The un­der­achiev­ing ed­u­ca­tion busi­ness

Financial Mirror (Cyprus) - - FRONT PAGE -

Cap­i­tal­ism has pro­duced many high-qual­ity prod­ucts and ser­vices, from smart­phones to high-speed trans­port and com­pelling entertainment. Yet the profit mo­tive, es­sen­tial in so many fields, seems to have dis­ap­pointed in one cru­cial area: ed­u­ca­tion.

In the United States, for-profit uni­ver­si­ties have a six-year grad­u­a­tion rate of 22%, far below the 60% achieved by not­for-profit in­sti­tu­tions. The for­mer spend 23% of their rev­enue on re­cruit­ing new stu­dents, com­pared with a mere 1% spent by non-profit in­sti­tu­tions. At the pri­mary and se­condary lev­els, char­ter schools (pub­licly funded in­de­pen­dent schools) run by for-profit com­pa­nies are 20% less likely than non­profit in­sti­tu­tions to meet pro­fi­ciency stan­dards, with some of the weak­est re­sults com­ing from the largest for-profit in­sti­tu­tions. Even com­pa­nies that pro­vide text­books, ed­u­ca­tional soft­ware, man­age­ment sys­tems, and stu­dent loans fail to achieve the level of ex­cel­lence reached in other sec­tors.

For-profit ed­u­ca­tion is not just a US phe­nom­e­non; it is part of a global trend. New for-profit uni­ver­si­ties are ap­pear­ing wher­ever de­mand for higher ed­u­ca­tion is strong. In de­vel­op­ing Asia and Latin Amer­ica, scores of new class­room and on­line English-lan­guage prepa­ra­tion pro­grams are try­ing to meet de­mand, though it may be too early to judge their qual­ity.

As the founder of sev­eral for-profit ed­u­ca­tion com­pa­nies and an ad­viser to many oth­ers, I have watched man­agers and in­vestors (in­clud­ing my own) suc­cumb to the temp­ta­tion to place fi­nan­cial tar­gets above aca­demic goals. This should not be sur­pris­ing – ed­u­ca­tional re­sults take years to mea­sure, but prof­its and bonuses for ex­ec­u­tives are cal­cu­lated an­nu­ally.

I would like to be­lieve that strong fi­nan­cial per­for­mance and ed­u­ca­tional ex­cel­lence are not mu­tu­ally ex­clu­sive. Af­ter all, for-prof­its can hire high-qual­ity staff, re­spond nim­bly to chang­ing con­di­tions, and raise the cap­i­tal re­quired to scale up quickly. Amer­i­can Pub­lic Univer­sity Sys­tem and Re­nais­sance Learn­ing, for ex­am­ple, have demon­strated that one can “do well by do­ing good.” One of my own com­pa­nies brought to­gether the cap­i­tal, tech­nol­ogy, and peo­ple needed to en­able stu­dents world­wide to ac­cess Amer­ica’s lead­ing grad­u­ate pro­grams on­line. Un­for­tu­nately, such projects are ex­cep­tions.

The ed­u­ca­tion sec­tor must find a bet­ter bal­ance be­tween qual­ity and fi­nan­cial re­turns. Four­teen US states have started to do that by au­tho­ris­ing so-called ben­e­fit cor­po­ra­tions (or B Corps) – busi­nesses that prom­ise to con­sider more than share­holder value in their strate­gic de­ci­sions. Though B Corps are ex­pected to act in the pub­lic in­ter­est, they can­not be forced to do so; if they look be­yond the bot­tom line, they do so vol­un­tar­ily.

One so­lu­tion might be to cre­ate a vari­ant of the B Corp – call it the E Corp – that could trans­form the for-profit ed­u­ca­tion sec­tor. An ed­u­ca­tion com­pany could at­tain E Corp sta­tus only if it be­came trans­par­ent about its val­ues and out­comes. For ex­am­ple, E-Corp-owned col­leges might be re­quired to pro­vide prospec­tive stu­dents with the grad­u­a­tion rate, av­er­age stu­dent-debt lev­els, and the av­er­age start­ing salaries of stu­dents with sim­i­lar aca­demic records and ed­u­ca­tional goals. Fur­ther­more, E-Corp col­leges might be re­quired to re­veal their per stu­dent in­struc­tional, mar­ket­ing, and ex­ec­u­tive-com­pen­sa­tion costs, as well as their pre-tax prof­its.

Crit­ics might counter that no one should care how much profit a com­pany earns, so long as it pro­vides a worth­while ser­vice. Per­haps, but why not share the data and see how many stu­dents en­roll in a school when they fully un­der­stand their odds of suc­cess and how their money will be used? E Corps should also an­a­lyse and pub­lish their re­sults (in­clud­ing dis­ap­point­ing ones), as this would mo­ti­vate schools to im­prove ser­vice. Not all ed­u­ca­tion can be free, but in­for­ma­tion about ed­u­ca­tion should be.

Many com­pa­nies might em­brace such re­forms sim­ply to serve stu­dents bet­ter. But we should not un­der­es­ti­mate the lever­age of pub­lic spend­ing. As con­fi­dence in the E-Corp met­rics rises, we could make E-Corp sta­tus a con­di­tion for par­tic­i­pat­ing in govern­ment pro­grams. In the US, that would in­clude such cov­eted fund­ing as Ti­tle I grants for pri­mary and se­condary ed­u­ca­tion, and Ti­tle IV sub­sidised stu­dent loans for higher ed­u­ca­tion. Af­ter all, why should com­pa­nies ben­e­fit from tax­payer sup­port if they are un­will­ing to put ac­count­abil­ity and ed­u­ca­tional ex­cel­lence at least on the same level as their tar­gets for re­turn on in­vest­ment?

Even the most mis­sion-driven com­pa­nies can be tempted to trade ed­u­ca­tional qual­ity for out­size com­mer­cial re­turns. An E-Corp des­ig­na­tion would en­sure that ed­u­ca­tion lead­ers can con­tinue to fo­cus on the bot­tom line, but still rise to the top of the class.

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