The Dole Plan and Human Capital

Thursday, January 30, 1997

I was surprised when I received a phone call in early May to attend a meeting in Washington with then Senate majority leader Bob Dole of Kansas, other senators, and a few economists to discuss the formulation of an economic program for the presidential campaign. I had been the consummate Washington outsider. I declined all invitations to testify before Congress and had never even set foot in the Capitol, the building where the meeting was to take place! But I accepted this invitation because I believed that new economic initiatives were much needed to raise the growth rate of America.

From the beginning, Dole wanted major education and training initiatives because he recognized that investments in human capital are essential to robust long-term growth in modern econ-omies that depend on knowledge, skills, and information. Better education and training would also have helped narrow the inequality in earnings that has grown over the past two decades.

VOUCHERS AND SAVINGS

His program advocated scholarships, or vouchers, for students from middle-class and poor families that could be spent at private schools, including parochial schools. Poorer students attend the worst public schools, since they cannot afford either private schools or good suburban schools. Vouchers, choice, and competition among schools sharply distinguished Dole's approach from President Clinton's, since he, along with teachers' unions, strongly opposed school vouchers and choice.

The Dole plan included education savings accounts that would have allowed families to contribute $500 a year to an "education individual retirement account" for each child, which could be spent eventually on college or other post-high school education. It also would have given tax incentives to companies to pay for training and retraining employees-including those who lost their jobs, possibly because of downsizing.

The Dole program planned first to stop and then roll back the rapid growth in regulations under Presidents George Bush and Bill Clinton. The Clinton administration itself estimated that the cost of complying with federal regulations in 1995 absorbed almost 10 percent of gross domestic product, and the cost was continuing to rise. Dole would have required benefit-cost analysis to justify new regulations and would have reevaluated all existing regulations.

THE BURST

I believe the full program could have reached a much higher growth rate for the U.S. economy. The United States and many other countries have enormous reservoirs of skills that are throttled by high taxes, excessive regulations, and failures to properly educate and train much of the workforce. Any country will gain a large burst in economic vitality if it can improve opportunities for men and women to start businesses and encourage much greater investments in human and physical capital.

To me, the Dole plan was a simple implication of elementary economics taught to freshmen: that powerful changes in incentives have powerful effects on behavior.