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A Convo on Monopolies and Public Education

Dr. Dan Abbott a.k.a TDAXP, PhD. is one of the oldest of the ZP blogfriends, perhaps one of my earliest readers. At TDAXP, Dan’s highly creative intellect roams widely, and while he delights in playing devil’s advocate and skewering sacred cows, his colorful observations are frequently ingenious. Even when I think Dr. Abbott is wrong, he is moving issues outside their tired, old, boxes and challenging conventional authorities to provide better answers.

On and off, for the past year, Dan and I have been discussing and debating public education and corporate ed reform on several social media platforms, including Twitter. It has been an interesting conversation, partly because conversations with Dan are always stimulating and partly because we draw different normative conclusions while agreeing on most points of fact, second order effects and political dynamics. Twitter’s 140 character limit and Facebook threads sometimes truncate arguments to caricature or one-liners, so recently Dan responded to one of my tweets with a post.

I suggest you read TDAXP, PhD. in full before reading my rebuttal so that you get a fair and coherent impression of his argument:


My friend Mark Safranski leads a dual life online, running the fantastic honest-broker site Zenpundit that focuses on military-security issues, and critiquing education reform on twitter from the perspective of a labor activist. Recently on twitter Mark made thefollowing comment [edited to account for twitter’s telegraphic character limit):

There will be no evaluation of test quality, barring a PR disaster. Education publishers are dividing the market – i.e. forming a cartel – not competing.

I think the general principle behind this comment is that any organization in a monopoly position is unconcerned with quality. This viewpoint is generally held, and wrong.

Monopolies differ from other competitors in three primary ways:

1. They are able to exploit massive economies of scale
2. They are able to extract an “economic profit” from their business
3. They are regulated by the political-economic system, rather than just by its subset, the economic system

“Economy of scale” refers to the decreasing per-unit costs experienced when a given fixed cost is split over a larger production run. This is a well known concept, and I won’t talk more about it here….

Read the rest here.

I do treat posting and moderating at ZP differently than commenting elsewhere or, especially, on a site like Twitter which is better suited for demonstrations of wit or making quick connections than depth. ZP is deliberately open to different POV by design, so a Clausewitzian is as welcome to guest post here as a Boydian, left of center commenters can talk with conservatives. Generally, the comment section here is remarkably intelligent, civil and positive, even when people disagree sharply.

Insofar as I tweet on education reform, I am far less evenhanded primarily because  a) Twitter is not a forum for which I have any moderating responsibility, and b) Many of the best known proponents of corporate Ed Reform, such as Mayor Mike Bloomberg,  Jonathan Alter,  Secretary of Education Arne Duncan, Governor ChristieGovernor Snyder, Governor Walker and various itinerant billionaires, are engaged in a well-funded, well-orchestrated IO to demonize public education, teachers and their unions. Intellectual honesty has not been a hallmark of their political campaign against public education or of the self-dealing nature of their reforms,  or of  their results.

When I get a more substantive critique of public education or ed reform, like Dan’s post, I treat that with greater seriousness than pronunciamentos from oligarchic charlatans. Let’s dig into TDAXP!:

I think the general principle behind this comment is that any organization in a monopoly position is unconcerned with quality. This viewpoint is generally held, and wrong.

Actually, I had not thought that far down the road as modulating quality levels because a monopoly has not yet been established. Pearson, in alliance with the Gates Foundation, the National Governor’s Conference, many smaller Ed Reform players and the Obama administration, is *aspiring* to monopoly status in the ed publishing industry by becoming the official “go-to” publisher for school districts with material and standardized tests that meet the Common Core Standards.

[ The Gates Foundation, BTW,  is in this for the long haul, they started down this road with Acheive, Inc. in the mid 1990’s. This has been a far more strategic campaign in terms of planning than, say, US foreign policy in Afpak. Maybe we should put Bill Gates on the NSC or JCS]

The current state of the ed publishing industry after years of corporate mergers, is  technically one of oligopoly. How likely is Pearson to succeed in this gambit of acquiring monopoly status?  They are in different stages with the fifty states, but my advice is: buy lots of Pearson stock. There will be other publishers meeting niche needs (special ed, ELL etc.), or specific ed standards set by quirky, ideological, states like Texas and California, but Pearson will be the 800 lb gorilla. Regular publishers have no interest in entering the complex (in terms of non-market barriers to entry) textbook business and psychometric testing is even further afield for them.

Pearson is well placed to acquire the monopoly advantages discussed at TDAXP.

Dan’s post becomes very interesting here:

The third point is the most important here. All firms can fail by lack of understanding — that is, thru the economic system — whether they are monopolies or not. Both GM (a monopoly) and Wang Laboratories (not a monopoly) saw their position decline because of terrible product and marketing decisions. While monopolies have a greater buffer and farther to fall (because of their economies of scale and economic profits), sustained stupidity can still do the monopoly in.

Monopolies, however face an additional risk. They can fail by lack of empathy. A monopoly that fails to flatter sources of political power can be broken through political means, regardless of economic realities. The Bell Systems, for example, flouted the ideal of unregulated competition (thus alienating a radicalized political right) at the same time they were a major supporter of hard sciences research and engineering (thus alienating a radicalized political left). Even though AT&T consistently understood the market’s desire for a reliable, predictable, and always-on communication layer undergirding business, AT&T’s monopoly was destroyed due to their lack of empathy.

While “empathy” is an odd term in an economic discussions, it is particularly relevant concept to monopolies that are not natural -ie – ones established and maintained at least in part through favorable governmental regulation or subsidies and relationships with powerful politicians. So while I disagree on some technicalities (neither GM nor teacher’s unions are formally monopolies), that is unimportant in relation to Dan’s larger point – sensitivity to and accurate orientation of the political environment is critical where the free market is not in play and the government is determining market entry and other “rules of the game”.

By being obtuse, the leadership of the NEA and the AFT were largely asleep at the wheel as an elite nexus of billionaires, corporate interests, hedge fund managers, Harvard University’s College of Education and various ideologues quietly isolated them from their traditional power base in the Democratic Party, cultivated influential supporters in the major media and crafted a powerful ed reform narrative (that this narrative is exaggerated or at times false is irrelevant to whether or not it succeeds in becoming conventional wisdom). When the attack on public ed was launched in earnest after 2008, union leaders were paralyzed as ed reformers had gotten into their OODA Loop. 

Teacher’s unions  have recovered their footing at the state level, primarily because state level politicians through whom the ed reformers work are now aware that ed reformers have a pile of money but bring very few votes to the table on election day. By contrast,  “reforms” rammed through state legislatures that threaten widespread disruption of family life (such was where one’s children go to school), seem designed to benefit elite corporate interests and are nakedly hostile to teachers create a voter backlash.  At the national level, the teacher’s unions still seem to believe that the Obama administration is their ally. Legacy thinking  they will come to rue.

In the education sector, the monopoly held by teachers front organizations. By failing to provide the services they were supposed to provide — educating the young  — the teachers drove parents into debt, employers into the immigration debate, and States into powerlessness over education policy, teachers displayed a lack of empathy. This unconcern for the well-being of other stakeholders has consequences.

Here, TDAXP operates from the premise that all public school systems are failing and the primary or sole cause is incompetent teaching and that teacher’s unions have a monopoly control over the labor pool. All of these claims are false due to their sweeping nature. Some schools and districts are excellent, some are average and some are failing. The failing schools have more than their share of ineffective teachers but ineffective teachers are not the only cause of school failure – a bankrupt district without a tax base and a student population in poverty won’t be able to hire enough teachers, much less attract the best candidates.

That the NEA and AFT have not done enough to change failing schools is true, but where corporate ed reform holds sway, these vulnerable but difficult to educate students are being abandoned by charter operators whose corporate existence is predicated on serving those very children, while subsidizing  the wealthiest.

Publishers are as self-interested and greedy as teachers. They also, like teachers, aspire to monopoly bargaining power. But this does not mean that publishers won’t create tests, evaluate tests, or even improve tests.

Publishers will create materials that will satisfy statutory bidding and educational regulatory requirements when selling to public education entities. Tests are only as useful as their validity, reliability and the competence of their administration. Selling an invalid state test eventually costs a vendor a contract, as it did in Illinois ( though it took years and much wasted taxpayer dollars to do so). The highest quality tests, in psychometric terms, are fairly expensive products and usually are not sold on a mass-market basis to public schools, though they buy some of them, mainly IQ tests, for one-on-one student testing. The best business strategy for a publisher is to create tests slightly above regulatory requirements in psychometric quality and slightly below their leading competitor’s test in terms of price.

The perfect task for a monopoly.


7 Responses to “A Convo on Monopolies and Public Education”

  1. Madhu Says:

    We might return to localism. Local boards and local schools and local funding and local parent-boards.
    I know, dream on, silly person.
    But I’m no good to ask about this. I became disgusted at what little I’d read of scholarly teaching literature at my medical school medical educator classes. I kept asking, “is there any evidence this educational theory produces better doctors?” The answer was usually a sheepish “no.”
    I don’t know. I honestly don’t know about anything, anymore. Sometimes I hate reading. J. Scott’s got the right idea. Do, not talk, or whatever.
    – Madhu

  2. tdaxp, Ph.D. » Blog Archive » Education Around the Blogosphere Says:

    […] has an excellent article, “A Convo on Monopolies and Public Education,” in response to my earlier piece, “Monopoly!” As he states, “we draw […]

  3. Joseph Fouche Says:

    I don’t know what the full solution for fixing the education system is. All I know is that the first step involves putting Bill Gates in a sealed chest with a nest of agitated Amazonian fire ants and dumping the chest overboard somewhere over the Marianas trench. Centerum autem censeo, Microsoft esse delendam. 

  4. tdaxp Says:

    Mark, an excellent post as always!
    As you say, we agree on “most points of fact, second order effects and political dynamics,” so let me just address three or four points which I think are most important.
    First, GM was a monopoly, at least how I understand the term. A monopoly is not simply a firm that has 95% market share, but rather an enterprise that enjoys economic profit, economies of scale, and they are regulated by the political-economic system as a whole.
    IIRC, the quote “What is good for GM is good for America” comes from a Congressional investigation into GM’s incredible profit margins. Why, it was asked, does not GM lower the price of its vehicles, thus making them more affordable? The answer was that if GM kept the price low enough to accept only regular profits, its economies of scale would lead to prices below that of any competitor, rapidly leading to near total market share.
    In our own days monopolies act with this empathy in order to avoid trouble. Following just information that is public, Google AdWords currently faces the same dilemma that GM used to face.
    Second, regulation by the political-economic system occurs regardless of whether the monopoly is natural or not. For instance, in a Randian world AT&T would have maintained its monopoly as the very high fixed costs of landline infrastructure meant that competitors could only be competitive in small niches. (A similar dynamic is currently in play wrt cable companies and “net neutrality.”) AT&T’s monopoly failed because of political-economic pressures, not an inability to defend an entrenched market positions.
    Third, there are good public schools, and the failure of the rest is over determined, and thus not solely the fault of teachers. Indeed, these dynamics can be used to form a powerful indictment of the US public school system. Elizabeth Warren, who is currently a darling of the left and a Senate candidate in Massachusetts, first achieved notoriety by noting that the low overall quality of US public schools forces parents to overpay for housing in order to qualify for an acceptable school district. The problem is not that all public schools are failing, but that our public school system is failing. The issue wrt teachers is not that they have formed a monopoly enterprise with economies of scale, economic profits, and regulation by the political-economic system, but that the teachers monopoly is deep into the capitulation phase of its life-cycle by failing to provide empathy to other stake-holders.
    Indeed, I am not sure that it makes sense to limit regulation of teaching to the economic system and hail a lack of empathy as a virtue. Low-SES parents do not value education, and middle-SES value it to a middling degree. It’s not clear that a market in public education actually produces outcomes that are good for our country, as opposed to reflecting the preference schedules of consumers. I don’t know if you meant your conclusion as facetious or not:
    “The best business strategy for a publisher is to create tests slightly above regulatory requirements in psychometric quality and slightly below their leading competitor’s tests in terms of price.
    The perfect task for a monopoly.”
    But it struck me as incredibly insightful.
    If we accept that a free market in public education is not in our nation’s interests, we should think about what system would be. Under the teachers monopoly, the entity in charge of agenda-setting for education (teachers) was also the same class that harvested economic profits from the education system. Compare this to, say, the 1960s in the computer industry. In the System/360 world one monopoly (IBM) both set the agenda and harvested profits for mainframe computing. The result was stagnation. Elsewhere, AT&T set the research agenda through Bell Labs (investing the two most important breakthroughs devices of the century, the transistor and UNIX) and other entities harvested the profits from it.
    A fair argument can be made that monopoly is compatible with innovation, but combining the agenda-setting and economic profit-harvesting functions of the same domain to the same monopoly is not.
    This presents a structural benefit of Education Reform. Publishers are as self-interested as teachers, and will seek monopoly profits with the same zeal that teachers did. Likewise, the federal-academic complex is as power-hungry as teachers, and will seek agenda-setting with the same zeal that teachers did. I don’t, however, see a probable path where publishers seize control of scientific research, or where the federal-academic complex morphs into a competitive profit-seeking enterprise.

  5. zen Says:

    Hi Dan
    Thank you! It has been a good conversation.
    ” First, GM was a monopoly, at least how I understand the term. A monopoly is not simply a firm that has 95% market share, but rather an enterprise that enjoys economic profit, economies of scale, and they are regulated by the political-economic system as a whole”
    Agreed, 95 % market share is not needed. Aside from having economies of scale, Monopoly status allows the monopolist control over the industry’s price (Standard Oil Trust w/ kerosene) rather than acting as the price leader in an informally cooperative oligopoly where companies refrain from competing on price and instead do so on brand loyalty and various other intangibles ( or formally divide the market and fix prices, cartel style). Your GM reference is circa late 50’s early 60’s, if GM then could really dictate car prices to Ford and Chrysler at will vice just not wanting to appear as a predatory monopoly under the Sherman Anti-Trust Act during congressional hearings, then GM was a monopoly. If it couldn’t, it was only the strongest competitor in an oligopolistic industry ( most mature industries settle into oligopoly). 
    Second, regulation by the political-economic system occurs regardless of whether the monopoly is natural or not.”
    True. The difference is that unlike a natural monopoly which comes into being on it’s own through efficient market action, where the state’s regulatory powers act as a punitive constraint , many regulated monopolies exist in part as government creations and regulation is carrot/stick ( most frequently the former as the state is usually shielding the monopoly from competition, subsidizing it directly, protecting it from liability or allowing it to run at a loss indefinitely. But eventually the state, either in response to constituencies or jealous of it’s position or prerogatives, regulates all monopolies.
    Regarding teachers unions as monopolies, I think a more accurate economic concept to describe their role, which is sizable, is Galbraith’s countervailing power.  They can bargain with other stakeholders and the state mainly because of their ability to veto – they can stop things from happening. It is a relatively weak power compared to the state’s capacity to compel things to happen via legislation, regulation or court order but it is one of the few checks aside from the ballot box or federal lawsuit on a fairly autocratic, opaque and hierarchical education system.
    My comment was empirical, I see Pearson trying to optimize itself as a company in it’s strategic relationships with 50 state and one Federal ed bureaucracies , NGOs and for profit and non-profit ed reform groups to capture this “sweet spot”. I think it is strategic, goal-directed behavior for which they will drop or add allies to reach at a moment’s notice.

  6. Larry Dunbar Says:

    “I think it is strategic, goal-directed behavior for which they will drop or add allies to reach at a moment’s notice.” 

    After listing to both you and Dan, I think this last statement you made gets right to the narrative.

    Monopolies are really about culture instead of structure. It is not that monopolies are good, if they do no evil, or evil, be they bad, monopolies are created out of “Cheap Tricks” (strategy) towards an end (goal). Therefore, monopolies become like a religion.

    If there is a reason that monopolies need to be broken, it is because, like religions, the rule-sets of their culture never changes, even when the structure, behind the strategy that enabled them to become monopolies in the first place, changes. If ma bell had been left intact, the culture of the internet may never have formed, because cultural norms would have prevailed.

    Monopolies, at their most powerful time in history, become enforces of conformity in a culture, while at the same time generating diversity in the structure of their enterprise, that acts as growth.

    While ma bell was broken up by political will, the times were changing, and the culture of ma bell couldn’t change with the times, or simply pissed everyone, outside the culture, off.

    The thing is, with both monopolies and religion, there is a beginning and an end, something corporations do not have. Corporations simply rise and fall with market forces, and, their beginning and end, are only recorded as a blip in time. 

    Therefore, once a monopoly forms, an insurgency of followers forms that feeds off of entropy and obsolescence, inside the corporation, and maintains the monopoly.  

  7. Bryan Says:

    The monopoly of education in the United States is failing.  Like a religion, the industry as a whole has a political culture that resists change to the dogma and is leading it in a direction that the consumers of education do not want.  Yet, like most monopolies that are under political control, no one is asking the consumer.  We see this in the general opposition to home-schooling and charter schools.  The monopoly rightfully sees these as a  direct challenge to its power.  No one in the system wants another set of data to compare.  
    This system tends to be incestuous causing a negative downward trend.  Many monopolies self correct due to self interest.  Many can’t due to cultural inflexibility.  Many don’t want to change because they value the overall goal of the system more that the outcome.   It is difficult if not impossible to tell your boss and coworkers that their religion has a false god.  To tell them that their goals are not achievable with the parallel goal of producing an educated person capable of taking on the challenges of the modern world is heresy.
    What comes of of such a monopoly?  This is the real problem with closed system government supported monopolies.  I believe the same bell shape curve is produced because of the natural differences of the starting product (in education is happens to be kids.)  This curve allows the monopoly to point at, “other” factors and blame them for the problem.  It takes a long time to notice that the entire curve (top and bottom) has shifted downward.  By the time enough people notice, I believe the bell curve will begin to flatten down to the lower end do to the incestuous negative cycle.  When looking at education many of its detractors are pointing out that the monopoly itself is a large part of the, “other” factors leading to a downward trend.

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