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Private Contractors in Public Education: The Pitfalls of Portfolio Management

Can 'Portfolio Management' Save Urban Schools?

By Jeffrey R. Henig, Katrina E. Bulkley, & Henry M. Levin

Recent years have seen a flurry of substantial changes in large urban school districts across the country, but the ideas behind these changes are fuzzy, the forces propelling them ill-defined, and the likely consequences debated with vague abstractions rather than evidence-based arguments. Chicago, New Orleans, New York City, and Philadelphia are among the national leaders in the movement to shift from a centralized bureaucracy that directly manages a relatively uniform set of schools toward a model in which a central office oversees a diverse portfolio of schools that might include traditional public schools, privately managed schools, and charter schools. Other cities moving in this direction include Baltimore, Cleveland, Los Angeles, Oakland, and Washington.

In Chicago, Arne Duncan's "Renaissance 2010" contributed to the development of roughly a hundred new schools, including charter schools, schools operated under contract with nonprofit organizations, and empowered district-run schools. In post-Katrina New Orleans, two distinct governing authorities now oversee a city in which almost 60 percent of public school students attend charter schools. Shifts in New York City began with greater centralization, and then moved toward decentralization involving shifting responsibility for selecting school support from the district to the individual school. And in Philadelphia, a much touted diverse-provider model brought for-profit and nonprofit organizations into schools as school managers, shifting district norms around who can—and should—provide educational services.

Despite minimal evidence of success, at least to date, politicians from the right and the left (including Presidents George W. Bush and Barack Obama) and prominent educational funders have held up these districts as models for district reform.

The reforms in each city fall under the broad umbrella of "portfolio-management models," or PMMs. The idea is most closely tied to the work of the University of Washington's Paul T. Hill and his colleagues. The portfolio concept appeals to reformers looking for a quick reset button to jump-start change in dysfunctional districts, much as the turnaround concept appeals to those looking to rapidly change failing schools.

PMMs have the potential to quickly ratchet up human and organizational capital, drawing on national networks of providers and teachers who may bring new ideas, fresh energy, and investment capital. In theory, a strong performance-based accountability system underlies the portfolio-management approach, in which districts rigorously evaluate schools and, if they are deemed inadequate, close or significantly alter them. District staff members don't necessarily have to solve the conundrum of what makes a good school; as long as they can reliably identify the nonperformers and shed them from the district portfolio, median performance in the district might be expected to rise.

Education policy in general suffers from the unchecked rush to judgment on new ideas, which often are declared successes or failures before the cement has even begun to dry. In the book Between Public and Private, we and other contributors explore this nascent reform strategy from several angles, examining in particular changes required in central district offices, the role of foundations in promoting PMMs, the political dynamics of contracting out, interactions with federal policy, and the broader privatization movement.

Our assessments at this point are preliminary, meant more to send up some warning flares than settle into a final verdict, either pro or con.

Politics will have as much, or more, to do with the way portfolio management unfolds in practice as will market forces.

Our first concern is that the portfolio-management approach is not a clearly defined and well-specified intervention. Interested districts cannot borrow an instruction book from the leading innovators and follow the guidelines for implementation step by step. The strategy is, rather, a loosely coupled conglomeration of ideas held together by the metaphor of a well-managed stock portfolio and its proponents’ unshakable belief that the first step for successful reform must be to dismantle the bureaucratic and political institutions that have built up around the status quo. Even in the cities recognized as national leaders, PMMs are fluid; they evolve not in a smooth developmental arc, but in fits and starts and with zigs and zags.

Another concern is that despite the language with which it is discussed, portfolio management is not just another market-based model that runs on supply and demand. It is true that the portfolio metaphor is drawn from the stock market, that business interests are prominent among its funders and advocates, and that existing cases feature private for-profit and not-for-profit entities. But the portfolio approach depends at its core on government to set the rules and make the key decisions. Unlike vouchers and charter schooling, which base their operating theories on the perception and behavior of parent-shoppers, the contracting model on which portfolio management rests puts public officials in the role of consumer supreme.

Two critically important observations derive from this point. The successful operation of a portfolio model depends on good government; it is not a way to sidestep the challenge of creating and sustaining smart bureaucracies. And politics—the interplay of interest groups, partisan maneuvering, and influence trading—will have as much, or more, to do with the way portfolio management unfolds in practice as will market forces.One underappreciated political element is the growing political strength of the new providers themselves; while currently seen as part of a coalition for positive reform, these groups—like private contractors in other urban services or in the defense sector—over time may find it easier to use their inside knowledge and access to ensure their position than to rely on innovation, quality, and consumer responsiveness, as market theories lead one to expect.

Most of the early pioneers in portfolio management, moreover, have had the advantage of committed support from state legislators, strong mayoral leadership, and deep-pocket backing from major national foundations. Other districts may not receive such support, and need to be careful about importing a model that even proponents acknowledge can be administratively and politically challenging to put into place.

Do these observations make portfolio management less interesting and less important as a potential tool? Should policymakers and citizens in stagnant and underperforming districts write them off as just another fad and turn their attention elsewhere?

While we are skeptical of the notion that portfolio management is a sure-fire solution to what ails urban education, we think it bears watching, calling out for more-rigorous assessment. For districts desperate for a shot in the arm, it may be a pragmatic component of a broader mobilization for reform. The portfolio-management approach to urban education is a work in progress. Contracting with private, or more-autonomous public, providers has the potential to increase flexibility, foster constructive variation, and offer an infusion of human capital and energies.

Yet there are many places at which things may go awry, and it is far from clear that a malfunctioning portfolio-management model is preferable to a malfunctioning version of the traditional public school district.

Jeffrey R. Henig is a professor of political science and education at Teachers College, Columbia University, and a professor of political science at Columbia. Katrina E. Bulkley is an associate professor of educational leadership at Montclair State University, in Montclair, N.J. Henry M. Levin is the William Heard Kilpatrick professor of economics and education at Teachers College. Together, they are the editors of Between Public and Private: Politics, Governance, and the New Portfolio Models for Urban School Reform (Harvard Education Press, 2010).

Published in Education Week, Vol. 30, Issue 06, Page 28

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