One “Education Industry,” or Two?
Marc Dean Millot
Editor
Editor
When the phrase “education industry” arises in conversations among educators, policy analysts, politicians, reporters and even the interested public, it usually said with a tone of skepticism and often in the pejorative. This is soon followed by “privatization,” the label for private firms operating public schools. From here, it is a short leap to “vouchers” and the idea of private firms running private schools with public money outside the accountability regime that applies to public schools.
Employed in a few sentences, these phrases invariably create the impression of something unprecedented and amiss in public education. To whit - a monolithic movement of companies taking on the core teaching and learning functions of schools - and earning profits that might otherwise be going to “educate the kids.”
Educators know that the characterization of any human activity or group as monolithic is fundamental to the maintenance of irrational prejudice. Policy advocates, analysts and legislators know it can be a useful political weapon, but is never terribly useful to analysis. As someone who makes his living publishing a variety of information services for buyers, sellers, researchers, regulators in the growing market for products and services sold to school systems to improve teaching and learning - this perception seems both a-historical and exaggerated.
A more helpful and analytically defensible simplification is not of one education industry, but two. The first has existed for most of the last century, the second arose around the turn of this century. The first is deeply embedded in the teaching and learning activities of public schools, the second would like to replace the first. The first has made enormous profits by a variety of perfectly legitimate techniques - and some abuses, to restrict competitions. The second would like to make enormous profits, but at the moment must throw whatever surplus it generates, plus a vast amount of equity capital raised from private investors, to gain a beachhead in the other’s market.
It would be perfectly understandable to conclude that the “two industrys” referred to are school districts and teachers on the one hand, and for-profit businesses on the other. But whatever the merits of that distinction, this article is about two groups of companies in the private sector.
The First Education Industry – Publishers and Consultants
Private enterprise has been part of core teaching and learning activities since schools first bought textbooks. For much of human history placing information on paper was the only way society could pass knowledge reliably from one generation to the next. Today, k-12 textbooks account for some $4 billion in annual sales, by far the largest single segment of spending on products and services aimed directly at the classroom.
Four multinational publishers - McGraw-Hill, Houghton Mifflin, Harcourt, and Pearson, hold 70% of a market providing critical content directly to students and teachers in the classroom. The founders of these firms departed this earth decades ago to be replaced marketing and finance professionals far removed from the classroom. In 2005, McGraw Hill reported on the order of $150 million in operating profits on $1.2 billion in sales by its School Education Group. These substantial profits seem to be accepted quite readily by educators, politicians, reporters and the public. Moreover, federal, state and local education agencies acting on behalf of the taxpayer have placed no particular demand on publishers to produce objective evidence that their products actually add value to student performance.
The publishing oligarchy selling content to districts from the top down is complemented by an army of sole practitioners and small firms providing “technical assistance” services to schools from the bottom up. For the most part, these professional service contracts are exempt from state and local procurement law and need not be subject to competitive bidding. The purchasing decisions are largely within the discretion of superintendents and their immediate administrative lieutentants.
Recent investigative journalism by Dallas Daily News reporters Kent Fisher and Molly Motley Blythe provide a view into the size and nature of a market that operates in the dark. Of a professional services budget of roughly $29 million per year, the 160,000 Dallas Independent School District (DISD) has been directing $11 million in technical assistance to support core teaching and learning activities. The work includes such as curriculum writers, mentors for teachers, after school program managers – activities designed to leverage the content provided in textbooks.
Extrapolating a per capita allocation of $69 in technical assistance to the 160,000 student DISD over the 48 million students in American public schools suggests a national market of some $3.3 billion. That’s almost as big as textbooks. Fifteen of years studies by the Consortium for Policy Research in Education on district resource allocations towards professional development of teachers alone suggests a national market of at least $9 billion. The only activity more deeply embedded in public schools teaching and learning function is classroom teaching.
A committee appointed from within DISD reported that these contracts were rarely put out to bid, are dominated by former employees, and subject to deliberate over-billing. Leaving abuse of the process aside, contractual payments bear no relationship to consultants’ value-added to student performance. At $400-600 per day consultants are generally more expensive than DISD employees. Like the earnings publishers distribute to shareholders, the difference could “go to the kids.”’
Understandably, this “first” education industry - publishers providing content and local consultants providing professional services - has no great interest in being replaced. There are places like Dallas where the relationship between the top-down and bottom-up sides of the traditional providers steps over the line of legal behavior. While these may be exceptional circumstances, they suggest how cozy and deeply embedded the relationships have become, and imply some need to place a spotlight on procurement decisions favoring the traditional education industry and make the process far more transparent.
The Next Education Industry – School Improvement Providers
The second industry wants to replace these providers. The founders of these new firms and their investors believe that legislative trends around standards and accountability initiated in the states in the 1990s and culminating in No Child Left Behind give them a chance to breach formidable barriers to entry maintained by the multinational publishers and local consultants. They believe that the requirement to demonstrate performance – improved student skills in essential subjects measured by standardized tests, gives them a basis for out-competing the established players.
In order to achieve these outcomes, the new industry must combine the content in textbook products provided by publishers with the expertise delivered by district consultants as professional services. Some content remains in print accessed on paper media, but much has migrated to CDs, DVD’s, flash drives and increasingly the internet – where it can be downloaded by media devices including computers, to cell phones and i-pods. Moreover, the new providers can only produce superior outcomes as a joint effort between their own professional staff and educators. They are fusing the old industry’s notion of separate “products” and “services” into integrated educational “programs.”
The new industry would be perfectly happy to make the same kinds of profits as the first. But, as a practical matter, most new firms are in no position to let their founders convert some their sweat equity into cash, or repay their partners from venture capital by finding new investors, let alone distribute profits to shareholders. Indeed, they all need to raise huge amounts of additional capital. At this point most providers would be happy to demonstrate the kind of sales growth required to attract that investment.
There’s nothing perfect about the new firms. Not everyone has demonstrated the level of commitment to program efficacy implied by the spirit of No Child Left Behind. The law and its regulations are ambiguous enough to confuse even the most diligent firms about what is expected. Legitimate methodological, technical and cost issues in the design of a regulatory regime based on evaluation have yet to be addressed by government. Evaluation itself is a political football in our reading, math and charter ”wars.” Investigations into the implementation of Reading First demonstrate that existing rules have been interpreted by Department of Education officials in ways that can only be considered “arbitrary and capricious.”
Despite all of this, the overwhelming majority of founders in the new industry – and, more important, investors - understand that their ability to replace the old industry, and in so doing prove the financial value of their firms, depends entirely on demonstrating superior student performance. No firm is satisfied with its current ability to demonstrate efficacy, the vast majority are trying to improve their programs. Few have hit on the right operational model, the vast majority are working on it. And every management team understands that their survival and growth depend on convincing investors that their programs do not merely sell today when the burden of proof is relatively light, but will sell tomorrow as that burden gets heavier.
The new industry’s business model requires the managers and operations of the new firms to get close to the classroom and teachers. Individual educators be must treated with the respect accorded to partners if a firm hopes to add value to student performance. Any firm that views teachers as mere consumers, let alone adversaries, is doomed to failure. At the same time, because it offers outcomes rather than inputs, the new industry favors an open procurement process with arms-length dealings based on program quality – rather than a hidden process favoring the size of competitors’ marketing budgets or personal ties to district decision makers.
Nothing could be further from the truth than the idea that the new industry has a long-term interest in vouchers. There are one or two Education Management Organizations (EMO) that still favor the idea. It might be more accurate to say that some members of one or two EMO management teams favor the idea. There are handful of companies that want to run public schools, but most want to do it under contract to a district. The vast majority of firms in the new industry oppose vouchers. Frankly, each would prefer selling its teaching and learning programs to thousands of school districts rather than tens of thousands of independent schools – public or private.
Not “No Education Industry,” But Which Industry
In short, the idea that the public school classroom is a commerce-free zone in our market economy is a myth – and a very convenient myth for the publishers and consultants that control the business of support for teaching and learning. The choice is not “no industry,” but “which industry.” It is time to get past the myth and begin to consider the right business model for engagement with our public schools.
Today, educators, legislators and the public are not deciding whether this country will have a huge education industry – it already has one. They are not deciding whether the private sector will be deeply engaged in the core teaching and learning functions of schools – it already is. Nor are they deciding whether that industry should be permitted to make significant profits – it already does. And they are not deciding whether industry will be allowed to take the nation towards vouchers – few firms have the least bit of interest.
What they are deciding is the kind of industry they want. Educators are deciding whether they want business to be held accountable for their contribution to student outcomes. Legislators are deciding whether it would be better to encourage the development of privately-provided programs or the current bifurcation of content and expertise. Parents are deciding whether they want the private sector to work with teachers in the classroom or leave textbooks on the loading dock and the friends of district administrators as consultants. Taxpayers are deciding whether they want to pay for inputs to learning or learning outcomes.
If you have to choose between the two – and you do – isn’t the new education industry the preferred option? Wouldn’t it be better to make this new model work, instead of letting the old industry persist by pretending business is not already in the classroom?