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Saturday, September 27, 2003

Edison: saved again

Sometimes you read shit you simply cannot believe. Look at Atrios this morning, here was one of those stories

State fund buys school operator
If the deal stands, the fund that provides for pensions of Florida public school teachers will own a company that privatizes school management.

By HELEN HUNTLEY, Times Personal Finance Editor
Published September 25, 2003


Florida's state pension fund is investing $174-million in a controversial for-profit school management company.

Through one of its money managers, Liberty Partners, the pension fund has agreed to buy out the shareholders of Edison Schools Inc., taking the New York company private.

In effect, the fund that provides for the retirement pensions of Florida teachers and other public employees will own a company that has played a leading role in privatizing school management.


Edison is the largest private manager of public schools. The company says more than 80,000 students attend the 150 schools it operates in 23 states, including Florida, under management contracts. It reports improving academic performance at its schools.


Investors who bought Edison stock lost millions of dollars. The company only recently reported the first quarterly profit in its 10-year history, primarily the result of a property sale. The company's stock, which peaked at $36.75 a share in 2001, fell to as low as 15 cents last year. It closed Wednesday at $1.70. Numerous shareholder lawsuits are pending.

Critics say the poor results counter Edison's premise that it can operate public schools more efficiently and effectively than school boards can.

This is just amazing. Let me refresh your memory about this company:

For-Profit U.S. Schools Sell Off Their Textbooks
In the classroom, this has had some bizarre effects.

Days before classes were to begin in September, trucks arrived to take away most of the textbooks, computers, lab supplies and musical instruments the company had provided -- Edison had to sell them off for cash. Many students were left with decades-old books and no equipment.

A few weeks later, some of the company's executives moved into offices inside the schools so Edison could avoid paying the $8,750 monthly rent on its Philadelphia headquarters. They stayed only a few days, until the school board ordered them out.

As a final humiliation, Chris Whittle, the company's charismatic chief executive and founder, recently told a meeting of school principals that he'd thought up an ingenious solution to the company's financial woes: Take advantage of the free supply of child labor, and force each student to work an hour a day, presumably without pay, in the school offices.

"We could have less adult staff," Mr. Whittle reportedly said at a summit for employees and principals in Colorado Springs. "I think it's an important concept for education and economics." In a school with 600 students, he said, this unpaid work would be the equivalent of "75 adults" on salary.

Although Mr. Whittle said he could have the child-labor plan in place by 2004, school board officials were quick to say they would have nothing to do with the proposal.

Edison Schools, and its watchers, say privatization shouldn't mean an end to accountability

But once Edison leaves the market it would be required to disclose financial information only to select business partners - a change that some critics said could make it more difficult for school districts to evaluate the company.

San Francisco parent Caroline Grannan, who founded an Edison watchdog group after the firm opened a charter school in her city, complained that there was already too little information available about its operations.

"I don't see how it can possibly position them to do a better job in the schools. The only thing that I can see that it gets them is less public scrutiny," she said.

Edison demonstrates the flaws inherent in privatizating public services. The profit motive is not strong enough to make people do things they may not want to do. People forget the legacy of public service and the lengths that people will go to in living up to their responsibilities. It may seem like a way to cut costs and improve services, but that's only in optimal situations.

The problem with private companies is that they have incentives to cut costs in ways government doesn't. The implication is that government is both ineffiecent and corrupt and neither is necessarily true. Also, we forget that in many areas open to privitization, the best and the brightest are not only government employees, but wish to remain that way. So there was no reason to believe that the best teachers would want to be Edison employees.

Chris Whittle, in order to save money, started to sell classroom assets and wanted to use child labor. No one would tolerate this from their public schools. Why would he even consider this? Because he wanted to make a profit. Not for the greater good of the community.

But the biggest flaw in privitization is the bidding process. When Edison proposed to run five New York schools, the proposal was soundly thrashed. When Edison proposed building their headquarters near the northern end of Central Park on 5th Avemue, community opposition was bitter. Why? Because the company had political links to then Mayor Rudy Giuliani and the minority community inferred this was an attempt to harm their children. The political taint of Edison was so offensive to the parents and teachers, the program had no chance to succeed, regardless of their prospects.

Edison was forced on Philadelphia because of a political decision by then Gov. Tom Ridge, despite loud and vocal opposition by community members.

Politics and private companies taint the bidding process and the best contractor is not always the one which wins the contract. So privitization becomes an intensely political product, regardless of any benefit. to the public. So instead of providing public services, it becomes a way to push crony capitalism. Edison didn't draw contracts only because they offered solutions, they had powerful investors with political connections. Their actual ability to raise test scores and improve education is theoretical at best. So is privitization. We have theories about market forces in traditionally non-competetive sectors. We don't have much imperical evidence one way or the other.

The other problem with Edison, is that their track record is limited. There is no long term proof that their method or any privatized school actually performs better than public schools. In fact, despite centuries of private boarding schools, Groton, Philips Andover, Exeter, St. Paul's, Madiera, there is no reason to believe they deliver a fundamentally better education than elite public schools, Hunter, Stuyvesant, Bronx Science, Boston Latin, Cambridge Ringe. While there may be class differences, the actual achievement of students from elite public schools match those of private schools.

So there are already serious questions about the effects of privitisation and resource usage inherent in any evaluation of Edison.

It is not clear that contracting out government services produces any true efficencies and there are any number of pitfalls in doing so. No matter how much we distrust government, they are accountable to the public. Private companies, when they fail to perform, may be sued, but no one can force good service from them. They are accountable to their investors first and foremost. Not the public good, no matter what they say

This is the company a state pension fund invested in? A failing company with shares worth $1.70 and it's called diversification? Once again friends of Bush rush to save fellow Yalies Chris Whittle and Benno Schmidt. Unreal. No change in management, a ton of public cash, invested by teachers who oppose the company. The Bushes seem to be competing for the Mobutu Sese Seko award for kleptocratic government.

posted by Steve @ 11:37:00 AM

11:37:00 AM

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