Potential for For-Profit Schools for Educational Reform

Dr. Levin begins his paper with a brief history of education in America to highlight the absence of for-profit schools. This observation suggests that there is something inherent about education that does not lend itself well to for-profit operations. Dr. Levin highlights a possible counter-example to this hypothesis: for-profit EMO's. This paper asks two major questions about the potential of for-profit EMO's to reform public education:

1) Can EMO's succeed as a business, and under what conditions?
2) Are EMO's likely to stimulate changes in elementary and secondary schools that will improve educational outcomes?

With regard to the first question, Dr. Levin concludes that it is difficult for them to turn a profit because the proponents of educational privatization failed to carefully study the economics or politics of education. Dr. Levin points out five critical characteristics of education that those who decided to enter the "business of education" failed to realize: 1) education is a tough business because it is regulated, monitored, and subject to the demands of multiple audiences and layers of government; 2) EMO's face marketing costs that public schools do not face; 3) relatively short-term contracts (3-5 years) have their own risks in amortizing investments at school sites; 4) the economies of scale that were anticipated do not exist; and 5) one size does not fit all, creating a challenge for a uniform educational model, quality control from afar, and the establishment of national and regional brands.

With regard to the second question, Dr. Levin examined two ways in which for-profit EMO's could potentially promote educational reform: 1) operating schools that make organizational or pedagogical breakthroughs that might be emulated by public schools, and 2) creating competition between EMO's and public schools that would stimulate the latter to improve their operations. With regard to the first hypothesis, Levin found mixed results in terms of "revolutionary" breakthroughs by EMO's: no evidence with respect to curriculum, instructional strategies, or use of technologies, but strong evidence in the areas of personnel and organizational practices. With regard to the second hypothesis, Dr. Levin found no direct evidence that EMO's spur competition and improve results for the educational system.

Dr. Levin concludes that the present model of for-profit EMO's is unlikely to be successful, because, thus far, they have generally not been profitable and there is little evidence of breakthroughs in educational results. Dr. Levin provides suggestions for EMO's which may allow them to be more successful: 1) smaller firms with a few schools, 2) controls for central administration, 3) containing marketing and promotional costs, 4) longer contracts, possibly with payments based on performance benchmarks, and 5) focusing on niche markets, such as special education.

Summary of Questions & Answers and Suggestions for Modifications/Enhancements

Dr. Wittrock asked Dr. Levin why, in his opinion, we have not seen more innovation with respect to curriculum and instructional practices from EMO's. Dr. Levin speculated that it was similar to the charter school movement, in that many of the parents who have selected alternative schools, like charters and EMO's, want more direct instruction and basic skills curricula. Many feel that the public schools are failing their children precisely because of all the innovation - they just want to get back to the basics. Additionally, most of the EMO's began by focusing on business practices, not instructional practices. For example, John Chubb, the Senior Vice President of Edison, is predominantly interested in organizational issues.

Ms. Downing asked, what is the relative percentage of EMO's in suburban school districts versus large, inner-city school districts? Dr. Levin responded that he had not looked at those statistics directly, but his sense was that a majority of the EMO's nationwide were in urban school districts.

Dr. McNeil asked if the upcoming Supreme Court decision on whether public money could be used to fund private schools (i.e. vouchers) would have an impact on EMO's. Dr. Levin responded that it depends on the Supreme Court's decision. If they decided that vouchers are valid and do not violate the First Amendment, it opens the door for more EMO's to operate within voucher programs.

Dr. Tucker asked Dr. Levin if he has seen a declining interest in venture capitalists investing in EMO's that attempt to change existing school structures. Dr. Levin responded that he has seen a decline, particularly because of the financial difficulties many of the EMO's are currently facing. For example, investors are very weary of investing in Edison because of the dilution of existing ownership, the high risk, and the fact that assets are encumbered by the agreements. On the other hand, venture capitalists still view higher education ventures as having a lot of potential. For example, the University of Apollo and the University of Phoenix have been very successful, along with eight or nine other distance learning programs that have gone public.

Ms. Kim contended that, although Dr. Levin concluded in his paper that there was no evidence of an EMO effect on public schools through competition on the state or national level, this might not be true on the district level. Dr. Levin agreed with Ms. Kim that, on a local level, public schools are being impacted by competition with EMO's and charter schools. Dr. Levin referred to Rick Hess's work on alternative schools in Milwaukee and what he has termed "a revolution at the margins." Dr. Levin contended that, on the other hand, the changes that are occurring are at the level of providing certain services that were not provided before, rather than transforming the core of education. Dr. Levin also commented that he had completed a study with Clark Bellfield on the effect of competition on the public school system. They have found that there is a modest effect when there are more choices, but that effect is still quite small. When the amount of choice increases by one standard deviation, the achievement effect is about one-tenth of a standard deviation, which is equivalent to about ten points on the SAT verbal or math scale.

Dr. Kent asked, in light of Dr. Levin's conclusion that for-profit companies have the most potential in niche markets, are there some real profit opportunities for value-based education and Mainschooling? Dr. Levin responded that the Center for the Study of Privatization is currently conducting a study on Mainschooling. So far they are finding that the Mainschool charter schools in California are making tremendous amounts of profit - somewhere in the tens of millions of dollars.

Dr. Dees asked if there were any EMO success stories in terms of being able to make a profit and raise student performance. Dr. Levin asserted that is was hard to tell because it is difficult to get unbiased information on many of the smaller EMO's. For example, Victory Schools has three schools in Philadelphia, but the only information Dr. Levin was able to acquire on them was through their advertising materials which of course claimed that student test scores are increasing tremendously. Dr. Levin argues that we have not seen the whole EMO story yet. First of all, there may be a second generation of EMO's that will learn lessons from this first generation. Second, the success of EMO's depends on how success is defined and measured (e.g. increasing freedom of choice, efficiency, equity, or social cohesion).