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Rick Hess Straight Up

Education policy maven Rick Hess of the American Enterprise Institute think tank offers straight talk on matters of policy, politics, research, and reform. Read more from this blog.

Policy & Politics Opinion

Private Enterprise & Public Education

By Rick Hess — September 13, 2013 5 min read
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As Michael Horn and I note in the just-published Teachers College Press volume Private Enterprise and Public Education, education is big business. In the U.S., K-12 and higher education spend more than $1 trillion a year. After health care, it is the largest sector of the American economy. In 2009 (the most recent year for which data are available), schools and systems spent almost $22 billion on transportation, $19.8 billion on food services, and $2.6 billion on textbooks.

Despite this plain reality, discussions of for-profits in education are often infused with vitriol and hyperbole. Hostility to for-profit ventures has been evident in federal and state legislation, including the prohibition on for-profit entrants in the US Department of Education’s Investing in Innovation (i3) Fund or Parent Revolution’s decision to promote legislation that prohibits for-profit charter school operators entering schools even if selected by parents who have invoked the “parent trigger.”

What’s going on? Doesn’t the United States have a proud tradition of embracing free enterprise? Didn’t President Obama declare in his most recent State of the Union, “Let’s prove that there’s no better place to do business than here in the United States of America”? Yet that principle does not apply in education. And this state of affairs draws little notice or public discussion.

What is needed is some reflection and perspective. John Bailey, executive director of Digital Learning Now!, notes in the volume that the discomfort with for-profits in education is highly unusual in other areas of public policy. In fields such as health care, clean energy, and space exploration, he observes, “policymakers do not ask whether they should engage for-profit companies, but how they should.” He recounts that NASA set aside $6 billion to support the private development of spacecraft. SpaceX built its “Dragon” capsule, capable of transporting humans and cargo into space, for $800 million--less than 10 percent of the $10 billion NASA had spent trying to build a model.

Mickey Muldoon and Ben Wildavsky note that the distinctions between for-profit and not-for-profit ventures are, in real life, much blurrier than they are in theory. Based on an extensive set of interviews with educational leaders and entrepreneurs, Muldoon notes that for-profits can find it easier to resist the guiding hand of big philanthropy, raise the funds needed for growth, pay talented employees a competitive wage, and avoid mission creep. Wildavsky interviews a number of accomplished academics who’ve moved over to for-profits after successful careers at places like Princeton, U. Texas, and UC, and notes that they suggest that for-profit higher ed has both strengths and weaknesses--but that they tend to be especially taken with their agility, dynamism, and bread-and-butter focus.

Put plainly, for-profits have incentives that public entities and nonprofits lack. At the most basic level, unlike publicly operated entities, for-profits that do not provide customers with something they are willing to buy will go out of business. Indeed, a focus on the bottom line means for-profits are inclined to move nimbly and reallocate resources when circumstances warrant--all through an incentive to serve the customer, innovate, and boost productivity. As they aim to deliver goods and services, for-profits operate under the self-interested, watchful eyes of investors or owners, which can lend a healthy discipline around performance and productivity. It also means that for-profits often have cause to tackle stubborn cost structures in ways public or nonprofit providers do not.

Of course, these same characteristics can also yield concerns. The desire to cut costs can prompt some actors to cut corners. Similarly, the incentive to grow can cause for-profits to be less rooted in community institutions, less stable, and more willing to cut services or personnel. The incentive to add customers can also cause for-profits to market themselves in deceptive ways or compromise quality in the rush to add clients. As any connoisseur of mass-produced fast food or of late-night infomercials can attest, these negative business practices can run rampant.

Public debate about for-profit education is confusing largely because it tends to ignore any benefits while focusing solely on the potential negatives. There are various reasons for this state of affairs. For one, almost all education scholars who write or speak about for-profits are ideologically predisposed to regard them as an unsightly blemish. For another, for-profit providers and their paid spokespeople have generally found it easier and more appealing to lobby for access in the hallways of legislatures and bureaucracies than to publicly make the case for the potential value of free enterprise in education. Even education advocates supposedly enamored of school choice and educational competition have generally ignored the thorny task of making the case for for-profit providers in favor of generally celebrating school choice.

Three takeaways.

One, we’d do well to cease fixating on tax status as the key signifier of quality or merit. In truth, tax status says next to nothing about a company’s motivations. Every venture has multiple motivations, and it seems to us unexceptional that one might be to turn a profit. Rather than focusing on tax status, we should create policies that emphasize the primacy of student learning and that deal with all providers accordingly.

Two, for-profits pose unique concerns, but they also offer unique strengths. Their sensitivity to market demand encourages greater attention to quality and outcomes. Seeking to respond to client needs, for-profit colleges have collected and employed data more aggressively than most of their nonprofit or government counterparts.

Three, the research community would do well to take for-profits more seriously than has often been the case. We have only minimal research into the dynamics of the for-profit sector or the performance of for-profit endeavors. This is due in part to for-profits’ reluctance to be studied, but also to the disinclination of many university-based researchers to study the for-profit sector.

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The opinions expressed in Rick Hess Straight Up are strictly those of the author(s) and do not reflect the opinions or endorsement of Editorial Projects in Education, or any of its publications.