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Dmitri Mehlhorn Discusses Public Policy and the Private Sector

Dmitri L. Mehlhorn is an activist who has promoted innovation in the public, private, and social sectors.

Although Mehlhorn is a libertarian Democrat, he has worked closely with leaders of both parties. His mentors have included Secretaries of State Condoleezza Rice, with whom he studied at Stanford, and Warren Christopher, with whom he worked at O’Melveny & Myers. Other professional mentors have included former Reagan White House Counsel Arthur B. Culvahouse and former Gore and Biden Chief of Staff Ronald A. Klain. Mehlhorn himself has served as a long-time advisor and supporter of Los Angeles Mayor Eric Garcetti, and has supported and advised many of his former classmates including Congressman Dan Maffei, Rhode Island Treasurer Gina Raimondo, Senator Cory Booker, California State Assemblyman Rob Bonta, Massachusetts Alderman Emily Norton, San Jose Mayoral candidate Sam Liccardo, and Ohio Attorney General candidate David Pepper.

In the private sector, Mehlhorn advises breakthrough organizations including investment network Vidinovo, healthcare software firm WiserCare, genomic data company MedGenome, and prison education company American Prison Data Systems (APDS). Earlier in his career, he was President of the Legal Division of Bloomberg BNA; managing director at Gerson Lehrman Group; executive committee member and antitrust counsel at O’Melveny & Myers; and engagement manager at McKinsey & Company.

In civil society, Mehlhorn co-founded groups focused on market-friendly advocacy, including Hope Street Group, a national non-profit focused on healthcare and education; StudentsFirst, a K-12 educational movement led by education reformer Michelle Rhee; and the Great New England Public School Alliance, an electoral group funded by StudentsFirst and Michael Bloomberg. Previously, Mehlhorn served on the board of a socially responsible mutual fund with former Democratic National Committee Chairman Joseph J. Andrew and on the board of Better Education for Kids with prominent philanthropist David Tepper.

A progressive with radically centrist views, Mehlhorn has stirred mixed reactions with his perspectives on legal issues, social reforms, and public policy. He has published articles about market-friendly solutions to issues in housing, antitrust, technology, and economics in journals such as The Daily Beast, the Fordham Law Review, the Boston University Journal of Science and Technology Law, and the San Diego Union Tribune. Mehlhorn holds an undergraduate degree in political science from Stanford University; a Masters of Public Policy (MPP) from Harvard University, John F. Kennedy School of Government; and a Jurist Doctorate (JD) from Yale Law School.

Mehlhorn recently agreed to answer questions about some of today’s pressing concerns and the controversies in which he’s been involved.

LC: What are your thoughts about mandatory health insurance (Obamacare nationally and Romneycare in Massachusetts), even if many "middle income" Americans cannot afford the premiums? How can public policy be more effectively implemented to improve Obamacare to make health care more accessible and health insurance truly affordable (e.g. Medicare as a single payer system)?

DLM: Insurance is just a way of paying for healthcare, so the underlying question is: how do we make healthcare affordable? The most important answer is we must innovate on behalf of cost and quality. America has been the global leader in developing new treatments, but our public policies have achieved this at a high cost. Our patents last too long, our drug and device approvals are onerous, and our insurance systems encourage waste. If we fix these problems, innovations such as mobile health and genomics will drive healthcare improvements at a price Americans can afford.

As to your general question about mandatory insurance, I don't see a way that health insurance markets can work without either mandatory insurance or a single payer. The information asymmetries and so-called "lemon market" problems in healthcare will inevitably cripple any laissez-faire health insurance approach. A single payer system might have been better than Obamacare, but everything depends upon details. Payment systems are among the central policy levers in healthcare. Bad design (like Medicare and Medicaid rewarding treatment volumes over results) can drive bad results. The Affordable Care Act (Obamacare) made some things better and some worse. The ACA's focus on quality over inputs, and on broadening the insurance pools, were improvements. The implementation details were atrocious.

LC: What are your thoughts about requiring businesses, large or small, to provide employee health insurance?

DLM: Ideally, healthcare would be attached to citizenship rather than employment for several reasons. First, healthcare is an opaque benefit, meaning that it's not easy to compare different plans. Requiring healthcare to be a part of an employee's package therefore gums up the labor markets by making it hard to compare different job compensation packages. Second, job-specific healthcare compels people to stay in jobs when they or their family members happen to be in need of healthcare. This so-called “job lock” weakens the "social trampoline" that would otherwise enable more judicious risk-taking to improve economic productivity. Third, any decisions about large vs. small employers, and any exceptions to those decisions, will create further government distortions in the economy.

LC: Quality education for Americans is equally a concern. What state(s) represent the best role model for public education? Are charter schools, private schools, and schools operated by religious institutions more effective? If they are, how can their educational practices be seamlessly and effectively incorporated into public school systems?

DLM: The best "states" in public education are actually overseas. The best models include South Korea and Finland. Although their approaches differ greatly, they are united in that teachers are held in very high regard, students aspire to excellence, and their schools are less expensive per-pupil than those of this country. Within the United States, different states have different strengths. Some states in the Northeast have excellent schools in wealthy areas, but those successes come from providing home environments that are enriching. Residential segregation has essentially made those wealthy enclaves unavailable to poor citizens, as demonstrated by the extreme achievement gaps in those states. California and New York are massive and generally weak, but have innovated successfully with charter schools in some cities. Los Angeles, for example, has been intelligent about how it authorizes and monitors charter schools and has seen great results, while New York City has helped incubate excellent public charter systems such as Success Charter Academies and Achievement First. In terms of policy movement, Florida and Tennessee have been innovators in areas from preschool investments, to valuing teachers by requiring that teachers and principals be evaluated using multiple measures, to parent choice and voice. Notably, across states, leadership has come from Democratic leaders such as Phil Bredesen, Andrew Cuomo, and Dan Malloy, as well as Republicans such as Jeb Bush, Bill Haslam, and Bobby Jindal.

Public charter schools are becoming increasingly effective as an alternative to traditional public schools. When charters first became popular during the presidency of Bill Clinton, many weak schools were chartered and the overall charter sector performed poorly. The genius of charters, however, is that the better schools expanded, and the inferior charters did not. For example, the nonprofit charter system KIPP now serves nearly 60,000 students – overwhelmingly black and Hispanic students in poverty – and delivers significantly better results than traditional schools. Nationally, the performance of the overall charter sector is beginning to pull ahead of traditional public schools, as demonstrated by a 2013 study by Stanford. Nationally, the best practices of charter schools can be incorporated into the overall public school system through policies such as: (1) immediately lifting all charter caps in all states, as a flat limit on charters prevents the growth of good charter schools, (2) allowing state commissioners to engage with nonprofit Charter Management Organizations to help turn around low-performing schools, as Connecticut has done, and (3) revoking the charters of those schools that have performed poorly. At the school level, charters and traditional schools should work together and share ideas and resources as is happening in Tennessee.

As for private and religious schools, they can work wonders for certain populations and provide an opportunity for passionate educators to try new teaching techniques. The public can support these school systems using tax credits such as those in Florida, or through more wholesale choice programs such as that of Louisiana.

LC: You have founded and worked at national nonprofits, including StudentsFirst and Hope Street Group. What have those organizations achieved?

DLM: At StudentsFirst, Michelle and I started with little but an idea and a few allies, along with Michelle’s formidable reputation from her time as Washington DC’s school chancellor. By the end of our first full year, we had successfully lobbied for over 50 pro-student legislative changes in seven states, impacting the education of 8.7 million students – more than 15% of America's K-12 students. By the time I left StudentsFirst at the end of two years, we had recruited over one million members to our organization, become active in 17 states, and hired over 100 employees. I am especially proud that we brought new members, new donors, and a new burst of energy to the ongoing fight for better schools.

At Hope Street Group, a small group of professionals who worked on Hope Street in downtown Los Angeles came together in a living room in 2001 to figure out what we could do about our country's politics. We'd been complaining that the "compassionate conservatism" of Jack Kemp and George W. Bush was not working out in practice, and the wheels were coming off the pro-growth Democratic coalition of the Clinton years. We said to ourselves that given how much we were complaining about it, to do something wouldn't take any more time. That was famously wrong. Twelve years later, we have hosted numerous annual colloquia with governors, senators, social figures, and business leaders from both parties to work out commonsense solutions in healthcare, education, and jobs. We have published opportunity indexes and editorials to promote awareness of opportunity-promoting policies such as pension and corporate tax reform on the right, and early childhood education on the left. We were part of a large team of organizations that supported President Obama’s Race to the Top educational initiative, and the changed incentives under the Affordable Care Act to encourage outcomes rather than spending. On the jobs front, Hope Street Group is working with various groups to support technology solutions that better match employers' needs to the labor market.

LC: Your approach has been controversial in education. Opponents accuse you of promoting over-reliance on testing, causing cheating, and a narrowing of the curriculum. How do you respond?

DLM: I believe in a whole-child approach, including arts, sports, debate, and hands-on learning in science and math. I worked with the Massachusetts Department of Education in the 1990s on their hands-on math and science initiative, and I’ve encouraged that approach with my students and with my own child. However, reading and math can be effectively tested, especially in the early years. To ignore test results would be educational malpractice. If we design and integrate tests properly, they are part of the solution and not part of the problem.

LC: Crime is another issue. What can you say about your work on the Board of Advisors at American Prison Data Systems (APDS)?

DLM: I have been with APDS for only a few months, and my focus has been on helping them complete their Series A funding round. I was attracted to them because I believe that education and social media innovation can help improve our criminal justice system. APDS has a great product that can deliver better safety within prisons and in neighborhoods. Everyone interested in crime should check out their YouTube video, which explains their approach.

LC: Do you see any differences in the cultures of the private and public sectors?

DLM: Yes, of course! The biggest determinants of organizational culture tend to be size and history. In general, the larger the organization is, and the more its recent history has shielded it from competition, the more inward facing, mind numbing, and deadening its approaches. Public sector organizations that are small, elite, and highly competitive like the Navy SEALs can remain more nimble than larger monopoly private sector organizations. But in general, the private sector has more new organizations, more small organizations, and more competition, so its culture tends to have more vitality and innovation.

LC: On the subject of unions: how did unions in the public sector acquire so much clout while private sector unions waned?

DLM: I touch on this subject in my Daily Beast essay and OnLabor follow-up posts. Essentially, public unions are easier and more lucrative to organize because their typically white-collar workers have more secure and prosperous jobs. In 1958, the Mayor of New York City realized he could tap into this ready-made constituency of public unions. After that, Democrats who had previously opposed public unions switched to embracing them. Once public unions obtained the legal right to strike and obtain compulsory dues, the best labor organizers were attracted to public unions and private unions became starved of organizing talent.

LC: What major concerns do you have now in relation to public policy and private sector economic development?

DLM: The biggest concerns are overbearing bureaucracy, fiscal irresponsibility, public education, and public infrastructure.

Our bureaucracy badly needs a revolution to make it easier for companies and people to go about their business. In some areas, such as trade, agriculture, and corporate taxes, we need to cut government dramatically. Crucially, our immigration system is one of our most brutal and self-defeating bureaucracies: the world's most talented and ambitious people want to join our country as citizens, and we turn them away as (Republican) politicians stoke xenophobia to block reform.

On fiscal policy, our country is lumbering towards a train wreck largely due to (Democratic) short-sightedness on public unions and entitlements. The problems with public unions will be fixed when the Supreme Court extends Harris v. Quinn to eliminate compulsory dues for unions in the public sector. The problems with entitlements could be fixed by extending the retirement age to 70.

On public education, we've discussed some of the issues. We spend more per pupil than other countries and get a bad return on our investment because of our failure to elevate the teaching profession and embrace parent choice and voice.

On public infrastructure, we have slack capacity in the economy and low interest rates, but our roads are crumbling. As a businessman, it strikes me as crazy that we are not taking the opportunity to invest in transportation and similar infrastructure.

LC: Are your views considered too conservative among progressives and overly liberal among conservatives?

DLM: Yes, but I'm not alone. Many rising political leaders share my skepticism about the economic illiteracy of many Democrats and hate mongering of many Republicans. Millions of libertarian professionals – not just in Silicon Valley and Manhattan, but also in Midwestern cities such as Kansas – want smarter policies that depart from current party lines. Indeed, this is the reason Hope Street Group continues to attract members and attention.

LC: You mention immigration reform. We face the dilemma of handling children streaming in from Latin America, the growth of low wage jobs, and the struggle to prevent well-paying jobs from being outsourced to other countries: how can these situations be handled, managed, or resolved through public policy and private sector initiatives?

DLM: The first rule of public policy should be to do no harm. When the government intervenes in a short-term problem, it often inadvertently makes that problem last longer. I illustrated this in relating to housing policy with my paper on Blockbusting. Today, innovation in America is promoting a nascent economic ecosystem around 3D printing, which promises to bring manufacturing-related design and logistics jobs back to the United States. If we lowered trade barriers originally designed to protect dying industries, we would reduce the costs of inputs and allow Americans to build higher-value industries and jobs. If we fix our schools, budgets, and roads, America will out-compete every other country in the world in terms of creating great, high-paying jobs at innovative companies.

LC: Turning back to the private sector, what are you working on now as a venture capitalist at Vidinovo?

DLM: I am part of a small network of friends and investors who seek to deploy our capital and expertise to build innovative and value-creating companies. For example, one of our companies is MedGenome, which seeks to map the human genome to better cure cancer and other diseases. These are the kinds of breakthroughs that are now possible as technology and society advance.

LC: Across all of these initiatives, what do you consider as your best accomplishments, whether in the private or public sector?

DLM: My proudest moment was when I was a guest teacher at Logan High School in Union City, when legendary teacher Tommie Lindsay observed me with his students and said that I had great teaching in my blood. I also feel great joy that one of my former students, and separately, one of my former employees, are both CEOs of companies with hundreds of millions in revenue. I know it's a cliché but that's because it's true: my most important jobs are as father, spouse, neighbor, and boss.

LC: Have you considered running for elected office?

DLM: I lack the patience and the diplomacy required. It’s a tough, tough job to stump for funding and votes. I prefer to cheer on my friends who’ve taken on that task. Also, as time passes and the parties become more extreme, it seems impossible that either would select someone with my views as their standard bearer.

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