Education Profiteering: Wall Street's Next Big Thing?
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Having been rescued from the consequences of its own folly by the Bush/Obama bailouts with its de-regulated privileges intact, Wall Street is once more on the prowl for the new "big thing" -- a new source of potential profits upon which to build the next lucrative asset bubble.
The landscape of the coming decade is not promising. Most forecasters see a near term future of slow growth, sluggish consumer spending and government retrenchment. Despite the Federal Reserve's commitment to low interest rates there is little demand for equities, indicating widespread investor pessimism about the future. As Bill Gross, the founder of global investment giant Pimco, wrote in August, "Boomers can't take risk. Gen X and Y believe in Facebook but not its stock. Gen Z has no money."
The financial bubble of the 1990s was driven by new business start-ups exploiting technologies whose development had been subsidized by the taxpayers. The bubble of the 2000's was built on the boom in subprime mortgages organized and subsidized by Federal housing programs. But with a virtual Washington consensus on cutting back public spending, investors have little expectation of new government money being poured into some dormant economic sector on a scale sufficient to generate widespread speculative excitement.
Education privatization would not, per se, create a net new stimulus for the economy. But by diverting large existing flows of money from the public to the private sector it would create new profit-making ventures that could be capitalized and transformed into stocks, derivatives and leveraged securities. The pot has been sweetened by a 39 percent federal tax credit for financing charter school construction that can double an investor's return in seven years. The prospect of new speculative opportunities could well recharge the animal spirits upon which Wall Street depends.
Some "liberal" privatization promoters claim that charter schools should not be considered private. But that's an argument the management companies that run the schools only use when they are asking for more government funding. At the same time they argue in courts and to legislatures that as private enterprises they should not be subject to government audits, labor laws and other restrictions.
These companies rent, buy, and sell buildings; make contracts for consulting, accounting and legal services, food concessions, and transportation; and pay their managers far more than public school principals earn. In cases where city governments have given land to charter schools, for profit real estate companies have ended up owning the subsidized land and buildings. In states where charter schools are required to be nonprofit, profit-making companies can still set them up and then organize a board of neighborhood residents who will give them the right to manage the school with little or no interference.
In 2008 Dennis Bakke, CEO of Imagine Schools, a private company that managed 71 schools in eleven states, sent an email to the firm's senior staff. It reminded his managers not to give school boards the "misconception" that they were "responsible for making decisions about budget matters, school policies, hiring of the principal, and dozens of other matters." The memo suggested that the community board members be required to sign undated letters of resignation. "It is our school, our money, and our risk," he wrote, "not theirs."
The potential for private profits from publicly funded education is not limited to K-12. Profit-making universities and vocational schools -- increasingly substituting remote internet learning for classroom teachers -- are among the fastest growing businesses in the country. The sector is rife with high-pressure sales tactics and shoddy training, which leaves students - many of them low-income -- deeply in debt and no further up the job ladder. Most of their growth is financed by Federal aid and Federally guaranteed student loans.