SchoolsRetooled TM

Whatever Happened to Shareholder Value?

August 21, 2013 at 8:23 AM Leave a comment

Privatization strategies for government services suggest greater efficiency through good economic decision making. However, there is no valid end game for shareholders. If the enterprise can make money, then profits can be gained in the short run. However, diffusion of better practices should mean cost reductions across the industry and containment of government spending in areas such as education. The only way shareholders have long-term gains is through maintenance of runaway government spending or choosing profits over service delivery to the children.

Privatization strategies for government services are as perennial as down cycles in economics. When perplexed by a gloomy economic outlook, pseudo-capitalists turn to short-term profit-skimming strategies. And Wall Street doesn’t mind. They get transaction fees on the way up and on the way back down. Such is the case with privatization of education services, and regulation accounting only makes it easier. Real gold and fool’s gold look the same if you only keep the books to track grant money.

Every government service would benefit from accounting practices that allowed sound economic analyses and prudent choices. Not-for-profit entities often shun good business practices, and they are not required by funders. The existence of charitable motives supersedes the need for efficient management practices. Besides, changing time-honored regulatory procedures is a lot of bother. School districts summarize their spending in five giant accounts, and school accountants worry a lot about ensuring nobody pilfers the money from the vending machines. How the hundreds of billions of dollars for “general instruction” gets divided up is unimportant. Why wouldn’t a few scoundrels jump in?

The problem is…if profiteers are able to create real shareholder value, they must be generating earnings growth into perpetuity. And this is not a good idea for education or for our economy. If the profiteers are running the business of education better and turn a profit, then the rest of the industry should be able to try their techniques, if valid, and use them to trim overall government spending. The profits should go away. If the profits don’t go away, they are either arising from wasteful government spending or from choosing to give money to shareholders instead of the kids.

The US economy does not need a new way for investments in government services that crowd out investments in real economic growth. Nor do we need for profiteers to be short-changing children in a Spartan industry that thrives on short-term economic gains. Further, we do not need another Wall Street darling that rises and falls with a net negative impact to the US economy of fees taken by the traders.

What we need in education is help from private industry in the form of management insight that teaches us how to be more effective and efficient managers of carefully contained education spending. And that does not have to mean union busting or parental surcharges. It means keeping the books in a more meaningful way. It means managing people in a better way. And it means assimilation of modern opportunities into an historically rigid structure. And it has to mean that a dollar saved…means another dollar that could be added to what we do for the kids in a better way.

And Wall Street needs to get back to finding real investment strategies in our long-run economic growth and real shareholder value creation.

Entry filed under: Special Rants.