For-Profit Schools Make a Name for Themselves, and It Isn’t a Good One

Summary: Experience to this date with for-profit charter schools across the country and in Betsy DeVos’ Michigan indicates this particular free market solution simply doesn’t pencil out where it collides with a public good.

The specter of Betsy DeVos as Education Secretary and the imminence of free market solutions for school resurrection beg that we ask what we know about the success or failure of for-profit alternatives to public schools. The relevance arises because a strong majority of the charters birthed by DeVos and her political machinery in the state of Michigan are private for-profit alternatives; during the same period the composite skills of Michigan students have declined. It is reasonable to examine any role the for-profit schools have played in this slide.zkvbm2_dp84-didier-weemaels

In this era of free market ascendance, it is not surprising that for-profit schools should be a focus of experiment. From a lay or true believer point of view alike, the introduction of competition promises to wean schools of bureaucratic inefficiencies, and streamline school organization in order to more efficiently educate our sons and daughters. Much as in the ideology of the larger market, it is believed the better solution will grow, and the laggards will fade by the wayside, victims of creative destruction.

It ain’t so simple, Charlie Brown. According to Slate, the number of for profit schools across the nation has tumbled significantly since their high point inroad into the market.

Why might this be? The reasons are complex, but basic economic principles offer a diagnosis.

At the most elementary level, of course, profit is the difference between revenue and cost. Capital flows from capital markets to those enterprises that boast the higher rates of return over time, preferably a short period of time. Thus, good business people promise profit by raising revenue through expansion, increasing sales, and by controlling costs. In the free market economy, those enterprises that less successfully manage this balance go out of business. Or, they may choose not to enter the market if the projected balance of revenue and cost does not pencil out to a reasonable profit in a competitive length of time.

In the scholastic realm, an optimally profitable school will control costs such as teacher pay (the greatest single item on a school budget), and look to enroll more students per teacher, while still producing a quality product that bears muster in the marketplace – in this case, improved academic skills scores of students.

With the decline of the numbers of for-profit charters, intuitively this balance is proving difficult to achieve.

Not fewer, but more teachers and other skilled adults – counselors and nurses and instructional aides — are required to noticeably impact low income kids’ academics, and competitive salaries are needed to attract quality teachers. Classroom teachers generally will be more successful to the extent they have the time to tap into the lives of fewer students, which requires a lower number of students per teacher, not more.

In the case of a for-profit school, there is an inherent tension between the money that would go toward profits and hence to investors and that which would hire more personnel to interact with at risk students; costs can be too high to maintain profits that will satisfy investors. The diminishing number of for-profit schools across the nation suggests that is the case.

Michigan charters specifically may be an example. Predominately for-profit, as a general rule they are doing more poorly academically than many Michigan public school cousins,  which implies that as a group they skimp on necessary human investment in order to bolster the bottom line. (Nonetheless, Betsy DeVos and her allies thwarted legislative attempts to regulate failing charters of all stripes.)

Typically public schools take all comers from a given catchment area and are enfranchised to educate the prepared and unprepared, the cooperative and the combative alike.

The truth is that even in a lower income neighborhood in urban America, there are different groups of kids. Some come from relatively intact families in which kids enjoy the security of adults. At the other end of the spectrum are kids who don’t have a secure notion where the next meal comes from, let alone physical and emotional security.

The latter group is the more difficult to educate, because intense interpersonal repair must occur before the task of academic learning reaches a self-sustaining level. It is the need for more intensive attention for this group that diverts monies from profits, and so is a group a profit making venture would tend to avoid.

From such reasoning one might suspect that the higher functioning group – the prepared and the cooperative — predominates in for-profit charters, because such students require a lower cost mixture of supportive adults and are more likely to produce the academic progress that makes good customers and justifies a profit; yet even with such cherry picking profit making seems elusive.

It should be noted some versions of this dynamic bedevil regular public schools and non-profit charters as well. Non-profit charters have also been criticized for skimming the more motivated and cooperative of families in low income neighborhoods and excluding the difficult. Public schools do take on the intractable but too often lack the funding for enhanced staff needed to succeed optimally with at risk low income youth.

Successful non-profit charters, by contrast, often enhance their public funding with foundation monies in order to better serve at risk kids.

Neither public schools nor non-profit charters, however, are burdened by the need to show a profit. The magic imagined in some quarters of free market thinking does not seem to be able to make schools a profit center, and so we see a decline in the numbers of such institutions.

All schools, charter and public, for profit and non-profit, should be measured by their ability to educate all kids, not just the low hanging fruit, those more likely to be successful.

Schools represent a public good; citizens beyond the individual kids being educated benefit from their progress. In later years taxpayers are unburdened of costs for welfare or prison, and enjoy safer streets and the benefits of productive work force; the closing of a school because it fails to achieve a profit is not an option nor, in the end, is the rejection of kids who require heightened resources.

Though limited experiment with for-profit schools is defensible, their widespread use as in Betsy DeVos’ Michigan has been a poorly thought out application of free market philosophy.

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2 Responses to For-Profit Schools Make a Name for Themselves, and It Isn’t a Good One

  1. Tony Barclay says:

    Well argued, my friend. It would be good to augment this summary with stats on the rise and fall of for-profit schools in Michigan and the test score evidence showing underperformance of students educated in for-profits vs. those in the public school system.

  2. schooldog says:

    Thanks and agreed. The data exists in greater detail in some of the links I built into the post. Always the quandary — data cements the argument, but can snooze the reader.

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