Tag Archives: Tyler Cowen

Catch-up Reform vs. Innovation Reform…. What the United States Can Learn from Other Nations

sachs

I just read this Tyler Cowen interview of Jeffrey Sachs.

It is well worth reading, and I’m excited for the Cowen interview series to continue.

Sachs on Catch-up Reform, Innovation, and Differential Diagnosis 

Two excerpts from the interview.

First, Sachs covers the two drivers of international economic growth: innovation and catch-up.

…when you look at development, there are at least two fundamental drivers, not just one. The one that they talk about is innovation, and innovation as being a fundamental driver of growth. There’s a lot of truth to that in the history of the world.

But there’s a second fundamental aspect when we look out in the world and say, “Who’s doing well? Who’s doing badly? Why?” and so forth. That’s what is sometimes called “catching up.” The phenomenon of catching up is very different from the phenomenon of forging ahead at the front of the technology horizon.

When you take that simple distinction, it helps to explain a lot of the post-1960 question that you’re asking. The most successful countries in the world in the last 50 years have been basically the East Asian economies and Southeast Asian economies.

Sach’s main point is that growing when you’re at the head, middle, or back of the pack all require different strategies. Moreover, it’s not really helpful to compare growth rates of countries that are at the frontier of innovation and those that are simply executing catch-up growth.

Sach’s also presses hard on differential diagnosis of problems rather than one-size-fits-all solutions:

That’s what I mean by differential diagnosis. Why it’s so annoying to me, the one explanation fits all viewpoints. Because now I’ve seen a lot of places, a lot of crises, a lot of challenges. One of the things that I discovered was how poor our profession is at times in having that sense that the problem that you saw over there is not the same as the problem that you’re seeing here.

Education Reform: What Catch-Up Growth Can We Achieve? 

The United States is roughly in the middle of the pack when it comes to international rankings of educational attainment.

As such, there may be some catch-up growth we can undertake. However, when figuring out what best practices to adopt and which to avoid, we need to understand how our own situation may be different than other countries.

I view (1) implementing rigorous standards and assessments and (2) increasing incoming teacher quality to be the two highest potential catch-up strategies. Many (though not all) of the world’s top performing educational systems excel in these areas (admittedly, causation is difficult to prove).

In some form or another, we’ve begun to make headways in both these areas: assessment rigor is rising and incoming teachers are achieving at higher levels.

I’m less bullish on two other potential catch-up strategies: bureaucracy improvement and a culture of extremely hardwork.

The United States is an incredibly large nation; it consists of many levels of government; and it suffers from overly politicized and often ineffectual government bureaucracies. I don’t see us becoming Singapore anytime soon. Additionally, unlike some of the top-performing Asian nations (South Korea, Japan), we do not have a national culture that reveres education and long hours of studying.

Rather, our nation’s core strengths are more around entrepreneurship, problem solving, and (at least at one time) pragmatism. As such, I don’t think it makes sense to spend a lot of resources trying to optimize the thousands of school board / districts or attempting to change our national culture.

We Don’t Need to Limit Ourselves to Catch-up Growth

Given our nation’s resources and talent, we also don’t need to simply confine ourselves to catch-up growth strategies. We should innovate as well.

I think we’re well positioned to innovate in the following areas:

Governance: Given the low quality of our bureaucracies, and our national culture of entrepreneurship, I think we can be a leader in alternative governance structures. Charter schools, vouchers, course choice, Tiny Schools, etc. – many of these are delivering results, and others hold promise.

Technology: In many industries, the United States has been a world leader in technological advancement. Ideally, we will be able to translate this progress into gains in educational technology.

Non-Elite Higher Education: The United States has been an international leader in higher education for decades, but this is mostly driven by our top research universities. I think that a combination of governance and technology innovations can increase the quality of our non-elite  universities and vocational programs.

Of course, both governance and higher education face heavy regulations and strong incumbents. So innovation may be difficult to come by.

But, all things considered, I’m optimistic on these fronts.

Thiel, Cowen, Taleb, Options, Candler, Tiny Schools, Regulation

micro school

I just read this transcript from Tyler Cowen’s interview of Peter Thiel.

I found myself not being able to fully evaluate many of the claims that were made. I don’t know if this is because Cowen and Thiel are simply operating from a much deeper knowledge based than myself, or because they were just being vague and non-linear. It is likely some combination of the two.

Anyways, I did agree with this from Thiel:

If you are starting a computer software company, that costs maybe $100,000, to get a new drug through the FDA, maybe on the order of a billion dollars or so. If the FDA were regulating video game technologies, and you had to do a double-blind study to make sure that the video games weren’t addictive, damaging to your brain, etc.

In short, there are some sectors, predominantly health and education, where over-regulation hinders innovation.

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I’m currently reading Black Swan and AntiFragile by Nicolas Taleb. (HT Ethan Fletcher)

Taleb has so many strong opinions, some of which seem clearly false, that it makes hard to know which of his ideas to trust. But many of his ideas do seem insightful.

I was particularly drawn to his emphasis on options as being a model for how we should think about innovation. Basically, an option minimizes downside while maximizing upside, in that, for a price, you get the option to buy at a certain price without having to commit to buy at a certain price.

His point is that with innovation you similarly want to minimize downside risks while maximizing upside opportunity.

The VC sector basically works on this model: make a bunch of (relatively) small bets, all of which have very high upsides, and hope that one of them works.

In this sense, options are a way of incorporating intellectual humility into bets about the future.

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Recently, Matt Candler has been advocating for Tiny Schools.

One way to think about Tiny Schools is that they are just that: schools with not a lot of kids. An entrepreneur opens a Tiny School, educates some kids, and hopefully the school succeeds.

Another way to think about Tiny Schools is as options: an entrepreneur starts a schools with 15-20 kids and tries to get the model right. If the school doesn’t work, 15-20 kids get a subpar education experience for a few years. Not really the end of the world, though of course not ideal. If the school does work, then the entrepreneur can attempt to scale the model, either by opening more Tiny Schools or by converting the Tiny School into a Regular School.

In short, launching Tiny Schools minimizes downside risks (less kids, no need to buy a large facility) and maximizes upside potential (the schools that do well can then be scaled).

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What regulatory structure might allow for Tiny Schools to thrive?

One model is just to keep Tiny Schools private. This is fine, but requiring tuition inevitably limits who will be served.

Another model is to use public funding, but to make the regulatory model very thin.

I discussed this with Adam Hawf and landed at the following:

  • Market Size: A state would limit the amount of Tiny Schools that received public funds in any given year: perhaps 100 Tiny Schools with no more than 50 students each in any given year. This equates to roughly 5,000 students /  $50 million a year, assuming $10K in public funding per student. This limits the downside for taxpayers.
  • Entry: The application process would be a slimmed down version of a charter application. The entrepreneur would need to have a budget, brief description of the model, and a basic opening plan. 30 pages at most.
  • On-going Regulation: On-going regulations would be based on homeschooling regulations. Basic reporting on students served and finances, but very little oversight.
  • Back End Accountability: There would be no back end accountability. Zero testing requirements or anything of the sort. Rather, the license to operate a Tiny School would be a one time, four year license. Once the license expired, the operator would either need to apply to become a charter school or a private school. From there, the school would enter what ever accountability system the state used for the chosen sector.

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If even ten states adopted this model, at any time we’d have a 1,000 different Tiny School pilots going on around the country.

The downside would be very small.

The upside could be incredibly high.