Public Education & Private Enterprise.

Where's This New Relationship Going?

Few issues create greater debate these days than the growing role the private sector is playing or wants to play in the delivery of public education.

The private management of public schools is the most dramatic of the new relationships forming between public education and private enterprise. For some, this private-sector involvement is welcomed while others regard it as public enemy No. 1.

What's the current status and likely trend of these activities? Is elementary and secondary education an emerging investment industry? What role should superintendents and other leaders of public schools play in shaping this new dialogue between the sectors?

For years I have been examining the impact of private-sector involvement on students, communities, unions, and investors. Though the crystal ball is clouded by all sorts of contingencies, here's my view.

Although efforts to privately manage public schools hay existed since the 1950s, the present push in this direction has its origin in the mid-1980s. Beyond A Nation at Risk and the growth of school-business partnerships, two events fueled the increasing involvement of private investment in managing public schools during the last decade.

First, the Reagan administration set the tone for encouraging private companies to contract for services traditionally provided by the public sector. Second, the enormous wealth created by the rising stock market and boom industries of health care and technology led to an explosion of venture capital available to new arenas such as public education.

Perhaps the single most important event that launched the interest of private companies came in May 1991 when Christopher Whittle boldly proclaimed that his Edison Project was going to reinvent schooling in America. His hiring of talented, high-profile individuals from education and business to direct the project signalled the seriousness of his intent. Within two years the Edison Project had backed away from its original idea of creating a national network of for-profit schools and turned instead to managing public schools.

Undoubtedly, the Edison Project was influenced by the trials of Education Alternatives Inc. in Baltimore's public schools and by the torrid performance of that company's stock at the time.

Since then, the marketplace has seen additional companies form or reshape their direction to manage public schools. Nonpublic Educational Services, of Woodbridge, Va., which has provided services to non-public schools since 1978, recently entered the public school arena and now manages alternative programs in Massachusetts and Virginia.

Roy Jorgensen Associates, of Buckeystown, Md., a 30-year-old management consulting firm with more than 250 employees, recently formed a charter schools division to transfer its extensive experience in facility planning, management, education, and training services to public schooling.

Also, Alternative Public Schools, formed in 1992 in Nashville, Tenn., recently agreed with the Wilkinsburg, Pa., school district to manage its Turner Elementary School. If it survives a legal challenge from the teachers' union, the agreement will allow the company to hire its own teachers to staff the school.

In addition, a number of companies offer an array of curricular services to public schools (see related story, pages 8-9). These include Ombudsman, which works with at-risk students; Futurekids, which teaches technology; Success Lab, which provides reading and math enrichment; Berlitz, Dia Logos, and Language Odyssey, which provide foreign language instruction; and Sylvan Learning, which offers Chapter 1 programs.

Clearly, private firms see significant possibilities in managing public schools and delivering the curriculum.

Investable Industry

Public education for years has served as a rich marketplace for companies selling everything from textbooks to playground equipment. Think of the relationship this way: The private sector owns or manufactures the information and tools of schooling -- books, hardware, software, desks, lockers, and so forth--while the public sector controls the buildings, the labor force, and the delivery mechanisms.

This shared ownership by government and free enterprise has evolved over decades. Only recently, as private interests have ventured into teaching and administration has this relationship become strained. In light of these tensions how wise are the investors backing companies that want to manage schools and deliver parts of the curriculum? Either these investors see the future and are leading others to it or they are tinhorns with little understanding of the harsh realities of public schooling.

The enormousness the public education market has many investors salivating. They see public schools as a $300 billion-a-year industry, with 40 million students, divided among some 15,000 districts and 83,000 schools. One frequently hears the rationale in the investors circle that "If we can just capture 1/2 of 1 percent of the market, we'll do a billion and a half dollars of business a year."

But the salivating stops when it becomes apparent how tough a market education is to crack. With most money committed to salaries, debt maintenance, and facilities, few dollars are left for discretionary use. No matter how wonderful a product or service company may offer, a cash-strapped school district cannot afford it. And any service that threatens to displace existing workers, particularly teachers, is going to be accused of union busting.

The power of teachers' unions to block or hamper private-company efforts has been illustrated in communities as diverse as Baltimore, Hartford, Wilkinsburg, Pa., and Pinckney, Mich. Even where the union has been cooperative, such as in Minneapolis, results are less than overwhelming. Public Strategies Group Inc. discovered the difficulty of coming into a school district with a broad base of support to establish accountability measures for the company's own performance.

Union Roadblocks

Much has been learned by the private sector about investing in the public school market. Just three years ago private firms were bragging pretentiously how they would get immediate results, quickly turn around teachers and students, streamline decision making, and cut the fat and the deadwood out of the school system by applying the strategies of the business world.

Today, the braggadocio is all but gone, and respect for public schools, administrators, and teachers is rising in these circles. The private companies have learned how difficult it can be just to run schools in their present form, much less change their structure, objectives, and measures of success.

In my dealings with educational entrepreneurs, I often hear their stories of growing appreciation for school leaders. They express amazement both at the complexity of school problems and at the bureaucracies that stifle improvement. They also point to the predicament of school system leaders-torn between a desire to work with companies that offer high accountability for their performance and reluctance to do battle with resistant teachers unions.

Companies offering direct instructional services in school readily identify the unions as their greatest obstacle. As William Walton president of the Chicago-based Education Partners Inc., recently indicated, "Teachers' unions are about the only real barrier we face. But with $700 million a year available to the to lobby for the status quo and block innovation in education, this is a very significant 'only.' They understand that a highly focused outside organization that can provide higher-quality educational services at lower costs represent a big threat to the current way of doing things."

Union opposition is not confined to instructional services.

Ongoing battles in Wilkinsburg, Pa., and Baltimore illustrate the struggles school management companies face. More than a year after the Wilkinsburg school board circulated a request for proposals for management of one of its elementary schools and after months of negotiating with the chosen firm, a lawsuit by the teachers' union has prevented the school district from signing a contract with the company.

Meanwhile, in Baltimore, the company that managed 12 schools is now a co-defendant with the school board in a suit by the union that charges the district violated the city charter.

Continuing Growth

In spite of these temporary hurdles, private-sector management of public schools and curriculum delivery remain strong growth areas. At a time of rapid changes in technology, shifting demographics, and realignment of national and state support for local schools, private companies are in prime position to help public schools meet unprecedented expectations.

At issue is the simple idea that school districts do not have to produce every service they provide. Private companies do not ask school boards to give up their authority or responsibility. Rather, they argue that the board's role should shift from that of a sole provider to that of a purchaser of educational services. Whether schools are managed and staffed by public employees or by employees of private companies under contract to a school board is not as important as guaranteeing that students have the best educational opportunities available.

Various signs point to continuing growth of private involvement in public schools. More investor trade shows on education are taking place. More financial analysts are turning their attention to education, and high-profile superintendents are continuing to join the ranks of private companies.

While school leaders may find the notion of greater private-sector involvement unsettling, the long-term prospects hold unlimited promise for improvements in schooling.

John McLaughlin is the publisher of The Education Investor, a newsletter on private involvement in public education.

Responding to the Private Sector Flurry

Superintendents need to be open-minded about the possibilities of private-sector involvement in their school districts. Here are some suggestions.

* Do not think "This too shall pass."

Too much remains at stake to ignore the privatization movement. Private involvement in managing public schools and delivering parts of the curriculum is a manifestation of the new way of doing business in the American economy. It is not capitalism run amok. The private sector has great talent and resources, and to discount or ignore it serves neither students nor taxpayers.

* Become informed about private company activities in the schools.

Follow the issue more closely in education publications and the general press. Request that the subject be addressed at regional or national professional meetings. Be ready to field questions on the matter from school board members or citizens. With a finite number of companies involved at the moment, get to know them. Request their materials. Determine if they offer services that fill your district's needs.

* Avoid the volatile term "privatization."

This word creates images of what is going on in Eastern Europe where formerly state-owned industries are sold into private hands. That is not what is going on in American education today. The school board still operates with the authority vested in it by the state. The phrase, "privately contracted services," is a more apt description of these activities. Much as districts now contract for student transportation or food services, the issue here is will that model work for management and teaching services?

In addition, using the word contracting instead of privatizing places the focus on the action of the school district where it belongs. The districts are the decision makers in dealing with the education companies.

* Study the request for proposals process.

A well-executed RFP process is the key to considering privately contracted services because it ensures an open, competitive bidding process. Study districts where the RFP process for management has been successfully used such as Portsmouth, Va., or Wilkinsburg, Pa. Examine other RFP guidelines your district may use to contract for services and see if these can be adapted for considering private management.

* Operate from a position of strength.

Thus far the private management companies have been interacting mostly with districts with serious problems--districts sometimes willing to cut desperate deals. Don't allow that t happen to your district. Only form relationship that are highly accountable and provide an escape clause for the district.

* Ensure favorable contract language.

In negotiating contracts with your employee groups, try to provide language that will make it easier for your district to use private companies should the school board desire. Get this established as a managerial right. As faculties age, enrollments change, and technology becomes a larger force, the ability to contract with private companies could be a useful tool for the board and administration.

* Follow related legislation.

In a number of states, legislation is proposed that will grant school boards the explicit authority to contract for teaching and administrative services. In some states, school boards already have this power. But in states where this is being proposed, particularly Pennsylvania, the debate will raise significant questions regarding who controls public education.

The early history of this emerging in industry has been characterized more by diatribe than dialogue. What is needed is open and honest debate at the national, state, and local levels among the companies, school boards, teachers' unions, and communities concerning how to structure relationships between public schools and private companies to improve the lives of students. Though the early efforts are few and their results yet inconclusive, private companies offer significant resources to improve schooling in America and they are willing to hold themselves accountable for their performance. It is a rare district that can afford to ignore that kind of offer.