Think Tanks Wrap-up

Feb. 20, 2002 at 7:50 PM
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WASHINGTON, Feb. 20 (UPI) -- The UPI Think Tank Wrap-up is a daily digest covering brief opinion pieces, reactions to recent news events, and position statements released by various think tanks.

Institute for Public Accuracy

(The IPA is a nationwide consortium of policy researchers that seeks to broaden public discourse by gaining media access for experts whose perspectives are often overshadowed by major think tanks and other influential institutions.)

Comments on Iraq, China, Korea

Denis Halliday, former UN Assistant Secretary General and ex-head of the UN oil-for-food program:

"The International Atomic Energy Agency inspectors were in Iraq just two weeks ago. Those types of monitoring programs could be expanded to include chemical and biological weapons capability, but re-starting an Iraq-specific regime like UNMOVIC would very difficult because of domestic pressure in Iraq. It's very hard for Iraq to trust the UN after the UNSCOM inspectors were used for espionage. The talk of 'axis of evil,' 'regime change' and threats of a major assault on Iraq are just grossly irresponsible ... The U.S. should move to lift the economic sanctions, which are continuing to have an enormous human cost. Instead, the U.N./U.S. should focus on implementing paragraph 14 of UN Security Council resolution 687, which calls for the downgrading of all weapons of mass destruction throughout the Mideast and would include Israel's nuclear arsenal."

* Robert Weil, author of "Red Cat, White Cat: China and the Contradictions of 'Market Socialism'" and a lecturer at the University of California at Santa Cruz:

"The government of China has taken major steps over the past few months to ... take advantage of new global developments, in particular the 'war on terror' launched by the United States. In the short run, these actions may benefit certain Chinese economic interests and current political and strategic goals. But they are likely to lead to a further deepening of the major contradictions which the society faces."

* Tim Shorrock, a journalist who has covered Korea for more than two decades:

"There is a great deal of consternation in South Korea because of Bush's bellicose language and how it has undercut President Kim Dae Jung's efforts to reconcile with North Korea. Bush is using language that North Korea has interpreted as a virtual declaration of war and has set back a peace process that seemed so promising in 2000, when the leaders of North and South Korea met for the first time. A year ago, the Clinton administration was close to an agreement that would have ended North Korea's ballistic missile program, but the Bush administration scuttled the talks. Many Koreans are convinced that Bush is so bent on building an anti-missile system he is willing to undermine the peace process in Korea."

* Yoon Hyowon, director of international affairs for the Korea Labor and Society Institute in Seoul.

"Many fear the dark cloud of war is again coming to Korea because of Bush's threats. Eighty percent of South Koreans are against the U.S. administration's stance on North Korea; it is putting obstacles in the way of cooperation and reconciliation between North and South."

Competitive Enterprise Institute

(CEI is a free-market think tank that supports principles of free enterprise and limited government, and actively engages in public policy debate.)

Expensing Stock Options: Once More Into the Breach

By James V. DeLong, Senior Fellow, Project on Technology and Innovation, CEI,

U.S. companies cheerfully slit each other's throats in the marketplace, the courts, and the halls of Congress. But on one thing they stand together like a band of brothers, and with Old Testament fervor: Thou shalt not require that stock options granted to employees be treated as a corporate expense. Of the 500 companies on the Standard & Poors list, only two are mavericks.

In 1994, the Financial Accounting Standards Board, goaded by the SEC, made some moves toward requiring that stock options be expensed. This was turned back in favor of a simple disclosure requirement that permits investors to draw their own conclusions about the significance of potential dilution.

Now, controversy has resurfaced. In late 2000, the International Accounting Standards Board issued a staff report advocating an expense approach, with the value of the stock options determined by a complex options-pricing model. The fallout from the Enron affair has now put all accounting issues in play, and Senators Carl Levin, D-Mich., and John McCain, R-Ariz., recently introduced a bill requiring that options be expensed if a company takes any tax deduction for them.

Some accountants and investment analysts are supporting an expense approach, and Arthur Leavitt, former SEC chairman, said that his "biggest regret" is his failure to force companies to follow the initial FASB recommendation. Option-granting U.S. companies are again girding for battle.

The argument in favor of treating options as a corporate expense seems simple. Accounting should provide a realistic picture of a business. If a firm trades stock options for inputs such as labor, then failing to reflect their value understates the costs to the company of buying the inputs, and thus overstates earnings. Period.

The opponents counter with a battery of complexities. Valuing options presents tricky problems on which there is no agreement, because whatever approach is adopted, people who disagree will actually be misled by the earnings statement, and it will be difficult for them to recreate an uncorrupted earnings estimate.

Besides, say the options grantors, messing around with stock options will discourage their use, doing particular damage to start-ups and high tech, and to what end? A tidier number that may or may not really reflect reality? T. J. Rodgers, Silicon Valley CEO, calls the proposals "destructive."

So, say the companies, the logical course is the current FASB policy -- disclose options as potential dilution (no one disagrees with that) and let investors apply whatever valuation technique they favor.

The companies should win again, because the "options are compensation" idea, despite its sound bite appeal, is indeed too simplistic. Options are not solely intended to reward employees for labor inputs, as if they were automatons. Options are designed to align employees' incentives with the interests of other stockholders, and thus, hopefully, to improve the quality of their inputs and increase future earnings.

It is no accident that options flourish in high tech companies that depend heavily on intellectual capital, not physical assets, and the accountants are wrong to assume that they can link the value of options to current earnings. They are misperceiving the basic nature of the modern high tech enterprise, which consists not of sharply divided capital versus labor, but of a shifting and nuanced partnership between contributors of finance and contributors of intellect.

So the accountants should stop trying. Disclosing the potential dilution provides the necessary information, and trying to do more will create an illusion of exactitude coupled with a reality of confusion.

(James V. DeLong is a senior fellow in the Project on Technology and Innovation at the Competitive Enterprise Institute.)

The Cato Institute

Helping Kids Succeed in School Is Not "Creaming"

By Casey Lartigue Jr.

Sen. Edward M. Kennedy, D-Mass., president George W. Bush's newest friend on education, has denounced school choice as "a death sentence for public schools struggling to serve disadvantaged students, draining all good students out of poor schools."

Sen. Hillary Rodham Clinton, D-N.Y., former North Carolina Gov. James Hunt and Wisconsin State Rep. Christine Sinicki have also charged that vouchers "skim" or "cream" the best students from public schools. But they ignore the facts to make their case.

Take the new book, "Ten Myths about School Choice: Answering the Campaign against School Vouchers." The authors, Kaleem Caire, president and CEO of the Black Alliance for Education Options, and Howard Fuller, distinguished professor of education at Marquette University, explain that Milwaukee's choice program "is used solely by children from low-income Milwaukee families, more than 80 percent of whom are racial and ethnic minorities."

Suburban students are not even eligible for Milwaukee's choice program, they write. Further, random selection lotteries are required when the number of choice students exceeds available space in Milwaukee, Cleveland and Florida. Despite this, a number of school choice opponents have claimed, without offering evidence, that talented students have been "skimmed" or "creamed" from the system.

It is dishonest to claim that school choice creams. First of all, school choice opponents aren't just bothered that the top students may be leaving public schools. They are bothered that any students are leaving the public schools. Bob Chase of the National Education Association and Sandra Feldman of the American Federation of Teachers sneer at private scholarships from rich businessmen helping students to attend the school of their choice.

Could there be a more ideal situation than having rich white men dig into their own pockets to finance the education of low-income minority children? When Ted Forstmann and John Walton each put down $50 million of their own money to create the Children's Scholarship Fund, the teacher union leaders denounced the fund as a "Trojan horse" for vouchers. When another rich businessman set up a choice program in Texas for Latino children, that program also was denounced as an attack on public schools.

Second, the charge about creaming is shortsighted. When critics say creaming by school choice will be a disaster, the question that isn't answered is: compared to what? We already have a massive informal school choice system: the public schools have already creamed and sorted the best students.

Parents who can move to areas where the schools are better have already left behind poorer students. After white flight to avoid integration, the establishment of magnet schools, gifted classes and tracking, the reality is that separate (and unequal) schools have already been set up within the public school system.

Third, the charge about creaming is misguided. As education researcher Jay Greene has noted, in many if not most cases we're talking about poor kids, probably minority kids, going to better schools that currently are economically off-limits to them. In their desire to save the public school system, instead of saving the kids, school choice opponents are making the argument that good students should be kept in lousy schools for the sake of the schools and other less motivated students.

Also, it is often not the "good" students who leave. Their parents are often satisfied with how they are doing. Citing research from University of Wisconsin professor John Witte, Wisconsin's nonpartisan Legislative Audit Bureau, and Kim Metcalf of the Indiana University School of Education, Caire and Fuller point out that it is failing students whose parents are desperate to find alternatives who are flocking to school choice programs.

Finally, the campaign against creaming has even led defenders of the public school monopoly to attack the children they supposedly serve. In Chicago, students who attend schools outside of their neighborhoods are derided as "defectors." But we don't call people defectors if they shop in other neighborhoods for food, medicine, or housing. Parents who enroll their children into private schools supposedly are turning their backs on public schools. But is there anyone who would criticize parents for trying to find the best doctor for their children?

Schools willing to accept low-income children trying to escape from a failing school are said to be engaging in creaming. And when they don't accept those students, they allegedly are elitist or racist.

We have truly reached a low point in political dialogue when the act of helping a child out of a lousy school is denounced as "creaming" and parents are blamed for trying to save their children from peers not interested in education. Instead of trying to keep students in schools that are not serving them well, we need freedom of choice in education so that educational decisions can be made based on achievement and motivation, not geography or economic status.

(Casey Lartigue Jr. is an education policy analyst at the Cato Institute.)

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