A Philosopher's Blog

Charter Schools IV: Profit

Posted in Business, Ethics, Politics by Michael LaBossiere on January 13, 2017

While being a charter school is distinct from being a for-profit school, one argument in favor of charter schools is because they, unlike public schools, can operate as for-profit businesses. While some might be tempted to assume a for-profit charter school must automatically be bad, it is worth considering this argument.

As one would suspect, the arguments in favor of for-profit charter schools are essentially the same as arguments in favor of providing public money to any for-profit business. While I cannot consider all of them in this short essay, I will present and assess some of them.

One stock argument is the efficiency argument. The idea is that for-profit charter schools have a greater incentive than non-profit schools to be efficient. This is because every increase in efficiency can yield an increase in profits. For example, if a for-profit charter school can offer school lunches at a lower cost than a public school, then the school can turn that difference into a profit. In contrast. A public school has less incentive to be efficient, since there is no profit to be made.

While this argument is reasonable, it can be countered. One obvious concern is that profits can also be increased by cutting costs in ways that are detrimental to the students and employees of the school. For example, the “efficiency” of lower cost school lunches could result from providing the students with less or lower quality food. As another example, a school could not offer essential, but expensive services for students with special needs. As a final example, employee positions and pay could be reduced to detrimental levels.

Another counter is that while public schools lack the profit motive, they still need to accomplish the required tasks with limited funds. As such, they also need to be efficient. In fact, they often must be very creative with extremely limited resources (and teachers routinely spend their own money purchasing supplies for the students). For-profit charter schools must do what public schools do, but must also make a profit—as such, for-profit schools would cost the public more for the same services and thus be less cost effective.

It could be objected that for-profit schools are inherently more efficient than public schools and hence they can make a profit and do all that a public school would do, for the same money or even less. To support this, proponents of for-profit education point to various incidents of badly run public schools.

The easy and obvious reply is that such problems do not arise because the schools are public, they arise because of bad management and other problems. There are many public schools that are well run and there are many for-profit operations that are badly run. As such, merely being for-profit will not make a charter school better than a public school.

A second stock argument in favor of for-profit charter schools is based on the idea competition improves quality. While students go to public school by default, for-profit charter schools must compete for students with public schools, private schools and other charter schools. Since parents generally look for the best school for their children, the highest quality for-profit charter schools will win the competition. As such, the for-profits have an incentive that public schools lack and thus will be better schools.

One obvious concern is that for-profits can get students without being of better quality. They could do so by extensive advertising, by exploiting political connections and various other ways that have nothing to do with quality.

Another concern about making the education of children a competitive business venture is that this competition has causalities: businesses go out of business. While the local hardware store going out of business is unfortunate, having an entire school go out of business would be worse. If a for-profit school goes out of business, there would be considerable disruption to the children and to the schools that would have to accept them. There is also the usual concern that the initial competition will result in a few (or one) for-profit emerging victorious and then settling into the usual pattern of lower quality and higher costs. Think, for example, of cable/internet companies. As such, the competition argument is not as strong as some might believe.

Those who disagree with me might contend that my arguments are mere speculation and that for-profit charter schools should be given a chance. They might turn out to be everything their proponents claim they will be.

While this is a reasonable point, it can be countered by considering the examples presented by other ventures in which for-profit versions of public institutions receive public money. Since there is a school to prison pipeline, it seems relevant to consider the example of for profit prisons.

The arguments in favor of for-profit prisons were like those considered above: for-profit prisons would be more efficient and have higher quality than prisons run by the state. Not surprisingly, to make more profits, many prisons cut staff, pay very low salaries, cut important services and so on. By making incarceration even more of a business, the imprisonment of citizens was incentivized with the expected results of more people being imprisoned for longer sentences. As such, for-profit prisons turned out to be disastrous for the prisoners and the public. While schools are different from prisons, it is easy enough to see the same sort of thing play out with for-profit charter schools.

The best and most obvious analogy is, of course, to the for-profit colleges. As with prisons and charter schools, the usual arguments about efficiency and quality were advanced to allow public money to go to for-profit institutes. The results were not surprising: for profit colleges proved to be disastrous for the students and the public. Far from being more efficient that public and non-profit colleges, the for-profits generally turned out to be significantly more expensive. They also tend to have significantly worse graduation and job placement rates than public and non-profit private schools. Students also accrue far more debt and make significant less money relative to public and private school students. These schools also sometimes go out of business, leaving students abandoned and often with useless credits that cannot transfer. They do, however, often excel at advertising—which explains how they lure in so many students when there are vastly better alternatives.

The public also literally paid the price—the for-profits receive a disproportionate amount of public money and students take out more student loans to pay for these schools and default on them more often. Far from being models of efficiency and quality, the for-profit colleges have often turned out to be little more than machines for turning public money into profits for a few. This is not to say that for-profit charter schools must become exploitation engines as well, but the disaster of for-profit colleges must be taken as a cautionary tale. While there are some who see our children as another resource to be exploited for profits, we should not allow this to happen.


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5 Responses

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  1. TJB said, on January 14, 2017 at 11:04 am

    Charter schools choose their own management structure: 67 percent of all charter schools are independently run non-profit, single site schools; 20 percent are run by non-profit organizations that run more than one charter school; and just under 13 percent are run by for-profit companies.


  2. DH said, on January 15, 2017 at 11:53 am

    I’m not sure I agree with the approach you take in most of your arguments.

    A common belief about for-profit businesses is that, with financial gain as their primary focus, they will eagerly cut salaries, benefits, and costs in order to improve their bottom line. There is some merit to this, but people who run businesses also know that they need to maintain high quality standards in order to stay in business, i.e., to offer an excellent product at a reasonable price to a customer who needs or wants the product. You can get people in the door with advertising and discounts and all kinds of ruses, but once they have entered, you have to work hard to keep them. Same with employees – you can make all kinds of promises to get someone to work for you, but once you do you have to satisfy his needs or he will leave.

    “Profit”, in the financial sense, is not really a primary goal here, as pointed out by TJB in his post. Even if it were, the profit earned by charter schools would be based on not only attracting, but keeping customers (students), and by providing an excellent product that will speak for itself by reputation, thereby attracting more customers.

    On the other hand, there is a profit-motivation in the public school system, but the definition of gain is a little more sinister than mere cash. Those who do profit from public schools are political appointees or elected officials – school superintendents, governors, representatives, senators. Profit for them comes in the form of votes and funding, but the metric for success is based on mediocrity – a school system as a whole meeting minimum standards set by bureaucrats and politicians. Another metric for success in the running of schools has nothing to do with education, but more to do with keeping unions happy – protecting pensions, relaxing tenure requirements, increasing beneifts – which they will do with great energy and at great cost if the unions represent a powerful voting bloc in the district, regardless of the effect it might have on the education of the students.

    I do not mean to disparage union teachers as a group – they may be perfectly competent – but between the metric for success for students that is defined by bureaucrats and the budget concerns of those with the funding, it is easy to see why public schools are failing and (as I cited in an earlier post) open-enrollment community colleges consistently face an incoming freshman class wherein a majority of the students require remedial instruction prior to entering gateway courses. Add to that mix the untested, unproven curricula handed down to educators who know better but whose hands are tied, and you have the makings of a perfect storm.

    Given a choice, parents really don’t care if a school system meets minimum standards on average, they are interested in the opportunities provided their children, and the success of the school is defined not by how many students pass, but how many go on to college or become successful after they graduate. They don’t care about “No Child Left Behind”, they care about THEIR child going forward.

    While efficiency does factor in to any enterprise that has to operate within a budget, it is not the only measure of profitability or success.

    If a charter school goes out of business, that is as it should be – it means that they did not offer what they promised, the long-term value of the product was not worth the price. The short-term disruption in a child’s life caused by having to switch schools is nothing – they do it all the time. My own kids went from K-3 at one school, then transferred to another school for grades 4-6, then to a junior high school for 7, 8 & 9, then finally to a high school. They live. They make new friends, have new experiences, and learn how to adapt to change.

    I have to say that when my daughter’s teacher herself complained to me about the “inventive spelling” concept that was doing my daughter so much harm, and said that her hands were tied and she had to follow the rules, I experienced a mix of anger, disappointment, and helplessness. There was no one to complain to, no one with whom I could discuss this – even a pitchfork-and-torch-wielding parent-mob would do no good. I also knew that I had no recourse – there was no charter school where I could send my child, and a “Fine! I’ll just take my business elsewhere!” attitude would do no good; the school would soldier on however they so chose.

    To a charter school, however, enrollment is key, and a parent complaint like that is listened to and considered, and curricular decisions are made at a grass roots level.

    The difference is that between the two, there are two completely different measures of success, and two completely different definitions of “Profit”.

    With regard to your critique of for-profit colleges, the statistics presented by Forbes are definitely notable, but I think it proves my point a little better than it does yours. The last paragraph of the article reads,

    “The weight of the evidence is slanted against for-profit colleges. But this is more a result of flawed incentives rather than the inherent evil of profits, as many critics of for-profits believe. The profit motive to create cheaper and better products is an integral part of the capitalist system that has generated amazing prosperity. With better incentives, there is no reason why profit cannot play a positive role in higher education as well.”

    Capitalism weeds out non-performing entities, bureaucracy does the opposite.

  3. nailheadtom said, on January 16, 2017 at 10:01 pm

    “If a for-profit school goes out of business, there would be considerable disruption to the children and to the schools that would have to accept them.”

    Come on. Families move from one district to another and the students go to a different school. Life is full of changes, they must get used to them. The disruption to the students means different teachers, a normal part of the progress through education, a different student body and new friends, an adjustment that will have to be made at some point. The schools themselves are capable of absorbing new students, they do it all the time.

    • Michael LaBossiere said, on January 18, 2017 at 8:45 pm

      Families do just that; but imagine an entire school going out of business. Small schools could certainly be absorbed, but what about a large one? Or a chain of schools?

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