What Automakers Could Learn from Public Schools

December 8, 2008 • Commentary
This article appeared on Cato​.org on December 8, 2008

The Big Three automakers are on the edge of ruin, and tell us that if they go down they’ll drag the economy with them. But while they’ve been slashing jobs and asking for a bailout, American public schooling has fared better. According to the Department of Labor, education was one of only three sectors that didn’t lose jobs in October. The auto industry could learn a lot from public schools.

Detroit’s first mistake was to wait until it was in dire straits before wooing taxpayers. Education officials began asking for massive public funding in the early 1800s, when enrollment, literacy and median income were already growing rapidly without much government funding. The “common school” reformers thus asked the public to back a winner, and they offered us a tremendous return on our investment. Horace Mann, godfather of public education, promised that if schools got the state oversight and funding he asked for, academic achievement would soar and “nine tenths of the crimes in the penal code would become obsolete.” How could we turn him down?

By contrast, the best that GM, Ford, and Chrysler can promise is that a bailout may keep them from making a bad economy worse. Following the successful public school model, they would have been much better off pitching a government takeover of the auto industry back in the 1960’s, when the business oozed glamour and success. A promise of flying cars by 1999 might well have sealed the deal.

But where the Big Three really went wrong was in asking for a “one‐​time” bailout. That’s like a Band‐​Aid for an axe wound. Detroit will still have to face fickle consumers and competitors with lower labor costs. If the Big Three fail to cut costs and improve their offerings, they’ll be right back on Capitol Hill in a year or two, hat in hand. What the automakers should have asked for was permanent government ownership and control.

Consider how well this has worked for public schools. Between 1970 and 2005, real, inflation‐​adjusted public school revenues more than doubled, to nearly $12,000 per pupil. And the schools didn’t have to compete with anyone or show any improvement to get it! According to the National Assessment of Educational progress, 17‐​year‐​olds perform no better academically today than they did back in 1970.

If the auto industry had gotten a similarly sweet deal (double the revenue, no improvement required) Chevrolet would still be able to sell 1971 Impalas today, at a whopping $43,479! Due to the rigors of competition, however, they’ve been forced to innovate and keep prices down. They’ve had to improve mileage and mechanicals, refine fit and finish, add airbags and On‐​Star, and they still can’t get away with charging more than $21,975 for their vastly improved 2008 model.

Detroit’s defenders claim it’s not management’s fault, and that they’d be fine if it weren’t for the unsustainably high wages and benefits that the Big Three have been paying their unionized employees. That’s precisely where a monopoly on government funding would help. The reason that inflated union contracts cause problems in competitive markets is that they drive prices up above those of competitors, jeopardizing the viability of the business. But what if you don’t have any competitors? What if, as with public schools, the government gave everyone $12,000 a year toward the purchase of a new car, but only if it were made by GM, Ford, or Chrysler? Hardly anyone would pay for any other brand when they could get a new Detroit model for “free” every two or three years.

Once again, look how well this is working for public schools. According to the Department of Education, public school teachers earn nearly 40 percent more than their private school peers — and that’s not even counting their superior health and pension benefits. These above‐​market wages don’t drive public schools out of business, because taxpayers have to keep paying their taxes, and public school parents can’t take those tax dollars elsewhere. Quality is almost irrelevant.

Detroit has a lot to learn about winning the hearts, minds, and especially the pocketbooks of American taxpayers. If they truly want a no‐​risk business model, they should ask for a complete government takeover, and they should promise us flying cars if we go along. After all, if we believed that a government takeover of education would ensure academic excellence and end crime…

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