Introduction

Good morning, and thank you for inviting me to address this conference. I am here today to talk about innovation--a subject that I know has been popular in this area--and this school, in particular--for many, many years.

The names of all of the innovators who have achieved fame and fortune after leaving your school are no doubt familiar to all of you, but I would like to recognize a recent graduate who may not be known to all of you, but should be.

Her name is Kim Smith, and she runs the New Schools Venture Fund. I will let her speak to the New Schools' mission, but let me just say that I've had the privilege to work with her a bit, and to see her in action, and she is almost single-handedly reshaping the thinking about how to transform--and improve--education through investment and innovation. As someone who is laboring in the education trenches, I can assure you that America's education system--and America's children--need more Kim Smiths.

I am in charge of a relatively new office in the US Department of Education, the Office of Innovation and Improvement. Secretary Paige created this office a year and a half ago, calling it the "nimble and entrepreneurial arm" of the Department. Our job is to support, evaluate, and get the word out on innovations in elementary and secondary education. Our goal, to quote a former member of Stanford's faculty, is to see schools go from "good to great."

To those of you who are students or work here at the business school, I'm sure it comes naturally to think about entrepreneurship, and to try to anticipate economic and technological trends.

Unfortunately, the same cannot be said about the federal government, or public education. Federal government is one of sluggishness and excessive caution, of being very rule-bound and slow to change.

Our School System

Part of the problem is sheer size. Think, for a moment, about the public school system as a business: there would be 91,000 retail outlets (called schools), almost 3.7 million frontline employees (the instructional staff) serving almost 48 million customers (the students). And more than 15,000 individual firms (or school districts), each with its own governance structure and each operating independently, but also in a heavily regulated environment.

I suspect that even Jack Welch--or the consultants at Bain, BCG, and McKinsey--would find this a management headache.

In fact, there is a rich literature on how difficult it is to manage and implement changes in public school systems. Superintendents and other managers are subject to the demands of many masters, including powerful unions and restrictive collective bargaining agreements, externally imposed constraints on their revenue streams, and a public that demands quick improvements in outcomes, even though it is often difficult to determine how to achieve those improvements.

These factors contribute to the high turnover in senior management of the large, urban districts. These factors also stifle investor interest in the K-12 marketplace. We recently hosted a small meeting at the Department with around 20 venture capitalists who work in the K-12 arena, and I have to admit to being a little taken aback by the challenges they outlined. Many of them are frustrated with what they consider to be too many players and few real decision makers.

While venture capitalists, and just about everyone else, have ideas about how to change our schools for the better, America's public school system is often criticized as too quick to jump on board the latest fad or nostrum, because managers need to latch on to something that may result in improvement, or at least give the impression of leading to improvement, and because each new superintendent wants to implement his or her new program.

A fabulous book that dissects this phenomenon is called Spinning Wheels: The Politics of Urban School Reform. The author, Rick Hess of the American Enterprise Institute, spells out how reforms are frequently introduced and then tossed aside in center city school systems. In fact he found that 12-13 new reforms were introduced in these districts over a three-year period--which is about one major reform every 3 months.

On the other hand, the system is criticized as resistant to the kind of change that would shift some of the basic paradigms and create the conditions necessary for real improvements in student achievement.

And with the exception of reading, the whole field of education suffers from a paucity of real, research-based information on what works. The kind of research we need requires not only a commitment to one reform for at least five years but also funding. Many people who invest in education, like Princeton Review's John Katzman (who is also here today), don't like to invest in the kind of scientific research that needs a control group and rigorous monitoring, believing it's wrong to use children as lab rats. I share this concern, but the alternative is to have all of these reforms floating around with little evidence that the reforms are effective. If you want to take any of these education reforms to scale, you need to know if they work and right now, we can't tell what is working and what is not, because few people are investing in robust longitudinal field tests.

The results of this system we have in place speak for themselves. According to the Organization for Economic Cooperation and Development, American students are less proficient in reading, writing, and math than their age-group counterparts in Asia and Europe. And we spend more per student than any of the other OECD countries--except for Switzerland and Denmark. In fact, if you add federal, state, local and private funds, we spend $500 billion each year on education, which is more than the annual budget of the Pentagon.

But the gap between American kids and their counterparts overseas isn't the worst part. The greatest tragedy is the gap that exists right here in America--between white and Asian students on the one hand, and their black and Hispanic counterparts.

Today, national test scores show that the average 12th grade African American student is reading at the same level as the average 8th grade white student. In center city districts like Washington, DC, black students score 60 points lower than their white peers on the NAEP--that's double the national average for the gap. It's also in a city that has the highest spending per pupil.

There are a number of reasons why we should be troubled by the achievement gap, and Federal Reserve Chairman Alan Greenspan put his finger on one of these reasons in a recent speech on the importance of education. "Generic capabilities in mathematics, writing, and verbal skills," he said, "are key to the ability to learn and to apply new skills and thus to earn higher real wages over time." Not every student needs to be able to explain the intricacies of Michael Porter's Five Forces--and please don't ask me to! --But students do need to possess basic skills in math and reading, and be able to build on these skills to learn other important areas of the curriculum. Yet our education system is not getting the job done for millions of American children--especially for poor and minority kids.

The Federal Role in Education

Now how does the U.S. Department of Education fit into this picture? As I am sure all of you know, the Department has always been the junior partner in this business, supplying only about 7 percent of total education funding, with our money targeted at areas of national interest, such as the education of disadvantaged and disabled students. Most of our money goes out by formula, from Washington to the state capitals and then to those 15,000 districts.

I'm sorry to say that studies have shown that the money the federal government has been contributing for nearly 40 years has had, at most, only a marginal impact on student achievement and other outcomes.

No Child Left Behind

The Bush Administration has been working to change that through the No Child Left Behind Act (NCLB). Before I describe the law, let me address some of the controversy surrounding it. As I am sure you have noticed, it has become something of a punching bag in various settings. I've been in Washington long enough not to be surprised by much, but the attacks on No Child Left Behind, especially from those who operate inside the beltway, are a bit of a mystery.

After all, it is a law that builds on a number of basic ideas that were approved by the Congress with little controversy in 1988 and 1994. And while the President injected a "dose of Texas" into the bill, most of the ideas in it came from a small band of New Democrats, led by the Progressive Policy Institute, and liberal education advocacy groups, like the Education Trust. And the law passed with strong bipartisan support. Democrats George Miller of California, and Ted Kennedy of Massachusetts were its lead authors and everyone from Dick Armey to John Kerry voted in favor of it.

The key mission of the law is to close the achievement gap. It does this in two ways: through standards and pressure from the top and through choice and flexibility on the bottom.

Here is how it is supposed to work:

First, standards and pressure from the top. No Child Left Behind raises the stakes in terms of school accountability. It demands annual testing of students in grades three through eight, so that teachers have up-to-date data that can help to diagnose problems and identify solutions before any student falls through the cracks. And it requires all schools to make "adequate yearly progress" (AYP) or face stiff consequences. Its real innovation is to hold schools accountable for the success of all groups of students. So high average test scores won't mask gaping achievement gaps.

No Child Left Behind demands that the results for all kids--poor kids, black kids, white kids, Hispanic kids, Asian kids, children with disabilities and those learning English--all be disaggregated and that schools be held accountable for making sure all groups of students are meeting standards. Schools face serious consequences if they don't show progress for all of these groups--the staff could eventually be removed, or the school could be taken over by the state or turned over to private management.

In the past few months, we've seen the first signs of this new accountability system. Thousands of schools are being identified as "in need of improvement." The greatest shock comes in communities with good school systems, but with a diverse student population and a hard-to-crack achievement gap. Great schools in suburban Washington, DC are showing that while they are educating their white students well, they are not educating some of their subgroups as well as they ought to. Our hope is that by revealing these inconsistencies, districts will learn to better target their resources on students who need help the most.

No Child Left Behind also seeks to empower parents with information and options to leave the system if their child's needs are not being met. After all, parents are the primary consumers of the education system, and the same competitive pressures that can force car companies to build quality cars can help to force school systems to create quality schools.

The idea that parents should have options shouldn't be controversial. After all, this is the land of 500 cable channels; outlet malls the size of small cities, and higher education options in every size and shape imaginable. We like to have choices, and K-12 education should be no different. While we aim to meet state standards, one size certainly does not fit all, and one educational model certainly does not serve every child. We need diversity and variety within our education system.

The choice provisions of NCLB say that if a school is in need of improvement--which means that it has not met its AYP target for at least two years in reading or math--then parents should have a right to send their child to a better performing public school. And if the school hasn't met its targets for three years, low-income parents should have access to supplemental educational services, like free tutoring, for their children, with priority going to low-performing students.

The thinking behind creation of the supplemental educational services is that, during the time a school identified as in need of improvement is turning itself around, adopting new curricula or other reforms, the students in that school should not be left behind. The tutoring they can receive after school, if delivered effectively, gives them a way of keeping up and reaching the state goals.

If you had a second-grader, and her school had not been meeting standards from the time she was in kindergarten, and she had fallen behind, you would certainly want extra help for her. And middle class parents, in ever-greater numbers, go out and purchase that kind of extra help. No Child Left Behind tries to level the playing field for families who cannot afford it.

These provisions are also meant to provide real incentive for change. For school administrators, implementing these provisions is not going to be easy. It might take a bite out of their bottom lines, and it could be a real headache. So this also gives them another incentive to do everything possible to improve achievement and stay off those "needs improvement" lists.

Ultimately, with all the emphasis placed on results by the No Child Left Behind Act, local administrators, who care about kids' achievement and want their students to meet ambitious state achievement goals, are energized by the law.

I was at the Black Alliance for Educational Options (BAEO) conference in Milwaukee yesterday with the Secretary. For those of you who don't know BAEO, it's a group of African-American leaders who advocate for expanded parental options and information. We had a session with their state legislative and community leaders--most of whom are Democrats. They all supported NCLB--not because of the mandates to do x, y, and z, but because they felt that the leverage it created allowed them to go back and fight for the reforms that the unions did not want to discuss until recently (reforms like better reading curricula, ability to hire the best and the brightest to teach in inner-city schools, etc.)

Office of Innovation and Improvement

I should also discuss how my office ties in with the No Child Left Behind Act, as some of its key elements feature the kinds of innovations my office was created to support.

First and foremost among them are the pieces of the Act that promote greater parental and student choice. Those choice-related elements include greater support for charter schools, which I regard as one of the major and most successful educational innovations in years. The Department has supported the establishment of charter schools since the mid-1990s, but No Child Left Behind takes that support one step further by creating authorities that help ensure that those schools have adequate facilities. We give grants to nonprofit and public agencies to fund credit enhancement activities; in other words, things like guaranteeing charter school bonds and leases. The federal money can be leveraged many times over, and the array of creative methods our grantees have employed in carrying out the program is very broad. You may want to find out more about the program because, as potential education entrepreneurs, your skills and ideas may be particularly appropriate in this area.

The other function that our office serves is to promote and oversee the implementation of the supplemental educational services provisions of NCLB, which I talked about earlier. This is one aspect of the law that is highly appropriate for involvement by private-sector and nonprofit entrepreneurs. Any type of organization can apply to the state for approval to provide services in its school district. In order to be approved, applicants must demonstrate that they have a sound program and a record of effectiveness in raising student achievement. At the local level, parents of eligible children can select any provider who has been approved to operate in the district. In fact, we already have over1,000 individual providers approved by the states, and the number seems to grow every day.

One other program that I would be remiss to ignore is the DC Choice Incentive Act. This is a program that was recently enacted, and my office will oversee its implementation. It's the first federally funded school voucher program in the nation. It will offer opportunity scholarships of up to $7,500 to roughly 2,000 students who are at or below 185 percent of the poverty line to attend a private school of their parents' choice. We have placed few regulations on private schools, but we will study the program carefully to see how the students do academically compared to their counterparts in the public school system in the next five years, using one of those robust research designs that I mentioned earlier. If it works, it will give us a lot of information that we have not had before about school choice--and whether it is, in fact, a good tool to use to close the achievement gap.

I should say a little more about the issue of educational technology, because it is also highlighted in No Child Left Behind, and we manage several grants in this area, and I suspect it is a subject that interests all of you. For two or three generations, people have predicted that technology would be the panacea in education, a great equalizer of access and opportunity, and a way of "teacher-proofing" instruction.

Clearly, very little of that has happened. So I don't want to overstate the promise of technology. But we do, as everyone knows, live in a time of rapid development in information technology and telecommunications. We have the opportunity to use technology to reach children in ways that we couldn't do before, and to personalize instruction to meet the needs, the level, and the particular learning style of the student.

As I mentioned, online instruction is one way of providing supplemental educational services. Sylvan Educational Systems and other firms are creating some very intriguing models for doing that. We've also seen the beginning of public virtual schools and virtual charter schools (like the ones that Ron Packard will tell you about today).

These innovations give students more choices, and make curriculum available to them that they wouldn't otherwise have. In particular, for students seeking to change schools under the No Child Left Behind public school choice provisions, a virtual option may be the only option available.

And we are also looking at online programs for teacher professional development and even for the initial preparation of teachers. These initiatives will help states meet the goal, called for in the legislation, of ensuring that all of their teachers are "highly qualified" by the end of the 2005-2006 school year. Clearly, each of these areas, where technology can be a part of the solution, offers opportunity to the types of people attending this conference.

Conclusion

Before ending, let me provide one piece of advice. To those in the audience who are current Stanford students: take classes at both the business school and the education school. Private business and public education, while they have many areas of intersection, are two very different worlds. They tend to speak a different language and to look at the world differently. While you are still at this great university take advantage of this opportunity to help bridge the gap and to help inject your thinking about models of success into the world of education.

I hope I have given you a good indication of what my new office is about and about the ways that you might fit into our, and the Department's, activities. I would be happy to discuss these issues further. Once again, I thank you for this opportunity to speak with you.

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