Wednesday, July 8, 2020
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Is a profit motive good for education?

Forbes quoted Bill Ackman, an entrepreneur and hedge fund manager who has made lots of money on charter schools in places like the Bronx and Southwest Detroit, as saying that “If you are investing in a business that is creating a societal good or solving an important problem, the probability that it is going to be a good investment goes up a lot.” The article was written by Lauren Gensler, who says she “writes about the world’s most successful entrepreneurs.”

A charter school in Florida (iStock)

One of Mr Ackman’s funds, it seems, according to the article, wasn’t performing very well, causing him to lose half his net worth—to about $1.1 billion—at one point. So he turned to Andre Agassi, the tennis legend, and invested in charter schools, thereby transferring all the risk away from investors and putting it on the students and teachers at those schools and at the public schools they replace in those, usually poor, neighborhoods.

He refers to an evolution of his approach to “impact investing” with his nonprofit foundation, describing how he has been shifting his money to organizations that make money while tackling societal problems, rather than simply giving it away to do-good organizations that spend most of their time raising money: “Over time, as the foundation worked with lots of nonprofits, I became more and more enamored with capitalism as a solution for solving problems,” the article quotes the 52-year-old entrepreneur as saying.

Now, when his foundation has a choice between investing in a for-profit enterprise and donating to a nonprofit, both of which are tackling the same issue, the decision is an easy one, he says. He puts his money on the capitalist.

Many public school advocates see another side of the story and wouldn’t consider Mr Ackman one of the world’s most “successful” entrepreneurs at all.

“Someone should tell Mr Ackman that his investments and gifts are undermining a basic democratic institution and harming the teaching profession by sending inexperienced amateurs into classrooms to replace professional teachers,” writes education historian and public school advocate Diane Ravitch.


Mr Ackman has donated millions of dollars to other nonprofits as well, including Human Rights Watch, but his investment in charter schools, rather than in traditional public schools, must be considered counterproductive for education, regardless of how profitable it may be for him.

Charter school owners make money by leasing buildings and other facilities to charter school operators like KIPP at a small profit. The operator assumes all the risk, passes that risk on to students by hiring teachers at wages below union wages (because those teachers don’t need teaching certificates in most cases), and collects the profits.

Mr Ackman has made a steady 10 percent gain on his Turner-Agassi charter schools since his initial investment in 2011. More than 40,000 students have been educated at these schools—or should I say, profit centers? When you’re a hammer, everything looks like a nail, and so it is with hedge fund managers: When you’re a successful capitalist and profit-maker, your judgment is forever altered. You will tend to approach any new problem in your life—such as public education in Mr Ackman’s life—with the same tools, believing that if those tools can solve one problem, they may solve another.

And that works often enough to cause you to shift your thinking about the applicability of your strategy to any new problem that comes across your desk or that you read about or hear about from friends in the professional tennis world.

Reality is a little more complex. There is no silver bullet, at least not given the diversity of schools in America and the diversity of kids, each of whom has individual goals for their own lives that differ significantly from those of their friends in the same neighborhood even. Capitalism might solve a public school problem in one school district, but its widespread applicability, on studies that look at the performance of charter schools across entire states, has been successfully challenged. The answers aren’t as simple as throwing money around.

Paul Katula is the executive editor of the Voxitatis Research Foundation, which publishes this blog. For more information, see the About page.

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