Crony Capitalism
Deregulation in education has led to cronyism, corruption and conflicts of interest. Dr. Preston Green sees a familiar pattern and a cautionary tale…
Jennifer Berkshire: Our Secretary of Education is visiting a Florida charter school that is best known for being started by rap-u-preneur, Pitbull. But a lesser known true fact is that the school’s powerful and politically connected management company, Academica, ran afoul of the feds for a little something something called *related-party transactions.* What is a related-party transaction? And why do I have the feeling that Betsy DeVos didn’t drop by to, um, continue the investigation
Preston Green: Related-party transactions occur when you have two entities that have a pre-existing relationship. For example, if two entities have common management, or in the charter sector context, you could have an EMO that also has a real estate arm, which then leases property back to the charter school at a greatly inflated rate. In the case of Academica, which is the management company that runs the school Secretary DeVos visited, it’s *all of the above.* You see different entities sharing the same board of directors, conflicts of interest and questionable real estate dealings, including charter schools paying rents that are well above the market rate to companies that Academica owns.
Berkshire: Betsy DeVos is a huge fan of charter schools because they remove the shackles of oversight and regulation that have kept our teachers in receive mode for too long and caused the nation’s students to descend to the bottom of the PISA pile. But as you’ve been warning, *shackle removal* in other sectors has led to, oh I don’t know, the subprime mortgage crisis and Enron.
Green: That’s right. My recent research has involved looking at privatization in other contexts, and trying to determine whether the issues and problems you see in these other contexts could impact charter schools. I explored the issue of whether a charter school *bubble* is emerging, akin to what we saw in the lead up to the housing crisis. My most recent paper, with co-authors Bruce Baker and Joseph Oluwole, looks at similarities between what’s happening with charter schools today and what happened in the energy sector. Charter schools were to be freed from the shackles of rules that applied to public schools and those rules were regulations. The thinking was that by removing those regulations, the industry Crony Capitalism – Have You Heard:
