Crony Capitalism Beats the Free Market Again

There's bad news for all those neoliberal and conservatives who think that free markets and competition are the royal road to the shining city on the hill. The free market constantly takes a back seat to "crony capitalism": "an economy in which success in business depends on close relationships between business people and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, or other forms of state interventionism."

First, about 5 or 6 years ago the founders of the Basis charter school chain thought they would enter the private school market in Scottsdale, Arizona, and reap those huge private school tuition profits. And why not? Private schools like Phoenix Country Day and Tesseract were charging $20,000+ a year tuition and turning kids away. But the Basis Scottsdale ad campaign produced a mere 7 takers by the time school was to open in the fall, and the founders quickly converted Basis Scottsdale from private to charter. "Free" tuition for all comers — "free," that is, to everybody but the taxpayers. Crony capitalism at work.

And today, crony capitalism has struck again. Tesseract private school, with a couple locations in the Phoenix Metro area, has announced that they are shutting down a large part of their operation. High school will be dumped and other parts of the operation will be consolidated. The reasons are dwindling finances and declining enrollments. Perhaps Tesseract leaders have too much integrity to convert to a charter school, or they don't wish to besmirch their brand name.

Gene V Glass
Arizona State University
National Education Policy Center
University of Colorado Boulder

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The opinions expressed here are those of the authors and do not represent the official position of the National Education Policy Center, Arizona State University, nor the University of Colorado Boulder.