Are Charter School Authorizers Quasi-governmental Regulators or Non-profit Venture Capitalists*?

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Somewhat positive news came out of Michigan yesterday: Michigan state education superintendent, Mike Flannigan, announced that 11 of the state’s nearly 40 charter school authorizers may face suspension. 

Given the poor performance of many of these authorizers, I’m very sympathetic to reining them in.

In thinking about the issue more generally, I’ve been torn between two different ways of thinking about non-governmental charter authorizers (generally non-profits, including universities, that approve charter schools). 

On one hand, we might consider them as quasi-government regulators. Under this interpretation, the government is not only contracting out educational operational duties to charter schools, it’s also outsourcing regulatory duties, such as the enforcement of performance contracts and equity oversight, to authorizers.

On the other hand, we might think of charter authorizers as non-profit (they exist to achieve a social good rather than make money) venture capitalists. In this sense, what the government is doing is creating a new market for intermediaries, whereby educational experts (rather than the government), form non-profit organizations that succeed based on their ability to identify and support promising charter school entrepreneurs.

My instinct is that both governments and the education reform community have too often take the first approach (authorizers as quasi-government regulators) rather than the latter approach (authorizers as non-profit venture capitalists).

Why is this a problem? Because we generally don’t think a lot about holding regulators accountable; after all, it’s the regulator’s job to hold others accountable. So what we’ve generally seen is very lax to non-existent accountability for authorizers.

However, once you shift to viewing authorizers as non-profit venture capitalists, then the need for accountability becomes more apparent.

In the for-profit world, venture capitalist are accountable for making money based on the success of their portfolio of companies. Similarly, authorizers should be accountable (for educating children) based on the performance of their portfolio of companies (charter schools).

One other thing: I also think this regulatory approach to authorizers has led to a dearth of innovation in the authorizing sector. The lack of accountability, plus the regulatory mindset, have hampered much of the learning cycles we’ve seen in the best venture capital sectors, where the venture capitalists spend immense energy on understanding their customers, getting skilled at selecting entrepreneurs, and supporting these entrepreneurs as they scale their organizations.

The major argument (that I can think of) against this approach is that you do want to continue to split the regulatory and investment functions, so that some groups specialize in investing (Charter School Growth Fund, New Schools Venture Fund, city based funds, etc.) while authorizers specialize in regulating.

Perhaps this is a better way to do it, but I’m not convinced. Why not just have these investment organizations become authorizers? And why not just pull much of the regulatory rule making (enrollment, special education, etc.) out of the authorizers hands? Detroit serves as a cautionary example of how difficult it is to regulate a system when the authorizers play the role of both regulatory agency and entrepreneur selector.

In sum: perhaps we should strip authorizers of much of their regulatory powers, treat them as non-profit venture capitalists, and then hold them accountable for performance.

*Given the many critiques of the corporatization of education, I’m always hesitant to use language from the for-profit sector. So to be very clear: I don’t use the phrase “venture capitalist” to insinuate that anyone is making money from charter schools. Rather, I just find the analogy to be useful for the purpose of this issue.

4 thoughts on “Are Charter School Authorizers Quasi-governmental Regulators or Non-profit Venture Capitalists*?

  1. Paul Pastorek

    Neerav, I am all for accountability. The question is whether it is principled, or not. If unprincipled, then the good suffers with the bad and the children lose… Paul

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  2. Adam Hawf

    I think it is an excellent idea for the best existing non-profit organizations focused on launching new schools to become authorizers as long as they are accountable for their outcomes and risk losing the right to authorize schools in the future. I do however wonder whether these organizations would seek to jettison accountability or regulatory functions altogether.

    Wouldn’t they see it as in the best interest of their students – and thus their own best interest – to regulate their schools in some respect even if they were not explicitly obligated to do so?

    I think a fundamental question is why existing non-profit authorizers have often fallen short in this task, and I think the answer is in part that government has created the wrong incentives by failing to hold the authorizers accountable for performance despite their obvious financial incentive (administrative fees) to keep their schools open.

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  3. nkingsl Post author

    Adam, great to hear from you. I agree that fundamental issue is to hold authorizers accountable for performance – I guess over time there would be a market for “authorizer regulatory regimes” that were internal to the portfolio and we’d learn what worked best….

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