationship between school factors such as class size and learning outcomes.” [emphasis is author’s]

In other words, pouring funds into classrooms, salaries, materials, etc. may result in improved outcomes, but these outcomes account for less than 20% of total outcome variation. The schools is much better off NOT investing in the educational process but instead stepping up marketing, scholarships, and student amenities to attract better students (which accounts for 80% of the outcome).

Taking this to the next logical step, if we are in a reasonably free market for students to choose their school from a slate of options (such as US universities) we should see intense university recruiting competition for high quality students; anecdotally this takes the form of universities’ drive to build student recreational facilities (climbing walls, elaborate gymnasiums, movie theatres on campus). These facilities have no positive impact on education outcomes, but they are very potent in attracting more students and giving the university power to select the ‘right’ students and thus pull the 80% lever. Personally I think Harvard kind of sets the standard for courting the ‘right’ students based on their ex-academic potential (read: connections -think G.W. Bush, Harvard MBA ‘75).

The really interesting point to me is: since the 80% lever is so powerful, a school that desires to build reputation should basically drop everything and focus all investments on student recruiting. In other words, tuition should drop to zero or negative in order to attract more desirable students (i.e., grants and stipends beyond the cost of tuition). So why do the vast majority of private schools still have large positive tuitions? Why do we see declining numbers of merit scholarships? Shouldn’t ambitious universities be cutting prices like crazy to yield more desirable students? Why is merit-driven competition for students so weak? We could hypothesize several things:

• that the top schools’ history of price-fixing/cartel behavior is continuing despite court losses
• that desirable students are highly insensitive to tuition prices. This doesn’t make much sense to me either.
• that competition between top schools is already at an equilibrium point; schools have already identified the price/amenity point that maximizes their take of desirables students (i.e., the cost in offering more benefits is not justified by the gain in outcomes/rankings). Given the size of the 80% lever combined with the size of endowments at some schools I think this is unlikely
• That schools choose not to compete for students this way or compete only in a limited way because they recognize that competing for students is a ‘Red Queen’ game (or ‘arms race’) in which everyone can make large investments to compete and not realize a net gain (because outputs are zero sum). Economists would probably not believe that a market with dozens or hundreds of participants could act in such a concerted way without organized collusion (see bullet #1). The temptation for one school to break ranks and start the competition is too great (this notion is a great lead in to Edgeworth cycles if anyone wants to go learn more about game theory and price competition in a market with many substitutes)
• That there are possibly political considerations that make administrators shy away from pure-merit driven competition (e.g., disparate racial impact or throttling ‘diversity’ in terms of race/income/religious/etc.)

Obviously all of this only makes sense from the viewpoint of an individual institution in competition with other institutions. For a national-level education system a zero-sum perspective is useless.

Footnote: The article uses standardized test scores as a proxy for educational outcomes and so do I – I don’t know of any other metric which can be compared across thousands or millions of students in a meaningful way. Graduate income (controlled for incoming student SES) is a nice thought but full of problems.

Corollary: One of the interesting points in the book discusses the insignificance of investments in education as predictors for output. As the 20%/80% split above implies, it’s statistically difficult to show a meaningful bump in performance by spending more money, whether on new schools, infrastructure, or smaller class sizes. Anecdotally I think this is again supported by US universities; there doesn’t seem to be much hoopla about class sizes in undergraduate classes that commonly enroll 50-500 students (probably because professors/GAs aren’t unionized and thus don’t lobby effectively for more work the way that public schoolteachers unions do).

Maybe the best quote I've seen on the folly of US News (and other) rankings for competitive schools:

Robert L. Woodbury, former chancellor of the University of Maine system, noted the folly of the current institutional U.S. News and World Report rankings: When Consumer Reports rates and compares cars, it measures them on the basis of categories such as performance, safety, reliability, and value. It tries to measure “outputs”—in short, what the car does. U.S. News mostly looks at “inputs” (money spent, class size, test scores of students, degrees held by faculty), rather than assessing what the college or university actually accomplishes for students over the lives of their enrollment. If Consumer Reports functioned like U.S. News, it would rank cars on the amount of steel and plastic used in their construction, the opinions of competing car dealers, the driving skills of customers, the percentage of managers and sales people with MBAs, and the sticker price on the vehicle (the higher, the better).

For a better ranking system, here's a link to an excellent article (at Wharton, no less ;-). It outlines how to build a market based ranking system and illustrates more of the flaws in the current paradigm of college rankings. Like a lot of economics it's generally intuitive but the detailed data opens some questions at the margins.

This graph from the paper showing the dip in Princeton admissions rates for students with SAT scores between the 93rd and 98th percentiles is a great example the distortion that rankings regimes can cause:

Ultimately I think understanding a consumer decision-based ranking could really help the schools shape their classes a lot more effectively than the crude rankings do today. For example, BYU has cultivated a strong preference in a subset of applicants (p. 38) that disproportionately prefer BYU to other normally more desirable schools. Understanding what segments of applicants strongly favor or disfavor their institutions should allow admissions committees to more effectively market to these segments in order to shape their class - and ultimately develop their university and brand - on the demand side (applications) instead of the supply side (admissions).I can't decide whether or not taking up this approach (vs the current rankings) would change the way that students apply to schools. Certainly Princeton's example is a little disheartening for the 96th percentile student; if applicants were armed with more detailed admissions figures the 96th percentile students might apply in lower numbers to Princeton (ceterus paribus) which would harm the school's applicant count -> selectivity % -> ranking under the current regime. Thus Princeton could be expected to fight more disclosure in this case.

Another question I haven't resolved is whether a revealed preference/market ranking would do more harm than good. It's certainly more empirically valid in terms of a preference ranking, but I think it's also clear that some schools coast on a reputation earned a long time ago; the brand of a school may lag what that school is actually producing/providing by a generation. In that sense a revealed preference ranking is a trailing indicator that isn't really useful for anything except a prestige index; for a forward looking student or a university trying to pull itself up by its bootstraps a ranking system has to measure more immediate indicators of output quality. I'll draw an analogy to my view on standardized testing for students; I don't think teaching to the test is bad per se, it just means you have to be very careful to structure the test so that teaching to it effects your ultimate teaching goals. Likewise, rankings parameters should be structured so that managing to rankings metrics serves a positive good. Class size, outgoing placement rates/salary, and ROI are good things to manage to while the current metric for 'selectivity' or acceptance percentages is destructive.

Becker/Posner had a post today about student loans - a special pleasure I’ll be treating myself to if my applications are successful. Their original posting is here. I added my comments to Becker’s thread but also reproduce them below.

I also saw an AP article in the Houston Chronicle today on the same topic. It touches on two different people struggling with debt from anthropology degrees and how they have not been able to find high paying jobs in their field after graduation. A recent Dilbert cartoon sums up my reaction nicely (sorry for the linkfest). Any recent/indebted graduate who claims to be shocked that high-paying anthropology jobs are in short supply should have their PhD suspended for not doing two hours of common-sense career research before they started their program. I’m all for doing what you love, but realize that a PhD in anthropology will basically leave you impoverished for life (at least by the standards of your friends who stopped going to school after a BS in engineering). Do it, love it, just don’t complain after the fact about being broke.

By the same logic, my friends who have taken jobs they don’t love in exchange for wealth have no ground to complain about how they don’t love their job - in this land of free career choices and cheap student loans they should be able to do anything they love as long as they do it well and are willing to accept pecuniary sacrifices.

My comments on Becker:
As DanT and Tom have already noted, privatizing student financing would likely result in lower borrowing costs for high income/technical professions. This seems like a fair application of the market’s cost of risk - loans to lower income non-professional degrees carry a higher default risk that the lender should be compensated for. If government determines that there is a non-economic benefit to having liberal arts majors the government should rebate some of these higher borrowing costs in the form of grants rather than indiscriminately subsidizing all study areas.

I also take the view that most of the additional aid that is granted to students ultimately becomes a wealth transfer to college administrations as they raise their prices to absorb most of the additional aid (given a lag of a few years). Thus the “real” or ex-aid cost of education to end users will remain roughly the same regardless of the aid level. This is the fundamental reason that colleges will oppose removing loan subsidies.

Finally, American colleges and governments have already made education cheap and accessible enough that affordability is no longer a rational excuse for the serious student. To oversimplify this, assume that census data indicates the value of a college education at $1,000,000 of incremental lifetime income and requires debt financing of $25,000. How many students would have taken this opportunity at a 3% finance cost but will turn it down at 6%? To any rational consumer it’s a slam dunk at either price.