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Charter Schools: Yet Another “Free Market” Innovation That Can’t Stand On Its Own Two Feet

Ho-hum. Another day, another "free market solution" that just can’t stand on its own two feet:

But for all their support and cultural cachet, the majority of the 5,000 or so charter schools nationwide appear to be no better, and in many cases worse, than local public schools when measured by achievement on standardized tests, according to experts citing years of research. Last year one of the most comprehensive studies, by researchers from Stanford University, found that fewer than one-fifth of charter schools nationally offered a better education than comparable local schools, almost half offered an equivalent education and more than a third, 37 percent, were “significantly worse.”

Although “charter schools have become a rallying cry for education reformers,” the report, by the Center for Research on Education Outcomes, warned, “this study reveals in unmistakable terms that, in the aggregate, charter students are not faring as well” as students in traditional schools.

Researchers for this study and others pointed to a successful minority of charter schools — numbering perhaps in the hundreds — and these are the ones around which celebrities and philanthropists rally, energized by their narrowing of the achievement gap between poor minority students and white students.

It’s not like this is a new or unusual thing with the charter school movement. The only thing that kept Edison Schools alive was constant propping up by outside sources (such as when Jeb Bush raided the pension funds of Florida’s genuine public-school teachers to subsidize Edison when it was about to go belly-up), as well as a dependence on Wall Streeters to be unusually forgiving of financial failure:

According to the company’s September 2001 proxy statement, the company lent [Edison CEO Chris] Whittle $6.6 million on November 15, 1999 and $1.2 million on April 13, 2000 to exercise options to purchase stock in the company. In other words, the company was loaning him money to purchase stock in itself — not an uncommon practice. By September 30th, 2001 the combined principal and interest on those two loans totalled $9.2 million.

So far so good.

Now what’s interesting is the collateral Whittle put up for these two loans. It turns out it was the shares themselves, the shares he was buying with the loans. As the proxy statement says "The loans are collateralized only by the shares …"

Now the problem is, like the Chicago Bulls and ten year old beer, that stock ain’t what it used to be. In fact, as you can see from this handy diagram, Edison’s stock is now virtually worthless. A year ago shares in Edison went for about $23 a pop. Today the stock closed at 85 cents, its lowest close all year.

What all of this means of course is that there now isn’t any collateral for those loans. That stock is now worth only a fraction of what it was back in the day. In the real world, Whittle would now be facing the dreaded margin call.

So why, if this thing is such an utter failure by free-market, get-government-out-of-our-lives standards, has it been kept on life support for the past decade?

Simple: It’s all about destroying yet another set of unions — in this case, the teachers’ unions. That’s why so many rich people and Third Way (or what we know as DINO) types back it — and why the recent push for unions to organize charter-school teachers is freaking out the people who back these schools.

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