A reader comments that schools are “a business” but that their ultimate goal–unlike a business–is not profit, but education:
| Education is — and must be — a “business”. Schools are a business — they have employees, labor costs, capital costs, and budgets. Schools are a subset of businesses — the service subset; that is, schools provide a service rather than a product. In these respects, schools are like Verizon or Citibank. And, like Verizon and Citibank, any assessment of whether a school is succesful involves consideration of the costs incurred.The critical difference between schools and what we commonly think of as a business — Verizon or Citibank — is that the ultimate purpose of the schools is to provide the service (educate the children) while, for the conventional service business such as Verizon or Citibank, the provision of the service is simply a means to the ultimate purpose of making a profit for the business’ owners.
Given the differences in ultimate purpose, it’s unlikely that schools operated by for-profit entities will — over the long run — provide a better service (education) than schools operated by not-for-profit entities (including the local school systems). Arguably, the profit motive coupled with fewer govt regulations/political burdens might allow some for-profit entities to operate schools more efficiently/provide better education than the not-for-profit entities. But, in the long run, the profit motive must ultimately force the for-profit entities to sacrifice service quality to achieve higher profits. This is particularly true in low-SES/inner-city neighborhoods where many parents will be too dysfunctional/poorly-informed to make rational/informed school choices, thereby greatly weakening the “invisible hand” effect that theoretically channels customers to the competitors offering the best product. The better approach is for school reformers to identify and eliminate the inefficiencies/counter-productive govt regulations in the not-for-profit schools (particularly the public schools). |
Diane Ravitch's blog 
The semantics of the word “business” should not distract us from the fact that corporate governance and democratic governance are two fundamtally different forms of governance.
The letter writer clearly doesn’t know the difference between a business and a public good, such a a governmental agency. Businesses are motivated by profit above all else. Government is a completely different entity. Unless this person understands the difference, I can’t read the whole piece.
One day I will be frustrated about an issue and the next day Diane writes about it! I’m always anxious to read her next blog to see if she read my mind again.
I am a product of corporate America and still involved in organizational consulting for corporate America.
I listened to the lobbyists and the FL BOE members recklessly scatter business terms throughout their State BOE meeting this week. At one point I wanted to shout “these business terms are for companies with products; they’re not meant for the process of educating children.” Not to mention the fact that some of the terms were preposterously misused.
Frequently interspersed with education jargon were terms like: Rebranding; ROI (return on investment);, ROA (return on assets); Six Sigma (a program emphasizing quality and perfection in production); Seedcorn (money set aside to generate more profit in future); Market Leader (referring to the state being a ‘market leader’) and others.
If I closed my eyes I could have been in the board room of any of my clients.
Outside of the obvious fact that children are not products and that business methods are not interchangeable nor conducive to educating our children, I discovered something else. Many of them grossly misused these terms. It appears to me they are trying to force fit education into a business operating mold but they are botching that up too.
The light bulb turned on for me when I glanced at the FL BOE Strategic Plan. Every goal was listed as “TBD (to be determined). I nearly laughed out loud. No corporation in the world would submit a Strategic Plan to their Board of Directors for SIGNATURES with every Goal listed as “to be determined!”
Sigh.
New Detroit schools contract allows up to 61 students in grades 6-12
from The Detroit News
Detroit— Class sizes in Detroit Public Schools could get much larger this fall — up to 61 students each in grades 6-12 and 41 students in grades kindergarten through 3 — before school officials take action to level them out.
Under a new three-year contract imposed last week on the teachers’ union, DPS will “make reasonable efforts” at reorganizing class sizes for students in K-12 when they exceed contractual limits.
In grades K-3, the class maximum is 25. But under the new contract with the Detroit Federation of Teachers, which took effect July 1, a class would need to reach 41 students before DPS moves to reduce it.
In grades 4-5, where 30 is the limit, it would take 46 students to trigger a response. In grades 6-12, where class sizes were increased to 35, leveling efforts would begin once the class reaches 61 students.
http://www.detroitnews.com/article/20120713/SCHOOLS/207130335
Preposterous! I can’t imagine a classroom even being able to house this many students, let alone a teacher effectively teaching or a student learning.
The corporate players in this game have no desire to expose themselves to free market dynamics and their patrons are not students, parents, or the citizenry at large. They are playing their old favorite game of seeking royal charters and governmental franchises and they market themselves directly to self-seeking politicians in a way that cuts public participation out of the loop almost entirely.
Free market bravado is simply the bluff that corporations put up as they seek monopoly over taxpayer dollars.
The problem with this comment is that it is incorrect about the definition of a business. In the second line of the first paragraph, the commenter states:
“Schools are a business — they have employees, labor costs, capital costs, and budgets.”
Having employees, labor costs, capital costs, and budgets is not the definition of a business. A well-to-do household could have all those things, and nobody would claim it’s a business. Many charities have those things, and they are not businesses. And of course, governments have those things, and they are not businesses.
The real definition of a business can be found in the last line of the first paragraph, although the commenter just casts it aside:
“The critical difference between schools and what we commonly think of as a business — Verizon or Citibank — is that the ultimate purpose of the schools is to provide the service (educate the children) while, for the conventional service business such as Verizon or Citibank, the provision of the service is simply a means to the ultimate purpose of making a profit for the business’ owners.”
Yes, businesses’ ultimate purpose is to make a profit for the business owners. That’s what makes a business a business. It’s the one integral, universal trait of all businesses. That is the definition of a business: It makes a profit for the business owners. That’s it.
Public Education does not meet the one actual requirement of what a business is.
To say it has a few things in common so it must be the same is just wrong. And to work from that premise leads to more poor logic, misguided decisions, and poor outcomes.
Public Eduction is not a business.
I think it is important to not limit the criticism of the education competition model to only for-profit companies. In Louisiana, nonprofits manage the majority of charter schools. They behave no differently than for-profits and market forces control their decisions and behavior in the same ways that they control for-profits.
The primary goals of a private corporation are to make a profit and survive as an enterprise. It does that by making more money than it spends. If its income exceeds its costs, we call that profit. But profit is also a means to an end: organizational self-preservation. Once a business begins to operate, it develops an organizational culture that shapes behavior just as strongly as the profit drive. It is the reason that some unprofitable businesses continue to operate by corrupt and illegal means: they seek organizational self-preservation.
The primary goal of nonprofits is also self-preservation. Regardless of idealistic mission statements and limits on how much profit can be allocated to nonprofit founders, board members, or staff, every nonprofit’s income must exceed costs. If the nonprofit provides a service, it can only remain solvent if income (from grants, fees, government contracts) at least matches costs. What is almost always left out of the discussion of the putative “free-market” education model, it that there is a fundamental market mechanism absent: the power of enterprises in set prices. While in a true free-market this power ensures that businesses can maintain the same quality of service as operating costs increase, that is not the case with the charter school free-market. Government allocates fixed fees for educating students when it contracts with charter schools. These per-pupil expenditures may not be sufficient to properly educate all students in the system. Indeed, on occasion states reduce education expenditures even as drop-out rates increase and high-stakes test scores stagnate.
So what happens when government sets minimum performance standards for privatized schools–in the form of standardized test scores–while providing inadequate funds to achieve those standards? In the for-profit world, businesses can simply increase prices to maintain product or service quality. But charters don’t have that option. Instead, to compete in the marketplace and to survive as an organization, they must either (1) reduce the quality of services (firing teachers and increasing the student-teacher ratio) or (2) only serve low-cost customers (high-performing, low-demands students). But if the school reduces the quality of services–such as test-prep tutors etc.–their test scores will fall and the government will cancel the charter’s contract. In that scenario, the nonprofit charter goes bankrupt and fails to achieve its ultimate organizational goal: self-preservation.
The more likely strategy to remain solvent is for the charter to refuse to serve high-cost, high-needs customers (students) who require more services yet generate the same income as low-cost customers. The nonprofit, responding to market competition and deprived of the power to increase prices, recovers its costs by excluding customers. This is the same organizational behavior we see in industries where government has some control over prices, such as auto or home insurance. If the government does not approve a needed rate increase for an insurance company, the company can refuse to insure costly customers. Similarly, in New Orleans we see that nonprofit charter schools faced with unattainable performance standards and insufficient funds make decisions about students based on whether they are profitable or unprofitable. Charters systematically refuse to serve their fair share of special needs students, cherry-pick the best students, and cull out low-performing students.
The problem with the privatization of public education is not only the inherent market-driven behavior of for-profits, but also the behavior of nonprofits when forced to compete in a market where they are hobbled by fixed revenues mandatory performance standards. Neither entity has the well-being of the public as their ultimate goal. Only democratically controlled public schools have as their goal the education of students: their bureaucracies may be concerned with self-preservation, but elected boards control the bureaucracies and board terms are limited. Only publicly-run schools have the means to increase revenues to adequately fund education and are not susceptible to market forces that make it profitable to deny education to students. That does not mean that elected boards always fulfill their mission or persuade the public to increase taxes to appropriately fund education: but they are not driven to increase income at the expense of the students they serve.
Schools are a “business” in the sense that, like for-profit enterprises, the managers must constantly ask whether any particular policy/action benefits the institution’s objective sufficiently to justify the costs to the institution of the policy/action (or whether the institution could achieve the same benefit via a lower-cost policy/action).
Occasionally, advocates in school policy debates use the “schools are not a business” line to defend a particular policy/action that costs the school system (in terms of $ or otherwise) a lot relative to the policy/action’s institutional benefits.
In such a situation, the “schools-are-not-a-business” line is usually a disguise for weak analysis.
Of course, schools and for-profit enterprises have different institutional objectives — educating the students vs. making $ for its owners. However, both schools and for-profit enterprises are businesses in the sense that rational management requires rational monitoring of the cost/benefit ratio regarding each policy/action.
It is time to grow up and put aside the myths of childhood. It is time to wake up and recognize the presence among us of fundamentally unethical businesses (FUBs) and radically unethical corporations (RUCs). These FUB/RUCs do not play by same rules as ethical businesses and corporations. They have no interest in the long-term gains they can make by providing higher quality goods that serve society. They make their short-term gains by deceiving the public about the very nature of the Good. They are not benign symbiotes within society but toxic parasites that kill their host — they act as if they can always find another community, another country, another planet to infect.