An Assessment of Dollarization in Ecuador

It’s been over five years since the Ecuadorian government, in an attempt to restore stability to its shattered economy, officially made the decision to abandon the hyper-inflated Sucre and adopt the US dollar as the nation’s official currency. This policy brief aims to review the case for dollarization in Ecuador, assess if the policy decision has delivered the expected results, review the advantages and challenges posed by a dollarized economy (within the Ecuadorian context) and propose a set of recommendations.

After a very severe crisis in 1999, Ecuador adopted dollarization. Even though the country had reached a more or less consistent management of the nominal exchange rate since 1993, this reversed in 1997 and 1998 when the economy was shaken by a series of external shocks. Extensive damage to agriculture and infrastructure by El Nino, a vast fall in oil prices (Ecuador being a net oil exporter), the sudden stop provoked by the Russian crisis and the recession in international markets after both Russian and Asian financial crises. These shocks led to a deterioration of fiscal deficit, bank insolvency and runs on deposits and a strong pressure for devaluation.

The (spontaneous) semi-dollarization that had taken place in Ecuador during the crawling peg exchange rate regime (substantial portion of private assets and liabilities were held in dollars) exacerbated the effects of the 1998 shock-led devaluation as the currency mismatch –the banks had substantial dollar denominated loans that were not backed up with dollar income– increased non-performing loans and strangled even more the banking system. The Central Bank had to provide banks with massive liquidity support throughout 1999. Late in the year, the depletion of international reserves resulting from the monetary issue led to an exchange-rate collapse and early hyperinflation. After losing its ability to control the money supply and, hence, the value of the Sucre, and in the midst of a systemic financial crisis the government was forced to dollarize the economy in order to halt the rapid depreciation, control hyperinflation and stabilize the economy.

Official dollarization occurs when a country adopts a foreign currency as legal tender. In the Ecuadorian case, the decision was to use the US dollar as their predominant currency (25,000Sucre = US$1). By doing so, they surrendered their monetary sovereignty and linked their inflation rate to US monetary policy. In return, dollarization should preclude the government from using inflation as a revenue source, which enhances soundness and transparency of monetary policy. This in turn shall improve the prospect for real economic growth.

Was dollarization inevitable? Given the scale of both the currency and systemic banking crisis that broke out during 1999 coupled with the country’s institutional and political weakness, dollarization seems to have been an unavoidable measure. The step to dollarization was a bold move to reverse hyperinflation and capital flight. In reality, Ecuador gave up an active monetary policy that had proved ineffective and, even more, disruptive. From a traditional view in which dollarization must be implemented only under a stable set of macroeconomic conditions and sound institutions, dollarization in Ecuador was predicted to be a failure. However, the scheme worked well as a last resort response to an inexorable systemic crisis and, notwithstanding the institutional and political weaknesses, it was successful in reaching the desired stabilization and transparency objectives. In this sense, dollarization was a good and perhaps the sole alternative to curb fiscal imbalances and to restrain the government’s spending patterns.

Given the degree of “informal” financial dollarization of the Ecuadorian, this dual account system prevented other policy responses from being effective to stop the crisis. The increase in interest rates required to mop up liquidity and reduce devaluation pressures would have been so high that it would have asphyxiated the financial system. More preventive actions however, may have had reduced the need for dollarizing. For instance, the government failed to tighten its fiscal policy and adjust the fiscal imbalances before and during the crisis. Additionally, some of the policies adopted by the authorities aggravated the situation, in particular charging a tax on financial transactions (1%) in the midst of the crisis increased banking insolvency; additionally. setting a universal guarantee on deposits was ineffective, its credibility was quickly undermined by the government’s manifest inability to pay.

The dollarization scheme seems to have been successful, especially with respect to its original purpose of reducing inflation and creating more favorable conditions for economic growth. Since dollarization, the Ecuadorian economy, which contracted by 7.3% in 1999, has experienced growth of 2.8% in 2000; 5.1% in 2001; 3.4% in 2000; 2.7% in 2003; and a booming 5.4% in 2004 . However, around 2/3 of this growth comes from oil revenues (oil constitutes 40% of Ecuador’s revenues) which indicates that the country has also profited from the betterment in terms of trade.

There has been a rapid recovery of the relative prices and the stability of the price level and inflation following the crisis and recovery, which is apparently due to the move to dollarization. Inflation, once a serious problem for the Ecuadorian economy, has declined from an annual rate of 96.1% in 2000 to 2.7% in 2004. The current reduction in inflation will contribute in offsetting the loss in competitiveness of exports since the implementation of dollarization. However, competitiveness is still an issue and a dollar appreciation could reduce the country’s trade balance. Although Ecuador’s main trading partner is the United States, with 42% of exports, the dollar exchange rate of other major trading partners such as Colombia (12% of exports) and Chile (6% of exports) may put pressures to the Ecuadorian economy to reduce wages and prices in order to sustain competitiveness. There has been evidence, although anecdotal, of companies migrating production to Colombia and Peru, where costs are lower.

One of the main benefits of dollarization is a decrease in risk premium on a country’s international debt, given the elimination of the risk posed by high exchange rate volatility. However, Ecuador has not been able to take advantage of this benefit given its substantial default risk. External public debt has come down from 54% of GDP in October 2002 to 38.7% in April 2004. Strict budgets are required under dollarization given that the government can’t print dollars to finance deficits. This has been positive for Ecuador, given its loose institutional arrangements and its weak and patrimonial political structure.

De-dollarizing the Ecuadorian economy would be extremely difficult and may not be done without substantial costs. One of the major benefits of dollarization is that it derives credibility from the perception that it is permanent. The sole announcement of a formal de-dollarization without a credible alternative –as seems to be the case in Bulgaria as they will be adopting another hard currency (the Euro)- may bring about a self-fulfilling crisis. Additionally, a formal de-dollarization would leave the Ecuadorian economy largely de facto dollarized (analogous to the pre-crisis situation) and vulnerable to the dual account system and currency mismatches.

How resilient is dollarization? To sustain dollarization the country has become largely dependent on multilateral support given that it has not had access to the financial market since the default on Brady Bonds in 1999. Additionally, given that government spending continues to be high on state subsidies, state salaries and pensions, there is a lack of funds available to serve these commitments. This can convey the risk of increased social pressures for de-dollarization. More importantly, dollarization per se will not set the conditions for economic growth to materialize. The sustainability of dollarization in the long run will depend on the ability of the country’s ability to adopt several structural reforms that are needed to sustain economic growth. Particularly, reforms are needed in the labor and product markets to improve competitiveness, in the government structure to reduce fiscal imbalances and increased regulation and supervision to produce a safe and efficient financial system.

How and When Should China Flexibilize its Exchange Rate Regime?

The Chinese economy has sustained the Yuan pegged to the dollar and strong capital account controls for more than a decade. The government intends, in the medium term, to adopt a more flexible exchange rate and to liberalize capital controls. However, it is reluctant to move in that direction until the banking system is in a better shape. The international community, by contrast, is calling for an early move towards flexibilization. Recent growth has been such that the government raised interest rates in October 2004, for the first time since 1995, due to fears of overheating. Inflows of capital and excessive investment are putting pressure for a revaluation on the Yuan. Administrative controls have proved ineffective to curb fast credit growth and a growing asset bubble. These pressures may sway China to unpeg its currency from the dollar. To counter these inflows the government has responded by freeing up some of the controls on capital outflows so that money can be invested abroad. However, liberalizing capital controls before taking steps towards more a more flexible exchange rate may increase China’s vulnerability to capital volatility and speculation.

This policy brief intends to assess the arguments for and against an early adoption of a more flexible exchange rate policy in China. Given the tight link between capital-account controls and China’s ability to sustain a fixed exchange rate for such a long time, these two issues must be dealt with together. The memo argues that it makes more sense for China to make its currency more flexible than to repeg it at a higher rate. Additionally, it suggests that exchange rate flexibilization along with a more stable and robust financial system, should be regarded as a precondition for undertaking an extensive liberalization of the capital account.

Pros: Greater flexibility of the exchange rate would be in China’s interest
• Independent monetary policy. China will benefit from a more effective monetary policy to help the economy adapt to economic shocks. China’s degree of exposure to these shocks, both internal and external, is increasing as the economy gets more integrated with the global economy. Adopting a more flexible exchange rate will translate into a more autonomous monetary policy. Thus, the authorities will have the option of using market-oriented instruments such as interest rate changes to control economic activity.
• More efficient investment. By fixing the yuan to the dollar, China has been forced to hold interest rates at a very low level, leading to inefficient investment and excessive bank lending. A more flexible exchange rate will allow the authorities to have a more prudent and efficient interest rate policy.
• Curbing inflationary pressures. Fundamental factors such as relative productivity of growth create persistent pressures for real exchange appreciation. These pressures eventually tend to force adjustment rather through nominal exchange rate or through inflation. Even if the economy is under exchange controls and a repressed financial sector, these pressures can only be sustained for a limited time. The Chinese economy would be better off by channeling these overheating pressures by letting the nominal exchange adjust than through inflation and real appreciation.
• Having a buffer against external shocks. A flexible exchange rate will allow China to absorb external shocks through a nominal adjustment of the exchange rate, for instance an increase in US interest rates.
• Avoid the proliferation of a currency blackmarket. Given that the exchange rate is unrealistically priced and that there are capital controls in place, the country is exposed to the quick development of a black market. Additionally, market agents adopt several strategies to introduce or withdraw capital. The artificially undervalued exchange rate encourages capital inflows through underinvoicing of imports and overinvoicing of exports. This reduces the ability of the authorities to curb inflows of speculative capital.
• Taking advantage of the current conditions and avoiding excessive costs. The movement toward a flexible and independent monetary policy regime should not be deferred to avoid a hard landing. While China may be capable of maintaining its present exchange rate regime for a long period, there are large costs to upholding the peg that will potentially increase over time. As aforementioned, in light of China’s increasing integration with global markets and having the authorities explicitly mention their intentions to gradually liberalize the capital account and to eventually move to a more flexible exchange rate, expectation pressures and costs for flexibilization only tend to increase over time.
• Prepare the economy for a full opening of the capital account. Under a more flexible exchange rate, while capital controls shield the economy from volatile flows, China would have time to embark on reforms to strengthen the banking system. Subsequent to an exchange rate flexibilization, the liberalization of the capital account although in a cautious and gradual way shall be undertaken. There is considerable evidence that the effectiveness of capital controls tends to diminish over time, especially when strong exchange rate pressures are resisted by official intervention.

Cons: There are fears that China is unprepared and will lose its competitiveness
• An appreciation of the renminbi could hurt China’s external competitiveness thereby reducing export growth and weakening prospects for continued FDI inflows. The main argument against a more flexible exchange rate regime has been that the peg is an essential source of export growth needed to absorb every year millions of rural workers moving to urban areas. However, China’s export model relies heavily on imports. As their cost lowers from currency appreciation, the foreseen growth in costs and its related loss in competitiveness may be significantly countered.
• China is not ready to adopt a more domestically oriented growth model. An appreciation of the exchange rate will require a more competitive production and a more effective and transparent banking system. The Chinese banking system requires thorough reforms that will take time. However, as argued above, without a step to a more flexible exchange, there may not be the necessary incentives to promote such a reform.
• There is not a sufficiently developed foreign exchange market, and thus there are no tools for hedging foreign exchange positions. However, the existence of a perfect foreign exchange market not necessarily precludes a flexibilization of the exchange rate. More over, a more flexible exchange rate may promote the consolidation of a more sophisticated foreign exchange market, as greater currency risk will induce firms to diversify their hedging tools.
• Capital losses will be massive when the Chinese currency is appreciated. However, an eventual appreciation of the Yuan is unavoidable as the Chinese economy integrates with the global market. The costs of an appreciation increase over time. Roubini (2005) has estimated that, currently, such losses would be about $100 billion (or 7% of China's GDP) if the appreciation were to be 20% and would be equal to $300 b (or 20% of GDP) if the currency appreciates by 30% in 2007. So the cost-benefit analysis favors an early on flexibilization. Additionally, the costs of sterilization are nowadays high given the spread between what the Central Bank gets for its dollar reserves and the interest rates it pays for the liabilities used to sterilized
• Greater flexibility could induce China into deflation and a liquidity trap. There is a risk that the Chinese economy faces prolonged deflation, similar to Japan’s recent experience, as an appreciation of the Yuan can generate further expectations of appreciation. This would lower interest rates in China into a liquidity trap that would unable them to offset the expected appreciation. However, a reasonable appreciation that removes the existent imbalances in the Chinese BOP could be sufficient to counter further appreciation pressures.

Implementation: The existent capital controls may facilitate the transition
The Chinese government is inclined to open the capital account further this year without changing their stance on the exchange rate. Various episodes of currency crises, including the neighboring Asian Crisis, have revealed how countries with fixed currencies are exposed to the volatility of capital flows and are subject to speculative attacks. A fixed exchange rate is a cost-free arbitrage target for speculators, which race against a government’s capacity (and will) to sustain the peg. Capital controls have discouraged the accumulation of short-term external liabilities and have acted as a shield against speculators and prevented major losses for China during the Asian crisis. Capital controls, at least in the short-term, may serve as a line of defense while taking steps towards exchange rate flexibilization as they reduce exchange rate volatility. Especially taking into consideration that the banking risk management, regulation and supervisory systems are feeble.

Policy recommendations
• The Chinese economy should take a stance towards a more flexible exchange rate, taking advantage of the current favorable economic conditions: strong growth and positive current account. It doesn’t have to be a free float to begin with. Transitional alternatives such as a broad band or a peg to a basket of currencies with a broader range of flexibility may function as a “learning” float.
• Exchange rate flexibilization should precede capital account liberalization. The latter shall serve as a short-term line of defense to reduce volatility of short-term capital flows and decrease exposure to speculation on the currency.
• China’s priority shall be to strengthen its institutional framework in order to establish a credible monetary policy framework. Banking and financial sector reform must be a priority for the Chinese authorities.

Of Inequality and the American Dream

According to the “American Dream”, success will come to anyone in America –regardless of race, gender, or social status– as long as they work hard enough. Education plays a fundamental role to attain this goal, as it provides the required skills and knowledge to obtain higher returns for the work done. Although long ago, the United States adopted universal public education to provide people with an equal opportunity to realize this “dream”, this objective has not been reached. Even more, a preexistent class structure with further segregation and inequality has been sustained.
In his book, “Savage Inequalities”, Kozol notes that class structure in the United States has been perpetuated through differential access to educational opportunities. His view is reminiscent of Karl Marx conflict theory, in which the bourgeois, owning the means of production, hold the power and prestige in contrast to the proletariat, who must settle for the poorly remunerated jobs and have fewer economic and social rights. Additionally, the concept of an American Dream and the proclaim for universal access to education has much to do with the concept of symbolic capital introduced by Bourdieu, as a legitimate pretext to conceal the hidden interests that lie behind class divisions.
The first part of this paper discusses the main argument given by Kozol to explain class structure within the United States with respect to the theories of class division offered by Karl Marx and Pierre Bourdieu. First, Kozol’s arguments are exposed. Then, the Marxist perspective is explored in light of Kozol’s claims. Finally, Bourdieu’s ideas are analyzed correspondingly. In the second part, the effectiveness and appropriateness of several initiatives and policies, such as school choice, aimed to reduce current schooling inequality are discussed.
After gathering substantial evidence from visiting several public schools in extremely poor neighborhoods and interviewing their children and staff, Kozol argues that the most prevalent problem in the American public education system is the existence of blatant inequalities among school districts. Whereas children of middle and upper class neighborhoods are given the material and intellectual resources that will allow them to develop high academic competencies and achieve solid employment and wealth, many other children are denied this privilege because of their economic background and location. Kids that go to public schools in poor neighborhoods ought to deal with untrained, inefficient and unmotivated teachers, lack of textbook and other learning resources and unacceptable building conditions, in addition to the deprivations that they face at home and in their living environments. This stems to a great exent from the fact that there is not enough money being put into such institutions.
Kozol’s findings illustrate that education inequality and segregation in America are not separate anomalies but a deep-seated and generalized problem. He holds the system to finance public education in the United States responsible for perpetuating class structure and cleavages among different groups in societies. As public schools are funded through property taxes, those districts with more expensive housing will unambiguously collect more tax-based revenues than poorer districts. Even though allegedly it is a function of the state, public education funding has been largely delegated to school districts, encouraging further resource concentration on the richer districts. Additionally, parents from the richer districts usually incorporate additional money to their own schools widening the gap even more. However, society's attitude towards the low-income class is shaped by the prevalence of individual greed, which is enhanced by means of the competitive capitalist system. Thus, it can be foreseen that this inequitable fiscal structure is almost impossible to change. Racism, political power, and public indifference contribute, as well, to the overall unawareness of and the unresponsiveness to the inequality problem.
Kozol brings up evidence of how the education system acts as an intergenerational source of social predetermination. He shows how schools in the poorest areas prepare kids for low-income jobs as Burger King and Macdonald’s employees or at a near by gas station. By encouraging an implicit division of labor, the education system functions even more to sustain the social cleavages among classes. Those who graduate from bad public schools are conditioned to poorly remunerated job opportunities which will assure similar conditions for their future generations and so on. The connection between failure to provide poor children a good education and the number of young adults in prison is another shocking evidence of this educational trap and of the unwillingness to revert it. Kozol states that 90% of the male jail prisoners in New York City are former public school dropouts. He mentions that “incarceration of each inmate…costs the city nearly $60,000 every year” ; much more than it would cost to supply this kid with adequate education.
The economic divisions often include factors of race, since the people who constitute the low-income classes are predominantly minorities. Kozol is surprised of segregation. However, he is equally irritated by the growing inequality, in public education, between rich and poor. He finds that poor children, and especially poor children of color are being increasingly given up for loss and any attempts to educate them are being seen as destined to failure. These severe differentials in public education, in Kozol’s view, are instrumental for the privileged to sustain a class structure although, in theory, every American is granted an “equal” opportunity to achieve the equality “dream”.
According to Marx, labor and, hence, the modes of production determine condition of human nature. Our social realities, the productive forces, determine our ideas, and not vice-versa. One of the distinguishing characteristics of a person's place in society is its relation to the means of production. Thus, inequality is created by differences in access to the means and the modes of production: “…the individuals themselves are entirely subordinated to the division of labor itself and hence are brought into the most complete dependence on one another.” There is a structural conundrum in the modes of production that sustains an inequitable and unfair class structure within society. Those who possess the capital, the economic capital, have power advantages over the rest, the working class or proletariat. Thus, according to Marx, “a mass of individuals” has remained “ subservient to a single instrument of production” and only through a revolution from below, where the working classes can establish a drastic change in the modes of production and control of capital (“a mass of instruments of production must be made subject to each individual and property to all” ), there will be a possibility of more equal social structures.
Kozol’s arguments fit well into several of Marx claims. There are several examples that would resemble Marx idea of a structurally divided society among the owners of capital and of the modes of production and the working class within a constant struggle for material possessions. The contrasting inequality of two school districts in one same city, Chicago, is illustrative. While kids in the affluent suburb of Winnetka have access to one of the best schools of the state of Illinois and are surrounded by plenty of intellectual resources and future prospects of entering a top-level college and of finding a prestigious highly paid job, kids in the inner city area have to attend schools with extremely poor resources and where they do not receive the basic educational competencies. Resembling Marx’s conflict perspective, as these two districts compete over resources, there is an element of domination and coercion of the upper class that hold the lower-class people in poverty through legislation or individual decisions. Through both the atomized schooling funding system and personal greed, the privileged classes are able to sustain the social structure.
Another concern with which Marx would be in agreement is the aforementioned way in which the school system determines, to a great extent, the future job prospects of their students. The schooling system, thus, could be seen as designed to comply with the requirements of the modes production and a mechanism through which the privileged classes can decide upon the most efficient use of other members of society.
Whereas Marx defines class in strictly economic terms, for Bourdieu class is associated as well with the power struggle for other sources of capital: social, cultural and symbolic. In his work “Distinction”, he argues over the classifying power of taste. “Taste classifies and it classifies the classifier”. For Bourdieu the struggle is over values, definitions, classifications and taste, not only over material possessions. He makes reference to culture and cultural consumption as “predisposed, consciously and deliberately or not, to fulfill a social function or legitimating social differences” . Under the allegory of “titles of nobility”, the amount of social, cultural and symbolic capital that any individual has for its struggle for power depends on two basic factors: “educational capital (measured by qualifications) and social origin (measured by father’s occupation)” . Additionally, Bourdieu believes that misrepresentation, the denial of economic and political interests under which social relations are perceived as disinterested, is one of the main sources of class power. He identifies symbolic capital as a concealed power through which the privileged can demand obedience in a legitimate way. Within this line of reasoning, he identifies the “best-hidden effect of the educational system” as its capacity to give out titles that can be either “ennobling” or “stigmatizing” .
Bourdieu, as Marx, would also be supportive of most of Kozol’s theories although in a broader, and maybe more direct sense. Several of Bourdieu’s theories are pictured in Kozol’s examples and case-based evidence. First, Bourdieu’s notion of a societal struggle for different kinds of capital (economic, social, cultural, symbolic) is central to understand the main problem of having such an unequal schooling system. Educational capital is required to obtain both cultural and social capital, which are elements of power that can be transformed into effective symbolic capital to have legitimate access to additional privileges. Children in East St. Lois or Camden (NJ) will always be subject to a very low level of educational capital both because the state do not provide adequate schools in these areas and because their families do not have economic capital to invest in their educational capital. Additionally, their social capital will also be constrained to the networks these children build with their, also very poor, neighbors. Accordingly, they will never be able to reach any higher level of cultural capital and maybe they won’t be able to attain any symbolic capital at all. In this case, the lack of economic capital faced by the kids’ families and the public schools in low-income districts become a hindrance for the development of any other form of capital for these groups. Hence, the lack of funding of public schools in poor neighborhoods not only sustains inequality but also perpetuates the lower standing of these groups within the prevalent class structures.
Additionally, in Bourdieu’s terms the whole notion of an American Dream, where people believe that access to equal opportunity is genuine (starting in universal public education), could be a clear manifestation of “misrepresentation” and an evidence of the use of symbolic capital by the advantaged classes. By means of this sanguine premise, privileged groups and public officials are equipped to blame the poor for their appalling performance as a matter of insufficient effort and lack of interest on their part. By generalizing this ideal and taking it for granted, the privileged groups are denying the legitimate cause for the poverty conditions of the disadvantaged groups. Moreover, they may be hiding their underlying economic and power interests; by claiming universal access to public education they are sustaining a school system that is, per se, perpetuating the social cleavages. Moreover, the apathy of the more privileged classes, continuously described by Kozol, and the myriads of excuses, including the idea that money and resources are not essential for educational quality, reveals how these well-off groups are prone to maintain the status quo.
All three authors, Marx, Bourdieu and Kozol, have a central question in common: why don’t people see this? Why aren’t they aware of these unequal conditions? To a certain extent, the answer might be embedded in Kozol’s ultimate concern: whether Americans can be induced to care about children other than their own. There is an important convergence of these authors regarding this question. Either under the idea of “hegemony”, as presented by Marx or of “misrepresentation” as stated by Bourdieu, both theories are well suited with Kozol’s claims of the existence of hidden a power element within the American school system that promotes stability of class structure under what are perceived to be legitimate ideals and structures. Moreover, as a function of domination of the privileged classes over the rest, there are no realistic incentives to change the system’s current standing and the American Dream is kept as a the American “truth”: a system of belief sourly blind to reality.

Part 2
Kozol criticizes some of the initiatives and policies that have been implemented by the federal authorities, which are based upon market principles and aimed to reduce unequal access to public education. The main initiatives are the parents’ public school choice and the voucher system. Under the No Child Left Behind Act, these initiatives are based upon an evaluation of each school’s performance regarding what the kids are learning. Schools that are performing at a very low level are set under a special arrangement called Title 1, under which the state has the responsibility to define an improvement program through resources and technical assistance. When these schools are in too harsh conditions or if, after a convened period of time, they do not improve, the state may decide to give parents the choice to move their kids to a public school of their choice . The voucher program is part of the choice given to parents when no other public schooling alternatives are available. Additionally there are the so-called magnet schools, created as an alternative for kids with extraordinary performance or a strong interest in a certain discipline.
On one hand, Kozol criticizes the parallel system selective schools as the magnet or charter schools. His criticism is based on several grounds. First, given the deprived background they come from, “kids would not have the preparation to compete effectively on the exams they would have to take in order to get in”. Moreover, even if kids from these underserved schools are chosen, Kozol believes that their departure may cause greater harm to those children left behind, as the best classmates that could enhance creativity are gone.
On the other hand, Kozol criticizes the policy of “schools of choice” that allows parents to chose among public schools. He states that people living under isolation and deprived conditions will not be able to make use of these “market mechanisms” that have been opened. To a great extent, Kozol believes that these people may not have enough audacity or even energy to take advantage of these opportunities. Moreover, that society has already conditioned and shaped their life expectations to such extent that their choices are constraint to what they have had access to.
Kozol’s evidence is compelling to show how existent disadvantages that poor people face may have unambiguously strong effects over public policies and may neutralize their impact or even create even more detrimental arrangements that can further widen the gap. His case-based studies of several public schools, and especially his interviews with children from these institutions are descriptive of the limitations that they have to access the parallel school system. Although they are aware of the magnet school existence, they are certain that they do not have enough chances of being selected into these schools. These kids have an intrinsic disadvantage in contrast to kids that have had access to a better family environment, nutrition, and superior preschool and schooling resources. Moreover, some schools will be reluctant to give access to kids from lower social backgrounds, and they would justify it on grounds of the student not having the adequate academic level or enough competencies. The school choice policy, although apparently designed to provide parents with greater flexibility regarding the selection of schools may well become a good excuse (symbolic capital) for not solving major structural problems related with the funding system and the lack of effective redistributive mechanisms.
The market-based policies that Kozol criticizes, especially nowadays under the NCLB initiative, are largely based upon measurement and evaluation. Children performance in the different set of basic skills is measured as an indication of the school’s overall performance. Bourdieu notes that “the more the competencies measured are recognized by the school system, the stronger is the relation between performance and educational qualifications” . Consequently, measurement of schools can become one more of the classifying mechanisms for poor kids to be constrained to any better opportunity. This reinforces Kozol’s critique of the policy initiatives as supporting the perpetuation of inequalities through a legitimate cause, which also fits well under Bourdieu’s theory of “misrepresentation”. The measurement system becomes a legitimate tool to monitor and enhance education quality that, at the same time, conceals the negative effects of such categorization.
Though Kozol’s examples are very compelling, there is a contradiction in his line of reasoning. In the first part of his book (page 56) Kozol argues that the state, by forcing families to send kids to their district public school, without dealing with equality, is perpetuating inequality. “Unless we have the wealth to pay for private education, we are compelled by law to go to public school – and to the public school in our district. Thus the state, by requiring attendance but refusing to require equity, effectively requires inequality. Compulsory inequity, perpetuated by state law, too frequently condemns our children to unequal lives.” Subsequently, he emphatically argues against the initiatives of the state to give parents the possibility of choosing among different public schools to reduce this institutionally imposed inequality.
That poor people have notorious disadvantages over the more affluent doesn’t mean that policies promoting school choice over locally restrictive education are always unfavorable for the poor. Choice policies can be positive to the poor if accompanied with broader programs to increase equity and school improvement, especially in the most at-risk areas. As an important feature of the No Child Left Behind initiative, the element of parents choice is present but it is tied to the overall school performance improvement, within an agreed upon period of time (around 5 years), this includes additional resources and technical assistance.
In addition to Kozol’s specific examples, it is important to consider a larger sample of the education system to be able to get to a more general conclusion. According to the 1993-1997 Trends in the Use of School Choice , the poorest population groups benefited the most from school choice policies. Within the total population that make use of public school choice, households with yearly incomes less than $10,000 increased its participation from 14% in 1993 to 22% in 1999. By 2003, around 30% of the households using this program are those with yearly incomes below $20,000. Moreover, the proportion of black, non-hispanic within this initiative increased from 19% in 1993 to 23% in 1999. In 2003, only 11% of the total beneficiaries are white. Although these figures do not show a tremendous pro-poor targeting, it shows that the more vulnerable groups are using these policies incrementally. However, it will take time for these policies to reveal their real impact on increasing equity. The downside to this is that this time is unrecoverable to the generations of poor people that have to cope with the existent schooling disadvantages.
The effects of school choice policies will undoubtedly be constrained by the extreme disadvantages faced by the lower-income populations. Additionally the inadequate design of the schooling funding system creates a structure of inequality that is exacerbated through the individual interests of the privileged population who sustain these rigidities in order to keep their own advantages available. Under these circumstances, policies oriented to address equity without dealing with a more evenhanded allocation of funding among public schools will only be marginally effective and in certain circumstances, as those described by Kozol, they may be even more exclusionary. In this sense, Kozol’s critique to market-based policies implemented to address inequality is important because by means of these policies, the authorities may well be avoiding to deal with the more structural problems, which are to difficult to deal with as they are to a great extent captured by the privileged classes.