521 Fifth Avenue

Milton Friedman and his disciples contended for decades that private markets could deliver better schooling than governments. In the 1990s, this belief was put to the test in the United States by Edison Schools Inc. and other for-profit educational management organizations (EMOs). Edison grew rapidly, running schools in cities across the country. Yet disappointing academic and financial outcomes before long pushed the company and its competitors to the margins. This study documents the expectations of EMO advocates and chronicles the failure of EMOs to live up to these expectations. The failure is explained as the consequence of paradigm encroachment: unbridled confidence in the free-market model obscured the difficulty of achieving, one, sufficient trust in a domain necessarily defined by incomplete contracting; and, two, political support for outsourcing a core civic service. For perspective, this failure is set against the relative success of nonprofit charter management organizations (CMOs) across the United States and of for-profit firms operating under more favorable circumstances in Sweden.