The Double Standard Used by the Government in Engaging Private Sector Innovators

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Right before the holidays, the Atlantic Monthly published an oped I wrote based on an lengthier paper I authored for AEI (summary here and full paper here). I wanted to highlight the double standard government applies to engaging the private sector in education compared to other sectors, such as clean energy, space research, healthcare, and supporting the national intelligence community.  

In most instances where the government identifies a social challenge, it uses a variety of policy levers - from tax credits to loans - to attract private sector entrepreneurs and solutions.  That is not true in education.  Instead, policy is used to proactively keep the private sector at arm’s length from engaging in our most critical education challenges. The result is a policy and regulatory environment that discourages entrepreneurs and private sector investment, both of which seek out opportunities in areas where there is a more supportive environment.  

The Administration also officially retired the U.S. Space Shuttle fleet and canceled its replacement.  Thus establishing the irony of a space program set up to compete with the Soviet Union is now reliant on Russian spacecraft to ferry American astronauts into space.  In 2010, the President proposed a $6 billion initiative to attract private sector companies to compete for and operate spacecrafts to service American space needs.  One of the lead contenders is not a traditional aerospace firm, but rather an Internet serial entrepreneur - Elon Musk, who with the governments help is not only building spacecraft but also a fleet of electric cars.

The Obama Administration's policies provide a number of clear examples.  The President campaigned on cleantech entrepreneurs leading the U.S. out of the recession.  The U.S. Department of Energy was given billions in stimulus funds to use for grants and loan guarantees in an effort to support these budding technologies.  After the BP oil spill, the President said, " As we recover from this recession, the transition to clean energy has the potential to grow our economy and create millions of jobs -– but only if we accelerate that transition.  Only if we seize the moment.  And only if we rally together and act as one nation –- workers and entrepreneurs; scientists and citizens; the public and private sectors."

Such a rallying call has not been extended to education. Instead, Congress passes I3 legislation that specifically prohibits for-profit providers from applying.  The Administration sought $10 billion to help preserve the status quo of education versus investing in new education startups, digital learning providers, and new charter models. Somehow, Washington deems it acceptable for government to support companies seeking to make a profit by reducing greenhouse emissions or sending a man into space, but not by reducing dropouts, improving student achievement, or creating new models of instruction.  

Given the scope and urgency of improving the country's system for educating its citizens, it makes little sense to limit solutions and entrepreneurial spirit to only some groups based on their tax status. Federal policy can replicate successful models from other sectors to support innovation in education with safeguards to protect teachers, students, and parents. An entrepreneurial education landscape is not one in which the government or foundations simply pick winners and losers but, rather, one in which these entities help remove barriers to entry for quality providers and think deeply about the impact their policy or philanthropic decisions will have on the broader educational marketplace and potential investors or entrepreneurs in the field.  

Robert Pondiscio at Core Knowledge talks about this through the lens of deregulation.  I did not specifically talk about deregulation in part because that is a policy lever used to accomplish a policy goal. The inclusion of for-profit electronic health record providers to service for-profit hospitals is not seen as deregulation.  Nor is the President's strategy of using stimulus funds to support alternative energy providers.  What I was trying to argue is that there should be a level playing field for all providers - for-profit, non-profit, B-corps, and the like - who are judged based on quality and effectiveness.  

Rick Hess offers some thoughts here.  And Reihan Salam looks at the issue a bit differently over at National Review Online.  


The Great Education Hypocrisy: What's So Bad About For-Profit Teaching?

From space travel to health care to clean energy, the federal government has a successful track record of partnering with the private sector. This partnership fuels innovation and jobs, and it helps solve some of the country's most pressing problems. Most federal agencies in some way engage the private sector in addressing their priorities. The Department of Commerce provided grants to build out new broadband networks. Tax credits are used to stimulate consumer demand and accelerate new-technology adoption. President Obama's budget even calls for replacing the Space Shuttle program with commercial space craft.

When it comes to education, however, Uncle Sam's handshake with entrepreneurs clenches into a fist. Instead of involving the private sector, education policymakers have actually created policy and funding barriers that skew support to nonprofits and prevent for-profits from fully participating in programs aimed at improving teaching or learning. These barriers exist at nearly every level of government -- local, state, and federal -- further isolating education from potential innovations that could help children and discouraging entrepreneurship.

Washington deems it acceptable to make a profit by reducing greenhouse emissions but not by reducing dropouts

Given the urgency of improving the US education system, we can no longer afford to shut out an entire group of providers. In a time of declining state and federal revenues, policymakers should be stimulating, not stifling, the influx of private capital to our education system. When it comes to other crucial national challenges, policymakers do not ask whether they should engage for-profit companies, but how they should. It is time for education policymakers to follow suit.


A key first step is to thaw the frigid political climate that chills innovation. As Silicon Valley blogger Sarah Lacy noted, "I've spoken to many venture capitalists who say they'd love to use technology to change education, but few think they can make money at it." One reason is that Washington deems it acceptable to make a profit by reducing greenhouse emissions but not by reducing dropouts.

Peter Diamandis, chairman and CEO of the X PRIZE Foundation, emphasized the fruits of government-commercial synergy when he noted: "The US government doesn't build your computers, nor do you fly aboard a US government owned and operated airline. Private industry routinely takes technologies pioneered by the government and turns them into cheap, reliable and robust industries. This has happened in aviation, air mail, computers, and the Internet."

The recent debacle over Solyndra, the failed solar company that received hundreds of millions in taxpayer funds, provides a cautionary example of what can go wrong when impartial, merit-based decisions are replaced by political considerations and favoritism. These are legitimate concerns, but they apply also to government grants to nonprofits as well. Concerns about market distortion are also valid, but excluding private-sector entities from participation in federal programs also distorts the market.

Taken together, these concerns do not outweigh the benefits of having a thriving marketplace of private-sector entrepreneurs tackling social challenges.

To be clear, the point is not to necessarily create new federal subsidies, but instead for policymakers to create a level playing field for all providers. An entrepreneurial education landscape is one in which government removes barriers to entry for quality providers and uses quality and effectiveness as criteria for selection, not just the organization's tax status.

We need to think of education less as an institutional system and more as an ecosystem of various providers and consumers characterized by a policy environment that welcomes all innovators, shares risk to help attract investors to incubate promising ventures, supports funding and regulations that allow innovations to scale, and offers incentives that reward quality and results.

Ultimately, our public policy should urgently seek to better educate our children by any means necessary. We need to embrace a quality revolution that focuses solely on holding organizations accountable and responsible for improving student outcomes. Those that do should be rewarded and scaled so that we can ensure that students receive the education that they deserve using the entrepreneurial spirit and genius that have made America so great.


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