In the United States inequality of wealth and income has grown dramatically over the past two and a half decades. The richest 1 percent of Americans own approximately 38 percent of all net wealth. And of the most economically advanced nations, the United States has the greatest degree of income inequality.

There is a tremendous amount of wealth held by the richest couple of million Americans but there is a shortage of profitable investment outlets. This problem has serious repercussions for society as a whole. When there is a shortage of profitable investment outlets investors often bid up the prices of various social goods without increasing the real wealth in society or expanding productivity. They may, for example, bid up the price of stock causing a bubble that cannot be sustained, which ultimately leads to a stock market crash such as the one that occurred in the fall of 2001. Breaking into new areas of potential profit is another option (as exemplified by the privatization of the prison industry). Overaccumulation was one of the factors that gave rise to the movement to privatize social security a few years ago. If successful, the brokerage business would have expanded and billions of dollars in broker’s fees would have been made. Likewise, the search to expand or maintain profitable investment outlets is one of the main reasons that significant health care reform has been foiled in the United States.

There is strong evidence that this reasoning also applies to current school reform efforts. For-profit private companies, for example, broke new ground in 1990 when Education Alternatives, Inc., began running South Pointe Elementary School in Dade County, Florida. Education Alternatives was the first for-profit private firm contracted to run a public school.

More recently, greater opportunities have been created. For example, the No Child Left Behind Act of 2001 (NCLB) sets high standards for public schools but with few additional resources to help attain these goals. NCLB sets up public schools for failure and creates more opportunities in the public school system for private companies. Are the motives behind the Act genuinely supportive of the goals of public education – that everyone be educated and that there be equity in education? Or, is the Act a creation that mixes some genuine educational concerns with economic interests that distort the educational goals? More specifically, do these reforms address the educational needs of the young or the profit-making needs of investors?

The concentration of tremendous wealth in the possession of a relatively small portion of the population, has added significant momentum to the drive for education reform and in doing so it has exaggerated the shortcomings of our schools and diverted legitimate concerns into a force that aids privatization and profit-making schemes.

In 1983 the richest 1 percent of households in the United States owned just under 34 percent of the net wealth. By 1998 their share had grown to over 38 percent and their average net worth had climbed to $10.2 million. For many Americans their biggest financial asset is their home. If we remove home ownership from the equation we get a better picture of the ownership of financial assets. When we do this we find that the richest 1 percent owns 47 percent of all financial assets. The category "financial assets" gives us a better idea of how investment capital is distributed.

Income distribution has also become more unequal over the last three decades. In 1973 the richest fifth received 43.6 percent of the nation’s income and their share has grown fairly steadily since. By 2002 they were receiving 49.7 percent of all income. The distribution figures would show even greater inequality but they do not include several income sources, most notably capital gains, which accrue disproportionately to wealthy households. Looking higher up the income ladder we find even greater disproportionality. In 2002 the richest 5 percent of American households received 21.7 percent of the nation’s income compared to 16.6 percent in 1973.

Increased productivity, high dividends, and tax breaks have put vast pools of capital into the hands of private investors. In 1989 the richest 1 percent of Americans owned financial assets that totaled $2.4 trillion. By 1999 their financial assets had grown to $6.4 trillion. These assets include stocks, bonds, certificates of deposit, money market funds, trust funds, mutual funds and the like. The richest one percent own more of these assets than the lower 90 percent of Americans combined.

A byproduct of this inequality is the intense exploration for new avenues of private investment. For several years big investment firms have been notifying clients of investment opportunities presented by the current movement to reform and privatize public education. In fact, investors often compare public education to the health care industry. According to Mary Tanner, managing director of Lehman Brothers: "Education today, like health care 30 years ago, is a vast, highly localized industry ripe for change. The emergence of HMOs and hospital management companies created enormous opportunities for investors. We believe the same pattern will occur in education."

The United States doesn’t so much face a crisis in education as it does a crisis of overaccumulation. The growth of inequality over the past three decades combined with structural limits on the expansion of investment is causing investors to search for new investment outlets and this is one of the motivations behind the movement to reinvent and reform education in the United States. It is one of the main motivations behind such privatization schemes as charter schools, mandatory yearly testing, NCLB, and related reforms.

But the education system is not the problem. Even if it was failing, privatization isn’t necessarily the answer. One only has to look at how companies such as Enron have managed their affairs to be reminded that private companies have their own priorities, which often conflict with the public good and result in long tem harm and additional expense.

* This article originally appeared in Political Sociology: States, Power, and Societies, the newsletter of the Political Sociology section of the American Sociological Association, Summer, 2004.