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Public-Private Partnerships and Free Market Mythologies

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Given the post-apocalyptic hellscape that is the Trump administration, any of us would gladly take the Obama administration, even with its weaknesses on some issues. However, if there’s one area where the two administrations overlap, it’s in the privatization of education. Rachel Cohen has a typically excellent report on so-called “Pay for Success” programs that encourage private investment in social programs that, if successful, the government pays back with interest. Pushed by the Obama administration, much of this was in education and there are plenty of connections already with Trump officials.

Chicago’s Pay for Success project launched in 2014, and aims to improve students’ kindergarten readiness, boost third grade literacy and reduce special education services. Goldman Sachs, Northern Trust and the Pritzker Family Foundation invested $16.9 million into the program, with the potential to roughly double their investment over the next 18 years. The bulk of those returns would come from reducing special education services for the 2,600 program participants—about $9,100 per child.

Undergirded by narratives of wasteful government spending and market-driven accountability, a small group of philanthropists, financiers, and policy leaders have helped elevate the Pay for Success model quickly over the past few years. State and local governments have launched 16 such projects across the U.S since 2012, tackling a range of issues from foster care and education, to criminal justice and public health. Dozens more wait in the pipeline.

At its best, advocates say that Pay for Success could foster greater government accountability, fund needed programs in cash-strapped political climates and potentially save the public money down the line. “Innovative models like Pay for Success … shift the risk of achieving targeted outcomes away from the taxpayer and enabl[e] governments to pay only for what works,” said Andrea Phillips, the Vice President of Goldman Sachs’ Urban Investment Group.

But at its worst, Pay for Success can leave taxpayers paying substantially more than if their governments had just funded programs directly, cement narratives of fiscal austerity and incentivize misguided social outcomes.

Free market mythology plopped on our kids! Great! What about Trumpers?

Federal support for Pay for Success continued to mount steadily under the Obama administration. In 2015, Congress passed the Every Students Succeeds Act (ESSA)—the successor to No Child Left Behind—and changed the law to allow states and school districts to use federal dollars to fund Pay for Success projects. The move was applauded by groups excited about leveraging public money with private partners, and criticized by others for the same reason. Senator Orrin Hatch, (R-UT), largely responsible for the inclusion of Pay for Success in ESSA, said “rather than being limited by what federal bureaucrats at the Department of Education think best, funding should be more connected to local innovation and successful outcomes.”

Lexi Barrett, a former policy advisor in Obama’s DOE who also served on his Domestic Policy Council, left the executive branch in 2014 to work as the policy director for America Forward, where she pushed for Pay for Success’s inclusion in ESSA. Now she works as the director of National Education Policy at Jobs for the Future, which was recently awarded $2 million in Department of Education grants to spearhead Pay for Success projects in career and technical education.

“The fact is you have very senior level officials leave the federal government and then turn around to lobby and influence their former agencies,” says Craig Holman, the government affairs lobbyist at Public Citizen, which advocates for tougher restrictions on former federal employees.

The Obama administration laid the groundwork for Pay for Success, paving the way for its potential expansion under Trump—who has declared his intent to expand public-private partnerships across all sectors of government.

A bipartisan commission established last March by Speaker Paul Ryan (R-WI) and Senator Patty Murray (D-WA) will be issuing formal recommendations later this fall on how to grow the evidence-based policy movement. America Forward lobbied for this federal commission, and Jeffrey Liebman serves on it. And a bipartisan bill—the Social Impact Partnership to Pay for Results Act—was reintroduced this past January, which would direct at least $100 million to states and local communities to expand Pay for Success projects.

Meanwhile, in March, Trump announced the creation of the White House Office of American Innovation, charged with improving government and society in collaboration with the “private sector and other thought leaders.” With its stated plans to tackle areas like workforce development and the opioid crisis, PFS supporters have been eyeing the Office of American Innovation as a potential new base of federal support. Senior White House advisers, including Goldman Sachs alumni Gary Cohn and Dina Powell, were even tapped to help guide the new agency. Before joining the Trump administration Powell herself had led Goldman’s “impact investing” initiatives, a portfolio that includes Pay for Success.

Truth of the matter is that Obama has an awful lot to answer for with his terrible education policies, not to mention his fundamental faith in free market mythologies.

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  • Rusty SpikeFist

    Truth of the matter is that Obama has an awful lot to answer for with his terrible education policies, not to mention his fundamental faith in free market mythologies.

    So then why is it the official doctrine of this blog that the political and substantive failures of Obamacare had nothing to do with that misguided faith?

    • Because education policy is almost all generated in the White House and the ACA had to get 60 votes to pass in the Senate?

      • Hob

        Not to mention that the ACA, unlike ESSA, was not a case of pushing a public system toward privatization. It significantly expanded the existing public system, and it created subsidies for the existing private system while also imposing further regulations on it. The only “free market mythology” there was the belief that to entirely dismantle the private insurance industry would not be feasible at this time.

        • Rusty SpikeFist

          The only “free market mythology” there was the belief that to entirely dismantle the private insurance industry would not be feasible at this time.

          Yes, and that myth led to the catastrophic decision not to even try to do that, which critically damaged his administration and led us directly to the current political crisis in the US.

          • Murc

            That wasn’t a myth. That was true. The votes to dismantle the private insurance industry did not, in fact, exist at that time. Nor did any mechanism exist to acquire those votes. This is the very definition of unfeasible.

            • Rusty SpikeFist

              There are ways and ways of doing it.

              Guillotining insurance execs on the steps of the Lincoln memorial, was not going to be a win in the Senate.

              But a weak/nonexistent individual mandate combined with a public option was absolutely doable with a little bit of pushing, and nobody at the time thought otherwise. The undermining of that path was coming from within the Obama administration, not from the legislature.

              It was only retrospectively, in order to exonerate Obama for sabotaging a viable route to universal coverage, that neolibs constructed this fairly tale about it having been impossible all along.

              • Murc

                But a weak/nonexistent individual mandate combined with a public option was absolutely doable with a little bit of pushing,

                Do the goalposts make a noise when you move them like that? You’ve gone from it being a “myth” that entirely dismantling the private insurance industry wasn’t feasible at the time to “we could have gotten a public option.”

                And even that’s not correct.

                There were multiple Senators who would never vote for what you propose was possible. To pick one at random: Joe Lieberman. He was never going to vote for a public option. Without Lieberman the ACA doesn’t pass. How do you make him change his vote? Bearing in mind that he’s never going to run for anything again ever and doesn’t give a shit what leftists think of him?

                • Rusty SpikeFist

                  An FBI investigation for suspected bribery might have done the trick.

                  Don Siegelman was convicted for far less than what Lieberman took from the insurance industry to kill health reform. https://en.wikipedia.org/wiki/Don_Siegelman

                • Murc

                  I see. So if the Obama Administration had been willing to fire FBI directors until they got one willing to illegally threaten Lieberman with politically motivated investigation and prosecution, they might have been able to secure Lieberman’s vote.

                  Even if I accept this wild hypothetical… fine. You’ve got Lieberman.

                  Evan Bayh will also never vote for a public option and has announced his retirement. Given that you cannot predict he will un-retire seven years later, how do you force HIM to change his vote?

                • sibusisodan

                  “An FBI investigation for suspected bribery might have done the trick.”

                  To your credit, this is a novel suggestion.

                  I will add it to the list beginning ‘primary Sen. Nelson.’

              • wjts

                The undermining of that path was coming from within the Obama administration, not from the legislature.

                Curse Assistant President Lieberman! Curse Assistant President Nelson!

                • Justin Runia

                  While we’re at it, curse THE SENATE, the body modeled after the House of Lords, whose members have terms longer than the president, and whose mandate is to represent “the land”, ie land-holders. Why I am I having to explain co-equal branches of government to someone who is presumably an adult?

              • BigHank53

                Guillotining insurance execs on the steps of the Lincoln memorial, was not going to be a win in the Senate.

                Here’s something else that’s not going to be a win: go to Google maps for a large city near you and see where the hospitals are. Then ask yourself how much that real estate is worth. Where are you getting the money to pay for billions of dollars of land, never mind the buildings full of pricey toys? Are you just going to take it? And what about the absence of property tax income? Who’s filling in that hole in city budgets?

              • But a weak/nonexistent individual mandate combined with a public option was absolutely doable with a little bit of pushing, and nobody at the time thought otherwise.

                The House passed a version of the ACA with a public option, a national exchange, and a larger Medicaid expansion. The Senate barely passed their less generous bill with 60 votes, and then the Dems lost the 60th vote. They ended up deciding to pass the Senate bill in the House and then to pass a follow-up bill via reconciliation to help close the gap. Since that bill had to pass the Senate via reconciliation, it had to contain primarily budgetary measures, not policy. Thus the public option and the national exchange were lost.

                The legislative history of the ACA shows that there was a legitimate attempt by supporters of the public option to put it into the final bill. The votes just did not exist in the Senate. It’s a damn shame. The House bill would be much stronger today. But the choice in March 2010 was to either pass the Senate bill and improve it via reconciliation or to pass no bill at all.

                • Rusty SpikeFist

                  The legislative history of the ACA shows that there was a legitimate attempt by supporters of the public option to put it into the final bill.

                  Sure, but the President was not among them. If they had managed to do it, it would have been against Obama’s vigorous resistance, and certainly not with his cooperation or even passive assent, as this blog would have you believe.

                • Aaron Morrow

                  The greatest trick that Mark Pryor ever pulled convincing cosplay leftists he didn’t exist.

            • wjts

              But you can’t deny that by not unilaterally dismantling the private health insurance industry (and thereby unemploying hundreds of thousands of people at a stroke) by some unspecified means, Obama critically damaged his own administration and single-handedly put that man in the Oval Office.

  • CP

    For whatever reason, education reform seems to be one field were both parties are on the same page. Or at least in the same chapter.

    • keta

      What I don’t get is why? Is there just so much potential money to be made that it’s simply irresistible?

      I mean, I get the right slavering at the whole enterprise, but what animates the left in the same direction?

      • Murc

        It’s complicated.

        My bead on it is this: there are a lot of liberals who recognize, correctly, that public education in this country could use a huge overhaul. There are also a lot of liberals who are still either proper neoliberals, by which I mean “people who think the best way to achieve liberal goals in general is through private or market-driven means” or who don’t think root-and-branch reform stuff like “decoupling school funding from property taxes” is a realistic lift so they look for more accomplishable goals.

        You also have people who are willing to try something, anything, in the hopes of finding things that work.

        • Brett

          Some of what Linnaeus said below. Among the type of Democrats fueling this (upper-middle-class to affluent liberals), there’s both a romanticism of the Power of Education to help people find better jobs and help themselves, and a fondness for the idea that the Right Person In Charge can change things from the top-down for the better. It’s why they tend to be fond of superstar school chancellors and charter school entrepreneurs, and not so fond of unions and activist teachers.

          • Gwen

            I think in some ways, though, the embrace of market approaches to education may stem from one or more of these factors (I am doing a bit of spit-balling here):

            1.) Policy exhaustion and or frustration. Federal-level politicians either cannot (because of federalism, lack of funding, etc.) or will not (because of a lack of interest) engage with the fine details of what is necessary to improve educational outcomes. So they lean on “free market” ideas as a shortcut. I agree that there is a fondness for “the Right Person in Charge” but I’d also suggest that some in Washington no longer care who that person is, but rather hope that the Invisible Hand will do the sorting-out for them.

            2.) Partisan fatalism. The Democrats have given up hope of being able to fiat their preferences because of GOP obstructionism. Given the alternatives of “do nothing” and capitulate to the GOP and “let the free market sort it out”, there are reasonable arguments to be made in favor of capitulation.

            3.) Boomer and Gen-Xer OKism. Coupled with fatalism and policy indifference, the Obama White House was staffed with plenty of people “of a certain age” where there was a certain faith that free markets would “turn out OK”, a faith that many people no longer have.

            • Steve LaBonne

              I think all of this is right on target.

        • zoomar

          “…recognize, correctly, that public education in this country could use a huge overhaul. “
          I’ve been teaching high school for 15 years. Aside from needed common sense improvements concerning technology and changes in the culture (which can be done without a complete “overhaul”), I don’t recognize this for a fact at all. Unless by overhaul, one means smaller class sizes and doubling arts and humanities. Unless by overhaul, one means overhauling school financing to put poor school districts even with rich ones. American students have always tested way below their counterparts in Europe and Japan. Still, post war, the country managed to excel in every area of industry until the great conservative dismantling of the new deal began in 1980. This whole education crises BS has been classic Shock Doctrine” from the start.

        • Justin Runia

          …And if you’re someone who has decided to live in an under-invested area, you don’t want your kids to be punished by being educated in schools that are scraping the bottom of the barrel. It’s going to take a lot of time to undo the damage wrought by the “taxpayer’s revolts” of the 1970s, and many people don’t have the luxury of waiting. Believe it or not, there is a lot of support in Communities of Color for things like strict sentencing and school choice, because they don’t know if they can count on a bunch of well-meaning liberals to convince their racist aunts and uncles that a) they are racist and b) socialism is a worthwhile objective. My neighborhood on Nextdoor has been very useful in showing me exactly how deep the “ho-tep” wormhole goes, the power of the Personal Responsibility narrative is very strong.

          Personally, I am pretty much the exact opposite, and had to advocate to my wife pretty strongly to get my kid into the public school magnet (which is a whole other can of worms), rather than putting her in a dual-language charter school. Education is the area that I am most disappointed in the Obama administration, but on the other hand, I can recognize how my privilege enables that; both my wife and I are college-educated, so I’m confident that we could back-stop any deficiencies intellectually and socially, that our local public schools may have. There are a lot of people who, again, don’t have that luxury.

          • zoomar

            I agree, the contradiction of fighting the unfairness of charters in their current form, is also risking maybe the only alternative for a poor minority parent in a bad neighborhood with a smart child who loves school. Charters, like expensive private schools can cherry pick their students (They’ll deny it, but they find a way) through auditions and counseling out poor performers, knowing the non-charters have to take them. It was always a heartache at my school to see gifted kids not get the challenges they deserved. One thing for anyone looking at charters and the new “Small schools” to consider is the frequency with which they can close, plus teacher and principle turnover.

      • Linnaeus

        Some of the animation stems from, I think, the silver bulletification of education in the US. As assaults on the New Deal welfare state (and its analogues at the state level) have continued, we’ve created more and more expectations for our schools to solve social problems that they were never really equipped to solve. When they don’t measure up to these expectations (in some places), it’s easy for some, on the right or left of center, to draw the conclusion that the problem must be with the schools.

        Which is not to say that there aren’t struggling schools in the US. There are, but it’s not as simple a problem as the “reformers” would have you believe.

        • More or less, we expect our educational system to take oppressed populations and educate them sufficiently to be competitive with their oppressors. This is complete insanity, but it very much fits with our national myth that success is a matter of the individual’s hard work, virtue, and intellect.

        • Sly

          School privatization has been a factor as long as public schools were a thing, so its not limited to just an ideological outcropping of the New Deal. In other words, there’s more here at play than “silver bulletism.”

          The major thing that happened is the terrain of the debate has changed; from the privatization side being dominated by rural/suburban white families not wanting their children attending schools with black kids, to 50 years of budget-crippling white flight forcing urban school districts to look for other ways of financing their operations.

          There’s a reason you don’t see a big charter/privatization push in those middle-class and wealthier suburbs, even after those school districts went through a bloodbath in the wake of the housing market crash; they have the tax base to sustain a viable public school system, with enough “wiggle room” to weather those kinds of temporary storms.

          Sure, they might have to suspend contract renewals for a year or two (or three in some cases) in order to halt pay raises, or suspend certain intramural sports and clubs, or lay off more than 10% of their faculty and increase their median classroom size from 20 to 25, or rejigger their busing schedule, or all of those things, but they survived without doing anything truly drastic like moving to a 4-day week or ending Kindergarten or turning their schools over to Jamie Dimon or Lloyd Blankfein.

          The fact that self-contained suburban districts makes introducing charters unwieldy certainly helps prevent the last bit, but it was never even a consideration in the first place.

          Ideological factors are important – and there are many contaminating the American consciousness that makes universal high-quality public education a tough haul – but those factors are exacerbated by material conditions that are narrowly distributed.

    • wengler

      It’s shit like this that makes me wish this country had an actual labor party. Your tent can’t be big enough to include both teachers’ unions and the rich assholes that want to destroy teachers’ unions

      • Justin Runia

        I wish we had an actual parliament, instead of the Federalist monstrosity we have right now!

  • BiloSagdiyev

    Let me know when good public schools with big budgets and the right kind of students from the right kind of parents in the right suburbs get sucked into all this. Somehow I suspect such districts will be overlooked in these schemes.

    • Dr. Acula

      Right; the chances that, say, the Palo Alto Unified School District gets sucked in to this shit are approximately zero.

    • AMK

      Yup. Poor kids are great for running both sides’ social experiments.

    • wengler

      It’s started coming into the poorer suburbs. The kind of places where home builders used to advertise the schools, but have long since vanished with only their massive tax abatement intact.

    • Happy Jack

      Good schools don’t need to be reformed*. It’s the same reason why SWAT doesn’t kick down doors in leafy neighborhoods. Good people live there.

      * Except for those pesky unions.

  • Gizmo

    This is just the latest delusional nit-wttery from the free-marketeers: Those lazy public employees would work harder if we cut their paycheck and the they feared for their jobs.

    The best line I heard on this was from General Wesley Clark – “I’ve never heard anybody explain how competition improves a school”

    In the last few years, I’ve gotten a closer look at the public school system from the ‘End-User’ perspective, ands it just becoming painfully obvious that this is all just about money. Public school systems just need more money. We’ve got to pony up. They reality is that the best teachers in the worlds can’t deliver results when their students are hungry. There are school systems where its a struggle just to get the students to show up. Free markets aren’t going to help those kids. Its all just another con.

    Disclaimer: My Dad was a professional education reformers and overhauled a state school system for the better. He was no fan of Obama or Arne Duncan on education.

    • Murc

      In the last few years, I’ve gotten a closer look at the public school system from the ‘End-User’ perspective, ands it just becoming painfully obvious that this is all just about money. Public school systems just need more money. We’ve got to pony up.

      Yes and no.

      It is true that public school systems do need more money. But that isn’t a panacea; some very, very bad schools (or at least, schools that are getting very bad results) have very high per-student spending. To an extent you can’t do much about the outside-school factors that lead to that outcome, but educational reform does, I think, need to include more prongs than just throwing money at the problem. (Although given the choice between just more money and nothing, I would take the money, of course.)

      • Aaron Morrow

        I can only offer anecdotes of schools getting poor results that were doing even worse with less money before some states redirected money into less property-wealthy districts. Can anyone offer up a long term study that tests that hypothesis?

        More specifically, if it’s more politically feasible for the federal government to redistribute funding through the DoEd, then by all means, we should be expanding programs like free and reduced priced meals and creating new programs that help serve the communities and allow students to succeed.

      • Justin Runia

        Well yeah, it’s not a problem of throwing money at the schools, it’s a problem of throwing money at the neighborhood around the school, complicated by the fact that you want to throw money in a way that doesn’t cause the displacement of the people currently living in that neighborhood. People in under-invested neighborhoods are in the shitty position of arguing against increased public amenities, because that will make their neighborhoods more desirable, and thus too expensive for them to live in. Ironically, public school quality is a big factor in that.

    • AMK

      The reality is that the best teachers in the world can’t deliver results when the students are hungry

      .

      A thousand times this. 95% of the problems in K-12 education have nothing to do with schools.

    • Srsly Dad Y

      100% this. We experimented and the results are in. The best school reform for the money, is money. Next question.

  • Souris Grise

    Pay for Success seems even worse than your average public-private partnership. Perhaps I’m misunderstanding some of the details? A school district cannot finance the costs of a program. So private investors put up the funds and then receive interest payments if the program hits defined “success” targets?

    Why does the federal government then need to kick in $100M to distribute to state and local pilots to clinch investor confidence in the low risk of these programs? Double an investment over 18 years — is that a reasonable or obscene return? Investor funding seems limited to start-up costs. Where does a district source funding for continuation of a program, especially when it’s making interest payments to investors?

    And those are just concerns about structuring.

    I won’t even touch the sure-thing success metrics. 2,600 kids currently receive special ed services for no reason other than ——. We’ll just eliminate —— and savings!

    “Innovative models like Pay for Success … shift the risk of achieving targeted outcomes away from the taxpayer and enabl[e] governments to pay only for what works.” Is it just me or does that sound … depraved?

  • wengler

    I think you are giving Obama too much credit in the idea that he gave a shit about education policy. He did not.

    • humanoid.panda

      I’d say that evidence strongly points out that he passionately cared about it (otherwise why fight with a powerful Democratic constituency like teachers?). He just happened to be dead wrong about it.

    • SIS1

      What evidence of that is there, given how much the time the administration kept talking about it?

      I get the impression that Obama, as a father, ex-academic and organizer cares deeply about education policy.

  • SIS1

    When an “education policy” debate barely discusses pedagogical issues, you know that “education” is not what is really being discussed – as opposed to labor theory, or management theory.

    The notion that teachers can somehow turn things around consistently for children with poor home and neighborhood environments is an absurd faith that has spread too far in this country, both for selfish reasons (people wanting to profit off the $700 billion spent on education annually) and because its easier to imagine schools as Santa than to do the hard work of fixing poor neighborhoods (to say nothing of how society intervenes, if at all, in a poor home situation).

    • postpartisandepression

      And there is the added problem that if we asked a CEO to deal with the problems that teachers are supposed to cure we have to pay him millions and in the US teachers barely earn a living and ceratinly are not paid what they are worth. In every other developed countries teachers are highly paid and highly respected. Chage that and you change the world.

  • NeonTrotsky

    I think there are a lot of things wrong with the whole narrative around education. A lot of the notions people have about failing public schools are really about the existence of various social ills like poverty that they naively expect education to just make disappear. And charter schools sound really nice in comparison because they promise to make everything better for less money, but it’s really just a fantasy.

    • Rob in CT

      Yes. People expect schools/educators to be miracle-workers. That’s effectively the demand being made: “here, take these kids who live unstable and/or violent environments, who are sometimes hungry or otherwise hampered by material needs, whose parents and other family are likely HS grads at best, and turn them into heart-warming success stories. All of ’em, not just the few you can realistically expect to affect personally.”

      It’s ridiculous.

      • humanoid.panda

        If Michelle Pfeiffer could do it AND do a music video with Coolio, why can’t our lazy unionized teachers?

  • zoomar

    Here’s an example of reform in NYC where I teach. A large, poorly performing school like mine is closed and 5 to 7 smaller schools put into the building. Some may be charters, some not. Still, where you had one principle and administrative office, now you have five. They’re doing this all over the city. The DOE is larding itself top heavy. I can’t even describe the damage closing a school, especially a CTE school like mine with students depending on being licensed in a trade, does to the education of these kids. It’s four years of chaos and turnover. What once was an anchor to the community is now just office space for a hedge fund charter.

    • alercher

      You’re sitting on a gold mine! All that chaos and turnover can be monetized with my nifty charter-collapse swaps.

      Sign on the dotted line.

  • postpartisandepression

    But Obama was always at best a moderate republican. I could never understand why the republicans didn’t just say yes when he offered to cut social security and medicare and proposed a conversion to the chained CPI. We should all say a big thank you to the tea party for stopping that disaster.

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