Education and Government Budgets
This column was published in yesterday's Haaretz. It was prompted by a warning sent around by university presidents to their faculties that Treasury officials have put them on notice: budgets would be cut, and last year's agreement with the professors will likely be put in jeopardy. The point is specific to Israel, but not only to Israel. The misunderstanding about how to perform public accounting for investments in education apply to every American state government.)
Once again, educational budgets are being threatened, this time by political leaders who let treasury officials tell them how to spend, the same way they allow the army general staff to tell them what to fear. Remember, Israel is a country where the norm is 40 students to a high school class, and universities are unable to cover their operating deficits; meanwhile, student achievement has slipped from the top of the Western pyramid to the bottom, teachers earn as much as secretaries, and professors earn perhaps half of what they would make abroad, where 3000 of them already reside.
I have known Finance Ministry employees. I bet the last thing on their minds is a desire to thwart educators. The problem is that most were themselves educated to monetarist logic at a time when "browsers" were still people who didn't want to pay for magazines. If you oppose them, you will meet with exasperation:
"Our deficits have been pushing 4 percent of GDP," they say, "way above Europe. Before the crash, our debt service was something like a quarter of the budget, current low interest rates cannot last. Meanwhile, some 40-45 percent of spending already goes to social services like education. Do our teachers and professors expect us to cut more from the sick or the elderly - or from the 20 percent going to defense? We can raise tuitions, but parents and students (and professors, to their credit) refuse to allow this. We can print money, but then we commit to mounting shekel devaluations, which help exports in the short-term but discourage long-term direct investment. Do they want world capital markets, which are more skeptical than ever, to regard Israeli bonds as junk? Do they expect Obama to approve loan guarantees?"
The argument sounds compelling but it hinges on two outdated assumptions. The first is that spending on education is the same thing as adding an expenditure for the "social safety net," like welfare. Actually, in a knowledge economy, education should not be considered a welfare expenditure at all, but a revenue-generating capital investment, at least as important as an airport. It requires separate accounting treatment.
During last year's professors' strike, Hebrew University president Menachem Magidor projected that a lost academic year would cost the economy at least one billion dollars. Project, by the same logic, the net gain of getting more of our expat scholars to return, or of simply inspiring teachers to be more productive, to be willing, for example, to mentor students above and beyond the call of duty. The social chemistry that evolves within great schools or a community of scholars may be an end in itself but it is also of supreme economic value. Companies call this their intellectual capital.
WHICH RAISES THE second assumption, namely, that global investors will see a budget deficit and spook. Look, investors are already panicked by balance sheets at global banks nobody really knows what to make of. But one thing is sure: If Israel is viewed as a big commercial entity, its government's balance sheet will be analyzed like that of a software solutions giant like IBM, with perhaps a little tourism on the side - not like a bank, or even a manufacturer.
Already, major technology companies have market capitalizations that reflect perhaps 70 percent "intangible assets" - the chemistry I referred to above, the sheer capacity for productive innovation itself. One expat Israeli, NYU's Baruch Lev, has shown how companies that have cultivated their intellectual capital over a generation have significantly outperformed those that did not. Indeed, if you look at a survivor like IBM - at its stock price and earnings since the early 1990s, even as its markets for manufactured computers and peripherals evaporated - you saw investors sticking with the company because it invested massively in people. Its major asset is its reputation for delivering software solutions.
The point is, investors understand that it is IBM's capacity to innovate - to grow from its stream of products and their anticipated cash flows - that makes investment worth the risk. Okay, monetarists at the treasury are not wrong to worry about the shekel's stability, just as IBM's CFO worries about avoidable expenses that might force dividend reductions. But the key for Israel - a country that has engendered some 4000 start-ups - is to promise to keep new businesses forming.
Bond markets respond to deficits, but they already assume that the only hedge against risk in Israel is a government that outruns near term deficits with above-average revenues from above-average rates of growth. Besides, venture funds and global technology corporations have done the critical foreign investing here over the past generation. An Israel that allows its educational system to decay is like, say, Libya allowing its oil installations to decay.
Investors, in short, care about Israelis sprouting new business technologies and also that the country will be more or less at peace. They expect Israelis to remain welcome in foreign conference rooms and that tourists will continue to come. If treasury professionals knew their jobs - security professionals, too, for that matter - they would consider how accountants conventionally write down intellectual capital--the most intangible asset--as "goodwill," a semantic convenience, perhaps, but one pointing to a global asset. They would ask if Israeli teens will learn to inspire goodwill when they are 40 to a class, or, for that matter, when they are enforcing an occupation.
Leave a comment
Ads are how we pay the bills!
The Coffee House
TPMCafe's regulars
House Brew
From Your Cafe Editor
Special Guests
Big names and big brains
Special Features
Pressing topics and trends
Table for One
An expert's week-long talk.
All Reader Posts
TPM readers discuss.
I am a barrio teacher. 4th grade. 21 boys, 9 girls. All English learners.
California pink slipped tens of thousands of my colleagues this year, due to deficits. Every spring, we go through March madness. They threaten us, like prodded cattle, rehiring most when the "budget" gets passed later in the summer, requiring a supermajority to pass one. Isn't education of children a predictable item? Why is this an annual crisis?
It's an old co-dependency, an increasingly toxic relationship, but we put up with it for the privilege of working with kids. I, like most of my colleagues, have purchased pencils and notebooks and literally thousands of dollars worth of educational supplies for my students over the course of my career, so that our classes may function and become successful, to say nothing of unpaid overtime, after hours, nights and weekends.
I have a bumper sticker push-pinned to the bulletin board above my desk in the classroom. It reads simply: If you think education is expensive, try ignorance.
March 28, 2009 10:40 PM | Reply | Permalink
I think the education shouldn't be threatened like it is a burden. It's totally different form of investment and the results are seen in time. If you don't have the possibility to offer masters in curriculum and instruction then this sector will suffer, sooner or later, of the lack of specialists. If you can't train economists than it will be the banks' loss and the list of examples could go on.
March 25, 2011 9:29 AM | Reply | Permalink
This information is very useful! Thanks!
Best regards, Katya, CEO of hyper v installation, microsoft iscsi target 3.2
March 31, 2011 8:39 AM | Reply | Permalink
Si vous etes interesses par le dossier, ou desirez en savoir plus, contactez-moi par mail, et je vous mettrai en contact.
Best regards,Jane, CEO of what is high availability
April 28, 2011 8:30 AM | Reply | Permalink
Education and Health should be first two things on the list of every government in the world. By cutting the education budget they will reduce the number of teachers and student. After I finished one of those rn to bsn online programs I wanted to work in health care, but I couldn't live with the salary they gave me. Bottom line is that every country needs her students because they are the future.
April 28, 2011 4:40 PM | Reply | Permalink
You can't treat the education like a business. By definition, the education is an investment in your children's future. It's a long way until you can obtain a master of health administration and perform for a real job. But that doesn't mean that we should skip some steps because the results will directly reflect in a lower preparation.
April 29, 2011 5:29 AM | Reply | Permalink
It's incredible that they even considered to cut the budget for the education. I want to graduate a criminal justice degree online and I can't imagine what cutting the funds means. Any budget restriction could have a drastic repercussion for the whole system.
May 2, 2011 7:07 PM | Reply | Permalink