It's a lot easier to sign up a school management firm than to make sure the company lives up to its promises.
Are private management firms what we need to save public institutions -- like our schools? That's what many Americans hope and believe. But for those who write and think about business issues, private management may raise as many questions as it answers -- as we can see from an editorial from The Hartford Business Journal (May 23, 1994), reprinted here with permission.
The proponents and the opponents of turning Hartford's public education system over to the Baltimore-based company, Education Alternatives, Inc. (EAI), both have good points to make about the respective sides they have taken.
Most of the things these folks are addressing, though, concern the practical side of things: What about existing contracts, teacher/student ratios, equipment and so forth.
That's well and good, but two things are ignored. Actually one's ignored and the other is often raised, but never really addressed, although the answer is clear.
First the often raised question: When push comes to shove, will EAI look after its shareholders or the children it's educating. Opponents of the idea merely ask the question in that rhetorical way that says: "We don't have a clue."
Proponents maintain that the company will obviously do well if the students are doing well. "As in any good business relationship, when the customer is well served, the vendor and the customer win," was one analysis from the pro side. That may be the case, but there are a couple of problems with this: Who's the customer, the children or the state - which demands that the children attend school -- or the Hartford school system?
In one sense, anyway, the questions that are raised by the proponents' simplistic suggestion are just as irrelevant to the issue of where the kids lie in the food chain as the suggestion itself
In short, and this is clear, the answer is the stockholders will be taken care of They have to come first, by law. It's the duty of the directors of publicly traded corporations to look after their shareholders first and foremost. That can involve tough decisions about product mix, lines of business, number of employees, size of the target market and so forth.
All these things have very little to do with running a not-for-profit public school system where they have to deal with a captive market that's forcibly delivered to them, mandated services, and nebulous things like scholastic achievement.
This leads into the ignored point: State and local governments have been running these systems around the world for years. They end up running them because there's no money in it, just like there's no money in running a police department, fire department and so on. You can't turn an inherently unprofitable business into a profitable one just by turning it over to the private sector.
Anyway, if EAI's going to make its money from the savings it delivers to the city, why not have the city do the job itself? That way it can pocket the difference itself, or plow it back into the system. If those sorts of savings are available, it makes no sense to send them out of state to a for-profit corporation.
*****
One thing is certain about signing up a school management firm. It's a lot easier than monitoring the company to make sure it lives up to its promises. School administrators are the logical watchdogs, but they have often been involved in the hiring process so their prestige is on the line. Will they be up to monitoring the company? If John Golle, the head of EAI, has his way, the incentives will all be in the direction of giving the company a free ride. In an article in Education Week (June 22, 1994 ), Golle describes the "incentives" that might be offered to a superintendent:
The management company offers to provide additional financial incentives to the superintendent for meeting the performance goals set forth in the contract. If approved by the school board, a bonus, stock options or stock itself become possible additional perquisites for the entrepreneurial superintendent of schools, in cases where the management company manages the entire district.
In other words, if the test scores look good, the superintendent may get "a bonus, stock options or stock." And if the test scores don't look good ... ? This is like a defense contractor's offering stock options to Pentagon officials who are monitoring the performance of the company's new fighter plane to see if it meets specifications. Would anybody think that OK? Or, closer to home, would anybody consider it appropriate for a superintendent to get "perquisites" like these from a transportation firm or a food service company with which the school district deals?
Maybe Golle doesn't understand how close the incentives he describes come to simple bribery. But even if we give him the benefit of the doubt, his offer is an invitation to corruption.