December 17, 2003
The USA's educational private sector blunders forwards and upwards

When you read the words "article about education" do you expect soon to be reading something like this? I'm guessing not.

Despite claims of wrongdoing at one top for-profit college, analysts remain bullish on it -- and the sector -- as enrollment surges.

For several years now, stocks of companies that offer college and alternative degrees have gotten high marks from investors for their juicy returns. These outfits' revenues and profits have soared as adults flocked to their schools seeking skills that would make them stand out in a tight labor market. As a result, a $100 investment in Career Education Corp. (CECO) when it went public at $4 a share in 1998 would have been worth $1,000 -- 10 times as much -- by the end of 2002, according to the company's Web site.

But recent allegations against CEC, one of the biggest companies in the business, that student records were tinkered with at two campuses have sent the sector into detention. Shares of the post-secondary educators fell more than 10% on average in the week after the latest charges against CEC surfaced in a Dec. 3 newspaper report. They've since recovered some after Hoffman Estates (Ill.)-based CEC vigorously denied the claims.

You can imagine what an opponent of private sector education would make of this. Profits ("juicy retruns"!) despite wrongdoing, student records tinkered with. But of course to me all this is evidence that even allegations of wrongdoing, let alone the reality of it, are costing people money.

The difference between capitalism and state control is not that capitalism never makes mistakes. It constantly makes mistakes, in fact it makes a hell of a lot more mistakes, because it attempts so much more. (See this blog posting for a taste of the capitalist attitude at a personal level.)

The difference is what happens to capitalism, and to capitalists, when those mistakes are made and then noticed. The news of them causes shares to drop in value and for greedy, selfish go-getters to demand that the mistakes be corrected forthwith. If the mistakes are persisted with, shirts are duly lost and enterprises duly collapse.

When the state makes a mistake it is just as likely to get twisted into an argument that the people who made the mistake should have more money given to them, rather than less. Shutting down anything in the public sector is a huge effort of selfless will on someone's part.

But shutting a messed up business happens automatically, as a natural consequence the way that the system works. Greedy, selfish people demand it, and it happens. Thus it is that, in the private sector, the mediocrity that was acceptable this year becomes, by a process of evolutionary improvement, unacceptable incompetence next year, and the average keeps on getting better and better. Capitalism gets better and better, disaster by disaster.

The USA is now leaping ahead in education. This article, about some of the stupid things it is doing, proves it.

Posted by Brian Micklethwait at 06:11 PM
Category: The private sector