Seth Rosenblatt

Seth Rosenblatt

There are many critiques of the public sector by those in the private sector; some have validity, while others ring hollow. I have written about examples of both, but a great illustration of the latter is the oft used criticism that governments – including our public schools – are guilty of “waste, fraud, and abuse.” It harks back to a quote allegedly by Otto von Bismarck that “laws, like sausages, cease to inspire respect in proportion as we know how they are made.” It does indeed seem that the work of our public schools is like sausage-making: slow, sloppy, and ugly at times.

Why is that? One of the biggest reason lies in a fundamental tenet of government: openness. We see the sausage-making because we’re allowed to! As someone who has worked for many companies and led many teams over the last 25 years, I encountered countless painful decision-making processes; however none of them were visible to the public (let alone involved the public)!

Business interactions are by and large secret. Compensation levels of most employees are secret; strategic plans are secret; computer code is secret; and the discussions at board of directors meetings are mostly secret. Most companies make all employees sign non-disclosure agreements, and there are countless examples of “settlements” (with non-disclosure clauses) with former employees who either performed some act of misconduct or accused others of doing do. The ability to choose what information is made public and what is not is a cornerstone of capitalism. It allows companies to compete with each other, to shape their overall message to the market, and to manage their employees in the most flexible way. So, in every company there is plenty of sausage-making; it’s just not visible to most of us.

Contrast this corporate secrecy to our public school districts, which by most measures are an open book. Board meetings are held in public. All contracts, salaries, and project bids are made public. There are only a few exceptions, including areas such as student discipline, employee discipline, and discussions of lawsuits. From a businessperson’s perspective, these disclosure requirements would be anathematic – it would be impossible to run a business that way. But government’s apparent lack of efficiency and flexibility is part of the price for openness. And, after all, as these are public institutions funded with tax dollars, would we expect something less than transparency?

But in addition to not recognizing this real distinction in the process of governing versus managing a business, the criticism of “waste, fraud, and abuse” rings hollow because it is hypocritical. Just because we don’t hear about such mistakes or misconduct in the private sector as much, that hardly means it doesn’t exist, or even exist on a much bigger scale. Think Enron, Lehman, BP, Halliburton, Long-Term Capital Management, et al. – and these are just the ones that got caught!

Anyone who has had any significant business experience has personally witnessed all forms of bad behavior, everything from padding expense reports to lying to customers to actual fraud. In any organization of humans – public or private – there will be those who abuse the system. It just so happens that the private sector has more tools to hide it. I have personally witnessed all of this bad behavior in my business career. But, ironically, because I am also under non-disclosure agreements, I can’t give specifics – some matters get settled outside of the public eye. So, I found it incredibly peculiar that one of our former candidates for governor so often invoked the “government is full of waste, fraud, and abuse” mantra when she must have been witness to much greater foibles in her business experience.

Lastly, I would argue that the notion of “waste” is in the eye of the beholder. If you are personally not in favor of government spending money on high-speed rail, then from your point of view it’s a “waste” of money, whereas proponents would consider it an “investment.” That perspective is completely independent from whether the money is spent “efficiently” to achieve its outcome. If you don’t support the outcome in the first place, then it’s “waste” to you. Public institutions have the burden of a much broader group of “shareholders” – the entire taxpaying public – who of course will rarely agree on the outcome of any particular initiative.

Through my straddling of both the private-sector and public-sector worlds, I have noticed that most people don’t think through the implications of some of these fundamental differences on how an organization can be managed. Although these contrasts should not be used as an excuse to defend poorly performing public institutions or instances where there are indeed waste, fraud, or abuse, simply making blanket and hollow accusations actually detracts from the discussion of the real issues facing our public schools.

Seth Rosenblatt is the president of the Governing Board of the San Carlos School District. He also serves as the president of the San Mateo County School Boards Association and sits on the executive committee of the Joint Venture Silicon Valley Sustainable Schools Task Force. He has two children in San Carlos public schools. He writes frequently on issues in public education, in regional and national publications as well as on his own blog. In his business career, Seth has more than 20 years of experience in media and technology, including executive positions in both startup companies and large enterprises. Seth currently operates his own consulting firm for technology companies. Seth holds a B.A. in Economics from Dartmouth College and an M.B.A. from Harvard Business School.

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  1. Theodore Lobman 7 years ago7 years ago

    The proper comparison of waste and fraud in the public and private sectors has not had nearly enough attention. For reasons that need close examination, much of the pubic gives industry, lately commercial and investment banks, a much longer leash. You don’t have to trash private property and effort; just assure equal treatment. Can you interest Michael Lewis in writing on this subject?

  2. Mike 7 years ago7 years ago

    Great commentary! Unfortunately, many who are quick to say "Waste, fraud and abuse" are simply trying to rationalize their conflicting demands for high quality public schools and cheap education. Of course, we can have both if only we eliminate all of the "waste, fraud and abuse" - ironically, usually with the nostrom of privatization. Because the phrase is a rationalization rather than a statement of fact, no matter how true this article rings it is unlikely … Read More

    Great commentary! Unfortunately, many who are quick to say “Waste, fraud and abuse” are simply trying to rationalize their conflicting demands for high quality public schools and cheap education. Of course, we can have both if only we eliminate all of the “waste, fraud and abuse” – ironically, usually with the nostrom of privatization.

    Because the phrase is a rationalization rather than a statement of fact, no matter how true this article rings it is unlikely to change those with the loudest cries of “waste, fraud and abuse.”

  3. el 7 years ago7 years ago

    I have worked both for government and private operations in various capacities, and I agree pretty strongly with the article.

  4. navigio 7 years ago7 years ago

    Paul, in my experience, it is not uncommon for districts to not understand everything that must be on SARCs, nor to get it right when they do. This is something the community really should sanity check. Here is a good page to start: http://www.cde.ca.gov/ta/ac/sa/questions.asp Note that one of the questions includes specific SACS codes for what should be included in the per pupil funding. I think the fact that SARCs are not hosted by the state (and are … Read More

    Paul, in my experience, it is not uncommon for districts to not understand everything that must be on SARCs, nor to get it right when they do. This is something the community really should sanity check.

    Here is a good page to start: http://www.cde.ca.gov/ta/ac/sa/questions.asp

    Note that one of the questions includes specific SACS codes for what should be included in the per pupil funding.

    I think the fact that SARCs are not hosted by the state (and are usually quite out-dated for finances) shows that they are nothing more than going through the motions.

  5. Thinktank 7 years ago7 years ago

    There's a critical omission from your argument comparing waste, fraud and abuse within private and public enterprises. You overlooked a basic principle of conservative philosophy, which had it been addressed, I believe would have given your argument more weight. Inefficiencies within private enterprises are corrected by customers. Waste, fraud and abuse at a private company leads to a product going to market either over priced or at a substandard quality. The customer has a direct corrective … Read More

    There’s a critical omission from your argument comparing waste, fraud and abuse within private and public enterprises. You overlooked a basic principle of conservative philosophy, which had it been addressed, I believe would have given your argument more weight.

    Inefficiencies within private enterprises are corrected by customers. Waste, fraud and abuse at a private company leads to a product going to market either over priced or at a substandard quality. The customer has a direct corrective action available to him by choosing not to purchase that product or service.

    The correlating corrective action within the public sector is supposed to be elections. However, the murky world of politics gets in between the public entity and voters. Candidates sound great when they’re on the campaign trail, but once in office their actions get mingled into this multi-layered narrative that’s hard for voters to slice through.

    School boards, which are publicly elected bodies, and school districts they oversee waste money. My school board, which has two lobbyists on it, contracted with a lobbying firm to represent us at the Capitol. A teacher friend of mine told me about another instance where a district superintendent, who sat on the board of a textbook company, threw out perfectly good textbooks, ordered new books from his company, then hired a consultant to train the teachers how to teach from the new textbook. There’s no denying that there is needless waste within public entities.

    I agree that changing the course of a public entity is much harder than in a private one, but it’s supposed to be that way. Don’t ignore instances of waste in government. Identify them and call for vigilance. Offering up arguments like yours without addressing the current system’s shortfalls first, just serves as political cover to the anti-reformists.

    Replies

    • Seth 7 years ago7 years ago

      Thinktank -- that is an excellent point, but to be clear, I wasn't arguing that the public sector is more efficient than that private sector nor was I defending waste in government. I was arguing that the critique of government being (chronically) guilty of "waste" is a hollow one both due to the fact that the very openness of the organization by definition makes it less efficient (i.e. the viewing and participation in the … Read More

      Thinktank — that is an excellent point, but to be clear, I wasn’t arguing that the public sector is more efficient than that private sector nor was I defending waste in government. I was arguing that the critique of government being (chronically) guilty of “waste” is a hollow one both due to the fact that the very openness of the organization by definition makes it less efficient (i.e. the viewing and participation in the “sausage making”) as well as government’s requirement to provide services that don’t help the beholder (hence, seeming “wasteful” from that person’s point of view). But also note that despite the market pressures you accurately cite in the private sector, those are not always a check on the “fraud and abuse” side of things as the secrecy is a powerful offsetting force. At least in government, it’s more likely that those behaviors get caught.

    • CarolineSF 7 years ago7 years ago

      There's been extensive news coverage of the collapse of standards and procedures at PG&E that led directly to the San Bruno explosion that destroyed a neighborhood and killed several people. There've been some letters to the editor blaming the government for this, clueless to the fact that PG&E is a private-sector corporation. (I love the term "low-information voter" -- such a perfect euphemism.) This comment is certainly not true in PG&E's case, and I can think … Read More

      There’s been extensive news coverage of the collapse of standards and procedures at PG&E that led directly to the San Bruno explosion that destroyed a neighborhood and killed several people. There’ve been some letters to the editor blaming the government for this, clueless to the fact that PG&E is a private-sector corporation. (I love the term “low-information voter” — such a perfect euphemism.)

      This comment is certainly not true in PG&E’s case, and I can think oif many, many other private-sector industries where this simplistic and misleading line is simply not valid in the slightest: “Waste, fraud and abuse at a private company leads to a product going to market either over priced or at a substandard quality. The customer has a direct corrective action available to him by choosing not to purchase that product or service.”

  6. Ann 7 years ago7 years ago

    Exactly Paul, school budgets are about as transparent as graphite.

  7. Paul Muench 7 years ago7 years ago

    This reminds me there was some discusion of updating the SARC procees when the weighted student funding was being considered.. Now that the WSF is in limbo have the SARC updates been put on hold? My district still reports teacher pay on SARCs as a district average. And the last time I asked our superintendent about what's included in the per student funding I got an incomprehensible answer. Maybe that has to … Read More

    This reminds me there was some discusion of updating the SARC procees when the weighted student funding was being considered.. Now that the WSF is in limbo have the SARC updates been put on hold? My district still reports teacher pay on SARCs as a district average. And the last time I asked our superintendent about what’s included in the per student funding I got an incomprehensible answer. Maybe that has to do with the funding process itself. So even though there is supposed to be openess, there is still plenty of wiggle room. And I also think that the school system relies on people not reading SARCs or attending school board meetings. The community has to take responsibility for this lack of attention. But it creates opportunity for acting as if openess doesn’t really exist.

    Replies

    • John Fensterwald 7 years ago7 years ago

      Paul: Revising SARC was discussed at the July meeting of the State Board. See item 5 on the agenda. Because of timing, there will be no change for next year, but the State Board will consider ways to highlight and standardize key information in the future. One problem is that districts must report the same information but they can use different templates, so there is no uniformity in presentation.