"F" Is for Fizzle: The Faltering School Privatization Movement

Only a few years ago, privatization was the shiniest
comet in the firmament of public school reform. Chris Whittle, Pied Piper of
Channel One, the highly profitable in-school commercial television program, was
vowing to open 200 new for-profit schools by 1996 and at least 1,000 by the
beginning of the next century, schools that would outperform public schools and
redefine our whole framework of education. In 1993 initiatives for school
vouchers were on the ballot in California and Colorado. That same year, a
Minneapolis-based firm called Education Alternatives, Inc. (EAI) seemed to come
from nowhere to land a $180 million five-year contract to run nine of
Baltimore's public schools.

Two years later, in 1995, EAI signed a deal of even greater potential to
manage the whole Hartford, Connecticut system, a district enrolling some 24,000
students in 32 schools and spending $171 million a year. After voucher-touting
Republicans took over the House of Representatives (and thus the purse strings
of the nearly bankrupt District of Columbia), the company also began negotiating
to do the same thing for some—or perhaps all—of the hapless, and
costly, Washington, D.C., schools. In both cases, the companies were betting on
a combination of fresh paint and carpets, mildly innovative pedagogy, often with
its own trademarked jargon, lots of computers, and the dead-certain conviction
that they could save a bundle by managing things more efficiently than the
bloated school bureaucracies.

For the teacher unions, which have been fighting it at every turn,
privatization, often coupled with the shadow of private school vouchers, was the
thing from hell. For liberal school reformers like Jonathan Kozol, it was a
further wedge in the growing gap between schools for the rich and the poor, and
another example of how the poor were being sold to the lowest bidder. And for a
lot of people on Wall Street, what came to be known as EMOs (education
management organizations) had nearly unlimited potential, not just to prove out
the trendy free market theories in K-12 education running through conservative
circles, but, as analogs to the burgeoning managed care health industry,
promising big bucks for investors.

Two years ago, after EAI came to Baltimore, its shares were selling at 48
3/4 on the NASDAQ over-the-counter market. "We figure we can reduce
operating and administrative spending by 25 percent," EAI's then-ebullient
chairman John T. Golle told a credulous writer for Forbes magazine, "and
put 20 percent back in the classroom. The other 5 percent will be our profit."
And he would do it, as the Baltimore contract required, with regular union
teachers. That was both a useful capsule of how free-marketeers viewed the K-12
schools and a sign of how fast they expected results.

But in the past year, the comet, like a great many previous all-purpose
solutions in public education, began to fizzle, not yet burned out by any means,
but a far dimmer and slower-moving body than it seemed in 1992-94. Only a few
months after it had made its privatization deal, the Hartford school board,
finding itself in sharp disagreement with EAI over the terms of its contract,
scaled the company back from 32 to 6 schools and, after continued disputes,
cancelled the deal altogether. Something similar occurred in Baltimore, where
the school board, squeezed for funds, buffeted by pressure from its teachers
union, and sharply divided about how much EAI was accomplishing that wasn't
being accomplished elsewhere in the system, cancelled its EAI contract.

In neither place had EAI managed to show any clear academic improvement; in
Hartford it hardly had the chance, and in Baltimore, the improvement of the last
year of its operations barely seemed to offset the relative decline of the
first. In addition it had, in the words of one union official, "played
funny games" with federal compensatory education money; it had, according
to its critics, placed learning-disabled students in regular classes without
providing them much in extra services, and it appears to have spent more money
per student than comparable schools.

For a time, trading in EAI shares was suspended; when it resumed, EAI was
selling at 4 5/8. The company, Golle told his shareholders last December, was
changing its focus. In the face of the Baltimore cancellation and the ongoing
financial dispute in Hartford—the final cancellation of the contract yet to
come—its future was no longer in urban schools but in an environment that
was "less political and less volatile." Unfortunately, Golle said, "the
people we view as our best users are now suburban." The meeting, said New
York Times
reporter George Judson, "was a sobering affair."

By then Whittle's Edison Project had undergone its own sobering moments and
an even more radical metamorphosis. After the brash announcements that it could
build and run those 1,000 innovative new schools, charge no more than what the
average public school spent (roughly $5,500 per child per year), have 20 percent
of all students on scholarship, and still earn a profit, the company slowly
began to discover that things didn't quite pencil out.

In the meantime, the politics began to look dicier as well. In 1991-92, when
Edison was just getting off the ground, Whittle had uncomfortably close ties to
Lamar Alexander, George Bush's secretary of education, and high hopes that
sooner or later, an unrestricted private school voucher would come either from
Washington or in one or more of the states where voucher proposals were pending.
(Alexander had bought four shares of Whittle Communications in 1988 for $10,000,
then sold them back to Whittle four months later for $330,000.) But Bush was
defeated for re-election, voters in Colorado and California soundly rejected
voucher proposals, and Whittle Communications shriveled after a series of
financial disasters, many of them self-inflicted.

As a consequence, Edison was recast on a far more modest scale. Instead of
building its own schools, it would, like EAI, bid to manage existing public
schools. Former Yale President Benno Schmidt, whom Whittle had hired away from
New Haven in 1992, and whose appointment had given Edison cachet as an
educationally responsible operation, was still there, as chief executive
officer, and so was John Chubb, a Brookings Institution fellow and one of the
country's strongest proponents of public school vouchers. But gone was Hamilton
Jordan, who had been President Jimmy Carter's chief of staff and was one of
Whittle's more notable hires—his years at Whittle, he told people
privately, had been a waste of time—and Whittle himself had been relegated
to a secondary role on the board of what was now a separate entity. As of
January 1996, the Edison Project was running four schools—one each in
Boston; Mount Clemens, Michigan; Wichita, Kansas; and Sherman, Texas—and
preparing to run four more, two in Miami, one in Colorado Springs, and one in
Springfield, Massachusetts, beginning in the fall of 1996.

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None of that should suggest that "privatization"—meaning
the operation of K-12 schools, or large parts thereof, by private entities with
public school money—is dead and gone. While few people other than committed
enthusiasts would agree with the statement by John McLaughlin, who publishes a
newsletter called the Education Industry Report, that the EAI setback "is
not an industry setback," privatization, in more modest form, is still
around. Boston University, under a ten-year agreement signed in 1989, is running
the entire school system in Chelsea, Massachusetts; and a Nashville company
called Alternative Public Schools, Inc., is running a public elementary school
in Wilkinsburg, Pennsylvania, a Pittsburgh suburb, which, like Chelsea, is
largely a poor and minority community. There are in addition a number of
companies, like Ombudsman Educational Services of Libertyville, Illinois,
operating alternative schools or remedial after-school "educational clinics"
for problem students who are on the verge of dropping out—or being booted
out—of school; some of these companies are eyeing the regular K-12 market.
And despite a massive union campaign to unseat them, the backers of
privatization easily retained control in Wilkinsburg. (Alternative Public
Schools, the Wilkinsburg contractor, lost a significant battle this winter,
however, when an arbitrator ruled that it had to hire back the 14 teachers it
had fired when it began to run Turner Elementary School.) In February, after the
EAI deals in Hartford and Baltimore fell through, Lehman Brothers issued a
report declaring again that "the education industry may replace health care
in 1996 as the focus industry."

But as Joe Nathan, who heads the Center for Educational Change at the
University of Minnesota, points out, the expectations and ambitions of the
privateers have become more realistic and less ostentatious. One of the strange
ironies about both EAI and Edison is that the educational philosophies and
curricula advertised by these hard-headed, market-driven operators have a
distinctly untraditional, if not altogether new-age, touchy-feely aroma. EAI's "morning
meeting," complete with rousing songs about one's "potentiality,"
is designed, according to company literature, "to build self-esteem."
Its trademarked curricular approach, named Tesseract after "a
fifth-dimensional corridor" in the children's book A Wrinkle in Time,
"focuses on each child to nurture his or her educational needs [to improve]
confidence, self-esteem and academic performance." This is not exactly what
the back-to-basics crowd is looking for.

Another irony is that, at least until EAI's announcement last November that
it intends to refocus on the suburbs, both companies have concentrated on
inner-city schools, which have more apparent need for improvement as well as
richer mixtures of extra state and federal funds to do it with. The case for
privatization is easier to make in educational disaster zones like Washington,
D.C., or Hartford, which spend large sums per pupil yet have little to show in
academic performance, than it is in an affluent suburb to which parents have
moved because of the schools. Nor are the privateers likely to back away from
their devotion to computers, in part because they make good classroom baby
sitters that allow teachers to concentrate on smaller groups, and in part
because computers are so fashionably (and in some cases, perhaps, so
deceptively) modern.

Yet, as Nathan said, there are signs that EAI and Edison—and
privatizers generally—have learned a great deal from their bruises. The
first is to be more modest: In Hartford, EAI was so sure that it could save the
system money that it agreed not to take any profits until it did so; no one will
ever do that again. In addition, while Edison plans to expand individual
operations, like its Boston Renaissance School, which now has only primary
grades, into complete K-12 schools, it's not likely that anyone will soon try
again to swallow a whole system. Equally important, the companies have probably
learned not to fight the unions head-on as EAI did in Baltimore (where it kept
most regular classroom teachers but replaced aides with student interns, who
were being paid about half as much), but to negotiate with them, as Edison is
doing in the districts that have union contracts. But probably the biggest
lesson, still not fully acknowledged, was that neither company had any real idea
of how complex the management of public education really is, how great the
distance is between the shiny ideas of the curricular plan and what actually
goes on in the classroom between a teacher and child, and how hard it is to show
dramatic improvement.

Ultimately, the key to the future of privatization lies not so much in any
corporate boardroom as in the public's perception of its schools and thus in the
political arena. Probably the single biggest influence on the future of
privatization will be the success of the charter school movement. Nineteen
states now have charter school laws, bills are pending in another ten, and about
250 charter schools have been established. In some cases, groups of teachers and
parents have taken over an existing school; in others—a majority, according
to Frank Newman, executive director of the Education Commission of the States—independent
nonprofit groups have created an entirely new school. Charter schools are free
from many conventional state requirements, though often still bound by state
laws governing collective bargaining with teachers. All are in theory
accountable for meeting the terms and promises of their charter. The Boston
Renaissance School operates under contract with a local nonprofit group that has
a charter from the state, and it's likely that if privatization spreads, it will
be primarily through the new schools that charters make possible.

The political support for charter schools, in turn, will depend on how well
the schools do in any given state or community, how obstructive or friendly the
bureaucracies and unions are perceived to be—and how well Republicans do in
the November elections. It is hard to defend the status quo when districts
continue to agree to union contracts in which seniority, not quality or
productivity, is the preeminent consideration in teacher promotion and placement
and when most teachers get no real incentive for success or effort. In
Minnesota, Nathan said, 3 of the last 15 teachers-of-the-year were laid off
because they lacked seniority when staffs had to be cut.

In theory, the privateers ought to be at a great competitive disadvantage.
They have to make money for their investors; the public schools do not. But if
Dole beats Clinton and the Gingrich Republicans retain their hold on the House;
if Pennsylvania Governor Tom Ridge, rather than just coming close, succeeds on
his next try to get a voucher bill through the state legislature; if California
Governor Pete Wilson can get his proposed private school voucher program enacted—if
these or other initiatives succeed, the forecasts of a burgeoning private school
industry by Michael Moe, who follows (and boosts) the industry at the brokerage
house of Lehman Brothers, may well be borne out. On November 7, the day after
the cancellation of EAI's contract in Baltimore, the Washington, D.C., school
board issued a call for proposals for management services for its notoriously
costly schools. By then both Washington's fiscally strapped city council and the
House of Representatives had endorsed a broad school reform plan drawn up under
Representative Steve Gunderson, Newt Gingrich's point man for the District,
which included charter schools and federal "scholarships" for District
students to attend private schools. Only the threat of a filibuster blocked
enactment of the plan in the Senate.

That's not to say every state that enacts a charter school law or creates a
voucher plan is ripe for corporate takeovers. But where the perceived return for
students seems small relative to the expenditures, the public schools, like
corporations sitting on large underused assets, are increasingly vulnerable.
It's also likely that where a growing share of available funds are put into
special education or other non-mainstream enterprises, as is ever more
frequently the case, the target becomes even fatter. Conversely, every
profit-centered enterprise will be under pressure to reduce costly special
services even to those who need them.

John McLaughlin speaks about the "growing consumer orientation in
education," which, in different terms, is the shrinking regard for
education as an integrating community enterprise. Both open doors to what would
once have been nearly unthinkable. The school unions hate it, for reasons that
should be obvious enough, but where they are perceived to be barriers to decent
education or desirable reform, they will be treated as just another set of
self-serving interest groups in the battle for control. The corporate operatives
at EAI and Edison badly overestimated the waste and inefficiency of the average
school district, not to mention its social and political complexities, and thus
their capacity to draw savings and profits out of the fat. So far neither has
shown any impressive numbers, either in student performance or in making
profits. But the existence of the industry, both as a small but irritating
reality and as a big-time threat, ought to do wonders in concentrating the minds
of the establishment and those who purport to be its friends. For all their
costly mistakes in the past five years, the privateers' ability to learn and
react accordingly ought not be underestimated. It's not yet clear that the
average public school system has an equal capacity for self-correction.


  • John E. Chubb and Terry M. Moe, Politics, Markets and America's
    (Brookings, 1990)

  • Denis P. Doyle, "The Role of Private Sector Management in Public
    Education," Phi Delta Kappan, Vol. 76, No. 2 (October 1994)

  • Paul D. Houston, "Making Watches or Making Music: Arguements Against
    Private Management of Public Schools," Phi Delta Kappan, Vol. 76,
    No. 2 (October 1994)

  • Jonathan Kozol, "Kids as Commodities; The Folly of For-Profit Schools,"
    Business and Society Review, No. 84 (Winter 1994)

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