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Funds for education

By Stacey Abrams and Peter Kellner / July 8, 1999



While the US economy is thriving, the disparity continues to grow between rich and poor, and correlatively, between the technologically adjusted classes and the technologically disenfranchised. Central to this divide is access to and quality of education.

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Nearly 21 percent of America's children live at or below the poverty threshold. We must support them through public and private means, for when we tolerate their impairment, we risk both their futures and ours. There is a solution within reach that could bridge the divide: funding their support through an historically stable and untapped resource - the Initial Public Offering (IPO) - by means of an added "filing fee."

We propose creating a series of competitively managed investment funds called the IPO-Funded Educational Trusts (IFETs). The IFETs would invest in the stock market and guarantee a "social inheritance" for poor children. They would be a public trust privately managed.

Here's how it would work: Companies would allocate .025 percent of the money from each IPO to IFET. The fund would be managed privately, and would be overseen by an exemplary and rotating board of private and public advisers. Funds would compete based on performance, creating a competitive marketplace for their management.

The proceeds would be administered by the Department of Education. Thus, IFETs would operate as K-12 subsidies for a burgeoning educational innovation: the charter school or its local equivalent. With guaranteed funding for students who are at the poverty line, both the schools and their students would stand a far greater chance of academic success than they do now.

The IFETs would intervene in the dispute about public dollars funding private schools. Instead, public dollars would fund public schools designed to accomplish a public need: the real education of America's least-privileged children.

IPOs play a crucial role in allocating resources in market economies. They fuel the entrepreneurial engines of American prosperity. Between 1977 and 1998, IPOs generated average returns of 11.5 percent over the first four weeks after the offering, and numbered almost 37 per month. In the same period, IPOs raised an average of nearly $20.5 billion per year, with a high of $57.4 billion in 1993 and low of $221.6 million in 1977.

Given the yearly average of $20.5 billion between 1977 and 1998, our proposal would have generated $1.13 billion when reinvested between 1977 and 1998. These numbers are substantial. When billions of dollars are divided among the 9.6 million eligible school-aged children, the potential for change is staggering.

The IFET program would be an intentional combination of the public and private sectors, a dynamic we feel will be more pronounced in the 21st century.

The immediate beneficiaries would be people most in need. But society as a whole - including the corporations - would benefit. The consequences would engender greater competitiveness and harmony for our nation. It's a positive calculation if ever there was one - a great long-term investment.

Finally, IFETs perform in a manner counter-intuitive to the presently tax-based social-progressive education system. Instead of a perceived penalty against an entity for generating wealth, the IFETs would be wealth in itself. Where taxation encourages elusive maneuvers and creative accounting, IFETs simply place a new investor at the table - the young. With corporations as trustees for this immature investor population, the IFETs utilize their stake to ensure substantive education.

IFETs can be viewed as either a punitive response to the gross inequality of our nation or an affirmative act of pragmatic venture capitalism.

It's an appropriate idea for a nation that increasingly embraces private solutions to public dilemmas, yet one that requires and respects a certain amount of public administration. Something that reflects the duty we owe to our greatest public good, children, and to the most disadvantaged among them. Something that reflects the equity we believe should inhere in any public-goods calculus - that is, something that is a shared responsibility.

The ideal vehicles of this shared responsibility are the stock market and the schoolroom. Both are public, responsive, imaginative, and increasingly accessible.

In both venues, we are all on common ground. The market is our own reflection, manifesting America's claims and preferences. And the school is our forecast, prognosticating triumph or disaster. We should deploy both for the most meaningful ends. We can afford to do no less.

*Stacey Abrams is executive director of Third Sector Development, a nonprofit consulting firm in Atlanta. Peter Kellner is chairman of Endeavor, an international development organization in New York.