New York’s Education Rebellion

Have you ever heard of the Whiskey Rebellion of 1791? It represented the first instance of a sustained anti-government protest in the United States. Although President George Washington employed federal troops to decisively squash that uprising, Americans have continued to stage protests since that time.

Indeed, from the military draft riots of the 1860s to the civil rights movement of the 1960s, and then on to the Tea Party and Occupy Wall Street protests of the 21st century, Americans have continued to rally against their own government’s policies and practices. And today, the ongoing public demonstrations against police brutality extend this established tradition.

Every so often, though, social rebellion tends to erupt in unusual venues. Did any one expect, for instance, the suburban parents of grade school children in New York State to rebel against school testing practices?

The recent governmental emphasis on standardized tests originated in the No Child Left Behind law a decade ago. It then expanded under the recent Common Core initiative. But why are parents in New York now so concerned?

Apparently, the parents believe that an over-emphasis on testing is creating a destructive high pressure, high stakes culture that diverts resources from learning activities and encourages “teaching to the test.” They do have a point; after all, eight grade school educators in the Atlanta school system just received prison sentences for helping students cheat on their standardized exams.

New York is facing a similarly challenging situation because parents in the Empire State can elect to opt out of testing activities. In much the same way that California’s “opt out of pediatric immunizations” policy led to a measles outbreak and a public health crisis, New York’s “opt out of standardized testing” policy is leading to a public education crisis.

That’s because the bedrock foundation of any standardized testing activity is the presumption that the results of the tests are representative of the students in the education system. Once significant numbers of students opt out, an assessment system solely based on testing has no alternative means to gauge their needs.

Imagine, for instance, a restaurant owner who decides to transform his entire menu on the basis of information from a handful of little customer feedback cards. If many of his paying customers decline to hand in their cards, should the owner rely solely on the feedback that he receives from a few patrons?

At the moment, New York State Education officials are both exhorting and threatening parents who wish to opt out of the testing process. Many officials are encouraging parents who have already opted out to change their minds and opt back into the system. But no official has yet launched any initiative to address their complaints.

In a society where teachers risk prison to help students cheat, though, why not directly address the high pressure, high stakes testing culture? After all, if America’s Whiskey Producers, Civil Rights Protestors, Tea Partiers, and Wall Street Occupiers never responded to simple requests to cease their protests, why would the soccer moms of New York State act any differently today?

Obama Care and Capitalism

A few months ago, America’s national Tea Party organization emphatically cited Massachusetts’ web based health exchange as evidence that the Affordable Care Act (aka Obama Care) would be a disaster. It noted that the Bay State’s online exchange (like the federal government’s own site) was not functioning effectively, and proclaimed that Obama Care itself was “an absolute mess in Massachusetts.”

Then, last week, the Commonwealth decided that its health exchange was “too broken to fix,” and decided to purchase the “off the shelf” hCentive software system that is now being used in Colorado, Kentucky, and New York. All three states are currently experiencing favorable results with hCentive.

Some information technology professionals may interpret Massachusetts’ inability to develop its own software as a failure of the Affordable Care Act. Others, however, may interpret the emergence of an “off the shelf” (i.e. “plug and play”) software solution as an indicator of the health law’s strength.

After all, Colorado, Kentucky, and New York are as demographically, economically, and geographically diverse as any trio of states. If a single “off the shelf” software package can work in these three states, it is likely that the same solution (or very similar ones) can work in any state.

That may explain why Oregon also decided to abandon its proprietary state-built health care web site recently; they opted to join the federal government’s system. And Maryland recently decided to ditch its malfunctioning site and adopt Connecticut’s system.

So what’s going on here? If you tend to perceive the proverbial glass as “half empty,” you might be tempted to interpret these events as indicators of a health care market in chaos.

But if you prefer to perceive the glass as “half full,” you might instead interpret these maneuvers as the mechanisms of a capitalist free market. Customers are abandoning weak information technology products and are replacing them with strong alternatives, resulting in a health care insurance market that is stabilizing and strengthening accordingly.

In certain ways, the Affordable Care Act intrudes on the free market principles of traditional capitalism. In other ways, it embraces these principles. Did the designers of the Act balance these two conflicting impulses effectively?

Fixing Government: Democracy In Action

Around the world last week, on the eastern and western coasts of the United States and in the Indian capital city of New Delhi, citizens were confronted with a trio of cases that collectively highlighted the very worst aspects of democratic government. In each case, individuals inside or outside of government felt compelled to take drastic action to remedy an embarrassing crisis.

In Newark, New Jersey, the city’s poorly performing school system gratefully accepted a financial bailout from Facebook founder and billionaire Mark Zuckerberg, who announced a mammoth donation of $100 million to finance critical improvements. In Bell, California, law enforcement officials announced the arrest of eight current and former city executives and managers on charges of gross corruption. And in New Delhi, India, government officials vowed to make emergency repairs to newly constructed sports facilities that are literally crumbling away in advance of next week’s Commonwealth Games.

Were these isolated incidents, or did they collectively represent a worrisome pattern of government neglect? And if so, what does it say about the capabilities of democratic governments in places like America and India to address their own internal problems?

Troublesome Patterns

Regrettably, none of these three events appeared to represent an isolated incident. Quite the contrary, all three constituted embarrassing culminations of years of government neglect and ineptitude across a wide range of circumstances and situations.

The public school system of New Jersey, for instance, has long been criticized for poor performance; in fact, it recently lost $400 million (i.e. an amount that is more than four times the size of Zuckerberg’s donation) in federal funding on an administrative application error. Likewise, government corruption has plagued California throughout the twentieth century; it served as the central theme for the plot of the 1974 film Chinatown, which won the Academy Award for best screenplay. And critics in India have complained for years about the nation’s inability to maintain its critical infrastructure.

Thus, these recent events were no freak occurrences that struck otherwise competent government administrations. Indeed, they drew public attention to typical, albeit unusually colorful, examples of governmental cultures of incompetence and corruption.

In a Word, Why?

Of course, any complex problem can be traced to a multitude of causes; malfunctioning governments are no exception to this rule. Nevertheless, when reviewing these three cases, one is struck by a sense that these problems were simply never considered priorities by citizens or their representatives. Instead, individuals appeared to be preoccupied by other matters, thereby allowing these problems to fester until they exploded in the news.

New Jersey and California voters, for instance, may have been far more interested in the rough house political style of Governor Chris Christie and the glamorous film star activities of Governor Arnold Schwarzenegger than in the policy debates that affect education funding and municipal oversight functions. And Indian citizens may have never exhibited the zeal for international showmanship that drove China’s focus on constructing first-class infrastructure for the Beijing Olympics and the Shanghai World Expo.

The key principle of enterprise risk management is the interplay between preventive, proactive functions and responsive, reactive functions. To put it simply, risk managers believe that it sometimes makes perfect sense to do everything possible to prevent a problem from occurring, and yet other times it makes more sense to allow a problem to happen and then deal with the consequences. American and Indian citizens may have chosen the latter option in these three cases, hoping for the best and then regrettably facing the worst.

Panetta’s Philosophy

From this perspective, one might take heart in the knowledge that government officials did belatedly take action to address this trio of problems. After all, charismatic Newark Mayor Cory Booker succeeded in obtaining the $100 million pledge from Mr. Zuckerberg. California Attorney General Jerry Brown moved against the infamous Bell Eight, vowing to prosecute them to the full extent of the law. And the Indian government now appears to be making critical repairs to the facilities of the Commonwealth Games.

Furthermore, public scrutiny over government performance in both nations is intensifying in dramatic ways. The American election season is now dominated by boisterous crowds that harken to the zealous Boston Tea Party revolutionaries of 1773. And Indian critics, free to voice their opinions in their nation’s open democratic system, are rallying public opinion to the side of clean and effective governance. Although disruptive, these demanding voices are focusing their citizenry on the activities of their own elected representatives.

CIA Director Leon Panetta recently told Politico that “Democracy can be ugly, depressing and frustrating but it is what determines our fate as a nation. We govern by leadership or crisis. Unfortunately, today, we largely govern by crisis.” Although one may wince in pain while watching developments unfold in Newark, Bell, and New Delhi, it might be helpful to keep in mind that we are, in fact, watching democratic governments in action.

Bank Capital: An Effective Strategy?

If you ask any group of American Tea Party protestors why they are so angry with their government, you’ll likely receive an earful of complaints in return. Most commonly, though, they’ll tell you that they fear for their liberty.

Liberty? What do they mean by liberty? Well, unlike freedom — an exceedingly broad concept that embraces all of speech, religion, want, and fear — liberty has a far narrower definition. In fact, it refers to a single vital human freedom: the state of being free from excessive government oversight and interference.

At first glance, last week’s announcement of a new set of global banking regulations — established by a worldwide group of government regulators named after the Swiss city of Basel — hardly seems to represent a return to the principles of liberty. Nevertheless, over the long term, its goal is to reduce the level of government interference in the banking sector.

A Capital Emphasis

The Basel group itself is a global governmental entity, the very type of organization that is often criticized by Tea Party protestors. Its official name is the Basel Committee on Banking Supervision; its members are drawn from the national government banks of over two dozen countries. Their member agreements, once ratified by their host nations, become international treaties and thus contribute to our system of global government and law.

Two years ago, when a significant number of “too big to fail” financial institutions careened towards bankruptcy and threatened to pull down the world’s economic system, many of our national government banks reacted by bailing out the failing firms. Since that time, the Basel Committee has debated various approaches for ensuring that such bailouts will never be required again.

In a sense, the Basel group has been searching for a way to impose new government regulations today — which themselves can be construed as impositions on liberty – in order to ensure that massive government interventions in the economy will not be required tomorrow. Their solution, as they announced last week, is based on a strategy of capital.

To put it simply, over the next decade, the amount of capital that banks will need to keep in reserve to cover their own losses will increase from 2% to 7%. Furthermore, they will need to maintain these reserves in common equity and not in exotic securities, i.e. in plain, ordinary funds that can be easily deployed to cover unanticipated shortfalls.

Will It Help? Or Will It Hurt?

There is indeed a certain amount of logic that is embedded in a strategy of greater capital requirements; after all, the more funds available within banks to cover their own losses, the less funds that must be contributed by governments to bail out the failing firms. And yet economists and financial experts continue to argue over whether this strategy will actually help or hurt the economy.

Some critics complain that the new regulations will hurt economic prosperity because banks will need to sock away more capital instead of lending it to businesses to help them grow. They also complain that the regulations do nothing to break up the mammoth banks that were deemed “too big to fail,” thereby leaving these goliaths in place to dominate the global financial markets.

In addition, such critics note, an increase in capital reserves from 2% to 7% may simply reduce the size of governmental bail-outs of the global financial system from 98% to 93% of the world’s banking liabilities. Although any reduction in the cost of bail-outs is undeniably beneficial, that’s still far too high a percentage to make any one feel comfortable!

Learning From History

Looking back through history, many creative approaches have been employed over the years to prevent bank failures, though few of them have succeeded in being both popular and effective. In 1907, for instance, the legendary banker J.P. Morgan single-handedly coordinated the activities of the chief executives of the nation’s largest financial institutions as they developed and executed a strategy for bailing themselves out without government intervention.

Ironically, although Morgan succeeded in saving the banking system in 1907, Americans were so unnerved by the concentration of economic power in the hands of a single man that they agreed to the establishment of a government Federal Reserve Bank in 1912. Despite concerns that centralized control over the banking system represents a threat to American liberty, the Fed has been overseeing the nation’s financial system ever since.

It is indeed difficult to argue against the proposition that greater capital reserves can serve as a larger cushion against future bank failures. Nevertheless, history informs us that this action alone may not be sufficient to protect us against calamitous market crashes.

So what can a citizen do to protect himself against such future events? Stash a little more cash under the mattress, perhaps, and hope that banking regulators will continue their search for effective (and yet not overly intrusive) oversight mechanisms!