Charter Schools and Private Profits

By Plank, David N.; Arsen, David et al. | Government Finance Review, October 2001 | Go to article overview

Charter Schools and Private Profits


Plank, David N., Arsen, David, Sykes, Gary, Government Finance Review


The emergence of educational management organizations to run charters raises questions about the pursuit of profits and the quality of education.

Editor's note: This article is reprinted with permission from the May 2000 issue of The School Administrator magazine.

One of the most significant developments associated with the introduction of charter schools is the rapid emergence of educational management organizations (EMO).

Unlike the schools with which they contract, which are legally prohibited from seeking profits, EMOs usually are for-profit firms that seek to earn profits from their provision of administrative and educational services to schools. Rapid expansion in the number of charter schools has opened the door to the public school system for these firms, and they have been quick to enter.

A critical question is whether this development is good or bad for students. Our research in Michigan raises concerns, while pointing to the importance of the rules that govern the emerging market for schooling. The rules embodied in charter school legislation determine whether expanding private participation in the public school system will help or harm children.

Different rules create different incentives, and different incentives produce different outcomes. A carefully designed policy framework can ensure that the market for schooling works efficiently and effectively to improve the educational opportunities available for all children.

Debate Over Profits

In an interview conducted not long ago, the principal of a charter school made a surprising statement. "I hate charter schools," she declared. "They are not doing a better job, and they will ruin public education." She was especially troubled by the thought that charter school operators might profit from their management of schools.

"You can't make profits if you're committed to educating kids," she said, because there is never enough money to meet all of the challenges that children bring to school. In her view, profits can be obtained only by depriving children of services and opportunities that would help them to succeed in school. This is wrong, she said.

The views of this principal may be unusual among charter school administrators, but they are widespread among educators in the traditional public school system. Professionally committed to pursuing ambitious goals with an ethic of public service not personal gain, it is natural for public school educators to view profits as suspect. After all, the money that is returned to adult investors as profit is money that could otherwise be spent on the education of children.

In response to these qualms, the advocates of private-sector participation in the education system make three arguments. First, they say, many important activities in the educational system always have been the preserve of private firms, including textbook production and most standardized testing. Private-sector participation has been increasing in recent years.

Second, they contend the pursuit of profits serves society well in many ways, as anyone who has a 401(k) retirement plan or shares in a mutual fund will recognize. We rely on profits to finance our retirement. We rely on for-profit firms to provide most of the goods and services we consume, including food, housing, and health care.

Finally, the advocates of private-sector participation in education note that the public sector has failed to provide a satisfactory standard of education for large numbers of children, especially poor and minority children in urban school districts. Some claim that resources are being wasted on a grand scale.

The Rise of EMOs

Charter schools are public schools, financed by taxpayers and accountable to agencies of state or local government. Like other public schools, they are non-profit organizations. Any surplus revenues they generate must be used to advance their educational purposes. …

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