Remarks by John C. Bogle
Founder and Former Chairman, The Vanguard Group
Before the Executive Forum
Philadelphia Academies, Inc. at Studio WHYY
April 18, 2002
Just ten days ago, The New York Times received
a Pulitzer Prize for its breath-taking series "A Nation Challenged,"
a special section that it ran each day over a three-month period
during the aftermath of the September 11 terrorist attack on America.
The section covered not only the war in Afghanistan and our nation's
campaign against terrorism, but "Portraits of Grief,"
those biographical sketches of the lives of the several thousand
human beings killed in the attack. Perhaps you found, as I did,
those pictures of people cut down, randomly, in the midst of their
active, productive, cheerful everyday lives to be compelling reading,
almost habit-forming, day after day. "A Nation Challenged"
was truly a high moment in the history of journalism.
And surely our nation is being challenged,
as never before. While the war in Afghanistan is virtually over,
the peace in that battered nation is fragile. We cannot avoid involvement
in the India-Pakistan dispute. Our European allies are challenging
the unilateral nature of much of our foreign policy. Iran and Iraq
and North Koreathe administration's designated "axis
of terror"are all threats to world peace (such as it
may be). The tit-for-tat killings in Israel and Palestine starting
to abate, though its hard to imagine how peacereal peacecan
be achieved in this region of epic racial and religious animosity,
paradoxically the birthplace of three of the world's great religions.
The threat of nuclear bombs, now easily miniaturized for delivery,
and biological weapons has never been greater. And the likelihood
that we have faced our last terrorist attack is remote in the extreme.
And, sadly, this list of global hot spots and national risks is
by no means exhaustive.
Challenges at Home
In all of our concern for being a nation challenged
around the globe, however, we are also a nation challenged at home.
And despite the huge commitment of our resources$369 billion
in the administration's new budget, up $39 billion over last yearto
defending America, we'd best not ignore the vast array of serious
problems we face within America. Of course our self-defense is essential,
but we'd best not stint on the resources we must dedicate to mitigating
the obvious imperfections in our society. Let's consider just a
few of them:
Consider first the huge gap between the richand
compared to the median per capita income of $1,400 per year in the
rest of the world, that's us and just about every one we knowand
the poor, 34 million U.S. citizens living below the poverty line.
Consider crime. Yes, we read it's way down, but we have nearly two
million citizens in jail and our imprisonment ratioone in
every 100 adultsis tied with Russia as the world's highest.
Hardly unrelated to poverty and crime is the rampant use of drugs
in our society, a business approaching $100 billion in annual volume.
Its most baneful effects are not limited to the underprivileged.
Drug abuse has probably already touchedor one day will touchevery
family in this room.
While these problems transcend race, we live in a
society in which our nation's minorities are disproportionately
affected by poverty, prison, and drugs. Racial inequality is America's
most serious problem, and we have miles to go before we will have
created equal opportunity for all. Far too little effort is given
to how we will deal with these inter-related challenges. To begin
the journey, we must reaffirm in practice the powerful words of
Abraham Lincoln: With malice toward none, with charity for all,
with firmness in the right as God gives us to see the right, let
us strive to finish the work we are in (and) bind up the nation's
wounds. . .
Our endangered environmentthe food we eat, the
water we drink, the very air we breatheis yet another challenge.
We in America are surely doing our share to cause the problem. With
4% of the earth's population, we consume 26% of the world's oil,
and send its residues spewing out into our air and adding to global
warming. We are great consumers and poor conservators, as we fail
to heed Theodore Roosevelt's timeless words: We must treat our
natural resources as assets which we must turn over to the next
generation, increased and not impaired in value.
The National Character and Corporate America
In many respects, our unwillingness to face up to
these challenges and deal with them suggests a weakening in our
national character. There are lots of things going on in America
today that are hard to like: The debasement of our use of the English
language; the obvious "pay to play" natureI know
that it is politely referred to as "access" in governmental
circlesof our staggeringly-costly system of campaign financing,
where a senate seat has not yet cost $100 million, but just wait;
the tawdry daily menu of television shows; the moral laxity of our
movies; the shocking violence shown on the very computer games our
children are playing. And, in the field near and dear to my own
heart, where I've spent my entire career, Corporate America.
I hardly need tell you how devastated I am by the
march of events at Enron, at Arthur Andersen, at Xerox, at Global
Crossing, at WorldCom, and, alas, at a whole host of other corporations
hell-bent on rising their stock prices upward beyond the bounds
of reason. In their failure, we have relearned something that we
never should have forgotten: Stock prices cannot depart far from
corporate values before there is a powerful reckoning. We have
experienced one of history's great bubblesright up there with
Tulipmania in 1630, the South Sea Bubble nearly a century later,
and 1929. Such manias, as Edward Chancellor reminded us in a New
York Times op-ed piece, bring out the worst aspects of our system:
"Speculative bubbles frequently occur during periods of financial
innovation and deregulation . . . lax regulation is another common
feature . . . there is a tendency for businesses to be managed
for the immediate gratification of speculators rather than the long-term
interests of investors."
But the problem is not just that a return to reality
in the financial markets is by definition painful. The problem is
that investors finally lose confidence in the integrity of the information
they receive. In this recent era, Wall Street's conflicted sell-side
analysts have lost their objectivity in favor of attracting investment
banking clients; the buy-side analysts of our large financial institutions
have put aside their skepticism; too many of our corporations have
forced the fulfillment of their aggressive earnings guidance by
fair means or foul; enormous compensation from stock options has
driven corporate executives to be more concerned about stock price
than about corporate value; auditors have been lured into
being partners of management rather than independent professional
evaluators of management's financial reporting; and millions of
employees have lost faith in their retirement plan investments.
As all of these forces have come together, investors are coming
to realize that they have assumed risks that proved to be far larger
than those for which they bargained. They are demanding a higher
risk premiumand a higher risk premium raises the cost of capital
and ultimately becomes a drag on the economy.
But there's even more at stake than that. This nation's
founding fathers believed in high principles, in a moral society,
and in the virtuous conduct of our affairs. Those beliefs shaped
the very character of our nation. If character countsand
I have absolutely no doubt that character does countthe
failings of today's business and financial model, the willingness
of those of us in the field of money management to accept practices
that we know are wrong, the conformity that keeps us silent, the
selfishness that lets greed overwhelm reason, all erode the character
we'll require in the years ahead, especially in the post-September
11 era. The motivations of those who seek the rewards earned by
engaging in commerce and finance struck the imagination of no less
a man than Adam Smith as "something grand and beautiful and
noble, well worth the toil and anxiety." I can't imagine that
anyone in this room today would use those words to describe the
state of American capitalism today.
A Race Between Education and Catastrophe
Surely we're a long way from statesmen who not only
read Plato and Aristotle, but read them in Greek. While we can't
go home again to our colonial days, we can get at the task of reforming
our financial system, to say nothing of dealing more effectively
with drugs, racial inequality, the environment, violence, and the
debasement of much of our national culture. But if there is a single
issue that may play the most important role in shaping what kind
of America we'll have a century hence, it is education. While
today the issue of education seems all too easy for our society
to ignore, its importance is no less than just what H.G. Wells suggested:
"Civilization is a race between education and catastrophe."
If that's the case, I'm afraid catastrophe is in the
process of giving a pretty good account of itself. Just two weeks
ago, when, as I do at the start of each day, I opened the New
York Times, I came upon an absolutely stunning chart that illustrated
the extent to which we are failing to provide a decent education
for young American students. While the study was based on the standardized
test scores of New York residents, I have no doubt that it is broadly
representative of students in most, if not all, major metropolitan
areas, certainly including Philadelphia.
The data showed that only 30% of New York eighth-graders
were able to pass the standardized math test. Even worse, while
45% of students outside of New York City passed the test,
only 21% of city students did so. And, even worse, within the city
itself, 50% of white students passed, but only 18% of Hispanics
and 12% of blacks. (The student accomplishments in English were
better, but only marginally so). In fairness, I'm not sure which
is worse: The ghastly level of underachievement by the youth of
our heavily populated cities, or the horrendous gap between white
students and minority students. Clearly, we are about as far as
one can possibly imagine from the equal opportunity that should
rank among America's highest goals.
A Nation At Risk
That anecdotal evidence makes a general point that
seems unarguable. It was well put by the National Commission in
Excellence in Education in its 1983 report, A Nation at Risk.
After a comprehensive study of the quality of teaching and learning
in America's schools, the Commission wrote:
"Our once unchallenged preeminence in commerce,
industry, science, and technological innovation is being overtaken
by competitors throughout the world . . . We must dedicate ourselves
to the reform of our educational system for the benefit of allold
and young alike, affluent and poor, majority and minority. Learning
is the indispensable investment required for success in the information
age we are entering.
"Our concern goes well beyond matters such
as industry and commerce. It also includes the intellectual, moral,
and spiritual strengths of our people which knit together the
very fabric of our society. The people of the United States need
to know that individuals in our society who do not possess the
levels of skill, literacy, and training essential to this new
era will be effectively disenfranchised, not simply from the material
rewards that accompany competent performance, but also from the
chance to participate fully in our national life. A high level
of shared education is essential to a free, democratic society
and to the fostering of a common culture, especially in a country
that prides itself on pluralism and individual freedom."
Shockingly, with 23 million American adults functionally
illiterate at that time, and 40% of our minority youth in the same
category, the Commission's quotation from analyst Paul Copperman
seemed more than justified.
"Each generation of Americans has outstripped
its parents in education, in literacy, and in economic attainment.
For the first time in the history of our country, the educational
skills of one generation will not surpass, will not equal, will
not even approach, those of their parents."
We Shrug and Say, "Whatever"
That comment reminded me of something I read many
years ago in Simon Schama's wonderful history, Citizens:
The level of literacy in present-day America is no higher than that
of the citizens of France at the time of the French Revolution in
1789. Two centuries later, that hardly suggests a lot of progress
in education skills.
Recently, the Center For Education Reform revisited
A Nation at Risk. It did not like what it saw: "The
state of our children's education is still far, very far, from what
it ought to be . . . Yet despite the risk that this (mediocrity)
poses to our future well being, much of the public shrugs and says,
[in that horrific formulation that has invaded our language], "whatever."
For example our 12th graders are near the bottom of the international
heap. Among 21 nations, U.S. students ranked 19th in math and 16th
in science, and our advanced students were dead last among
their foreign peers in physics. But it's not just that we are lagging,
and lagging badly. As the updated analysis noted:
"We face a widening and unacceptable chasm
between good schools and bad, between those youngsters who get
an adequate education and those who emerge from school barely
able to read and write. Poor and minority children, by and large,
go to worse schools, have less expected of them, are taught by
less knowledgeable teachers, and have the least power to alter
bad situations. Yet it's poor children who most need great schools.
In the midst of our flourishing economy, we are re-creating a
dual school system, separate and unequal, almost half a century
after it was declared unconstitutional."
The Philadelphia School System
It is as obvious as it is tragic that the Philadelphia
school system is a paradigm for the problems of education that I
have discussed today. Here, one-third of our youth drop out before
they earn their high school diplomas, and only 13% of our 11th graders
are capable of reading a newspaper with comprehension. Drugs are
rife, crime is rampant, and, while screening devices in the doorways
of our schools surely help ensure security, the very notion that
such devices are necessary to detect knives and guns is itself appalling.
It seems obvious that our urban system is both underfinanced and
underachieving. Whatever one's opinion on the arrival of control
of Philadelphia's schools by the Commonwealth and their management
by Edison Schools and other private managers, the time surely has
arrived to do our best to fix what is clearly broken.
Of all the elements of our society, it seems to me,
business is among the most directly ill-served by America's educational
shortcomings. There is work to be done, and we need a well-educated
populace from which to draw our work force. More than ever in this
Information Age, we need workers who are educated in the applied
mechanisms of modern lifeworkers who can read, who can write
clearly, and who can do at least basic arithmeticbut we also
need workers who are craftsmen, and who are computer literate. But
we also need as many young citizens as possible with at least a
passing familiarity with history, philosophy, and literature, the
entire panoply of the liberal arts, for such broad-range students
have, I believe, the greatest opportunity to become the leaders
It's beyond my own competence to prescribe the remedies
for our schools that will yield the qualified work force that we
need to build productivity, to seed innovation, to make America
grow. But it's clear that standard testing is now part of the educational
process, and it's up to us to make sure it works effectively. It's
also clear that experimentation is part of the process. It's our
job to encourage private providers, charter schools, and special
curricula to compete with today's public and independent schools,
the kind of pluralism that has made our nation flourish. And this
morning, it's certainly proper for us to salute the approach taken
by Philadelphia Academies and its partnership with local businesses
in the quest to develop better citizen students through it's academy
model, and to salute President Natalie Allen for her inspired leadership.
All of that said, if education is to win it's long
and arduous race against catastrophe, we need to focus too on the
raw material we send to our schools. We cannot lay all of the blame
for these problems on our school systems. Let's face facts: The
traditional American family unit is becoming less and less common,
and we have yet to find something of value with which to replace
it. That half of all marriages now end in divorce is bad enough.
But when nearly three of every ten children in America are being
raised solely by mothers, and when nearly two-thirds of the children
of our lowest income families are born out of wedlock, our schools
are given challenges to learning and discipline and ethics and citizenshipchallenges
that are hardly of their own makingthat are almost insurmountable.
In a sense, "we have met the enemy and he is us." We can't
blame the educational system for the problem, but without education
it will never be solved.
Investing in Education: High Cost, Low Risk, Amazing
Of course, the business community has a major role
to play in all of this. Back in 1925, Calvin Coolidge is said to
have proclaimed that, "the business of America is business."
Whether or not that was true then, what must be obvious today is
that, "the business of business is America." There is
no better place to begin than investing in our educational system.
It is a wise investment, for given the linkage between lack of education,
and unemployment, drugs, and crime; and the long-run cost of not
investingthe cost in lower productivity and in dealing with
social unrestwould be a cost infinitely larger.
For those of you here who have supported the Academies,
God bless you for your time, for your support, and, yes, for your
money, to help insure that young students stay their educational
course and become not only better workerstrustworthy, smarter,
more productive, more valuablebut better citizens. If there
were ever a better case for investinga more obvious case of
enlightened self-interestit is in investing in education.
Yes, the costs may be high. But the risks are low and the rewards
will be amazing.
So, ladies and gentlemen, our work is cut out for
us, and each and every one of us, in one way or another, must be
part of the solution. Of course the challenges are tough, but there
is no recourse but for all of usparents and students; teachers,
businessmen and professionals; public servants and philanthropiststo
get on with the task of healing the wounds that lie here at home,
even as we face the extraordinarily compelling challenges that confront
us around the globe. "How on earth will we solve them all?"
you ask. In the only way American citizens have ever confronted,
and then resolved, every one of the challenges that our nation has
faced, ever since the winter of 1777-78 in Valley Forge:
Note: The opinions expressed in this article do not necessarily represent the views of Vanguard's present management.
to Speeches in the Bogle Research Center
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