Category Archives: Education Issues

#346 GM Electric Vehicle (EV1) — the Story behind the Story (Part 1)

05 Monday Aug 2019

Posted by in Corporate Policy, Education Issues, General Motors

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[Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution, a list of earlier revolutions and the author, Entry #1.

Periodically I write a “sense check” to assess whether in the next few years, a revolution in the US is still possible or whether the entire exercise is based on a statistical aberration — i.e., a roughly 50-year cycle between major upheavals in the US.  Most recent sense check, Entry #332.]  

The previous three (3) entries were about my personal experiences with Lee Iacocca, who many consider one of the most effective corporate executives of the 20th Century. I decided to continue the break from the craziness in Washington and discuss another part of my life that continues to generate considerable interest — The GM EV1, the first modern electric vehicle.

There are two sides to the story — product and non-product.  The product side is reasonably well documented.  The non-product side story is far from complete, and what’s been told so far I think is misleading.  The next x number of entries — I actually do not know how many — will be an attempt to provide addition insight.  Stick around.  The series will be a good diversion and offer a good lesson, I hope.

More than 25 years ago, GM presented to the public the first modern electric car. The car generated widespread interest worldwide and helped boost GM’s image. Despite the positives associated with the car, GM management never seemed to endorse the program. After very limited production by auto company standards, GM pulled the plug. People frequently ask me, “Why was the program stopped?” “What could have been done differently so GM management would have kept the program?” “Did GM killing the EV1 set back development of electric vehicles for a decade or more?”

The questions and discussions about electric vehicles range from informal over drinks and dinner to Q&A following classroom lectures to interviews as part of formal research for a book or academic paper. For example, recently I was contacted by a professor doing research on electric vehicles. He’s been researching EV’s for a number of years and contacted me for more possible insight into the late GM EV1 program.

After two lengthy Skype calls, and roughly a day I spent filling in holes in such public information as Wikipedia, his comment was, “I’ve never heard anyone talk about what you said.” Just to calm the EV1 crowd, no confidential information was provided or discussed.

The focus on the “untold story” was the dynamic inside GM that I considered the primary reason GM management never fully supported the EV1. As will be described in this series of entries, my belief – the underlying reason for stopping the program had little to do with GM’s public claim of lack of demand and excessive cost. True that GM had limited cash but, as will be described herein, much of the cash shortage was self-induced.

As a bit more background, most companies struggle with introducing new technology. Such struggles are well-documented. Two books address the phenomenon of the internal struggles. If you’re interested in learning more, start with Jim Utterback’s, “Mastering the Dynamics of Innovation.” You’ll be shocked at how many companies tried to introduce a threatening disruptive technology but were unable to do so. To help understand more about why the difficulty, read Clay Christensen’s, “The Innovator’s Dilemma.” The books have been around a while but I think still relevant and certainly will help build an understanding of the difficulties of transitioning a company from an existing to a new, disruptive technology that without adoption could put the existing company out of business.

Before getting into the internal dynamics at GM, let’s clear up one gigantic misconception about why the GM EV1, and other electric vehicle models were not pursued. Despite implications in the movie “Who Killed the Electric Car?” from all that I know and experienced – and that was a lot – there was no conspiracy! There was no sinister backroom plot to kill EV’s. Yes, auto companies were frustrated with CARB’s (California Air Resources Board) zero-emission vehicle mandate.

And, yes, oil companies have repeatedly tried to thwart any regulation or legislation that reduces access to drilling, no matter what the cost to society or the environment. But neither of those killed the electric car.

What did kill the EV1 was dynamics inside GM. The dynamics are rarely, if ever, discussed. To understand how the dynamics evolved we need to review actions inside GM during the decade leading up to the introduction of the EV1 concept car. For many inside GM, those 10 years could have been titled “The Decade of Sour Grapes.”

I apologize for the length of this explanation. I still don’t know how many entries might be required to explain properly what occurred inside General Motors and why there was such resistance among so many executives to the EV1 program. Whatever the number of entries, I hope you find these entries enlightening and hope the decision to kill the EV1 becomes more understandable. You might not like the decision, and I certainly did not, but I think it will be more understandable following this series.

In 1980, the position of GM chairman transferred from Thomas A. Murphy to Roger B Smith. Murphy and Smith were polar opposites. Tom Murphy might as well have been the quintessential CEO from central casting. He was well spoken, self-confident, witty, kind and considerate. Smith, his successor, was short, insecure and had a ruddy complexion, squeaky voice and a tyrannical personality.

After Murphy retired I often thought if you could sit down with him, ask him what decision he considered his biggest mistake as chairman, after a couple of drinks he might say appointing Roger Smith as CEO/chairman. After a few years into Smith’s reign, I decided Murphy wouldn’t need a couple of drinks to admit the mistake. A cup of coffee would do.

One of the keys to success for OEM’s in the auto industry — GM, Honda, Daimler, Ford, etc. — is keeping products up-to-date, including significant styling updates. Keeping products fresh requires enormous amounts of cash. Without product updates, sales decline and the amount of cash available usually declines even faster. Further the effect of the decline can take years, if not a decade or two to turn around.

As obvious as the sales to cash generation relationship might seem, Smith took a different view. He believed sales and market share were less important than profit per car. Profit per car is important but without sales, all the fixed cost inherent in the auto industry gets spread over fewer units and the additional cost per unit starts to eat away at even the most profitable car lines. As the sale decline continues the company can be overwhelmed with red ink.

Inside GM the car divisions were profit drivers. Virtually all cash generated within GM was associated with sales of cars and trucks. While some individual product lines were marginally profitable, those product lines helped spread the enormous overhead cost.

Forcing each carline to be profitable also limited the car division’s opportunity to offer competitive products to counter the ever increasing number of imports, particularly from Asia.  The goal of the imports was to gain market share and many modals very attractively priced.  The Asian companies took a much longer view and were willing to subsidize certain models sold in the US with profits from carlines sold elsewhere.

Smith’s time horizon was much shorter and the emphasis on profit per car/truck, rather than overall profit, had a devastating effect. For reference, think about a grocery store. In order to attract people to shop, the store has “loss leaders.” If the store stops offering such loss leaders, what happens? Profit margins might increase but overall profit will likely decrease as people begin to shop elsewhere. And this is what happened to General Motors in the 1980’s under Smith’s strategy of emphasis on profit-per-car/truck rather than sales. People stopped coming in GM dealerships and started shopping elsewhere.

How bad was the strategy? Over the decade of the 1980’s GM market share of all cars/light-trucks sold in the US declined from roughly 45% to 35% — a relative decline of about 25%. What did that mean in terms of unit sales? During the 1980’s, the US averaged about 13-15 million cars and light-duty trucks per year. The 10 points lost by GM (45% to 35%) equated to sales of 1.3-1.5 million cars and trucks per year.

What did that mean for employment? 1.3-1.5 million cars and trucks per year equates to roughly five (5) assembly plants. Thus, Smith’s strategy resulted in unemployment for everyone who worked at those five assembly plants and unemployment for thousands more at GM suppliers. In addition GM made huge cuts in white-collar staff. (Yes, I understand there is another discussion that needs to take place about which auto companies gained share that GM lost. However, that conversation is not relevant to the dynamics inside GM that affected the EV1 program.)

Did GM profit improve under Smith’s strategy? In terms of earnings, if each car averaged say $2,000 variable profit (a reasonable estimate), then GM lost market share during the 1980’s reduced potential GM earnings over the 10-year period by at least $15-$20 billion. (Roughly $30-$40 billion in $2019.) In addition, GM profit margin declined as did overall profits. If you were the teacher grading Smith’s performance, a grade of “D-“would be extremely generous.

In addition to a strategy that generated lower profits and less cash, Smith directed GM to purchase Hughes Electronics, to purchase Electronic Data Systems (EDS) and to start the Saturn division. Where did the cash come from for these ventures? Funds from an ever smaller piggy bank that should have been allocated to help car and truck divisions maintain competitiveness were instead diverted to Smith’s various projects. As such, the divisions — Chevrolet, Buick and others — had even less money to update new products and less money for marketing. Of the GM car and truck divisions, only Buick managed to maintain market share during Smith’s reign.

The purchase of EDS created another problem. With the purchase of EDS, Ross Perot became GM’s largest single shareholder. Perot asked many thorny questions during the GM board meetings which irritated Smith. Perot irritated Smith so much he ordered GM to buy back all of Perot’s stock — for $750,000,000. (About $1.5 billion $2019.)

Where did the $750 million cash come from to repurchase Perot’s stock? Again, funds diverted from the car divisions that should have been used for product development and marketing.

Another major diversion of cash went to the creation of Saturn division. Smith created Saturn because he believed the existing car divisions were incapable of attracting younger buyers. Smith’s attitude angered many senior executives at the car divisions.

To make a bad situation worse, Smith insisted Saturn should be set up as a completely separate car company, even to the point where Saturn had a separate foundry to cast engine blocks. Such vertical integration was ridiculous. No one, and I mean no one, cares which supplier casts a particular engine block as long as it meets quality standards.

In addition to diverting funds to set up Saturn as an operating unit, Saturn never made money. The longer Saturn stayed in business the more the other car/truck divisions suffered as funds were diverted from product development and marketing programs to prop up Saturn. (Although not a topic of this set of entries, Smith’s negative impact on GM did not stop when he left office. The decline in GM share became almost impossible to stop because the product competitiveness of the divisions had fallen so far behind. In my view, GM’s eventual bankruptcy should be attributed directly to Smith.)

Hope you’re beginning to get an understanding of frustration among executives at the car and truck divisions. Hard to believe, I know, but there’s more background we need to cover. You mean like why Smith cast aside the organizational structure that had made GM hugely profitable for decades? Yes. And when the reorganization happened Alfred P. Sloan likely rolled over in his grave…and rightfully so. Time to pause for now.

 

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#338 The Human Toll of the Coming Technology Tsunami – Example, Lordstown, OH Plant

01 Saturday Jun 2019

Posted by in Causes of the Revolution, Education Issues, Societal Issues, Tech Tsunami

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Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution, a list of earlier revolutions and the author, Entry #1.

Periodically I write a “sense check” to assess whether in the next few years, a revolution in the US is still possible or whether the entire exercise is based on a statistical aberration — i.e., a roughly 50-year cycle between major upheavals in the US.  With all that’s happened lately in Washington, I wrote a special sense check, Entry #332.  

One of the contributing factors to the Revenge Revolution will be a technology tsunami, which I believe is rapidly headed toward US shores.  Fifteen recent entries addressed various aspects how the tech tsunami might: (i) affect the US economy and family incomes; (ii) be mitigated by taking certain actions.  The series of entries is available as an eBook. This entry is an supplement to the booklet and now included with the booklet.  (Download: 19 06 01 Tech Tsunami Booklet with Supplement)

The impact of the technology tsunami can easily be viewed as an abstract concept, especially if one is not affected directly. For example, you read an article about technology replacing someone’s job. Then the person replaced finds another job, which is fairly easy in today’s labor market. Reader thinks, “What’s the net effect on the person whose original job was replaced by technology? Zero. What’s the net effect on the unemployment rate? Zero. Time to move on to the next article.”

But, hold on, there’s more to this story. What prompted this blog entry was an article in the New York Times about a family whose members had worked at the GM Lordstown, OH plant almost from the opening day of the facility.

The Lordstown plant was built in the mid-1960s, but over the years GM continued to invest and upgrade the facility. What resulted from investments in Lordstown and other plants throughout North America was increased potential capacity with lower labor content per car/truck produced. Thus, more output with fewer employees. (As I wrote in late 2018, although I had no first-hand information, based on my experience inside GM, closing Lordstown, and other plants in North America, seemed justified.)

What happens to workers when a GM plant closes? Depending upon an individual’s seniority and the number of jobs available at other facilities, some laid-off employees might be eligible to transfer to another GM plant. Some laid-off workers at Lordstown met the criteria and have transferred.

What about workers who aren’t eligible to transfer or who don’t want to transfer, which often involves relocation? Some training is available for other types of jobs, which are usually non-automotive and often at lower pay. In addition, some laid-off workers, again depending upon seniority, receive from GM supplemental unemployment benefits for a limited period.

Back to the family featured in the NYT article. If you haven’t read the article, it’s worth a read. (19 05 28 NYT Lordstown Shutdown Employee Impact Examples ) The short version is the father gets out of the military, goes to work at the Lordstown plant soon after it opens. Over time the father becomes a representative of the union. The son, born after the father starts at Lordstown, doesn’t study much in school but is confident he will get a job at the plant, primarily because of his father‘s position with the union.

After completing high school, the son is hired and one of his jobs is prepping cars before final painting. Painting is an areas where the auto industry has installed as much technology as possible over the years to improve the quality and consistency of the finish. The implementation of technology in the paint shop has dramatically reduced employment. At Lordstown plant the number of employees declined from 38 to 4, a decrease of almost 90%. While the decrease in employment in the paint shop is at the high-end, substantial declines in employment from technology have affected body welding, engine machining and other high-precision areas with high labor content.

At the time of closing, the son had worked at Lordstown for 25 years. While no specific age was cited in the article, the son is probably in his mid to late 40s. With his years of service, he’ll be eligible for a modest pension from GM. However, he has at least 20-25 years left before being eligible for Social Security and Medicare.

Where does the son find another middle-class paying job given his limited education and skill level? Another job in the auto industry unless he relocates to another GM plant. Even if he finds an auto job, he runs a high risk of losing it given the continuous implementation of labor-saving technology by the auto companies and suppliers.

The extent of how many jobs in the auto industries (and other industries) are being eliminated by technology goes far beyond the assembly plant, which most people think of. In an earlier blog entry I mentioned an auto supplier in Fort Wayne, IN that bends tubing to make exhaust systems for cars and trucks for many auto OEM’s. If you don’t think there are lots of twists and turns in your vehicle’s exhaust system, next time you see a car or truck up on a service rack, go take a look underneath.

The process of bending tubing might seem straightforward (no pun intended) until one thinks about what happens when a tube is bent. The metal on the “outside” of the bend becomes thinner and the metal on the “inside” of the bend wants to “crinkle.” Bending tubing can be much more complicated than it first appears.

The company that bends the tubes is a perfect example of the impact on employment of the coming technology tsunami. The company incorporates an extraordinary amount of high technology, with a plethora of very sophisticated machines…and very few people staffing those machines. The parking lot of the company is the tell-tale sign of the technology tsunami. The company operates 24×7 with significant daily output, yet has a small parking lot that even during the day when office staff is working, has plenty of empty parking spaces for visitors.

Is this just a story about how one family was affected by a GM plant closing or are there broader implications? If the attitude of the now unemployed son is at all representative, then US society has a growing problem. While the son apparently has not yet come to grips with the long-term implications of the layoff, he is searching for answers to “Why is this happening to me?” “Why, after 25 years of working at this facility, am I getting screwed?”

He’s very frustrated and believes that people in Washington “just don’t get it.” The frustration includes Trump, whom he voted for in 2016, and members of both parties. He’s also frustrated with large corporations, which he thinks suffer no penalty for shuttering plants and relocating operations to say Mexico.

The frustration and anger of the son is understandable. While from a business perspective I think GM is more than justified in closing the Lordstown plant, especially given some of labor problems over the years, the business justification does not eliminate the economic and social issues facing the laid-off workers.

We, as I keep suggesting is the proverbial societal we, need to help this family transition from pissed-off members of society to being productive workers in an ever-increasing technology-laden workplace. As it stands now, even with a small pension and some additional benefits, the son is the kind of guy who is ripe to be part of a Revenge Revolution. For those not familiar with northern Ohio, almost guaranteed he’s got a deer rifle or two and a bunch of ammo. Now, he’s out of a job, has shrinking income, thinks politicians don’t understand the problem, and thinks large corporations are exploiting people and communities. Not a good combination.  (The son is much like the character “Sandy” who appears periodically in the blog entries.)

Without some serious societal effort, the ranks of this group are going to grow. Making America great again does not involve trying to reintroduce high-labor content products or industries from decades past. The implementation of technology to replace humans is going to continue. All types of jobs and skill levels will be affected, from manufacturing to legal to medical. Without a national plan to begin lifetime education for people of all ages, from 6 to 66 (and older), the US is going to face a growing segment of the population which is extremely angry and poses a growing threat to a stable democracy.

Reminder: For more about how the technology tsunami might affect the US economy and culture, and ideas to help mitigate the effects, there’s a free ebook waiting for your download. The book is a compilation of this entry and 15 earlier blog entries about the technology tsunami. Comments welcome. (Download, 19 06 01 Tech Tsunami Booklet with Supplement)

#335 Curiouser and Curiouser

13 Monday May 2019

Posted by in Causes of the Revolution, Economics, Education Issues, Societal Issues

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Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution, a list of earlier revolutions and the author, Entry #1. 

Periodically I write a “sense check” to assess whether in the next few years, a revolution in the US is still possible or whether the entire exercise is based on a statistical aberration — i.e., a roughly 50-year cycle between major upheavals in the US.  With all that’s happened lately in Washington, I wrote a special sense check, Entry #332.

Have we, societal we, fallen down the rabbit hole? Have we lost our sense of direction? Have we lost our moral compass?

Over the last couple of months, most entries in this blog have focused on what I’ve characterized (as have others) as the coming technology tsunami. The entries describe the possible significant negative effect on the US economy of the tech tsunami and proposed solutions, the centerpiece of those solutions being more education. Education, however, not just for those currently in school but education for all age groups, even those in their 60’s. Education efforts would also include those who are, or have been unable to learn when taught using more traditional methods.

Many ideas suggested in the blog entries are not new. What’s changed is the urgency created by the oncoming technology tsunami. Like climate change, waiting until the impact is obvious to most everyone is too late. At that point the game for the US economy will be over. The fat lady will have sung…and done an encore. For the doubters, the tech tsunami is not some abstract idea or a tsunami that’s far-off shore. The water at the shoreline has started to recede and the need to take action is now.

Others share this view. Others also share the view that different approaches to education need to be tried. I was heartened by an article in the 05/12/19 New York Times  (19 05 12 NYT Teaching Math Like Football) suggesting math teachers should approach the classroom more like a football coach in the locker room. Hear, hear! Great idea. In grammar school and high-school, I was lucky enough to have a couple of “football-coach” math teachers. They challenged each student and tried to make learning math fun. The football-coach approach could be helpful to many students who do not “get math” taught using traditional approaches.

OK, what about a topic for this entry? When thinking about what to write, what kept running through my head was a simple question, “Why do educated people keep supporting a president whose actions, by US law, are clearly criminal (obstruction of justice and tax evasion are just two) and possibly treasonous?” “How can rational people overlook, let alone support such behavior?” (He even cheats at golf!)

And, the behavior is not sporadic. It’s a continuous stream. What is the latest from the Trumpland? Asking Rudy Giuliani, Trump’s personal lawyer, to go to the Ukraine and ask the Ukrainian president to try to dig up dirt on a family member of a candidate for Democratic nominee for president. Duh, Republican folks, that’s Trump asking yet another foreign country to meddle in a US election. When are Republicans going to wake up and realize where Trump’s allegiance lies? If you don’t know where to start looking, try his bank account.

Trump does not care about any Republicans, let alone members of the hardcore base. Let me repeat Trump does not care about any Republicans, let alone members of the hardcore base.

If you don’t believe me, then what about those tariffs on Chinese exports? Do you believe Trump’s tweets that the Chinese will pay the tab? Even Trump’s economic advisor won’t buy that outrageous claim. No, the tariffs per se might go to the Treasury but the prices of Chinese goods sold in the US will increase by the amount of the tariffs…and possibly more. And, yes, you get to pay for the tariff. Yet another economics class Trump skipped while in college.

“Hold on,” you say, “Chinese jobs making all those goods will come back to America. Trump is actually creating jobs. Trump is saving America! Wake up liberals.”

Okay, a few jobs might come back, but only a few. But how many more other jobs will be lost with China’s retaliatory tariffs on American exports (imports to the Chinese).

But then you say, “Didn’t Trump save thousands of jobs when he negotiated to have GM sell the Lordstown, OH plant to that other company? You know that Workhorse company?” Sorry to inform you, the answer again is “no.” Workhorse buying the Lordstown assembly plant (not a done deal as of this entry’s publication) created no net new jobs. Workhorse was merely looking for a facility to assemble a proposed electric-powered truck.

And the list of misconceptions, misunderstanding, sheer blindness by Republicans continues on and on and on. Even the Energizer Bunny is starting to get tired. The lack of a modicum of thinking by Republicans makes their behavior curiouser and curiouser. What’s the value to Republicans of supporting Trump? Trump’s in the White House for cash. What do Republicans get out of the deal?

When I hear a Republican gloat about supporting Trump, I ask a very simple question. ”Assume all the same policies, economic conditions, cabinet appointments, relationships with foreign countries, tweets, known lies, etc. Now assume Trump is not a Republican but a Democrat. Would you still be supporting Trump and/or be opposed to the investigation by the various committees in the House?” Count how many current Trump supporters say “Yes they would continue to support Trump if he were a Democrat.” If you can count more than a handful, let me know.

To be fair, you should ask some Democrats the same question. “Assume all the same policies, economic conditions, etc., would you still be so anti-Trump?” My guess is a much greater percentage of Democrats would continue to be anti-Trump and especially support the investigations in the House of Representatives.

So why do Republicans support Trump when so many of his policies are reversals of long-held Republican positions? Why have Republicans let Trump hijack their brain? As noted in several earlier blog entries, it seems that many Republicans have been brainwashed.

How can such a large group be brainwashed? If there’s one thing Trump is very good at doing, its manipulating people. Especially vulnerable are those with limited inner strength. Helping Trump with the brainwashing are the Republican talking heads – Limbaugh and Hannity in particular – who fill their air time not with questions and a discussion of possible solutions, but fill their air time with declarative statements of suggested attitudes and behavior. Kim Jung-un probably listens to “Fox News” for ideas how to brainwash North Korean citizens more effectively.

Other recent truly bizarre actions by Trump include declaring that executive privilege can apply retroactively to virtually any discussion of any action taken by anyone in the Trump Administration. Huh? Trump has also told Administration officials to ignore the law. And where are the voices of the righteous Constitutionalists Republican Senators? Save one or two, Republican Senators have contracted laryngitis while also sucking up to Trump.

The willingness to support a rogue and lawless president rather than the Constitution leaves me with only one conclusion. There needs to be a Revenge Revolution in the US in order to rid the country of the Trump cancer and bring the Republicans back to their senses. Let’s hope the 2020 election can accomplish the same thing but I’m not as hopeful.

One might not like the actions or style of certain Democratic leader, or proposed policies of certain Democrat candidates for president. Those disagreements are understandable and part of a democracy. What is not understandable is why Republicans are blaming Democrats for trying to uphold their obligations under the Constitution by investigating criminal behavior and possibly treason of the president, members of the president’s family, members/former cabinet members and people associated with the 2016 campaign.

Just in case you, and maybe Republicans in the Senate, need a reminder of the words contained in the oath for members of the House and Senate, “I do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I take this obligation freely, without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter: So help me God.” (I can’t find where the oath mandates allegiance to the president, can you?)

#334 Could a Change in Semantics Break the Ideologue Logjam? More about Cost of Preparing for the Tech Tsunami.

05 Sunday May 2019

Posted by in Economics, Education Issues, Gov't Policy, Societal Issues, Tech Tsunami

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Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution, a list of earlier revolutions and the author, Entry #1. 

Periodically I write a “sense check” to assess whether in the next few years, a revolution in the US is still possible or whether the entire exercise is based on a statistical aberration — i.e., a roughly 50-year cycle between major upheavals in the US.  With all that’s happened lately in Washington, I wrote a special sense check, Entry #332.

This week’s Entry continues the series about preparing for the upcoming “technology tsunami” that will have a major impact on the US economy.  The series starts Entry #319. 

Arguments against society-wide programs – healthcare, education, climate change – claim that such programs are too expensive. Taxpayers cannot afford these programs.

There is a kernel of truth to that claim. Such programs have considerable start-up costs and the payback is often a few years out. Sometimes the payback is a decade or two later.

Of course, the idea of having delayed payback does not apply when the same “too expensive” group decides to make business or personal Investments. Nor does the logic apply when this group is evaluating the performance of coaches for favorite college or professional sports teams. Why coaches? Surely everyone knows it takes time to build a solid sports team. Give the coach at least five years to perform and demonstrate his or her worth.

More seriously, the question is, “Is society willing to take the risk of not investing in programs that will have a sustained, if delayed, return on investment? As an example of a similar personal-level decision is whether to delay needed maintenance on your house or car. Delaying can result in some immediate cash savings. However, the decision to delay is a two-edge sword. The repairs are needed and by waiting the severity and cost of repairs likely will be much higher. While delaying maintenance may seem to be a savings in the short-term, the decision to delay is not really savings at all, but additional cost. To paraphrase an old TV commercial, pay me now or pay me more later.

How does “pay me now or pay me more later” apply to the education of people who will be displaced by the technology tsunami? Let’s say the cost of educating those displaced averages $25,000 per person, roughly equal to 2 years cost of tuition, books and fees at a community college and even some state universities. In addition to the cost of education, let’s assume those being retrained receive a salary of about $50,000 per year. For the two years, the total cost for retraining would be about $125,000 per person.

The $125,000 cost per person seems extraordinarily high until one calculates the cost of not retraining. What is the cost not to retrain?

Assume the median age of the person being retrained is 45 years old, which means the person has 20 to 25 years left before retirement. Without retraining for the post technology-tsunami world, the person may be unemployable, and therefore, receive assistance for the next 25 years of his or her working career. In addition, the person would receive some form of assistance for another 10 to 15 years after reaching retirement age. Total time not working and receiving assistance…and not paying taxes? A total of 35-40 years.

If the person receives just $10,000 per year assistance, which is on the very low side, the cost of assistance for a person previously employed but now displaced, would be at least $400,000. Thus, the cost of not retraining is more than 3x the cost of 2-year training – tuition, fees, books and salary of $50,000 per year. Oops, we’re not finished. The person on assistance and not employed, would also not pay income taxes as well no withholding for FICA and no withholding for Medicare.

So which is smarter? Pay now to retrain the person displaced by the technology tsunami or pay more than 3x as much later (constant dollars) to have the person on assistance his or her entire life and never again paying income taxes or contributing to the cost of Social Security or Medicare?

The ROI to retrain workers is positive for workers in their 50’s and even early 60’s when all the costs are included. In addition to society saving money by retraining workers, having an employed workforce with more disposable income will increase consumer consumption, increase overall GDP and with some tweaks, to the tax structure, increase family wealth.

Despite the obvious benefits, for some reason “return on investment” does not yet seem to be part of most discussions about broad social programs, whether the discussion in Washington or in many state capitals. I am always personally baffled why Republicans focus on immediate cost and ignore “return on investment” logic for social programs, yet use the very same ROI logic for personal and/or business investment decisions. Guys, voters are not completely stupid. ROI is a concept that voters can understand.

To break the ideologue logjam, maybe such programs need to be positioned with Republicans as “business Investments” and not “social programs.” To mollify Republican critics of these programs, maybe recipients of the proposed technology-tsunami education program should be required to pay a minimum tax of say 1.0% of gross income per year for up to 10 years following completion of the retraining. The minimum tax would allow Republicans to claim assistance recipients have some “skin in the game.”

Democrats would do well to position technology-tsunami retraining, the Green New Deal, Medicare for all and other ideas, not as social programs, and especially not as “socialist programs,” but position as Investments that will help increase US GDP. Democrats should also agree that every wage-earner has to pay some income tax, even if it’s only $100 per year.

Some of the changes in positioning should be considered more semantic than substantive. However, the changes could allow Republicans and Democrats to claim some type of victory and begin to work more closely together. The changes would also thwart some of the statements by conservative talking heads implying that about half the population pays no tax. These talking heads only state “income tax” and make no mention of people paying sales tax, property taxes, fees and many other related taxes. (FYI, the percentage is remarkably flat by quartile of income paid for all types of taxes.)

Will the rhetoric change and Republicans and Democrats begin working together soon – at least agree to retrain workers to be displaced by the technology tsunami? Maybe start working together before the Revenge Revolution? As long as Trump is controlling the Republican Party, there is no hope. Republicans have demonstrated repeatedly a willingness to prostitute themselves for whatever the Donald demands, however contrary those demands are to long-held Republican principles.

Democrats, however, have a great opportunity for 2020 to begin repositioning arguments that many so-called “socialist programs” are really business Investments with positive ROI.

Should we be hopeful? Let’s see what happens. Stay tuned.

 

 

#333 Preparing for the Technology Tsunami: On-Going Education (12th in Series)

28 Sunday Apr 2019

Posted by in Economics, Education Issues, Societal Issues, Tech Tsunami

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Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution, a list of earlier revolutions and the author, Entry #1. 

Periodically I write a “sense check” to assess whether in the next few years, a revolution in the US is still possible or whether the entire exercise is based on a statistical aberration — i.e., a roughly 50-year cycle between major upheavals in the US.  With all that’s happened lately in Washington, I wrote a special sense check, Entry #332.

This week’s Entry continues the series about preparing for the upcoming “technology tsunami” that will have a major impact on the US economy.  The series starts Entry #319. 

The need for on-going education and training of workers is nothing new. Who’s been responsible in the past for such training? Until about the mid-1990’s or early 2000’s, the employing organization seemed to be the principal source of on-going training.

In some cases, employee training was done on the organization’s premises; in other cases, employees were encouraged to attend classes outside. Expenses for such classes usually were reimbursed by the organization. Based on my experience, mostly in manufacturing-based companies, the training seemed to focus on procedures and systems unique to that company.

What has changed within the companies in the last 20-25 years is how machines and support equipment operate. There is ever-growing integration of software programs to help manage all aspects of machine operation, movement of material and the flow of information.

While some features of the software programs might be unique to the organization, the fundamental components of a given software program, or suite of programs, are the same. Understanding the fundamentals of software programs has created two classes of workers:

  1. A group, generally younger, who are now more mobile. Because these workers understand the fundamentals of software, they can carry that knowledge to another organization and not face as steep learning curve, thereby contributing more quickly than workers in the past;
  2. A group, generally older, who were trained in the organization’s approach before many software programs were integrated into daily operations. These workers become far less mobile and, despite their experience, less valuable to the existing organization. The “reduced-value” phenomenon applies to both blue-collar and white-collar workers. Unfortunately, some of these “reduced-value” workers have 25 to 30 years remaining before retirement. This group will be the most negatively affected by the technology tsunami.

What does society do with existing “reduced-value” workers…and ideally implement plans to minimize the number of such workers in the future? Back to school! But, can you really teach an old dog, or a middle-age dog, new tricks?

The stumbling block for many of these workers seems to be never having learned basic math. While one does not need to know calculus to understand how to use computer programs effectively, one does need to know basic algebra. Programs are basically built are conditional statements – if A, then B, etc. Understanding the approach applies not only to Excel-type programs but word-processing programs as well.

What about people who just don’t “get” math, even basic addition and subtraction taught in grammar school? Obviously, not everyone learns the same way and not everyone is skilled at every subject. However, my guess is at least half the people who claim “not to get math” would “get it” if math were taught in a way more understandable to them.

Without having completed any formal research, I’ll bet there are at least three approaches used to teaching math. And one of those approaches probably will work on most people. So, for the “I-don’t-get-math” group, let’s take away the stigma of not understanding the traditional approach to teaching math, and try using the other approaches. Just visualize the smiles on faces when “I-don’t-get-math” students move to the “I-get-math” category.

Will all these students become math wizards? No, but once the basics are understood, we…societal we…might be shocked at how many in this group progress to basic algebra, and beyond.

What about people who despite different approaches to teaching, never “get” math? How do we prepare them for the tech tsunami? Or, what if someone just doesn’t want to learn?

A certain percentage of people won’t learn, and the consequences are the same whether one is unable to learn or chooses not to learn. The consequences in all likelihood will be a lower-paying service-type job. For those who try, but can’t learn, unfortunately the consequence are the same.

Any time society has been disrupted by technology — printing presses replacing scribes, machinery replacing farm hands, robots replacing assembly workers…and other examples – some people are left behind economically. While a society-funded safety net can provide some assistance, a large percentage of people in this category will fall several rungs on the economic ladder.

OK, you say, I’ll buy the argument that we should be training more workers for the tech tsunami. But who should pay for the training, much of which seems to be remedial? Why should taxpayers pay for the bill and let the companies off the hook? Shouldn’t companies that are laying off workers have an obligation to retrain these workers?

If one looks at other countries for guidance, many industrialized countries, especially in Europe, have laws that penalize, or even prevent companies from relocating or arbitrarily dismissing employees. The US has no such laws. As a result, companies are not penalized for relocating and leaving behind infrastructure installed specifically to help the company and/or leaving behind a loyal workforce with some skills that need updating.

In many states, North Carolina and South Carolina are but two examples, “economic development” is defined primarily as enticing other companies to relocate operations from the Midwest or Northeast to North Carolina or South Carolina. Incentives thrown at companies to relocate border on the ridiculous, but almost always include taxpayer-funded training for employees.

Yet the same “economic development” efforts often ignore, or even discourage, albeit possibly inadvertently, entrepreneurs from starting companies or offering no meaningful incentives to smaller company businesses trying to expand. If any incentives are offered to entrepreneurs, the “incentives” often consist of an “opportunity” to locate in some rehabbed building at a lower rent. While the reduced rent is nice public-relations strategy for politicians, most start-up businesses are starved for capital and capable key executives.

In the near-term, laws preventing companies from relocating and/or laws preventing states or cities from offering incentives for relocation are not likely to be implemented. Even if passed, there likely would be a drawn-out court challenge. A more effective approach to encourage existing companies to stay put might be to help the company analyze costs and determine if updating skills of employees and implementing other cost-reduction systems might be more effective than relocating, especially relocating operations outside the US.

Encouraging companies to stay put and retrain workers gain momentum in the next few years, especially as the technology tsunami becomes more apparent. While the US 2020 presidential election is 18 months away, many Democratic candidates seem to be discussing how to help rebuild the American middle class by leveraging new technology rather than the Trump approach of propping up industries on the decline – coal, e.g.

Programs to help update skills of existing workers could be very “hands-on,” akin to how many infrastructure projects were initiated in the 1930’s under New Deal WPA. Such national WPA-like programs are even more likely after the technology tsunami hits and/or after the country experiences the Revenge Revolution.

Programs to help mitigate the technology tsunami, programs to implement the evolving Green New Deal and other such ideas present a great opportunity for the US to create sustained economic growth. Sustained economic growth, however, can only be achieved with a high labor-force participation rate…and a high participation rate in a technology-tsunami world can be achieved only with an educated workforce.

 

#331 Solution to Diversity? Economics, Not Gov’t Intervention.

14 Sunday Apr 2019

Posted by in Common Sense Policies, Education Issues, Gov't Policy, Tech Tsunami

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Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution and author, How the 5th US Revolution Begins and About the Author.  Occasionally I do a “sense check” about the likelihood of a Revenge Revolution.  Entry #318 is the most recent “sense check.”  One more note — sometimes I write about another topic that does not quite fit the theme of the blog.  Those comments are available on the page titled “JRD Thoughts and Comments.” 

Entry #319 begins a series describing the coming technology tsunami (#319), and how the US should prepare.  Last week’s Entry #330, outlined reasons why diversity will be important to prepare for…and then capitalize on…the coming technology tsunami. The entry also noted that some conventional ways of creating diversity — school busing, for example — are fraught with problems and have significant potential downsides.

Diversity seems best accomplished on its own. Our neighbors, within a stone’s throw or two, include families from at least four countries. Within this group, there are at least five religions. All that in a suburban environment.

How did such diversity occur? With government intervention? With housing subsidies? “No” to both questions. The diversity evolved from economics…and attitude.

Granted our neighborhood is a bit more affluent than most but affluence may result in less, rather than more diversity. In Entry #330, I described observations from a 5-day visit to a well-known retirement community in Florida. When leaving the community, my wife and I both remarked we had seen no blacks, no Hispanics — yes, this was Florida — one Asian, and no one from the Middle East. We also both commented while we had a lovely time visiting our friends, we wouldn’t want to live there.

So what strategy can help stimulate diversity? Throughout the technology tsunami series I’ve stressed education as a key. Education opens the mind to new ideas, both academic and societal. And for the vast majority of people, education also provides a chance to improve economic status.

Education for this discussion consists of four major stages, or chunks:

  1. Primary education — i.e., “readin’, writin’ and ‘rithmatic” — and some social skills
  2. Secondary education — middle school and high school
  3. University or Advanced Technical Training
  4. Continuing education – following initial employment and continuing throughout one’s career

For primary and secondary education, the public has consistently supported taxpayer funding. While some changes to the primary and secondary curriculum might be required for the technology tsunami, the key to preparing for the coming technology tsunami seems to lie in Stage 3 — College, Advanced Technical Training — and Stage 4 — on-going training once in the workforce.

Currently, only a small percentage of the population can afford securing a college degree or advanced technical training certificate without financial assistance. Even with scholarships or reduced tuition, many students need loans. Terms of these loans are often onerous, saddling graduates with years of debt, which in turn reduce their opportunity to save for buying a house and/or to start saving for their children’s education. (For more about the problems with people paying off loans, or thinking they have paid off loans, see 19 04 13 Student Loan Repayment Issues and Problems)

Maybe the solution to the how-to-finance-advanced-education conundrum is easier than we think. Why not take the same approach to financing education that seems to work well for medical coverage in all industrialized countries…other than the US (so far). Allow students to attend a home-state university at little or no charge for a specified period — say five (5) years. Extend the no-charge time period if a student works.

Like universal health care, offer a “private,” additional-cost option. Under this option, students could attend an out-of-state university or private college/university. Tuition and other costs would be set by the institution. The private institution could still offer financial aid to students.

Technical trade schools could have the same option. Attend state-run technical schools at no charge with the option to attend private-technical or trade schools.

Technical/trade schools would need to meet one hurdle not currently required — accreditation.  Accreditation would sharply reduce considerable fraud among private technical/trade schools — Trump University being but one example. The accreditation process would be similar to that used for academic institutions.

And please don’t view subjecting the trade/technical schools to accreditation as government overreach. Educational institutions need some form of regulation. A market-based system will not work because, by the time the student understands the school is not providing adequate education, the student has wasted several years and is saddled with significant debt.

What about people who do not want additional education or who are not mentally capable? We’re not living in Lake Woebegone where all students are above-average.

A portion of the student population will not pursue additional education and a percentage of those will not even graduate from high school. While some low-skill jobs likely will continue to exist, people in those jobs should earn a minimum wage that allows them to live above the poverty line.

Policies to address this lower-education group are separate from policies to prepare the US society for the coming technology tsunami. The goal of the “tsunami series” is to outline approaches that will increase significantly the percentage of the population that is skilled adequately to thrive in a technology-based economy.

What about the education outlined in Stage 4? Ongoing education seems to be in a black hole where: (i) there is no existing infrastructure supporting such education…and none planned; (ii) no one in state or Federal government seems to be responsible for on-going Abbott Costelloeducation; (iii) there is no coordinated effort by private industry and/or trade groups. Policies for on-going education seem to have evolved from the Abbott and Costello routine of “Who’s on First?” Just who’s in charge of continuing education?

Logically you’d think private companies would want to maintain an educated workforce. But because of lack of restrictions…or penalties…re relocation, many US companies operate as if they have no responsibility to spend money to provide continuing education to their workforce. When the workforce skills become dated, a company, with little or no penalty, can close shop and move to another location. The new location will be selected based on which state or city is offering the most incentives, including training the new workforce.

Taxpayers at both ends – the location where the company left and the new location – get stiffed while the company management and shareholders benefit. (For more about the impact of how companies can adversely affect a community, and not suffer any consequences, see Entry #86, “Is North Carolina a Stealin’ State?” and Entry #87. There are several other entries as well that address similar issues.)

As far as addressing the issues of ongoing education, that deserves a separate entry, which will be number #332.

Note: within hours of publishing this blog entry, received the 04/14/2019 edition of the Charlotte Observer.  A front-page article discussed whether eliminating certain zoning restrictions — banning single-family zoning, e.g. — would help stimulate diversity.  My short answer is “No.”  Tweaking of zoning regulations for single-families is different than wholesale banning, which is likely to have major negative consequences for attracting higher-income families to remain in the city limits.  Link to article, 19 04 14 CLT Observer re Zoning Changes for Diversity. 

#330 Is Diversity a Key Component of Preparing for the Technology Tsunami?

06 Saturday Apr 2019

Posted by in Common Sense Policies, Education Issues, Gov't Policy, Societal Issues, Tech Tsunami

≈ 1 Comment

Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution and author, How the 5th US Revolution Begins and About the Author.  Occasionally I do a “sense check” about the likelihood of a Revenge Revolution.  Entry #318 is the most recent “sense check.”  One more note — sometimes I write about another topic that does not quite fit the theme of the blog.  Those comments are available on the page titled “JRD Thoughts and Comments.” 

Entry #319 begins a series describing the coming technology tsunami (#319), and how the US should prepare.  Part of the preparation is understanding and appreciating other countries and cultures. How do people in other countries/cultures think, behave, and interact with others? Developing this understanding will help prepare the United States for how to respond when other countries attempt to use technology against us in the future.

As technology has evolved from sailing ships to ocean liners to airplanes to communications via satellite, the world has become smaller. Earlier this week, I was reminded how small the world has become with advances in technology. A chain of communications started when I emailed a business colleague, congratulating her on more than 20 years operating a consulting firm.

Her response, which I received the next morning, thanked me for the note…and also indicated she was responding from a hut in the middle of the Amazon rainforest. A couple of back-and-forth emails explained she had access to some solar power and a slow-speed satellite link. The link was fast enough to allow sending a picture of a rather large tarantula meandering on the deck surrounding her hut.

While my business colleague was experiencing diversity in the Amazon rainforest by working with indigenous people, what about experiencing diversity at home – in the city where you live? In your neighborhood? And does experiencing diversity even matter? Well, yes, I think diversity does matter if the US is to develop an effective strategy to capitalize on the coming technology tsunami rather than being overwhelmed by the technology tsunami.

A key component of preparing for the technology tsunami is education…and education for all age cohorts. Part of that education includes learning about and really understanding other cultures. Ideally that understanding is gained on the ground in the local country. Unlike my business colleague, few families, however, can afford to travel worldwide and experience these cultures firsthand. What’s an alternative? A great way to start is trying to understand cultures in your immediate locale. Most urban areas in the US have pockets of different ethnic groups and cultures.

What happens when your locale is not diverse? When everyone in your locale looks and speaks the same? Does the lack of diversity really matter? Homogeneity may be comforting but it runs the risk of stifling creativity. Homogeneity is also a breeding ground for “group think.” Make no mistake, overcoming the threats of technology tsunami will require significant creativity.

Recently my wife and I visited some longtime friends who moved to a well-known retirement community in Florida. Their house is lovely, and in the larger community the grounds well-maintained and almost every shopping need and service is nearby. Our host jokingly referred to the development as a “reservation.” He also noted liking to stay on the reservation and avoiding the real world, which he considered not always pleasant.

Another friend, whom we met for coffee, had lived and worked on the “reservation” but later moved to a nearby location. He noted how virtually every aspect of life in the retirement community was managed, including hiring doctors in the clinics who fit a “Marcus Welby” profile.

During our stay, which included golf, multiple restaurants, shopping and extensive travel by golf cart, neither of us saw any blacks, Hispanics or members of virtually any non-western European ethnic group. Only one member of a golf group that I was in, which included several foursomes, was Asian.

So, back to the question – “Does diversity really matter in preparing for the technology tsunami?” Does living in a sanitized bubble really matter, especially for people who are retired? Do the retirees really care about the coming technology tsunami? And does the rest of society care what retirees think?

My vote – living in a sanitized bubble is not good for society, even for retirees. Most retirees living in the bubble have children and grandchildren. Why Gramps may be technology challenged and/or a curmudgeon, Gramps still has some influence on the grandchildren. And Gramps still votes. And we know Gramps mostly watches Fox News, which seemed to be the channel of choice virtually everywhere we went on the reservation.

The technology tsunami will be a major threat to Gramps children and grandchildren. Without an effective US response, sustained economic growth will become nearly impossible. To create an economy that can capitalize on the technology tsunami…and not be overrun by it…will require a range of thinking from people of different cultures.

If you don’t believe diversity and creativity are linked, take a look at the mix of faculty and students at say the Media Lab at MIT. Then take a close look at the range of highly innovative ideas and products emerging from the lab. Living in a bubble, whether physically or politically, lessens the opportunity for creative thinking.

Diversity can be accomplished a number of different ways. Ideally, diversity evolves on its own without any intervention. For example, in the eight houses in our neighborhood that I pass on the way to get coffee, there are families from at least four countries. And the eight houses include families practicing at least five different religions. An even more diverse population exists in the apartments that I pass closer to the coffee shop. That cultural/religious mix happened on its own.

Forcing such a diverse mix is problematic and smacks of too much government intervention. However we…societal we…can Implement policies that encourage more diversity….and we can also prohibit policies that intentionally discourage diversity.

What about policies that encourage diversity in schools? How should diversity in schools accomplished? A seemingly obvious solution is busing. While busing might make create a diverse classroom, busing has many negatives, including excessive cost and excessive travel time for many students. Another downside of busing not often discussed is the risk that businesses may decide not to locate in a school district where busing is mandated. The longer-term effect of not attracting businesses and staff is a lower tax base and slower economic growth for the school district.

A policy that discourages diversity is charter schools. North Carolina is an example of this strategy, although not necessarily representative of all states with charter schools.

In North Carolina, charter schools: (i) receive taxpayer funding; (ii) select students, although the charter schools claim admission is open to all who “qualify”; (iii) are not subject to the same rules and/or oversight as public schools. Recently, the North Carolina legislature passed a law requiring all teachers in North Carolina to secure a North Carolina license. Teachers licensed to teach in other states still need to pass the North Carolina test because the test in another state “might not be as rigorous” as in North Carolina. All teachers…oops all teachers except those in charter schools…are subject to the license requirement. Thus, any teacher relocating to North Carolina is effectively incentivized to avoid the hassle of getting a NC teachers license required for a public school and instead, teach at a charter school. In addition to not needing a license, teacher pay at a charter school is not subject to the same guidelines as at a public school.

The continued negative policies of the North Carolina legislature to erode the value of public education is one of the reasons I wrote blog Entries #324 and #325, which outline why banning charter schools is a necessary component of preparing for the technology tsunami. Still, banning charter schools still does not solve the diversity issue. And busing kids to create diversity has too far many negatives.

What’s the solution to more diversity in schools and society? Economics and attitude. More to come.

 

#329 College Admissions Scandal – a Different Perspective

23 Saturday Mar 2019

Posted by in Common Sense Policies, Education Issues, Societal Issues, Tech Tsunami

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Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution and author, How the 5th US Revolution Begins and About the Author.  Occasionally I do a “sense check” about the likelihood of a Revenge Revolution.  Entry #318 is the most recent “sense check.”  One more note — sometimes I write about another topic that does not quite fit the theme of the blog.  Those comments are available on the page titled “JRD Thoughts and Comments.” 

In the entry describing the coming technology tsunami (#319), I suggested a way for the US to help mitigate the impact of the inevitable tsunami was increasing support for public education. How does the college admissions process fit into the discussion of the US preparing for the coming technology tsunami?

The topic seems appropriate for two reasons: (i) as noted in several blog entries, the US needs to increase the percentage of students with either an advanced technical degree or a college degree; (ii) the public discourse about the college admissions process is missing a key component.  That overlooked component allows many students to attend certain higher-end academic institutions.

The rhetoric about the college admissions process ratcheted up in March 2019 with a number of articles published about parents using influence…and/or cash…to help their children get admitted to various colleges/universities. Some of these activities involved cash bribes and a few high-profile parents have been charged by the FBI.

After the FBI charges were made public, many media “talking heads,” pundits, not-so-privileged students and others claimed to be outraged by the activities of the parents. “Such practices are unfair!” “What about the students whose place in the college/university was taken by one of the privileged?” “The admission process needs to be based more on meritocracy!” Some further claimed the admissions process was racist.

Seriously folks? You’ve been living under a rock if you don’t think it’s a long-standing practice for parents to leverage connections and to “bribe” the administration to get children into prestigious schools. For decades, academic institutions have tweaked admissions standards for certain students. If parents were willing to say make a healthy donation to the school or there was a long history of family members attending the school, then students were often admitted under somewhat different standards.

I recall in my high-school days learning that the brother of a classmate that I’d known since the first days of grammar school had been admitted to a rather prestigious college. When I asked how, my classmate laughed and said “Simple, my dad paid for a new building.” Does anyone really think George W. Bush was admitted to Yale, then the Harvard Business School on his own merit? And, hmm, maybe the Donald falls in that same category.  Wonder why he insists his transcripts not be released?

However, what seems to be new in this story about privilege is the academic institution is getting cut out of benefitting from the bribe. Yale, for example, apparently was unaware their long-term soccer coach was on the take and willing to recruit for the team each year a couple of players who would not be admitted to Yale based on academic merit. If the coach only had given Yale part of the take.

What seems more prevalent than cash bribes, although the proactive is not new, is having someone other than the student take the SAT or ACT. What is new in the last decade or so is the parents claiming the student has some type of learning disability, which then allots more time to complete the test. While using “stand-ins” and claiming “learning disability” are unethical, such practices should be fairly easy to stop.

Some who are outraged at a few privileged students skirting the normal admissions process have also claimed that athletes granted scholarships did not skirt the rules because the scholarships were based on merit. Really? Merit for what? Playing basketball? Playing football?

Okay, the individuals might be gifted in a particular sport but how many of these athletes are gifted academically?  5.0%?  10.0% tops.  Last I looked, the primary role of a college or university was academics, not athletics. Colleges and universities are accredited based on academic standards, not the success of the football team or the basketball team.

Let’s see if I get understand how the athlete is admitted based on merit. A student is admitted to say Duke University under a scholarship to play basketball. The first semester the student does not attend class, fails all subjects and is put on academic probation. The terms of the probation state if the student’s GPA doesn’t improve in the second semester, he will be ineligible to play basketball, and might be subject to expulsion.

The student continues to play basketball through the second semester – and Duke hopes the NCAA tournament – but like the first semester fails all classes. The penalty? Even if the student-athlete is expelled, what does he care? His goal was never a college degree. His goal was to get drafted by an NBA team. The Duke coaching staff, the University’s administration and the student knew from day one he was going to be a “one-and-done.” But the student was admitted anyway.

So tell me how the “one-and-done” student-athlete was admitted to Duke based on merit? Merit to help the basketball team but not admitted based on academics. For those claiming such athletes are enrolled based on their merit, while other students are admitted based on privilege and not merit, please stop the hypocrisy.  (Want to read about a real-world example of the hypocrisy of one-and-done? 19 05 15 NYT NBA Draft and Rights to Duke Freshman)

A final thought, which no one seems to talk about…and to me is a critical component of the discussion. Admitting a limited number of students from very wealthy families is a benefit to all students at the institution. Why?.  Go back to my classmate whose parents donated a building as a trade for her brother’s admittance. Yes, it was a deal for the privileged. But from a broader perspective, for many years students at the college benefited from the cost of a building not being part of their tuition.

A question we should be asking is, “How many students who otherwise could not afford to attend an Ivy League or other top-line school have benefited from the wealthy contributing to the endowment of the college/university?” Maybe the students who are attending such schools only because of a scholarship should ask themselves, “Would I be able to afford to attend without subsidies from the institution’s endowment?” In almost all cases, the answer would be “no.” So for the not-so-privileged students, please swallow your pride and be grateful that someone is subsidizing your education.

Thus, from my perspective, the so-called “admissions scandal” for the privileged has two very different sides. First, no question that illegal bribes are out-of-bounds and should be prosecuted. However, those who claim using a back-door or side-door route to admission is unfair need to be careful about wanting to make the admissions process the same for everyone. Instead, take a deep breath, step back and be thankful for donors who help build buildings and who donate generously to the endowment that is allowing more students to attend a college or university they otherwise could not afford…and allowing the US to prepare more effectively for the on-coming technology tsunami.

#328 Public or For-Profit Educational Institution. Which More Cost Effective for Specialized Training?

17 Sunday Mar 2019

Posted by in Common Sense Policies, Education Issues, Tech Tsunami

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Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution and author, How the 5th US Revolution Begins and About the Author.  Occasionally I do a “sense check” about the likelihood of a Revenge Revolution.  Entry #318 is the most recent “sense check.”  One more note — sometimes I write about another topic that does not quite fit the theme of the blog.  Those comments are available on the page titled “JRD Thoughts and Comments.” 

In the entry describing the coming technology tsunami (#319), I suggested a way to help mitigate the impact of the inevitable tsunami was increasing support for public education. Here’s another aspect of public education that needs more discussion.

Entry # 327 outlined arguments why society would be better off banning for-profit universities, or FPU’s, from charging students for class material that should have been taught as part of their secondary, and in some cases, primary education. Why should students who learn at a different rate, or learn in ways outside the standard teaching method, be penalized and required to “pay twice” for the same classroom material?

But what about course material not taught in public schools? Or course material taught in technical schools? Why burden the taxpayers with such cost? Why not use for-profit universities for such training?

If someone wants to become a licensed cosmetologist, why should the public have to subsidize such training? Same with say someone who wants to become a licensed auto mechanic. Why should the public support such training?

Such an argument is a valid one. At the same time, society needs to consider the role of public education beyond high school. If North Carolina’s Central Piedmont Community College (CPCC) is representative, there are numerous classes and training programs aimed at some very narrow occupational fields. In some cases at CPCC, classes are designed specifically for types of companies. Based on a cursory review of CPCC website, students have an opportunity to prepare for licenses, earn certificates, or an Associate degrees in a wide range of occupations. Yet all these classes, including those for the companies, are subsidized by the public.

Some key benefits to having such specialized classes taught using the public education system include:

  1. Control over quality of the course material. There is more oversight over relevancy and quality of course material at accredited universities than at for-profit universities.
  2. Ability to integrate other learning material into the course. For example, courses could include basic class material as well as additional information about how to integrate emerging advanced technology such as artificial intelligence. Having this opportunity to broaden the student’s perspective, would help the student understand how to use emerging technologies.
  3. Using a community college for specialized training is less costly to the student and to the public. Because the infrastructure and administrative overhead are already in place, the incremental cost to add specialized classes is less at a public university than the cost at a standalone for-profit education institution. As a result of using public-education facilities, the student can be trained and begin working with fewer outstanding loans and ideally no loans. The reduced financial burden increases the likelihood the student will quickly migrate to becoming a full-time worker and taxpayer.

Some will ask, “Is subsidizing the cost of specialized training yet another aspect of more socialism? Another harebrained giveaway by liberal Democrats?”

Clearly, or maybe not so clearly, there is a point beyond which the public should not pay for specialized education. Such training should be the responsibility of the individual or the company where the individual is employed.

The beginning of the “no-more-subsidized-training” line will vary by geographic area. Community colleges in urban areas will have a different course mix than community colleges in rural areas. I think most everyone can agree that local communities should make that choice of what courses should be subsidized rather than letting the federal or even state government do so.

“Isn’t subsidizing specialized education a slippery slope? I mean, should the public be subsidizing someone who wants to learn basket weaving or how to make greeting cards? C’mon. What about those situations? We know someone will push for such classes and then claim discrimination if the classes aren’t offered. Why create all the hassle. Let them all go to the for-profit teaching institutions.”

The “slippery slope” argument is often cited…and probably occasionally valid. But always justifying not doing something because of a slippery slope would negate most societal norms and laws we have today. Laws and behavioral norms are based on actions of a “reasonable man” (or woman). In many cases there is no clear line between reasonable and unreasonable. Focusing on how the extremes, or outliers, might be affected is a path to stagnation and not a path to progress and Improvement. For those classes or technical programs that fall outside the norm and could be considered unusual or extreme, then maybe a for-profit university or a collection of private tutors is a better choice for such training.

The default, seems to me, whether for general education content or for specialized content, should be through a public institution. If the public education path cannot work, then consider a for-profit institution. Public institutions afford greater opportunity to control content quality and greater opportunity to control cost for the student…and public.

#327 Do For-Profit Universities Help Prepare for Coming Technology Tsunami – Yes, No?

10 Sunday Mar 2019

Posted by in Common Sense Policies, Education Issues, Innovative Thinking: Ideas and Products, Possible Solutions, Societal Issues, Tech Tsunami

≈ 1 Comment

Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution and author, How the 5th US Revolution Begins and About the Author.  Occasionally I do a “sense check” about the likelihood of a Revenge Revolution.  Entry #318 is the most recent “sense check.”  One more note — sometimes I write about another topic that does not quite fit the theme of the blog.  Those comments are available on the page titled “JRD Thoughts and Comments.” 

In the entry describing the coming technology tsunami (#319), I suggested a way to help mitigate the impact of the inevitable tsunami was increasing support for public education. Here’s another aspect of public education that needs more discussion.

Do for-profit universities help prepare students for the coming technology tsunami? My view? No. First, let’s define for-profit universities, or FPU`s. These are institutions with a primary purpose of making a profit for investors. In an FPU, education happens to be the product. The product to generate a profit could just as easily be processing waste – e.g., Waste Management Incorporated – or selling coffee – e.g., Starbucks.

While doubtlessly some FPU’s are well-intentioned and focus on educating students, let’s not forget the primary purpose of any for-profit company. Duh, sell a product/service, make a profit and return money to investors.

But you ask, “What about private colleges and universities? Aren’t they in business to make a profit? I mean, Harvard has a huge endowment — maybe $10 billion or something?”

Harvard’s endowment is more like $35-40 billion.

“Alright, lots more endowment than I thought. I’m confused. What’s really the difference between Harvard or MIT and say Trump University? Maybe Trump University is a bad example, but what about say University of Phoenix? It’s for profit and from what I can tell, University of Phoenix does more public good for lower-income people than either Harvard or MIT. University of Phoenix educates a lot of people who otherwise could not attend college. Your argument against for-profit universities sounds elitist.”

Agreed that University of Phoenix seems a lot more affordable than many private education institutions. But such an argument creates a false equivalency. Realistically, 99.9% of the students attending University of Phoenix could not qualify academically to attend the top-end academic institutions in the US. Not being qualified academically does not mean these students are dumb; they lack demonstrated skills in key areas.

Maybe the better question about public good is, “When all the costs are taken into account, is there a less costly and more effective alternative to teach basic skills than such places as University of Phoenix?” Let’s also be honest about education and skills. Not everyone has the same skills or can even acquire the same skills. My crayon jungle drawing from grammar school might have won 2nd place prize at the county fair, but no amount of training is going to make me a successful professional artist.

From a public good perspective, how can we… the proverbial societal “we”…make sure all students have an opportunity to learn basic skills that will enable them to secure and retain a reasonably well-paying job? While everyone in the US is supposed to have access to free public education through high school, a remarkable percentage of students do not complete high school.

As of 2016, the high school drop-out rate was 25% or more in some states. (When reviewing the data by state, reported graduation rates in some states seems highly inflated…or the standards to graduate in those states are exceedingly low.) Lots of reasons for not finishing, including recognizing that not all students learn at the same rate or the same way. In addition, some families have such limited income that children must work to help support the family as soon as possible, even if it means dropping out of high school.

While the reasons may vary for dropping out, should society ask these students to pay to finish their education, especially through for-profit institutions? Asking them to pay a very high price just to finish their high-school education is a disincentive to complete the degree. Plus the cost of attending remedial classes at a for-profit institution creates an excessive financial burden on someone who’s likely to be earning low wages and have little or no savings.

Wouldn’t society be better off to pay for their education? Paying to complete high school would provide those who didn’t finish a better opportunity to secure higher-paying jobs and, with those jobs, pay more taxes for their entire life. Providing an opportunity to complete high school and maybe two years additional education at no cost could likely help reduce crime and the cost of incarceration.

As noted in Entry #326, the estimated cost of incarceration per prisoner per year ranges from roughly $30,000 to $60,000. Based on the analysis described in Entry #326, paying for prisoners to secure a technical degree or college degree while incarcerated resulted in a return on investment to taxpayers of 400-700%, and possibly higher.

“OK, I’ll buy your logic but what’s wrong with using for-profit universities to offer such some education? Besides, the private sector is always more cost-effective than government.”

Why use public education rather than private for-profit institutions?

  1. No additional facilities required to host classes. The remedial, technical and early college classes could be held in the evening and/or weekends using existing high school, junior college or some government buildings. Virtually all of these buildings are used more during the day and have surplus capacity in the evening and on weekends.
  2. Alternative teaching methods in place. Virtually all public school systems have implemented alternative teaching methods, which could be adopted for older students who learn differently.
  3. Public education does not add additional financial burden on the student. University of Phoenix, for example, charges about $1,200 per course. For student needing say ten classes to complete high school (equivalent about one year), the cost using the University of Phoenix rate would be at least $12,000. What may be even more of a problem for these students is the course material for what is usually a semester course – say 3-4 months – is crammed into five (5) weeks. Cramming material into five weeks leaves virtually no time for course material to “sink in.” Think of drinking out of a fire house. If a student does not fully grasp the idea when presented, the student is immediately behind. For institution like Phoenix, this approach can lead to the same person attending yet again…and another tuition payment.
  4. Class content can be tailored to help prepare students to continue their education in community college programs, whether technical training or prep for college.

The question posed in the title of this Entry, “Do for-profit universities help prepare for the coming technology tsunami?” I continue to say, “No, these institutions do not.” As frustrated as we sometimes are with the public education system, the system is designed for the public good…and not to generate a profit and provide (some believe maximize) a return to investors.

The US needs to prepare for the oncoming technology tsunami. One key component of preparation is to increase the number of qualified workers. Much like educating prisoners, providing classes/remedial training to those who have not completed high school is in the public interest by increasing at very low-cost, the pool of skilled workers. A larger pool of skilled workers is essential for the US to maintain production of goods and services and remain competitive worldwide.

What about for-profit institutions designed to train people to become technicians, designers, hairdressers and a host of other occupations? Don’t these for profits offer a benefit to the public? Possibly but maybe a more cost-effective approach is to the scope of public education to include such training. (The question is a bit off-line from the more serious issue of preparing for the technology tsunami. I might offer a few thoughts in one of the next couple of entries.)