NCPA - National Center for Policy Analysis

Understanding the Role of For-Profits in Education

May 5, 2011

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, says Michael B. Horn, the executive director of education at the Innosight Institute.

Many in public education assume the worst about for-profit corporations, arguing that they are money-grabbing entities that will shortchange the public good if it means increased profits.  Despite these views, however, the reality is different.  Policymakers, officials, providers and other members of the debate would do well to keep three key points in mind:

  • First, for-profit companies are not inherently good or evil; rather, these companies do what their customers offer incentives to do -- not much more or less.
  • Second, there are far fewer inherent and predetermined differences between for-profit companies and their nonprofit counterparts than many assume; both for-profits and nonprofits have business models, and there are many examples of corrupt nonprofits.
  • Third, the biggest inherent differences between for-profits and nonprofits stem from their fundamental corporate structures, which determine what they do with their profits -- and thus affect their ability to attract capital and scale -- as well as what opportunities look attractive.

Ultimately, the government and education stakeholders should not discriminate between for-profits and nonprofits.  Policies and purchasing should instead focus on and define the desired outcomes from government spending without specifying the processes or inputs used to achieve those outcomes.  They should also reward those entities -- regardless of corporate structure -- that do the best at achieving the outcomes for the best price relative to the competition, says Horn.

Source: Michael B. Horn, "Beyond Good and Evil," American Enterprise Institute, April 27, 2011.

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