Academic journal article AEI Paper & Studies

Beyond Good and Evil: Understanding the Role of For-Profits in Education through the Theories of Disruptive Innovation

Academic journal article AEI Paper & Studies

Beyond Good and Evil: Understanding the Role of For-Profits in Education through the Theories of Disruptive Innovation

Article excerpt


For decades, for-profit educational provision has been tolerated, often grudgingly. In the world of charter schooling, for-profit providers are lambasted and sometimes prohibited. In higher education, for-profit institutions have grown rapidly, enrolling millions of nontraditional students and earning enmity, suspicion, and now investigative and regulatory actions in Washington. When it comes to student lending, teacher quality, and school turnarounds, there is a profound preference for nonprofit or public alternatives. All of this is too familiar to be remarkable.

The problem is that K--12 and higher education desperately need the innovative thinking and nimble adaptation that for-profits can provide in the presence of healthy markets and well-designed incentives. As critics have noted, for-profits do indeed have incentives to cut corners, aggressively pursue customers, and seek profits. But these traits are the flip side of valuable characteristics--the inclination to grow rapidly, readily tap capital and talent, maximize cost-effectiveness, and accommodate customer needs. Alongside nonprofit and public providers, for-profits have a crucial role to play in meeting America's twenty-first-century educational challenges cost-effectively and at scale.

However, we rarely address for-profit provision in this fashion. Most statutory and regulatory discussion focuses on how to rein in for-profit providers. There is little discussion of what it would take to harness the potential of such providers, while erecting the incentives and accountability measures that can ensure a level, dynamic, and performance-oriented playing field.

AEI's new Private Enterprise in American Education series is designed to pivot away from the tendency to reflexively demonize or celebrate for-profits and instead understand what it takes for for-profits to promote quality and cost-effectiveness at scale. In the first installment of the series, Michael B. Horn of the Innosight Institute explains why policymakers and reformers who castigate for-profits or nonprofits as inherently bad or good are mistaken. It is not about whether for-profits are "bad" or "good," Horn cautions, but about what for-profits are and are not given incentives to do regarding consumer satisfaction, embedded regulatory structures, and shareholder demands. As Horn argues, "Government should not discriminate between for-profits and nonprofits as a matter of blanket policy. Instead, it should ask if the company with which it is contracting, for-profit or nonprofit, is delivering on what society is paying it to do, as determined by both the spirit and letter of the law. And policymakers more broadly should be asking if the law is asking these organizations to do the right thing."

Given tight budgets and the heated debates over gainful employment, the role private enterprise can and should play in American education needs to be brought to the forefront of reform discussions. I am confident you will find Horn's piece as eye opening and informative as I have. For further information on the paper, Michael Horn can be reached at For other AEI working papers, please visit For additional information on the activities of AEI's education policy program, please visit or contact Jenna Schuette at


Director of Education Policy Studies

American Enterprise Institute

Executive Summary

The role of for-profit companies in public education--education financed by the government--has attracted increased scrutiny over the past few years. Though for-profit entities such as textbook companies have had contracts with public school districts for decades, recent controversy over what government officials and others perceive as low graduation rates and questionable marketing practices within the for-profit higher-education space has drawn significant negative attention. …

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