How to Lose the Race for the Future

After recent negotiations between the White House and the U.S. Congress over yet another huge tax cut, some conservatives were gleefully proud of the fact that President Bush held the line on federal transfers to U.S. state and local governments.

Some 45 U.S. states are facing a total budget deficit of around $89 billion this year, based on data from the National League of Cities.

But a hard-line negotiating strategy by the White House and conservatives in Congress ensured that states will only get around $20 billion in federal money to plug the giant holes in their budgets.

And even for that inadequate contribution, Democrats had to fight tooth and nail.

Why is this significant? The answer is simple: Most U.S. states are required to balance their budgets.

And since it would simply be political suicide for any elected official to talk of tax increases on the scale required to head off the current budget crisis, states' main method of making up for the budget shortfall is to curb spending.

Not surprisingly, the budget that is most in danger of being cut is education. And according to the National Governors' Association (NGA), states spend nearly 50% of their revenues on education — from kindergarten through college. State and local governments are responsible for 90% of U.S. spending on education.

A survey by NGA found that 37 states will be cutting $14.5 billion from their overall budgets this year — the largest fiscal cuts since 1979.

And even that does not fully reflect the severity of the crisis, since states are drawing one last time on their contingency reserves. But those are already nearly depleted — which suggests even steeper cuts in fiscal 2004.

This is only the start of the fiscal crisis that, for states and municipal governments, is already shaping into the worst since the Great Depression.

Everything from pre-school programs to public schools and state universities will see their funding slashed. Examples of how much the nation's education establishment has had to tighten its belt are numerous as well as dramatic.

They range from a shortened school year in Oregon to pink slips to thousands of New York school teachers, which will result in approximately one-third increase in the average class size. Increases in undergraduate tuition in Maryland and Kansas — just to take two far-flung examples — are over 20%.

And the Board of Regents at the New York State University System proposed a whopping 41% tuition increase to cope with cutbacks!

This, of course, is quite ironic. During the 2000 election campaign, President Bush wanted to style himself as an "Education President" and a "compassionate conservative" — and pointed out that his wife Laura used to be a schoolteacher.

More recently, states have indeed have achieved some progress on improving educational standards, earning praise from the President in June for improving test scores. But education professionals complain that the "No Child Left Behind Act," which demands higher educational achievement and better teaching, is largely unfunded.

This means that with even less funding, whatever improvement that has been seen among public school students will be quickly reversed.

Cutting spending in education is something that most other nations that compete with the United States for well-paying jobs in the global services economy would consider only as a last resort.

Take China, for instance. It has made steady gains in providing its young citizens with a sound education at home. And to further boost the overall quality of its students, it also sends thousands of them to study abroad.

Chinese graduate students — especially in the natural sciences and math, but increasingly in other fields as well — constitute a majority of foreign students. This is the case not just at U.S. universities, but also in Japan and Germany as well.

Even when those students took up jobs abroad, the Chinese government did not scale down those programs. It understood that when opportunities at home improved, many of those top-notch scientists and engineers would come back.

Only under extreme circumstances would the Chinese consider cutting their domestic educational spending. And it goes without saying that they would not do so for questionable spending priorities, such as tax cuts for the very wealthy.

Ironically, U.S. conservatives — whose near-deification of tax cuts has also contributed to the severe budget crisis at the state level — are the very people who typically are the ones most concerned about the long-term economic and security threat that China poses to the United States.

Yet, what they don't seem to realize is that their policies — at least at the state and local level —undermine America's future competitive position with regard to China, India and other potential rivals.

Americans are currently very nervous about China having emerged as the global manufacturing hub at the start of the new millennium. However, its true threat to U.S. economic leadership is in the services sector — which will dominate the future.

It will require a set of skills that many Chinese students are acquiring in ever greater numbers.
Viewed in that global context, cutting spending on education is therefore the easiest way to erode U.S. leadership in education. More tantalizingly, those who want to put pressure on state budgets do not seem to understand how their ideological positions are in conflict with themselves.

Military strategists know that military prowess ultimately depends on economic success. Throughout history, nations that spent lavishly on their armed services while neglecting the economic underpinnings of their armed might eventually lost their military edge as well.

U.S. conservatives — with their dogged pursuit of tax cuts and holding the line on fiscal transfers to the states — are repeating the same mistake.