Today's school improvement industry is driven by No Child Left Behind's Adequate Yearly Progress (AYP) requirement. Schools that fail to make AYP are subject to sanctions - and assistance - with a "schoolwide" impact.  On the sanctions side, Supplementary Education Services (SES) available to all students that fall within Title I's perview, and to a lesser extent the possibility for transfer to charter schools, creates consmer demand for industry services. On the assistance side, funds available for schools in need of improvement create a demand for a wide range of products services and programs to turn things around.  And schools concerned about avoiding improvement status are incentivized to purchase the industry's offerings.

It takes no great genius to understand that more demanding standards of performance create a larger market for the industry. More schools fall into improvement status, more consumers use SES, more money is available to assist more failing schools, more schools decide to reallocate resources to programs more likely to keep them from failing to make AYP. Less demanding standards shrink the consumer and assistance markets, and create less demand for the new programs. It takes no great genius to understand this, but your editor has literally never heard a school improvement industry trade group official discuss this issue, let alone present a reasoned position on where the nation should set its standards.

The August 6 article by Montomery Advertiser reporter Desiree Hunter on the AYP status of Alabama public schools should help readers appreciate the relationship between federal statadards and market features.

There were 1,358 schools in Alabama this year and 1,117 of them - or 82.2 percent - achieved the AYP goal. Last year the state had 1,364 schools and 1,194 of those - or 87.5 percent - met the goal. That means 241 schools missed the mark this year compared to 170 in 2006, but education officials are looking at the bright side.

State Superintendent of Education Joe Morton points out that 184 schools - more than 76 percent - missed AYP by just one goal. He and other state educators are calling for federal officials to start considering different consequences for schools based on how close they were to the goal." That way, if a school misses AYP in just one area it is not treated the same as a school that missies it across the board," Morton said in a statement Monday.

Morton, and many other Chief State School Officers are counting on less demanding standards in NCLB II. Congressman Miller has told them to expect it.

The idea of differential consequences is tailoring the punishment to fit the crime. If the reason a school fails to meet AYP is its English Language Learners, create a consumer market in SES for those students and allocate assistance resources to fix that problem. If the school is in improvement because of multiple subgroups of students, offer SES only to the students who are failing to demonstrate proficiency on the state test.

There will be school improvement industry winners and losers in a market shaped by differential consequences. The effects depends on the specifics. The 184 Alabama public schools that missed AYP by one goal may be taken out of the market altogether, or if that same subgroup fails in the next year, the students in that group may be eligible. It may be that programs aimed at that subgroup, and online providers will find a viable consumer market. Traditional tutoring chains may be able to serve these students from local sites, but its hard to see how the large national providers established specifically for the SES program under NCLB I will manage.

In the assistance market, should the failure of their one group persist, there will be 184 fewer schools eligible for schoolwide support, but now focused on support for their particular subgroup. A boom for specialized providers, a serious problem for generalists. Likewise, schools hoping to avoid improvement will be calling in the specialsts.

If this is combined with multiple measures of effectiveness - as it surely will be, the school improvement marlet will shrink even more. Your editor has covered these market issues in greater detail here and here

Listen to a two-part podcast series from 1995 on one way to think about AYP from a market perspective here and here. Podcasts run roughly six minutes each and can be heard on your existing computer.

One last point. If you are interested in examples of political risk in the school improvement industry, and particularly its effects on investors, consider the above discussion. Overnight, the rules of the game in NCLB will change in profound ways. Few investors really understand NCLB's accountability provisions, let alone how the shape the market. Soon, whatever they did know will be irrelevant. However, they will learn two things from the experience: that this wouldn't happen in any other sector of the American economy, and that the impact of vast changes on an emerging industry is pretty much the last thing on politicians' minds - Republican or Democrat. The esperience won't speed up the flow of capital to providers, and really points up a vast failure on the part of the Education Industry and Software and Information Industry associations' leadership. And to any member of these organizations, the argument that events and forces were beyond their leaders control may be an explanation, but it's no excuse.  Similarly, don't accept that this mess was not foreseeable, in say 1995. (See here as well.)

Failure is a fact - not a moral judgment, and it's high time for members to start figuring out what to do about it.