One “Education Industry,” or Two?
March 29
Marc Dean Millot
March 29
Marc Dean Millot
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. (Readers of edbizbuzz know that similar
relationships exist between consultants and education agencies at the state
and federal levels, and become important at the point of major policy
shaping intiatives like Reading First.)
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 outcompeting
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 privatelyprovided
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?
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. (Readers of edbizbuzz know that similar
relationships exist between consultants and education agencies at the state
and federal levels, and become important at the point of major policy
shaping intiatives like Reading First.)
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 outcompeting
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 privatelyprovided
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?