A Public-Private Partnership? What is the economic relationship between EMOs and traditional public schools and/or charter schools?

I have spoken about the role of EMO’s or educational maintenance organizations more than once here on Dailycensored.  but the idea is still largely misunderstood.  Let us dig deeper, for whta is called a public-private partnership by Arne Duncan, the Viceroy of Education and Bill Gates, the Walton family, Elye Broad, his bosses, and other philanthro-capitalists is not only misleading, but it borders on more ‘liar education’ by those frisky little reformers out to autocratically seize control of public education (see more articles on dailycensored, dissidentvoice.org and Counterpunch).

Getting back to the economics and legalities of the EMOs and their operations, to reiterate, the transfer of public duties traditionally performed by government actors to private companies who assume complete responsibility for the public assets and answer only to their shareholders is ‘privatization’; yet the argument often made by both the private and public sectors who support the EMO idea is that state takeovers of school districts or other forced transfers of school management to for-profit school management corporations (EMOs) are not strictly speaking, privatizations, but rather represent a ‘private-public partnership’. How, you might ask could this be called a private-public partnership when public taxpayer monies are transferred directly into the coffers of for-profit management companies for the services they are contracted to render?

The reasoning set forth for the public-private partnership claim rests on the assumption that because the private EMOs (under a contractual relationship with individual charter schools, the districts or the state) remain accountable to governmental entities, the conclusion is that this relationship is therefore really a form of a ‘private-public partnership’, not an outright privatization. But as the Profiles report noted, “A contract details the terms under which executive authority to run one or more schools is given to an EMO in return for a commitment to produce measurable outcomes within a given time frame” (ibid). Thus the relationship is not a ‘partnership, but a contractual relationship subject to legal terms and outcomes.

Adherents to the ‘public-private partnership’ argument claim that schools remain open to the public while taxpayers continue to finance education by subsidizing the private management of schools, therefore forming the ‘partnership’. Furthermore, they argue, the public school administration or the state bureaucracy can always terminate the for-profit management company’s contract if they are dissatisfied with their performance and resume school operations as they had in the past or in the alternative produce new institutional arrangements that they deem more favorable.

But what makes this any different than a mere contractual relationship for services entered into for profit between a public entity (in this case say a charter school or school districts) and a private for-profit firm like an EMO? How can this contractual arrangement and the institutional, economic and legal consequences that follow from the agreement between the two parties be categorized as a ‘public-private partnership’ when profits and returns not only drive the EMO business model but are expropriated by the EMO as a result of the fiduciary responsibilities an EMO has to their shareholders or partners?

In fact, the use of the term ‘partnership’ is the real key to understanding the way EMOs have framed the issue for the public, insofar as the term implies a mutual playing ground between parties in the contract. According to Jonathan Kozol, educational writer and best selling author: One of the early strategies employed by private corporations to soften resistance to their presence in our public schools was the creation of so-called business partnerships between the poorest inner-city schools and large companies. The financial side of the partnership usually turned out to be inconsequential. Kerr-McGee, the multinational petrochemical giant, gave one impoverished public school in Oklahoma City the trivial annual sum of $36 for each pupil. In return, one of the company’s executives was appointed to direct a “governance committee” to oversee the school operations, and the school consented to be known not simply as a public elementary school but as an “Enterprise School”.

Throughout the 1990s, many inner-city schools underwent the same accommodation to the goals and even to the lexicon of their benefactors in the private sector. “Academy of Enterprise” became a common term adopted by such schools in genuflection to their corporate patrons. Principals I met in schools like these would tell me they wished no longer to be known as “principals” but preferred to be known as “Building CEOs” or “Building Managers”, in which cases their teachers frequently would be described as “classroom managers”. Mission statements heralding the need for children to be trained to serve our nation’s interests in “the global marketplace” were posted on the walls of many schools I visited. In practice, however, students were more often being trained for careers at supermarket checkout counters or for the bottom level “service jobs” at nursing homes (Kozol 2007).

From the point of view of author and attorney Kathleen Conn, she agrees with the implications we can draw from Kozol’s observation: there simply are no private-public partnerships with EMOs nor can there ever be; the whole notion is woven out of uncritically accepted ideological cloth. And this might go a long way to explain the eagerness to embrace the language of corporations when referring to principals as ‘CEOs’ and teachers as ‘managers’. According to an article written by Conn in the Journal of Law and Education that specifically looks at the legal and economic responsibilities of EMOs and concludes the idea behind the EMO economic model is simple legality: In the euphoria of “solving” America’s educational woes, a basic inconsistency in the notion of private, for-profit corporations controlling public education escaped serious consideration. Private corporations are legal entities established within a paradigm of maximization of profits for those who provide the working capital of the organization, the shareholders. The directors of such corporations owe fiduciary duties of care and loyalty to the shareholders. They owe, under the law, no concomitant duties to other constituencies (Conn 2002).

It is clear to any beginning business student that any director or directors of corporations have a fiduciary duty of loyalty that requires that all profits of the corporation accrue to shareholders; this is the simple logic of the economics of corporations and the fundamentals of the capitalist system. As Conn noted, the Michigan Supreme Court, addressing the demands of shareholders in the early twentieth century, stated the principle succinctly: A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end. The discretion of directors is to be exercised in the choice of means to attain that end, and does not extend to a change in the end itself, to the reduction of profits, or to the non-distribution of profits among stockholders in order to devote them to other purposes (ibid)

So in the case of corporate EMOs, just like any other business, the corporate EMO is organized and day to day practices of the organization carried on primarily for the profit of the stockholders, or in the case of single operators the private venture capitalists looking for a return on their investment; and this means the powers and actions of the directors of these corporation are to be employed exclusively to that end. The directors of these companies really have no other legal choice, for they have accepted the fundamental economic and legal fiduciary duties in the corporate context that comprise the twin sisters of loyalty and care in the running of their organizations with the sole intent of maximizing profits for shareholders. The only discretion that directors have in assuring profit maximization is in the choice of means they choose to attain this end, nothing more. Non-shareholders, or what are often referred to as ‘constituencies’, simply have no property interest in the corporation and thus few rights in terms of power, decision-making and control. Due to the lack of constituency property interests in an EMO, the issue of public private partnership is not only moot but in fact a complete misrepresentation of real legal relationships due to the reality that the public at large, the district or charter school, the students and parents being served by the EMO corporation within the public arena would be considered ‘constituencies’ under the law and constituencies do not have the power, authority and control over the fiduciary duties necessary for shareholder wealth maximization. In corporate terms they are ‘second class citizens’.

So what does all this mean? The answer is simple: when a for-profit EMO takes over the functions of traditional public education or the day to day operations of a charter school the companies’ non-shareholding ‘constituencies’, in this case the students, parents teachers, and workers at the school, have little or no bargaining power with the corporate directors due to the directors’ fiduciary duties to shareholders; they in fact may arguably be at the mercy of the companies in the absence of adequate regulatory safeguards or union contracts and collective bargaining agreements, all of which are of course an absolute anathema to the ideological interests of privatization supporters. And because dollars spent on education are not available as dollars for shareholder dividends, in order to realize profits for investors in these for-profit educational management organizations, the bottom line is that EMOs must seek to increase their share of the educational pie through the ‘volume’ business of attracting increasing numbers of students, as well as spend less than they collect; the scramble to keep costs down becomes part and parcel of the profit seeking as they seek simultaneously to expand market share. And these entities do this in myriad ways.

According to Conn, companies like EdisonLearning and other EMO corporations actually accomplish cost cutting in two ways. First, and perhaps least importantly, school management companies contract with vendors of non-educational supplies and services, trying to get volume discounts on everything from tissues to floor strippers. These strategies, while they may save money, have limited, if any, real educational significance (ibid). This of course resembles the Wal-Mart business model of bargaining and contracting with suppliers. But as Conn astutely realizes, the second way companies and private operators or EMOs keep costs down is through corporate bottom line choices that can have immediate and outright devastating effects on practical issues of educational significance, such as choices related to cutting or increasing class sizes, the type, pay and quality of the teachers, and the quality and quantity of educational resources and instructional materials provided to students. So it seems the real ‘choice’ is buried within a particular EMOs plans for profit maximization.

Take the notion of charter schools: here, for-profit school management companies (EMOs) are free to hire non-certified teachers who then legally become employees for the EMOs, not the public schools they manage. This is an important distinction for EMO hired teachers do not work for the districts or charter schools they may labor in; they have virtually been ‘contracted out’ to EMOs. The EMOs often hire non-certified teachers in an effort to keep labor costs and the cost of any benefits accrued to labor significantly low. This also allows their management to control the daily routines of work. They also employ certified teachers who cannot obtain jobs in the public sector, but at salaries far lower than those in comparable publicly run schools, again for the same reason. This is all part and parcel of an effort to reduce labor costs and to assure non-unionization and thereby avoid the need to collectively bargain for the distribution of shareholder or privately held profits. But if this is good for the bottom line, for capital and its owners, is it really good for teachers, educational workers, parents, students or even education in general as the public has been continually told over the years by the companies and their media counterparts and think tanks?

It would help to take a look at some facts. EMO run charter schools, for example, have higher rates of teacher turnover than other entities. Edison Schools, Inc, admitted in 2005 to a teacher turnover rate of 23%, twice the national average for urban public schools (Molnar, Miron and Urschel, 2008). Is this cost effective and is it educationally wise to have such high turnovers in the teaching profession? Or does it mean that valuable resources are wasted continually training new teachers as the attrition rate rises? How can this be seen as fiscally and educationally responsible to the public it proclaims to serve, especially when public funds are deployed? EMOs also experience significant cost savings in the area of the educational resources they choose to utilize.

Most EMOs come equipped with their own ‘model curriculum’ as part of their contract with charter schools and/or districts; this is usually part of their management ‘packet’ to be employed and used at each school, or franchise, the EMO manages. This of course leads to cost saving reductions by offering up easily produced ‘cookie cutter’ or ‘one size fits all’ curriculum, thus realizing a savings far more extensive than what public schools spend for creative, non-standardized diversified curricula.

Let’s face it, teacher conceived curriculum takes time, patience and a commitment on behalf of the school management and staff for more allocated preparation time for the construction of meaningful curriculum and educational activities for students. It involves working with other teachers in mentoring relationships in order to formulate ideas and best practices; this is a collaborative activity done by teachers with and for students. Creative and innovative curriculum construction is often individually geared to specific students and themes and rebels against pre-packaging or standardization.

Yet from the point of view of the for-profit EMO this is a problem for at least two reasons: one, collaboration among teachers is problematic for the EMO business plan which seeks only profits, for it often leads to teacher organized off-site meetings to talk about the conditions of work, the possibilities for unionization and a discussion of collective interests. Secondly, what these companies wish to do is create large ready-made curriculum that can be used with a high volume of students with a onetime up-front financial investment in both the curriculum and the teacher ‘training’ necessary to implement the curriculum. As author and educational researcher David Plank noted back in 2000, a way for EMOs to profit is to scale down their economies and they do this by reducing pupil costs. He goes on to explain: Scale economies rely on the possibility of lowering per-pupil costs by spreading them over larger numbers of students. For example, a national firm offering a standardized curriculum for hundreds or even thousands of schools may significantly reduce the per-pupil cost of curriculum development and instructional materials in the schools they manage. Similarly, it may be possible to standardize financial and other administrative services for large numbers of schools, reducing the per-pupil cost of providing these services. When economies of scale are present, firms can profit by increasing the number of students they serve (Plank et. al. 2000).

So, for example, teachers are often given a pre-conceived and ready-made curriculum and then are trained as ‘managers’ to implement it throughout the educational retail chains owned and operated by the EMOs. In sum, it’s obviously cheaper for the EMOs as well as private charter school operators to encourage the adoption of one-size fits all curriculum than it is to provide paid time for teachers to collectively conceive of their own curriculum which could then also lead to the teachers identifying their class interests with each other, not management. Once again, we are left with the question of how any of this can possibly serve to create ‘innovation’ in instruction and ‘empowerment’ for teachers and students, two of repeated arguments we find in the soaring rhetoric supporting the idea of the charter school movement.

If the lesson plans come equipped with the ‘school management package’, then once again, in the historical development of education, teachers are divorced from curriculum conception and reduced to mere ‘managers’ of packaged student ‘delivery systems’, not the chief architectures of cooperative educational excellence and curriculum development. Nor can educational innovation be highlighted, shared and modeled for the benefit of introducing creativity at either traditional public schools or charter schools. Instead, teachers in many EMO run schools are ‘tethered to the carpet loom’, required to teach to the pre-packaged curriculum which is largely wedded to arguably inauthentic standardized testing and an environment of competition.

This ‘commodification’ of educational curriculum and teaching runs not only counter to the arguments historically made by charter school advocates regarding innovation and best practices, but is problematic for teaching and learning. It can also open the door to unscrupulous business entities who seek to introduce their ‘educational products’ into charter schools without any regard to innovation, best practices or educational values.