I recently wrote about a few claims made by the socialist writer Nathaniel Robinson regarding profits and competition in schooling. He argued that a profit and loss system would give schools incentives to provide as little education as possible and that competition would, at best, be useless to fix this. Aside from the problems I discussed in my previous post, there are a few other opportunities presented by this piece worth unpacking.
Much of what Robinson fears about privately run schools seems to be derived from this claim:
Robinson made it clear in that article that he and his fellow thinkers see “profit” as a “dirty word.” And this would certainly seem to reflect that – if a private school is making a profit, then in his mind, it just means shareholders are pocketing money that should be spent on education. Public schools don’t have shareholders pocketing money, and therefore, no profits are draining away resources from children. To put it in simplified and numerical terms, suppose a public school receives $1000 per student. And suppose a voucher system is implemented that allows parents to use that $1000 on a school of their own choosing, rather than whatever their zip code dictates. That school might only spend $800 on education and distribute $200 to shareholders. Thus, the private school will provide an inferior service to the public school. In this mindset, “profit” seems to be little more than a form of embezzlement – illicitly taking money for personal gain at the expense of the well-being of the organization.
But why think that? This is classic zero-sum thinking. It’s not as if there is some fixed quantity of “education” that simply exists out there in the ether, and that if one system spends more money than another, the one spending more necessarily produces more or better education. To say that an organization’s profit comes at the expense of the customer only makes sense if there is some preexisting pie in a fixed and static state – and if a slice called “profit” comes out of the pie, there must necessarily be less pie for “education” (or for any other good or service you might think of).
This might make sense if you see wealth as zero-sum. In a static, zero-sum world, shareholder profit would come at the expense of customers. But if you abandon zero-sum thinking and instead come to see wealth as not a fixed pie, but as something that is produced by an ongoing and dynamic process, you can easily see the folly of this reasoning. The idea that one organization can produce more or better output than another while requiring less money or fewer resources to do so is not some paradox or contradiction. The fact that a private organization is operating profitably while a state-run organization makes no profit provides exactly zero reasons to believe the state-run organization will provide better services than a profitably run organization does.
READER COMMENTS
John hare
Jan 14 2024 at 2:39pm
I guess my biggest problem with this is the money per student spent by public education. Well north on $10k per student per year k-12 clearly doesn’t all make it to the classroom.
second is the level of results
robc
Jan 14 2024 at 3:15pm
The obvious thing for me is that IF Robinson was right, no one would send their kids to the for profit option anyway, fixing the problem.
Parents only choose it if they think they get more education for the $800 than the public school provides for the $1000.
Matthias
Jan 15 2024 at 6:39pm
To play devil’s advocate: your argument only works if the private schools have the same demographics as the government schools.
Nathaniel Robinsoncan argue that private schools will be more likely to pick the students that are cheaper to educate, eg by not admitting the more costly students, or by expelling them, or if the first two options are not legally available by bullying them out somehow. (Compare how ‘Orange’, sort-of the successor company to monopolist France Télécom, bullies out excess employees it wants to get rid off, because firing is nigh impossible in France.)
robc
Jan 16 2024 at 9:25am
He might make that argument, but that isn’t the argument of his that Kevin presents. That one is totally about the inefficiency of shareholder profits.
And my response entirely defeats that argument.
David Seltzer
Jan 14 2024 at 6:55pm
Kevin: I was a grad student at University of Chicago, GSB. I was a student in Merton Miller’s econ course. Explaining zero sum thinking, Miller told this joke. Yankee catcher Yogi Berra told his trainer that he was very hungry and instructed him to cut his pizza into 12 pieces instead of six. Of course the size of the pie was the same in either case.
Dylan
Jan 15 2024 at 1:15pm
That’s funny, but of course eating 12 pieces instead of 6 can also slow you down, and we know that slowing down your eating can cause you to feel satiated from less food. Giving your brain time to catch up to your stomach as they say, so I think Yogi was on to something (as he generally was).
David Seltzer
Jan 14 2024 at 7:05pm
In my previous post, the quip also made clear the irrelevance of capital structure when valuing a company. A simple example: If one pays $1,000,000 for a home, the price is set in the market place whether the consumer paid all cash, equity, or borrowed $1,000,000 (debt).
100% equity or 100% debt, the price is still $1,000,000.
MarkW
Jan 15 2024 at 5:38am
In a public school system, all money is spent on the schools. In a for-profit school system, at least some portion of that money is directed instead toward the pockets of shareholders (if it wasn’t, the for-profit schools couldn’t continue to exist).
Of course, you could replace education in the above with any other kind of good or service (restaurants, clothing, automobiles, ad infinitum). It may be Robinson is a socialist true believer and thinks that state-owned enterprises would produce better results in every domain due to the lack of shareholders and profits, but if so, he should say so. And if he thinks this applies specifically to education but not most other endeavors, he should explain that.
I’m reminded too of a classic CoyoteBlog post (I hope Warren gets the blog going again at some point). Anyway his description of his discussion with a government Forest Service employee is fantastic. It’s a bit hard to excerpt, but here’s my best effort. He’s wondering why it’s moral for government employees to draw a wage but not government contractors to earn a profit:
But unlike your wage, my profit is also a return on the investment I have made. Every truck, uniform, and tool we use comes out of my profit, whereas you get all the tools you need paid for by your employer above and beyond your salary. Further, your salary is virtually guaranteed to you, short of some staggering malfeasance. Even if you do a bad job you likely would just get shunted to a less interesting staff position at the same salary, rather than fired. On the other hand if I do a bad job, or if one of my employees slips up, or even if some absolutely random occurrence entirely outside my control occurs (like, say, a flood that closes our operations) my profit can completely evaporate, or even turn into a loss. So like you, I get paid for my efforts here on public lands, but I have to take risk and make investments that aren’t required of you. So what about that makes my profit less honorable than your wage?
Andrew_FL
Jan 15 2024 at 8:18am
All the money received by schools, whether granted by government from tax revenue or paid for by tuition fees by customers, is expended as payment toward some entity or other. Which payment recipients count as the money being spent “on the school”? Why assume that the “shareholders” contribute nothing toward the school-that they simply receive payment for nothing?
Robinson’s belief is that there is a parasitic class in the world called the “shareholder”. Logically his argument would apply to more than just schools, and indeed I’m sure he thinks it does, though he may not say so as publicly.
jj
Jan 15 2024 at 6:40pm
Consider also the portion of profit which is return on capital invested.
When taxpayers take no profit from a publicly funded school, they are losing the return on their capital, which should count as an extra cost beyond the $1000, in a fair accounting.
Monte
Jan 15 2024 at 8:39pm
Zero-sum situations do occur in real life (ie. financial options & futures, sporting competitions, presidential elections, wars), but their prevalence, like systemic racism, is less real than imagined. The challenge is to avoid falling into the trap of thinking that every gain must come at the cost of another.
robc
Jan 16 2024 at 9:27am
If sporting competitions were zero sum, the Jaguars would have gone bankrupt a long time ago.
robc
Jan 16 2024 at 9:32am
If sporting competitions were zero sum, all the also rans who had no chance at medalling wouldnt show up to the Olympics.
In very few events can you pull off the Anna Kiesenhofer strategy (get a big lead and hope everyone else forgets about you).
Monte
Jan 16 2024 at 10:29am
You’re right, robc. All sporting competitions are technically non zero-sum games. I failed to take into consideration things like 2nd and 3rd place prizes, participation trophies, the draft, bribes, etc. As a new-age progressive, there’s no reason to be dismayed. There’s something for everyone!
Where we might agree that a true zero-sum competition exists is the inclusion of male-bodied athletes in women’s sports, which inevitably means females lose out. We can also say, without question, that any play-off game in which the Dallas Cowboys participate is a sub zero-sum game.
robc
Jan 16 2024 at 10:40am
I think males in female sports is negative sum. No one really wins, women lose, and the normal positive sum from just enjoying competition is lost.
Monte
Jan 16 2024 at 10:52am
Yes. Any enjoyment derived from this sort of competition is all pretense.
diz
Jan 17 2024 at 12:08pm
Now we know why a private package delivery service can never succeed.
The USPS doesn’t need to make a profit!
dmm
Jan 17 2024 at 2:25pm
The most obvious objection to his inane argument is that the public school doesn’t have the same incentives to spend the money efficiently. “Oh, let’s hire 10 more administrators and cut instruction expenditures.”
R. Q. Kafader
Jan 18 2024 at 12:36am
Consider that the$1,000 per year per student in the above essay goes to a for profit school (discounting the fact that most private schools are non-profit) and $200 goes to the investors who paid for the facilities, books, and other overhead.
When the same $1,000 goes to a public school, how much goes to the teachers union and thus to the campaigns of the politicians who fund the public schools?
Comments are closed.