The Challenge Dividend

Mixing Boys and Girls Improves Results

Ahh, back to school time is here again and the parents are doing high-fives.  It's a classic but true cliche - and my household is no different.  We've exhausted all the camps and projects, and the temperature is too hot to kick the kids outside.  But Tuesday in our home is the start of the new school year for my daughters, and everyone is excited.

One extra reason to be excited is a new piece of research that shows a significant increase in the proportion of girls in school leads to a significant improvement in all students' cognitive outcomes.  The paper, by Victor Lavy and Analia Schlosser, titled "Mechanisms and Impacts of Gender Peer Effects at School," is good reason to be a proud father of two daughters (that are adorable, per Grace, reading over my shoulder as I type...).  The Abstract of the paper summarizes the takeaways:

"Our results suggest that an increase in the proportion of girls leads to a significant improvement in students' cognitive outcomes. The estimated effects are of similar magnitude for boys and girls. As important mechanisms, we find that a higher proportion of female peers lowers the level of classroom disruption and violence, improves inter-student and student-teacher relationships as well as students' overall satisfaction in school, and lessens teachers' fatigue. We find, however, no effect on individual behavior of boys or girls, which suggests that the positive peer effects of girls on classroom environment are due mostly to compositional change, namely due to having more girls in the classroom and not due to improved behavior of peers."

So mixing boys and girls improves learning, because girls bring diversity and calm to an all-boy environment.  In a way, this is exactly what I suggested last year in a blog post titled "Women Challenging Men...Great!"  My belief then - which is backed by this research now - is that households and entire nations are better off when there is equality in the number and power of both women and men. 

I believe Western society has improved and advanced because of this trend.  Meanwhile, the Middle East suffers without strong women keeping their husbands in check. 

So when you drop off your daughters at school this month - be extra proud that they are helping make everyone smarter!

(thanks Marginal Revolution for the find)

Student Lenders Get Failing Grade

Another new financial scandal is sweeping the nation.  I'm not talking about back-dated options or rich exit packages that mainly impact rich CEOs, but rather a scandal that impacts millions of students who are trying to get an education and prepare to earn a living.  It seems that colleges and universities across the nation may have hurt the students they are supposed to support by taking illegal bribes and payoffs from lenders.

The investigation is being led by New York State Attorney General Andrew Cuomo. It seems that for years lenders have been providing payments to schools for being named "preferred lenders" and appearing at the top of the list.  But students and parents have not known that these recommendations come with a price, and the "preferred lenders" do not necessarily have the best rates.  After all, those kickbacks have to be paid for somehow.  So students are screwed and trust is lost.  Money magazine and others now have guidelines for navigating through universities' suspect recommendations.

Cuomo's team has already received settlements from colleges like the University of Pennsylvania, Washington University, and NYU (my MBA alma mater) and lenders like Sallie Mae and Citi.  More settlements are likely on the way.  While I suppose the students affected will receive some compensation, it makes me wonder "Why?"  Why would non-profit institutions with centuries of dedication to serving students choose to do anything that even resembled taking advantage of their customers for monetary gain? 

Some might claim that schools are under pressure to uncover any possible dollar in order to overcome rising costs and halt tuition increases.  But I don't buy this.  Tuition hikes are an annual rite at nearly every university across the country.  And total college enrollment is increasing due to a surge in college age population (the Echo Boomers) and our society's growing belief in the importance of a college education.  That means more full-paid seats in the same classrooms and dorm rooms.

I believe this violation of student trust comes from the inverse of the Challenge Dividend; lack of pressure leads to a fall in service.  By lack of pressure, I mean that universities have never had it so easy.  Here are some of the non-challenges at work:

• They work in a non-profit business that does not have to show firm results.
• Continuous government funding for research or tuition subsidies brings a steady flow of dollars with little ROI expectations.
• Tuition increases are passed with no real change in enrollment.
• Many schools turn away more applicants than they approve. 
• Once they join the school, students are basically "locked in" for four years.
• Student loans themselves reduce pressure, as the "customers" don't feel the pain of the rising cost of education right away.

At the end of the day, I don't think financial aid officers or the schools themselves are greedy or evil.  They just don't have the same pressure to serve customers like many of the rest of us in the increasingly challenging business world.  Just the same, it is unfortunate to see an institution trusted with the important role of educating our young people end up failing them outside the classroom. 

The lesson learned by millions of student borrowers is that they cannot trust their colleges to look out for their financial interests.

Extra AP Test Incentive

Around the country today there are thousands of high school students preparing to take Advanced Placement (AP) tests.  Most of them are hoping for a passing grade that helps them earn college credits in topics from American History to Calculus.  But for a growing number of AP students there is an extra incentive: cold hard cash.

The Wall St. Journal (subsc. req'd) reports that several states, non-profits and public companies are lining up to line the pockets of students who pass AP tests.  In Texas, for example, kids can earn $100 for each test they pass. 

Most of the organizations behind these grants are hoping to encourage students to study in a particular field.  For example, the National Math and Science Initiative received a grant of $125 million from Exxon in hopes of increasing the quantity and quality of math and science graduates.  Because of the challenge of needingbetter employees, companies like Exxon are helping drive innovation in education.

Students, meanwhile, benefit from the added challenge in the form of a financial incentive to take and pass the tests.  While $100 might not even cover a single monthly car payment, it does pay for the cost of taking the test itself.  And this can be an important amount to encourage a student to go through with the exam, especially for families with lower incomes.

Finally, even teachers are seeing benefits from these programs.  The Texas program offers teachers a bonus of $500 to $1,000 if they become certified AP instructors, and a $100 bonus for each student who passes.  One calculus teacher is averaging an extra $4,000 per year in AP-related bonuses.  This positive challenge offers a nice motivation and reward for teachers who put in the extra effort and help their students succeed.  It is also a way to build merit pay for the best teachers, without going through the government and anti-competitive teachers' unions.

So far, the results an initiative in Texas is very promising.  As seen in the chart above, the number of exams taken at 10 schools in the Dallas Independent School District has increased dramatically since the program has been in place. 

The initial reaction of many to this program is probably skepticism and a concern that the next generation is too focused on financial incentives.  But let's be realistic instead of idealistic.  Incentives are forms of positive challenge that can lead to improvement.  And in the sad state of high school education today, any experiment that rewards hard work is worth a try.

Harvard Debates Change

Every year dozens of universities around the world change their curriculum and graduation requirements, and to most the story does not go much farther than the front page of the student newspaper.  But when your school is nearly 400 years old and named "Harvard", lots of people take notice.  For this blog, it is an interesting, developing case study on meeting the challenge of the next 400 years.

In November, Harvard's faculty began debating recommendations from The Task Force on General Education.  This body was formed to examine the basic undergraduate degree requirements and post an initial point of view on what its students should know to graduate from Harvard. 

Personally, I love the fact that Harvard is able to re-invent itself every few decades in spite of several existing strengths.  Certainly students would still apply to Harvard in droves and alumni would still make a huge impact on the world whether or not the core curriculum is tweaked.  And since Harvard is a private institution with a massive endowment, it has less pressure to change.  Likely it is an intellectual challenge and desire for improvement among alumni, students and professors that keep the school on its toes.

The debate among these three stakeholders is already helping to improve the potential changes.  One outstanding opinion comes from prominent economist and Harvard professor, Edward Glaeser.  Glaeser argues that the new curriculum should focus more on research methodology versus fact memorization.  His argument is the stuff of the Challenge Dividend:

"Harvard's system of general education should emphasize methodology over topic because methods are harder to teach and learn than facts.  Facts become easier to absorb by one's self once one has a handle on methods.  Harvard students can learn facts about the United Nations Security Council or the Federal Reserve Board from the New York Times or Wikipedia, but they cannot learn the tools to make sense of these institutions so readily.  As students learn to think rigorously about society and how to use data to test their thoughts, they acquire a set of tools that can then be used to acquire knowledge in any setting."

Glaeser wants Harvard to challenge its students as much as possible, and to provide them with a tool kit they can use to tackle other challenges for a lifetime.

I will stay tuned to Harvard's curriculum approach, along with hundreds of other universities around the world.

(Thanks to Marginal Revolution for the find)

Universities Power Long Term Investment

One of my most loyal readers has a beef with The Challenge Dividend.  He asks: "If followed, doesn't this theory decrease long-term investment?"  In other words, constant challenge from competitors and shareholders could drive a focus on only short-term results for companies.  A government that is pressured to improve is unable to justify dollars for long-term projects.  In a world of pure Challenge Dividend, maybe companies like Bell Labs would never have invented the transistor and the Department of Defense would not have launched the Internet. 

This is not a bad push back, and there is not an easy, single answer.  But this week I came across a piece of evidence that long-term investment is alive and well, and powered by challenge.  Rather than corporations and government, universities around the world now have the task of driving unprecedented levels of core research and key discoveries.

Today there are hundreds of major research universities around the world, ranging from long-term leaders like Harvard and Princeton to relative new comers in the Western U.S. and China.  Together, these research institutions have many key elements required for a Challenge Dividend:

• A large number and diversity of university competitors.
• The challenge to win Nobel Prizes, make discoveries, and attract students who are future long-term assets.
• "Customers" (students and alumni) are in the market for long-term, softer benefits like status and pride.
• Competition to employ top researchers; and competition among researchers to be rewarded (tenure, financing, management posts).

Universities are more successful than government in such long-term investments, because they have a built in competitive environment that governments lack.  And universities are better able to make long-term investments than corporations because most investors are only looking for short-term results.

The great news is that governments and corporations now routinely "outsource" long-term investments to this more efficient and productive university marketplace.  Government sends tax dollars to universities for research based on their results, selecting among several competitors.  Corporations license patents and hire researchers once their work is proven. 

In the end, every group gets what they want through a dynamic, competitive market.  The dividends include new discoveries for government, companies, and the citizens and consumers they serve.

(Thanks to Marginal Revolution for the topic idea.)

New School Choice

It's the second full week in September and nearly every child in the country is back in school.  I have been shuttling these two school kids myself for the past few weeks, as we have recently opted to pay for our children to attend a private Montessori school in downtown Cincinnati.  Overall, the act of "choosing" a school is getting increasing press across the country and it has been an impressive experience for my wife and I as well.

The idea of "school choice" is really not as far-fetched as it may seem.  Today, a majority of parents do, in fact, engage in school choice every time they move into a new home.  As any homeowner will tell you, the school district you live in is a very important part of the decision-making process.  Even if you are childless (and want to stay that way), living in a good school district can add thousands to your re-sell value.  In fact, a key driver of the rise of suburbs across the country may be less due to a desire for McMansions, and more of a drive to make sure the children have access to a winning school system.  This, in turn, helps them get into a great college and be more successful in life.  Parents have been driven away from inner cities by horrible schools and the city bureaucracies that oversee them.

Our experience has been somewhat unusual.  We live in the suburbs where the schools are strong and the buses run right by our house; but we are paying money and driving our children back downtown for their education.  For us, the appeal is a Montessori education and a desire to add some diversity to their experiences.  In fact, we recently moved our kids from a different private Montessori school they were in last year to the current one that better met our needs.

"Choice" and "met our needs" sounds a lot like capitalism, and it is.  The experience of selecting a school that best fits our children's needs and our budget is a pretty neat process.  We looked at schools around the city and my wife interviewed several teachers and principals before we signed on at their current school.  Our satisfaction with this investment has been high so far as we have spent time in parent orientation night, met several staff members, and heard great reviews from our kids. 

Perhaps the most amazing thing I heard came from the Director of the school, who started off each parent orientation night with: "I always say that 'you've made a great choice.'"  Later we learned about innovations that the 36-year-old school had made to further improve the experience and keep us customers happy.  First, they added electives this year in classes ranging from Spanish to Drama.  Second, they now give out personalized home work assignments based on individual skill development needs.  And this is for our first grader!

On the other hand, I feel bad for other parents and children who have less of a choice.  Our income and schedules afford us the privilege of school shopping.  But everyday as I drive downtown to drop my kids off, we pass dozens of inner-city youths waiting for their bus to a much less challenging education and a less-appealing environment.  Cities in Ohio and Florida have tried to introduce the free market dynamics to their troubled school systems.  These vouchers would allow kids to go to any school in the district, and reformers believe it would encourage and reward excellent schools while weeding out the failing teachers and administrators.  Research also suggests that vouchers improve  racial diversity - another issue in todays schools that has seen little improvement.  Unfortunately, the courts and teachers unions have fought vouchers at every turn.

It's a little hard to get used to bringing my kids to school on the way to work.  My morning productivity is down and I have constant music critics in the backseat.  But it is a fun bonding experience and a chance to see my educational investment at work every day.  The thought I keep coming back to is, "I wish I could have gone to a school like this."  This gives me confidence that our choice was right.

Side Note: Check out ABC's site for a recent report by John Stossel, "Stupid in America".  Here he tears down American's school system and makes comparisons to that of Belgium which has used school choice to great success.

UPDATE: The Cato-At-Liberty blog today (1/4/07) points to an article in the Washington Post about the popularity of Montessori schools and wonders why school administrators and reformers continue to push a one-size-fits-all model for education.  One new favorite quote for me is that of founder Maria Montessori:

"One test of the correctness of educational procedure is the happiness of the child."