Dumb Money

By Theil, Stefan | Newsweek International, August 17, 2009 | Go to article overview

Dumb Money


Theil, Stefan, Newsweek International


Byline: Stefan Theil

Too many nations are wasting their school spending. Here's howto get it right.

"If we want to become a strong economy again, the best thing we can do is have an educated workforce." Few would object to U.S. Secretary of Education Arne Duncan's explanation of why Washington is funneling $100 billion to schools and universities as part of February's giant stimulus package. Indeed, other countries are following suit, with Britain, Germany, Canada, China, and others making new education funding part of their anticrisis strategies.

What's far less clear is that this money is going where it's most needed--or likely to have the greatest social and economic payoff. In Germany, the bulk of nearly [euro]10abillion in new school spending is being used to renovate buildings--a bonanza for construction companies and popular with parents and teachers, but unlikely to have much effect on the quality of German graduates. In Britain, Prime Minister Gordon Brown is pushing for more PCs and Web access in schools--another policy that's popular but considered irrelevant by educators. In the United States, a July audit by the Government Accountability Office found that schools were not using the stimulus money to boost student achievement, as promised by Duncan, but to fund their general budgets. And in still other countries, governments are using money to help build new world-class universities--projects that a World Bank study in July warned risk bleeding resources away from more desperately needed areas. "I'm not sure that the people making these decisions even realize the trade-offs involved," says Jamil Salmi, author of the study.

That's particularly unfortunate today, given the economic stakes. According to an April report by McKinsey, the United States' GDP would have been 9 to 16apercent--or $1.3 trillion to $2.3 trillion--higher in 2008 had U.S. high-school graduates attained the average skills of their peers in Canada, Finland, or South Korea. This fall, the Organization for Economic Cooperation and Development (OECD) will unveil a similar study in Paris detailing the losses suffered by other laggards. Andreas Schleicher, author of the OECD study, says that "in a whole row of countries, the economic losses of educational underperformance are significantly higher than the costs of the financial crisis." What's worse, he says, countries pay the price for their mistakes year after year.

The biggest error governments are making is to blindly push for more and better everything at all levels of education: more teachers, flashier facilities, more technology in the classroom, and more elite universities. Saudi Arabia, for example, is currently spending $13 billion on a single graduate school. All such efforts may seem sensible, but studies by academics at Munich's IFO Institute and Stanford, among other places, show that simply spending more on education doesn't yield better results. Kids don't necessarily learn more if they sit in smaller classrooms, in more modern and better-equipped schools, or even if their teachers are better-paid (as opposed to just better). According to Ludger Woessmann of the IFO Institute, merely raising per-student spending has zero effect on achievement. The United States, France, and Germany have upped spending significantly in past decades only to see performance stagnate, while countries like Sweden and Finland have boosted quality through structural reform.

Even building better universities has a lower return than one would think. Peer Ederer, who heads the Lisbon Council's Human Capital Index Project, says the biggest problems university systems face today are high dropout rates and too few skills taught for later careers--problems most current spending proposals do little to address. Too much attention, he says, is given to things like increasing attendance or moving top institutions up the international rankings. Salmi of the World Bank says the huge resources now being spent to create elite schools would be better used for expanding and improving engineering programs at unflashy polytechnics, for example.

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