Is profit the same as profiteering?

dollar-sign[1]Teaching was a second, or maybe third, career for me: I worked in government and then in industry before I began teaching in my late forties. I tend to think these experiences have improved my teaching, especially for my government and economics students. But they also sometimes create a disconnect, when language from one profession doesn’t really transfer into another.

“For profit” produces one of these disconnects. We don’t usually assume that companies produce inferior cars, or computers, or financial services when they make a profit selling these products. But “for profit” carries a very different connotation in the world of education.

Should it? Most of us would concede that for-profit companies produce better, cheaper goods and services for consumers than state-run enterprises. Competing for customers seems to drive down costs and drive up quality. If charter schools are winning customers (parents and students) and maintaining a competitive cost structure, should we penalize their founders for earning a profit while meeting a need?

I was pondering these questions as I read an article about the American Indian Model Schools in City Journal (a publication that I read often and admire). Let me acknowledge right up front that I have no personal knowledge of these schools and their operator; nor have I investigated the charges now lobbing back and forth between the charter operator and the Oakland school district. But it does seem plausible that Ben Chavis is mostly guilty of figuring out a way to turn around a troubled school, meet the educational needs of a very vulnerable population of children, AND make money at the same time.

From the article:

The American Indian Public Charter School II, which serves 650 students from kindergarten through eighth grade, ranked first in the district and fourth in the state. U.S. News and World Report placed the system’s third campus, the American Indian Public High School, 38th on its list of the best high schools in America. In the state’s English language arts tests, 87 percent of AIMS students score as “proficient” or “advanced,” compared with 47 percent district-wide. In math, the breakdown is 88 percent for AIMS versus 46 percent for the district; in history and social science, it’s 98 percent versus 31 percent. Oh, and AIMS accomplishes all that while spending roughly half the amount of money per pupil that the district does. . . .

Again, it does seem pretty clear that Ben Chavis, the former school director, made money running the school.

The district alleges that Chavis and his wife, Marsha, personally profited from AIMS to the tune of $3.8 million through various real-estate deals, lease agreements, and consulting contracts. Chavis readily admits to almost everything but insists that it was all fully disclosed and aboveboard. Did his construction company do remodeling work on the schools’ bathrooms? Yes—it was the lowest bidder on the project. Did Chavis’s wife perform accounting services for the schools? Yes—and for several other Oakland charter schools as well. Did Chavis lease property to the schools? “I did,” he told the Alameda County board. “I leased them for $1.09 [per square foot]. The market is $2 per square foot. My mortgage was eighty-some thousand a month. I leased for $70,000. How did I benefit?” Further, Chavis points out that all his financial transactions were approved by his board and listed in the schools’ IRS 990 forms and that the schools were subject to annual audits as a condition of at least one foundation’s grants.

Again, this sounds like a complicated story, and maybe there were genuine misdeeds involved. But if Chavis’ main crime is making money while meeting student needs, well, maybe we should promote, or at least decriminalize, the profit motive in education.

http://www.city-journal.org/2013/23_3_snd-aims.html

 

4 comments

  1. Mike Richards

    Every business has a right to “profit” from the capital that it has put at “risk”. Profiteering is different. A “war profiteer” has taken advantage of the suffuring of others to earn a profit. A teacher is not profiteering. A teacher is being paid to render a service. That service is to educate children. A school is not profiteering when it covers its costs and earns a profit. It provides a service. NO STUDENT is compelled to attend a private school; therefore, there is no way that a school can “profiteer” from education. It offers a service. IF parents send children to that school, that school has the right to reap a reward for providing a service that required it to risk capital. Ony those in the public sector who want all profits to accrue to themselves would use the word “profiteering” to descride “choice in education”.

  2. Lew Elton Jeppson

    If a person or organization is paid for the value they add to a product, that is not profit, rather it is a wage. We toss around the term profit not really knowing what we mean by it. Marx asked the question: in a system like ours where exchange involves things or services of equivalent value (value exchanges for value, i.e. you get what you pay for), where do profits come from? The entirety of volume I of Capital tries to answer this question.

    • Mary McConnell

      Actually, what Marx failed to understand properly is that capital’s wage is not a dead weight loss to society, but a necessary goad to innovation. Otherwise it would make sense to nationalize industries and appropriate capital’s “wage” for the public. Lots of countries tried this after WWII – I’m thinking of Britain, in particular – and ended up with sclerotic state-run enterprises.

      But I certainly agree that the term profit is thrown around too loosely. That was part of the point I was trying to make.

    • Stephanie Sawyer

      I’m no economist, but I would think that the profit comes from the difference between values, mostly that the buyer has placed a higher premium on the product than the seller expended. At least that’s how I understand it. This at least addresses the idea of how wealth is created, as opposed to being static.

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