Must Public Education Suffer From Baumol's Disease?

August 2008

This article first appeared in the Denver Post, August 1, 2008.

Over the last 30 years, spending on public education in the U.S. has nearly doubled, to about $9,000 per pupil when adjusted for inflation. Yet on average, many would agree that our K-12 schools are producing only slightly better results than in the late 1970s.

A thirty-year look at the National Assessment of Educational Progress results for seventeen-year-olds, for instance, suggests that test scores have changed very little. Math and reading have nudged up while science and writing have dropped.

By the normal definition of productivity—the amount produced per dollar spent—K-12 public education is falling behind.

One way to think about declining productivity in education is to attribute it to Baumol's disease (named after its discoverer, economist William Baumol), a tendency for costs in service industries to rise even as outputs stay the same. While innovation makes workers in manufacturing industries more productive and their wages go up, the disease thrives as other service industry workers demand more pay to keep up with the rest of the economy, even as their outputs remain fixed.

Is Baumol's disease inevitable in education? Some service sectors have beaten it with innovation.

During the 1990s and early 2000s, productivity growth in the service industries actually outpaced that in the economy as a whole. Reforms in financial services, legal services, retail sales, and other arenas prove that service sectors can realize genuine productivity gains. Can education too become more productive?

In Colorado, a movement is afoot to prompt innovation in schooling. The Innovations Schools Act of 2008 provides flexibility to schools in hopes that schools will innovate toward becoming more effective and productive. Leadership at Denver Public Schools has invited staff to create new school models for its district run schools, and has kept the door open to charter schools.

So now that more schools have new flexibility and a commitment to innovate, what should they try first? Here are two places to look:

Can innovations that prompted productivity gains in other labor-intensive industries apply to education?

Service-oriented industries have made productivity advancements through tapping information technology, deregulation, product redefinition, organizational change, carefully refined workforce policies, and supply chain enhancements.

Information technology, for instance, has helped industries track outputs, monitor operations, and communicate with customers. Some public sector agencies have narrowed the range of services they provide and spun off others to more specialized organizations.

Service industries have re-thought the ways they hire and reward employees, so that employees are more personally connected with desired outcomes. Supply chain enhancements have yielded productivity gains by better connecting stages of production.

In contrast, the core processes involved in public education have remained virtually unchanged during the past 50 years: buildings consisting of classrooms are designed around uniformly paid career teachers, who are assigned to guide a group of same-aged children through an antiquated curricula delivered in nine-month segments.

While districts have made some improvements in student data collection and management, the data hasn't yet fueled more advanced information processing.

And while higher education and businesses have voiced complaints over the quality of the K-12 graduates that then enter their systems, they haven't re-engineered the supply chains to better merge the two. (That's not to say it can't be done: Junior Reserve Officer Training Corps programs are one example of a supply chain strategy used largely to help produce capable and interested graduates for the military.)

Where other service industries have found productivity gains in organizational redesign, education's organizational infrastructure has evolved at the speed of concrete.

Innovation isn't magic. It doesn't happen by accident. Other sectors advance because their leaders seek innovation, invest in it, and take risks on real changes. The same has to be true in education.

Our leaders need to push for the application of remedies from other sectors that could apply to education. We need to invite the innovators from labor-intensive or service industries that have overcome Baumol's disease to help us map their strategies against key purposes for education in search of ideas that might be applied to K-12 schooling.

Can the processes involved in different learning models offer any promise for K-12 education?

While it seems important to consider lessons learned in other labor-intensive sectors, some claim those lessons won't apply to a sector dedicated to producing "learning." That may be true. But at the same time, the public K-12 monolith isn't the only provider of learning, and other providers do indeed approach the task differently.

Clearly charter and private schools may provide some insights into alternative approaches. But there also could be relevant lessons gleaned from learning systems that occur in other oft-overlooked settings.

Home schooling and distance learning offer very different ways of producing student learning. Education systems in other countries also do things very differently. Even in our country, students learn piano, take swimming lessons, participate in driver's education, learn from franchised tutoring programs (e.g., Sylvan), or tackle what look like school topics in non-school settings (e.g., foreign language programs, science camps, or Kumon math programs).

In each of these learning models, while the delivery system is dramatically different than that of the typical school, one can't help but notice that students do learn. Some (e.g., piano teachers, Kumon centers) even succeed in increasing the amount the student learns on his or her own time.

Adults, too, participate in organized learning in higher education, but also in their places of employment, or with expert coaches.

So while the K-12 public education system does things as it always has, some of the production arrangements developed in learning systems outside the K-12 system could hold the key to increases in productivity, both in terms of reducing costs and increasing desired outcomes. If we're serious about improving productivity in K-12 education, we owe it to ourselves to at least take a hard look.

In Colorado, the innovation window is opening. Let's hope that those in the system are up for the task. It's true that change brings risk and innovations can fail. But changing nothing implies an acceptance of current levels of performance and declining productivity. Education is consuming a growing share of our public funds, increasing by a staggering 0.6 percent of GDP in the last decade. Such increases will be impossible to sustain in coming years when health care, social security, and other demands on public funds are increasing as well.

Our education leaders must remain committed to innovation. Let's set about the hard work of learning from other service sectors and learning from other organizations that produce learning, to seek a cure for Baumol's disease in education.