Research & Commentary: For-Profit Competition in K-12 Education

Published January 5, 2012

Increasing numbers of for-profit service providers have begun to enter the education sector, performing tasks from collecting and analyzing standardized test data to providing tutoring and bus services. As legislatures have voted to give school districts more options, some defenders of public school monopolies have begun to attack this as “corporatizing” education.

These anti-competition forces claim the profit motive encourages providers to “use children” to earn money and will ultimately damage their education by cutting services to reduce costs and maximize profits. They also complain private companies employ fewer people to do the work, reducing the number of jobs available to public-sector and unionized employees.

Proponents of free competition say increasing worker output is a prime benefit for taxpayers who shoulder public education expenditures and are currently on the hook for $103 billion in state budget deficits. They note private businesses have demonstrated expertise in providing excellent quality for a lower price because competition forces them to eliminate wasteful practices and impractical products.

Nonprofits and government enterprises do not lack profit motives or incentives to game the education system in their own favor against the interests of children and parents, and they can do so with impunity when there is no competition. This protected set of perverse incentives is a prime cause of the nation’s education failures, the advocates of competition contend. Structuring education so providers’ rewards are based on results is the best way to ensure children get the best education possible at the lowest cost to families and taxpayers, and competition does this.

The following documents offer more information about for-profit companies in K-12 education.


Rethink, Relearn: Education Policy Should Extend Outside School Walls
The current structure of U.S. education comes from the Industrial Age, writes Reihan Salam in The Daily, meaning complaints about “corporatizing education” ought better to apply to the current public system rather than to attempts to transform it through education entrepreneurship. New ideas about education and its structure can help promote a society where learners take more initiative, launching more creativity and personal responsibility.

The Dysfunction of Non-Profit Organizations
Nonprofit organizations are more likely to be flawed and inefficient than for-profit enterprises because nonprofits lack the discipline of the profit motive, writes education researcher Jay Greene. Nonprofit organizations have less financial accountability and thus tend to waste money and attempt to increase their domains without providing extra value in return for that increase. For-profits have to provide measurable returns for investors and stakeholders, and are therefore more likely to get the most out of every dollar and provide the best services and products.

How Business Can Improve Education
Business leaders have expertise schools need desperately as they attempt to become more efficient and data-driven, writes Whitney Downs in National Review Online. Instead of subsidizing the status quo, businesses can use their unique skills to ensure better performance with less spending and spur the change necessary to move schools into the twenty-first century.

Business Should Step Up on Schooling
Partnering with school districts doesn’t mean “businesses should carry their water,” write Frederick Hess and Whitney Downs in the Louisiana business magazine Catalyst, but instead that businesses have a right and incentive to demand clear performance targets, justified budget decisions, and streamlined operations in return for education spending. Businesses must stay the course and not just jump in and out with one-time donations. Business also can provide expertise in reducing costs, increasing efficiency, and implementing information technology.

Policy Focus: The Case for For-Profit Education
If Americans want the best and brightest minds competing to discover excellent ways to educate children, they ought to support for-profits in education, because rewarding these minds for their labors is one of the strongest and most proven incentives for doing so, writes Carrie Lukas in an Independent Women’s Forum policy brief. Our current education system has a fundamentally flawed structure that discourages innovation and fails to reward excellence. Allowing greater competition is a necessary element of the solution, she says.

Odd Man Out: How Government Supports Private-Sector Innovation, Except in Education
Although the federal and state governments contract with private businesses in a great many delicate areas such as health care and national security, they rarely do so in education, notes John Bailey in an American Enterprise Institute study. Governments have erected barriers to business contracts that would reduce costs and increase efficiency. Government should instead encourage partnership with education entrepreneurs, he writes, particularly in a time of tight budgets and technological change.

Beyond Good and Evil: Understanding the Role of For-Profits in Education Through the Theories of Disruptive Innovation
Those who accuse for-profit companies in education of “shortchanging kids” and “focusing only on money” ignore several important truths, argues Michael Horn in a paper for the American Enterprise Institute. For-profit companies, he notes, are not inherently good or evil, instead responding to the incentives within the structures they are given, just as public schools and nonprofits do. For-profits are actually extremely similar to nonprofits, he states, with the biggest difference being that for-profits have shareholders, which causes them to grow much more quickly than nonprofits when successful. Government policies should not discriminate between for-profits and non-profits, Horn writes, but instead set the desired outcomes without specifying what processes or organizations accomplish them.


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the School Reform News Web site at, The Heartland Institute’s Web site at, and PolicyBot, Heartland’s free online research database, at

If you have any questions about this issue or The Heartland Institute, contact Heartland education policy research fellow Joy Pullmann, at 312/377-4000 or [email protected].