Saturday, April 28, 2012

Privatized Education: The NYT Editorial

Gail Collins has a new op-ed piece in the New York Times about the privatization of public school education - A Very Pricey Pineapple is actually an intentionally misnamed analysis of the private for-profit companies that own charter schools, publish the curriculum, and run the standardized testing in several states.  The numbers are impressive - tens of millions for running the testing in New York, hundreds of millions for doing the same in Texas.

Personally, I do not believe profit motives are evil - it is a fundamental principle of economics that exchanges or trades (or any type of commerce) can make both parties better off - the buyer gets something they value more than their money, and the seller gets money they value more than their product. Profit-earning is not necessary exploitative. I don't really understand the idea, hinted at in the editorial, that "for-profit" means evil or sinister.  Then again, Frank Knight's theories convinced me a long time ago that most of what people call "profit" is not profit at all, but merely net revenue, which (often meagerly) compensates the investors and entrepreneurs for their time, talent, and opportunity cost.  The founders of Facebook and Google make Knightian "profit," which is mostly by happenstance, not by careful design.  I'm not sure Knight would think the Pearson company was anything more than a break-even operation; the amount of time, energy and talent invested in lobbying for federal legislation (No Child Left Behind), then lobbying for state contracts, then setting up a sprawling octopus corporation to provide wraparound services in the field, could have been spent on any venture, and might otherwise have yielded a better return on such a colossal investment  And if profit is part of the definition of evil, then entrepreneurs who fail (as most do) are automatically saintly and virtuous, even if their failure was due to an overly-aggressive business plan or simple bad luck; and plenty of horrific evils are perpetrated by nonprofit entities, where profit motives were absent. But this is all theoretical economics and semantics. 

I heartily agree with Collins that privatized education is bad.   It's neither sound government nor free-market capitalism.  It's bad governance because the government is notoriously goofy about hiring contractors - many contracts involve little or no competitive bidding, the government employees making and monitoring the contracts lack expertise in procurement or contractual drafting, and the lack of transparency undermines political accountability for those doing the governmental task (and those who were supposed to be doing it).  Once a contractors locks in their contract, it is difficult - sometimes impossible - for a state entity to switch contractors when the performance is substandard or the price suddenly skyrockets.  From the side of advocating free markets, the government as your customer is not competing in the marketplace - government contractors derive their income from taxpayer dollars, with purchasing decisions run through a complex, inefficient bureaucracy.  This is very different than competing with other firms for individual customers in the free market - instead, it ends up resembling the very type of state-sponsored monopolies that Adam Smith decried in The Wealth of Nations.  Worse, government contracts distort the free market.  Firms obtain contracts with less-than-usual competition, then lock them in and start cutting corners to save costs, maximizing their income stream - which then allows them to subsidize any private-sector selling or competition they actually do.  In other words, if a large firm that competes in the marketplace obtains a lucrative government contract, it can use that guaranteed income stream to  engage more easily in predatory pricing in its other divisions, running competitors out of the market; and it can expand its operations around the government contract so that it becomes a more formidable market player (grabbing greater market share) without having to take the usual competitive route to that goal.  Privatization, therefore, dilutes the public-service mission of the government at the same time that it undermines the free market system by subsidizing some firms and not others.

-Dru Stevenson

No comments:

Post a Comment