The school gold rush

28th January 2000 at 00:00
Investors are hoping to make big bucks in education. Mike Baker reports.

HISTORIANS of American education may one day regard November 11, 1999 as the day when running state schools became big business. Some say it signalled the start of a schools' "gold rush". Others doubt whether running public-sector schools can, or should, produce profits.

On that day, Edison Schools Inc was "floated" on the stock market at $18 (pound;11) a share. Edison, the best known of the growing number of for profit companies running taxpayer-funded schools, raised $122 million (pound;76m) through the offer.

It was the latest in a series of cash injections for Edison Schools since its launch by the media entrepreneur Christopher Whittle in 1991. Like Internet stocks whose value is based on hopes for the future rather than current earnings, Edison has yet to make a profit. It lost $50m last year on turnover of $132m.

Yet American investors still expect to make profits through the new business of managing public-sector schools. They base this belief on the widespread public dissatisfaction with America's school system, which suffers from many of the same image problems as Britain's state schools.

It is estimated the for-profit education industry is worth about $70 billion, or around one-tenth of annual education spending in the United States. The former "junk bond king" Michael Milken is one of many to have staked a claim. His Knowledge Universe companies range from pre-school to corporate training enterprises.

Before Edison, the private sector concentrated on education extras such as learning packs, online education, testing materials or examination preparation. Now it is looking at running public schools, as Americans refer to their equivalent of state schools.

Education could follow the lead of health care in the United States. Health management organisations are big businesses, shaping the medical care of most Americans. Now commentators are using the phrase "education management organisations" to describe the growing list of companies which are running America's public schools for a fee.

Edison leads the pack with 79 schools and 38,000 students. It contracts with the authorities to run a school, receives funding for each student it enrols, and hopes to make a profit by spending that income more efficiently than the existing system. The schools charge no fees, are open to all abilities and are accountable to elected bodies.

The charter school movement - free-standing public-sector schools which resemble grant-maintained schools - has boosted the growth of organisations such as Edison. Charter schools have the support of both Democrats and Republicans and are now attracting the attention of the British Conservative party.

The movement grew out of dissatisfaction with school standards and a belief that greater parental choice and freedom from local bureaucratic control was the way to stimulate reform.

The schools operate under a contract issued to their organisers, groups of parents or teachers, for example. The contract is issued by school boards, state education departments or universities. It lays down how the school will operate.

The first charter was issued in Minnesota in 1991. There are now 1,700 charter schools. Around 10 per cent are run by private management organisations such as Edison.

The Mid-Michigan Public School Aademy, in Michigan's state capital Lansing, opened as an Edison-run charter school four years ago with almost 700 students. It now has over a thousand enrolled. A large Edison school sign greets you on arrival. It boldly claims this is "the first school in the nation to give a computer, an Internet connection and Internet address to each student".

Investment in technology is a key characteristic of the Edison school design. Other features include a longer school day and year, laptops for all staff, quarterly parent-teacher conferences, and an hour of English and maths a day.

The school's principal, Anthony L Moore, reports to Edison and a school board appointed by the charter-issuing body, Central Michigan University. The school's charter will only be renewed if it meets its targets for test scores and fulfils its promises on curriculum delivery.

Mr Moore, a former public school principal, says he does not have to worry about profits and says the company has supported him despite some "growing pains" at the school which started, and then abandoned, an extension into a senior school.

He believes privately-managed schools will eventually constitute 15 to 20 per cent of the system. He says if he were running a school district he would bring in Edison "because it is good competition for the other schools and provides choice for parents".

Others are less positive. A recent study by Michigan State University found charter schools were targeting the students who are cheapest to educate, shunning special needs education for example. It also suggested that struggling school districts which have lost a lot of students to charter schools fall into a spiral of decline, losing pupils, money and the ability to turn themselves around.

Several other for-profit companies are running charter schools. They include: Advantage Schools Inc, Beacon Education management, the TesseracT group inc, and National Heritage Academies. None has yet made the breakthrough to profitability.

Some companies have stumbled badly. Education Alternatives Inc ran nine schools in Baltimore from 1992 to 1995 but the city ended the contract amid dissatisfaction with the company.

Just as it is too early to judge whether private companies will ever make profits from running schools, it is also too soon to evaluate their impact on standards. Edison and the American Federation of Teachers have been engaged in a public argument over the academic achievements of its schools.

However, in many cases they do seem to be popular with parents and Edison received a boost last month when its school in Mount Clemens, Detroit became the first to complete its five-year contract. The local school board has now renewed the contract.

Edison's ambitions reach beyond the US. Several other countries, including Britain, have expressed an interest in contracting Edison to run schools. Two years ago, Edison was keen to launch an Edison UK and was involved in talks with the Department for Education and Employment, Surrey, Tameside and Hackney LEAs and a group of city technology colleges. Education action zones offered one possible way in to the British market.

For now, though, Edison appears content to consolidate its role in the US before expanding abroad. But Mr Whittle has always been a man with big horizons. If he succeeds in the US he could be back in Britain.

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