Wednesday, December 11, 2013

"Private" vs. Private Schools

The title of Christopher Baxter's investigative report in the New Jersey Star-Ledger, Some N.J. private schools for disabled students cashing in on taxpayers, speaks for itself. But briefly, the specific issue Baxter covers is alleged corruption and over-spending within the network of private special education schools whose students' tuitions are paid for with tax money.

The governance at the schools on which Baxter reports may or may not be accurate and may or may not be bad. I am not going to judge the details of this report. What I'd like to zero in on are these statements made in the article:

  • "The complaints [about nepotism, high executive salaries, generous pensions, fancy cars and questionable business deals . . . in parts of this more than $600 million New Jersey industry] have resonated with [Governor Chris] Christie, a strong supporter of privatization and greater school choice."
  • "Despite the schools’ contentions that competition on the free market — and not state oversight — would result in the lowest costs for taxpayers, records show 56 had dealings with companies related to their leadership, families of their leadership or other associates in 2012."
  • "Audits show about half of all for-profit private special-needs schools had deals connected to leadership, families or other associates. By contrast, such deals were found at about a quarter of nonprofit schools."

I left these comments:

Despite implications by Mr. Baxter, these schools' operations and governance are not indicative of privatization, school choice, a free market, or how for-profit business's earn their profits. The system of taxpayer-funded private schools is indicative of crony socialism (sometimes mis-characterized as "crony capitalism"), not free markets. Leaving aside judgment as to the governance of these schools, the corruption begins with the source of the schools' revenue. 

These schools get their revenues from money seized from citizens by force of taxation, and laundered through government. The schools "compete" for revenue by lobbying politicians and bureaucrats and gaming the political system. The incentive is less to profit from cost containment than to "profit" from political connections. Although these schools may or may not provide excellent services, they are, though privately owned, essentially political institutions. 

The source of revenue for truly private schools operating in a free market would be money voluntarily paid by the parents or other students' sponsors (school benefactors, philanthropic organizations, and the like) through the dynamic process of competition to offer the best quality service at the best price. Private schools earn their profits by keeping prices as low as possible consistent with quality that satisfies the parents—and keeping costs of operations lower. The difference between prices charged and cost of operations equals their profits, which are not guaranteed. 

Free market education would leave schools accountable to the parents or other private parties voluntarily contracting to buy the schools' services, rather than government officials doling out someone else's (the taxpayers) money. The "free" in free market means the absence of coercive government involvement. In a free market, the government only steps in when rights are violated, such as in the cases of fraud or breech of contract.

Related Reading:

"Accountability": Government School vs. a Free Market

Misunderstanding a "Free Market"

Related Listening:

What is Capitalism?—Ayn Rand

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