The Learning Revolution (1993)

8/3/2019 The Learning Revolution (1993)

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L.J. Perelman, 1993 page 1 Learning Revolution

CATO INSTITUTE Market Liberalism*

Chapter 9 The Learning Revolution

Lewis J. Perelman

The collapse of the Soviet empire is just one of the most dramatic symptomsof the dawn of the new knowledge age economy. Among the many profoundimpacts of this technological revolution, one of the most critical is the globalobsolescence of traditional education and training institutions. This radicaltransformation in turn demands a complete replacement of outworn publicpolicies which aim to subsidize and save these institutions. The new policyparadigm must focus on (1) abolishing the wasteful paper chase for academiccredentials and (2) commercializing (not just privatizing) the economy of

academia, the biggest and probably last great socialist empire on earth.

The New EconomyIn the new economy being formed by explosive advances in information

technologies, knowledge has become the crucial factor of production.Contrary to much of the conventional (and backward-looking) wisdom drivingmost recently proposed economic strategies, software has displacedmanufacturing as the key to national economic strength, and learning hasbecome the crucial form of work required for family self-reliance andprosperity.

With learning now the indispensable focus of work, entertainment, andhome life, the attempt to keep learning confined in the box of the government-controlled empire of school and college classrooms threatens to be asdestructive and costly as the political efforts at the beginning of the 20th

century to protect the vast horse industry against the threat of the automobile.

National economic leadership, security, and prosperity at the beginning ofthis century depended on the swift, wholesale replacement of the transportationindustry based on the horse by an all-new system based on the automobile(and shortly later, the airplane). In the same way, economic progress in theimminent 21st century depends on the rapid, total elimination of schools andcollegesa $445-billion-a-year industry in the U.S. aloneby a newcommercial industry based on the technology I call hyperlearning (HL).

Henry Fords Model T was not an invention so much as the integration of aset of technical advances in power plants, rubber tires, batteries, and othercomponents as well as fuel refining, production engineering, employmentpolicies, and marketing strategiesa total system that changed not justtransportation but the entire fabric of Western society. Similarly, HL

* David Boaz and Edward H. Crane, eds., Market Liberalism: A Paradigm for the 21st Century ,Washington, DC: Cato Institute, 1993


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represents the imminent integration of skyrocketing advances in the so-calledartificial intelligence of computers and robotics, broadband multimediacommunications, hyper software needed to cope with the resultinginformation explosion, and even brain technology that is expanding ourunderstanding of how human and artificial brains work.

Hypermated learning loops increasingly form the core of just about everykind of economically productive activity. The London Stock Exchange hasreplaced legions of shouting floor traders with an automated telecomputingnetwork, following the lead of Americas NASDAQ. The most prosperousfarmers today spend more time working with computers than combines.Political rhetoric notwithstanding, factory jobs are not coming back: Theyare bound to become as productive, and hence as scarce and knowledge-demanding, as farm jobs. General Electrics state-of-art light bulb factory inVirginia employs a third as many workers as the one it replacedand noneever touches a light bulb. Each of the similarly few workers employed inCorning Glasss most modern plants is trained to be able to run everyoperation in the factory, not to do a job. The work mainly is troubleshooting

and managing the software of the automated systems that do the actualmanufacturing.

This HL revolution cannot be attained successfully by any reform orrestructuring of schools and colleges, any more than the horse could be re-trained or even genetically re-bred to become a car. Break-the-mold schoolscant and wont.

Education: A Barrier to ProgressA critical feature of the new world order marked by the collapse of socialism

is that education, once widely viewed as an engine of prosperity, has become

the major barrierto global economic progress.The overeducation of the workforce is one of the major causes of the economic

slump that has plagued the U.S. and other modern national economies forsome three years. Roughly three-quarters of the thousands of employees beingeliminated by major employers such as IBM, General Motors, and TRW aremanagerial, professional, and technical workers with extensive college andpost-graduate education. In this recession, corporate middle managers were2 times more likely to become unemployed than the average worker. In pastrecessions, laid-off factory workers were re-hired once sales recoveredbutthe recent rapid growth of white collar unemployment represents thepermanent elimination of jobs. In the recession of the early 80s, white collaremployment kept on growing, and 90% of white collar employees who losttheir jobs were re-hired within a few months. In the latest recession, whitecollar employment has declined and fewer than 25% of the displaced whitecollar workers have been able to find new jobs.

Recent political campaign proposals called for more investment in the U.S.workforce in the form of expanded spending on traditional education andtraining programs. This rhetoric masked the reality that the U.S. currently hasthe most schooled workforce in its historyfrom 1970 to 1989, workers with fouryears of high school increased from 31% to nearly 39% of the workforce and


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the proportion of the U.S. workforce with at least four years of college nearlydoubled from less than 11% to over 21%. Fewer than 23%, and probably nomore than 15%, of U.S. jobs will call for college degrees in the 90s: With over aquarter of the workforce planning to earn college diplomas, it is likely that 10%of U.S. college grads will be unemployed by the end of the decade, andbetween a fifth and a half of the graduates will be underemployed in jobs that

do not really require their degrees.

This ongoing deflation of academic credentials will only be accelerated by theend of the Cold War. In the wake of the brain glut unleashed by the collapseof the Soviet Union, U.S. companies such as AT&T, Corning, and SunMicrosystems have been hiring top Russian scientists and engineers, amongthe best educated and most skilled workers in the world, for salaries on theorder of $60 a month. And some 2 million of Americas own most technicallyschooled and skilled workers are destined to become unemployed over thenext two years as a result of defense spending cuts and force reductions.

A prime flaw in the whole education system is that it was designed in themidst of the Industrial Revolution of the 19th century to prepare people forindustrial era jobs. But the kinds of skills required to work productively in theknowledge age are almost the opposite of the skills demanded for academicsuccess. And the message buried in the above statistics is that jobs for boththe overschooled and the unschooled are fast disappearing. Entrepreneurialskills are those most needed to thrive in the new economy, where the majorityof the workforce will be comprised of contractors, consultants, free agents,and traditional business creators and owners. Yet the competencies needed forsuccessful entrepreneurship are almost totally ignored by the existingeducation/training system.

Even as the services of the scholastic sector become increasingly irrelevant tothe economic aspirations of the great majority of Americans, the cost of the

obsolete academic bureaucracy continues to soar. Add the $50-billion-plusemployers spend to educate employees to the $450-billion annual school andcollege budget, and throw in at least another $100 billion a year of U.S.spending on hidden forms of education (such as conferences andconventions), and the education sector is virtually tied with health care as thebiggest industry in the U.S. economy.

The upward spiral of costs has been almost as explosive in education as inhealth care. Real spending per student in U.S. K-12 schools (discountinginflation) has grown some five times since the 1950s. In the 1980s, real U.S.spending on K-12 schools grew by nearly a third; spending on colleges greweven more, by about a half.

Productivity is the key issue that has been neglected by education andtraining policies; it needs to be the focal point of the new policy paradigm.Productivity growthincreasing the amount of wealth produced from eachhour of laboris the essential measure of a nations standard of living andrelative competitiveness. The weakness of productivity growth has been thecentral symptom of Americas economic malaise for some two decades.

Poor and declining productivity is the main reason the education sector hasbeen become a barrier and threat to economic progress in the modern world.


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Education as an industry is nearly twice as labor-intensive as the average U.S.business and has relative labor costs more than twice as high as those of high-tech industries such as telecommunications. Moreover, while the productivityof other information-based industries has been advancing smartly, evenexplosively, the soaring costs and stagnant output of the education sector havespelled a steady decline in productivity at least since the 1950s.

The sheer size of the education sector, as Americas first or second biggestindustry, thus has been dragging down average productivity growth. Buteducation is undermining the national standard of living even moreextensively because, besides being a very large business, it is one that isstrategically critical to the growth of a knowledge age economy. With thelearning enterprise playing the central economic role in the knowledge agethat steelmaking played in the industrial age, a weak and declining learningsector is undercutting the development of nearly every other modern business.

In place of intrusive and irrelevant national education goals, theproductivity-focused goals of the new paradigm of national learning policycan be summarized in four simple words: More, Better, Faster, and Cheaper.That is, policy needs to assure the rapid development of HL systems thatenable citizens of all ages to learn more about everything; to learn better,especially in regard to relevance to productive work; to learn faster, with lesswaste of time; and to do all that at lower and steadily declining cost.

HL technology already exists and is achieving these productivity goals in thesegments of the national learning enterprise that are compelled by competitiveforces to seek more and better learning in less time at lower cost: notably, incorporate and military organizations. For instance, U.S. corporate and militaryeducators spend about a 300 times larger share of their instructional budgetsthan public schools do on systems based on increasingly advanced computerand multimedia technology. The reason is that, in the competitive

environments of the marketplace and the battlefield, learning objectives arefocused on competency rather than credentials, and there are powerfulrewards for productivity and thus innovation.

The Action PlanThe national action plan needed to replace the outworn education

establishment with a 21st-century HL industry has four key strategies.

De-credentializeFirst, America needs to eliminate the economic value of academic

credentials. Credentialism has been the key barrier thwarting a half century ofattempts at educational reform and restructuring. As long as the publiccontinues to have reason to believe that elite academic credentialsbased onattendance at the right institutionsprovide the essential passports tolucrative employment and other economic opportunities, the public willcontinue to resist any reform that gives learning and competency priority overtesting and sorting. As long as public policy continues to presume that thecognitive needs of the work-bound population warrant categorically


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different, and hence inferior, treatment compared to those of the college-bound population, education expenditures will continue to undermine ratherthan strengthen economic progress.

The economically productive alternative to credentialism is certification ofcompetency. In short, peoples opportunity to participate in employment or

entrepreneurship should be based only on what they know and what they cando. There is simply no job or enterprise in this economy that truly requires anacademic diploma or degree for successful performance. As Chief JusticeWarren Burger wrote in the milestone civil rights case of Griggs v. Duke Power,History is filled with examples of men and women who rendered highlyeffective performance without the conventional badges of accomplishment interms of certificates, diplomas or degrees.

A broad, even universal, commitment of U.S. employers, as well as financingand other institutions, to eliminate the currency of diplomas would leadnecessarily to a huge demand for effective tools to assess the know-how ofapplicants for jobs, small-business loans, and so forth. Sophisticatedassessment tools already exist and are being used by leading employers suchas the U.S. Army, Corning, Allstate, Toyota, and others. Making competency-based employment (and other economic access) a universal practice wouldspawn the rapid growth of a high-tech, profitable, cost-effective assessmentindustry. Funding for this new industry would come from some of thehundreds of billions of dollars saved when tax and tuition payers are freedfrom paying tribute to the diploma mills.

There are several steps the president should take to help achieve the goal ofa diploma-less economy.

Federal employment and contracting. As the nations biggest employer, thefederal government should demonstrate commitment to de-credentializing by

reforming its own employment and contracting practices to eliminate allrequirements and references to scholastic diplomas and degrees. Military andother federal agencies already are more advanced than many other employersin relying on competency-based employment and training procedures, so thescope of this reform is not likely to be drastic. Much of it probably can beachieved by executive order, although some new legislation may be requiredto reconcile competency testing with civil rights law.

SCANS II. The Secretarys Commission on Achieving Necessary Skills(SCANS), convened by Labor Secretary Elizabeth Dole and includingrepresentatives of a range of American industries, worked productively from1990 to 1991 to define a set of competencies needed for employment in themodern economy, as well as criteria for assessing those skills. The next

administration should help move the SCANS work from theory to practice byinviting U.S. employers, either through trade associations or individually, tojoin a coalition pledged to implement the kind of competency-basedemployment practices suggested by SCANS within a reasonable phase-inperiod: say, by January 1, 1995. The coalition could establish an oversightcommittee or council to monitor progress and to target regulatory or legalbarriers that the government needs to reduce. The president also mightestablish, either through an executive agency or the employer coalition,


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something like the Baldrige Award (for quality management) to acknowledgeleaders in competency-based employment.

Civil rights. The president should order the Justice Department to reviewexisting civil rights laws and regulations to determine to what extentemployment discrimination based on academic diplomas may be in violation.

Assessment R&D. Through executive directive and whatever enablinglegislation may be necessary, the president should establish a new federalprogram of research and development on human performance assessment,aimed at advancing the cost-effectiveness of the technology needed to measurewhat people know and can do in the context of real work requirements. Theprogram might best be centered in the National Institute of Standards &Technology (Commerce Dept.), with active collaboration of the DefenseDepartment (DARPA, Office of Naval Research, Army Research Institute, etc.)and the National Science Foundation. (Or, the new Knowledge ResourcesDept. suggested below.)

Entrepreneurship. The president should order that, in all the above initiatives

and others, preparation and competency for entrepreneurship should be givenpriority at least equal to or greater than for employment.

CommercializeIn recent years, many politicians, business leaders, and families have begun

to appreciate the essential importance of breaking up the socialist monopoly ofthe government-controlled education system. Privatization of publiceducation in fact is much needed, and should be a national goal of the newpresident. But school choice is an inadequate strategy to achieve the benefitsof a market economy in the learning sector, or to unleash the growth of thestrategically crucial HL industry.

Of a long list of problems, the essential flaws in the school choice (includingcollege choice) strategy are vouchers and non-profits. Because classroomteaching is technologically and economically obsolete in the HL era, choiceoffered in the form of vouchers to pay tuition for schools are as irrelevant tohyperlearning as choices of horses are to modern transportation. Because thecommercial profit motive is absolutely indispensable to drive the rapidtechnological innovation the HL era demands, would-be choice programsthat merely re-direct public monies among non-profit government-owned,private, or church-affiliated schools are bound to be irrelevant andineffectual.

Instead, the new administration should be committed to commercial

privatization of the entire education sector, based on a strategy of microchoiceusing a financing mechanism of microvouchers.

To illustrate the idea of microchoice: If TV choice worked the way schoolchoice is proposed, changing channels from HBO to CNN would requireunplugging the TV set, taking it back to the store, exchanging it for a differentmodel, and moving to a new neighborhood. In reality, of course, video choiceamong dozens or hundreds of options requires no effort more strenuous thanpushing a button. Similarly, modern HL technology can offer the individual


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even more choices of teachers and schools than of cable TV channels.HLs broadband, intelligent, multimedia systems permit anyone to learnanything, anywhere, anytime with grade A results by matching learningresources precisely with personal needs and learning styles.

Using modern electronic card-account technology, microvouchers can allow

individual families or students to choose specific learning products andservices, not just once a year or once a semester, but by the week, day, hour, oreven second-by-second. Unlike vouchers for school or college tuition,microvouchers will create a true, wide-open, location-free, competitive marketfor learning which has the elasticity to efficiently and quickly match supplyand demand.

Over 90% of U.S. public education funding is supplied by state and localgovernments, who also have the major policymaking role. Nevertheless, thereare several steps the new president can take to commercialize the government-controlled education sector and to promote the development of the AmericanHL industry that must replace it.

Federal microvoucher. The president should seek legislation to merge 90% ofthe existing student loan, Pell grant, JTPA, TAA, JOBS, Chapter I and ChapterII, and other federal education and training funds into a single, means-testedmicrovoucher program that eligible families or individuals can use to meetlearning and development needs of people of all ages. Broadly following thedesign of the food stamp program, funds should be allocated directly tohouseholds, in proportion to individual or family need, to be used for thepurchase of any service or product that is demonstrably relevant to learningand development needs. The instrument of expenditure will not be paperstamps or vouchers but electronic account cards similar to credit or bankingcards. Just as the food stamp program does not prescribe the distribution offood within a household, the HL microvoucher program should leave families

free to decide how best to distribute the investment of the account resourcesbetween adults and children and among the members of the householdgenerally. This provision recognizes that the needs of disadvantaged childrenin many (perhaps even most) cases may be served best by immediatelyimproving the economic opportunities and status of adult parents, as well asby developing parents skills at the work of parenting.

Family Learning Account. As a complement to the means-testedmicrovoucher program, the administration should consider adding a tax-exempt saving program. Individuals should be permitted to makecontributions to a Family Learning Account (FLA) that, similarly to theIndividual Retirement Account (IRA), are deductible from taxable income, up

to some reasonable level, during the year the contributions are made. UnlikeIRAs, withdrawals from the FLA would be exempt from either penalty or taxas long as expended through the microvoucher program. And suchmicrovoucher expenditures could be repaid to the FLA (with interest) withoutbeing counted against the annual contribution limit. Beyond some age limit,provision may be made for FLA funds to be transferred to estates or pensionaccounts, with appropriate treatment of deferred taxes. Another distinctionfrom IRAs is that FLAs should be designed to serve family rather than justindividual needs. The general concept of the FLA is to encourage households


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to gradually replace the direct government grant funds in microvoucheraccounts with tax-favored savings contributions.

Leveraging. Federal funds for education and training represent only aboutone-tenth of the public expenditure in these areas. A federal-onlymicrovoucher program therefore would provide significant benefits only to the

most disadvantaged portion of the U.S. population, although it would give thepoor more of the freedom of choice and access to learning tools the well-offalready enjoy. Most of the economic problem caused by an obsolete,overfunded public education bureaucracy lies in the domain of state and localauthorities. But the president can use the power of the federal government toinfluence the direction of state policy. Specifically, the president shouldconsider making part or full eligibility in the consolidated federalmicrovoucher/FLA program dependent on state and local participation. Theprecedent for such a policy exists in a variety of federal transportation, welfare,health, and other programs. For instance, federal law required states to raisetheir legal drinking ages to 21 in order to be eligible for federal highwayfunding. The administration should determine whether such an imposition

may be necessary, in addition to the oft-cited bully pulpit, to induce states toreconstruct their education budgets and bureaucracies along the linesrecommended here.

CapitalizeThe nearly total absence of investment in the research, development, and

implementation of new technology may be the top reason the education sectorstands as a barrier to the growth of the HL industry, and as a brake on ourwhole economy. While the average U.S. business spends 2% of its annualrevenues on R&D, and leading high-tech companies plow 7-20% or more oftheir annual sales into R&D, the education industry invests less than 0.1% of its

revenues in the research and development of new, improved technology.The health care sector, which is essentially tied with education as Americas

biggest industry, spends about $18 billion annually on R&D, with roughly halfcoming from government and the other half from companies. Only about $300million is spent annually in the U.S. to research and develop advancedlearning technology, virtually all by the federal government, virtually all bythe Defense Department. Another $2 billion a year may be hidden in DODweapons budgets for the development and acquisition of associated trainingsystems. Defense cut-backs threaten to whither this critical nationaltechnology asset, with no plan currently in place to preserve, much lessexpand it.

The education sectors record on capital investmentwhat pays for theacquisition and application of technology to improve the quality of productsand the productivity of operationsis equally dismal. The average Americanbusiness invests about $50,000 in capital for each job. In high-tech industriessuch as computers or telecommunications, from $100,000 to $1,000,000 needs tobe invested for each worker. In the education sector, total capital investmentper employee is less than $50.


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The funding needed to close this yawning technology gap is on the order of$8-20 billion a year, and should come entirely from the reallocation of some ofthe $445 billion now being wasted annually on the nations obsolete andbloated education system.

Again, the federal government accounts for only a small fraction of the total

of U.S. public education and training funds. If the technology gap is to beclosed by reallocation from existing expenditures, it follows that most of thatmoney will have to come from state and local rather than federal sources. Thisis an area where the president can and should use federal influence to leveragestate policies.

National Institutes of Learning. Part of the 10% of existing federal educationand training program funds not applied to the microchoice program discussedabove should be used for challenge grants to reward states that agree to setaside at least 2% of their total current state (and local) education and trainingexpenditures for (hyper)learning research and development. The challengegrants might represent a 10% or more federal supplement to the state R&Dallocations. The R&D funds should be administered by state Institutes ofLearning. As several states implement this policy, the state Institutes shouldform a consortium as the National Institutes of Learning, perhaps with afederal coordinating role. While the government organizations cannot andshould not duplicate the product-development role of commercial business,the mission of the Institutes should be committed from the outset to theultimate goal of commercialization of advanced learning (that is, HL)technology. This necessarily implies effective cooperation between thegovernment R&D programs and private industry. The U.S. agriculturalresearch system, and the federal Small Business Innovation Research programare two rather successful models that may be productively adapted to this newfield.

Learning Redevelopment Banks. The remainder of the 10% reserved fromcurrent federal education/training funds should be used for another matchinggrant program to induce states to set aside at least another 3% of their totalcurrent state (and local) education/training program expenditures to helpfinance the reconstruction of the education sectors socialist economy.Education needs the same kind of major capital investment as other ex-socialisteconomies do to replace obsolete technology and to retrain and reeducatemanagers and workers with little experience or understanding of marketoperations. These funds should be administered by redevelopment bankswhich, like the World Bank or the European Bank for Reconstruction andDevelopment, will provide loans and grants to help replace government-controlled institutions with private, competitive, profit-seeking enterprises.These funds and financial institutions need not and probably should not bepermanenta sunset provision should be included in their charters. Butthey should be given adequate funding and a long enough lifetime to speedthe commercial privatization of the education sector.


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BypassThe huge, century-old Bell telephone monopoly was forced to break up a

decade ago by the power of modern technology to give consumers theopportunity to get superior products and services from other suppliers. Thetechnology called distance learningusing telecommunications and other

media to deliver instructional services and resources from anyone, anywhereto anyone, anywhereis now well established in America. Along with thevariety of private school options, the expansion of distance learning willincrease the ability of learning consumers to bypass the control of the publicschool and college bureaucracy, shrinking the government systems clientbase, and thus reducing its ability to resist the kinds of policies called forabove.

In general, the new administration should pursue a strategy of expandingthe ability of learning consumersincluding both families and businessestobypass and abandon the established education system in favor of budding HLalternatives. This strategy requires acting swiftly to redistribute consumers,finances, and political influence from the scholastic institutions of the past tothe HL enterprises of the future.

Break the telecommunications logjam. There is an intimate connection betweenthe creation of the broadband, digital so-called information superhighwaysneeded to form the strategic infrastructure of the knowledge age economy, onthe one hand, and replacement of the medieval scholastic establishment by ahigh-tech HL industry, on the other: The more rapidly high-capacity,multimedia networks are expanded nationally, the sooner they will bypass andreplace academia. And the commercial privatization of the education sectoroffers the multi-hundred-billion-dollar market opportunity to reward privateinvestment in the information superhighway system. Thwarting bothdevelopments is an ongoing stalemate among telephone, cable TV, broadcast,

newspaper, and other media interests that have been contending for control ofthe new communication infrastructure. The new president should actaggressively to end this gridlock by convening a national summit meeting ofthe interested parties and pressing them to forge an effective consensus thatcan be enacted in federal legislation.

End direct institutional aid. Pending the broad restructuring of federalprogram funds into the microchoice program described above, the presidentshould take whatever actions may be necessary to end the allocation of federalfunds directly to schools and colleges for instruction-related purposes (asopposed to research grants). The idea is to direct funds to the greatest extentpossible into the hands of consumers rather than to school and college

bureaucracies.Federal reorganization. Finally, the next president should use his authority to

reorganize the executive branch to reflect the technological and economicopportunities of the future rather than the special interests of a fading era.Specifically, the president should create a new Department of KnowledgeResources by merging the Education and Labor Departments along with theNational Science Foundation, the Federal Communications Commission,NASA, and part or most of the Department of Energy national laboratories.


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The administration also should consider including other relevant research andknowledge oriented organizations, possibly including some units of theCommerce Department such as NIST, NOAA, and the Census Bureau. Thepresident also should encourage the Congress to revise its committeestructures along similar lines.

ConclusionAmerica was founded by people who had the vision and audacity to

overthrow tradition and to establish an unprecedented political community,grounded in the radical principles of human liberty and equality. We nowhave entered a new era when the fabric of whole societies is being rewovenaround the world. From Berlin to Valadivostok and from Capetown to BuenosAires, every major social structure is subject to reappraisal, redesign, andreplacement. Inevitably, the challenges of the dawning knowledge willdemand that the most conservative social glue, education, will be reinventedas well. The same HL technology that is driving the overthrow of arthriticbureaucracies holds the key to achieving this social reformation swiftly andproductively. Americas political legacy, Americas technological vitality, andAmericas responsibility as the worlds greatest power all demand that the U.S.lead the hyperlearning revolution that promises a new birth of freedom,prosperity, and peace.

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The Learning Revolution (1993)

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