The For-Profit Government Industry

Column: How President Obama’s friends profit from his policies

Barack Obama, Marty Nesbitt
President Barack Obama gets a club from Marty Nesbitt / AP
July 1, 2016

Got an email from Marty Nesbitt a few minutes ago. He’s a Chicago businessman and, in the words of the Tribune, the "first friend" to President Obama. Since 2014 he has served as the chairman of the Barack Obama Foundation, the nonprofit that will build the Obama Presidential Center and library, and it was to the possible architects of the library that his email sought to introduce me. "We have big plans for the Obama Foundation and Presidential Center, friends," he wrote. Of this I am sure.

Nesbitt has a lot of plans. An article in Politico this week described one of the many business opportunities that await the Obama presidential circle, and how some members of that circle wish to capitalize on it, as the forty-fourth president moves out of the White House. Jaded observers of politics know all about the revolving door between the private and public sectors, the iron triangle of special interests, campaign donations, and legislation, the tell-all books and cable news contracts that await influential staff, confidants, and hangers-on of former presidents. Cynicism is a part of the D.C. dress code; on Veep jadedness and self-seeking are elevated to art. But I’d be lying if I said I wasn’t shocked by what I read in Politico.

"Bid to buy for-profit college by former Obama insiders raises questions," read the headline of Michael Stratford and Kimberly Hefling’s story. Questions like, Are you kidding me? For years the Obama administration has scrutinized and tightened the regulation of for-profit colleges, the most famous of which, the University of Phoenix, has been subject to multiple investigations and court actions. The battle has taken a toll. As Preston Cooper observes, shares of the Apollo Education Group, which sold at $87 when the president was inaugurated, have sunk to less than $10 a piece. Critics of the for-profits are gleeful. "Let’s hope this Phoenix does not rise from the ashes!" Alan Singer, a social studies educator at Hofstra University, lamely punned on the Huffington Post last spring.

Sorry professor, but you might not get your wish. Because some of the very same people who decided that for-profit colleges should be run into the ground, and successfully achieved that result (with not a little help from the colleges themselves), have now decided, well, hey, what do you know, maybe these diploma mills aren’t so gross and hazardous after all.

Among Marty Nesbitt’s various enterprises is the Vistria Group, a private equity firm he founded a few years back and whose chief operating officer, Tony Miller, was formerly deputy secretary of Education under President Obama. Last February Vistria and other investors agreed to buy the Apollo group and the University of Phoenix for $1 billion in cash. When the deal closes, Miller will be chairman of the board.

For that to happen requires the approval of both Apollo’s creditors and Miller’s former employer, which provides the company with billions of dollars a year in student loans and grants. "With those decisions looming," Politico reports, "Miller and at least one other former Obama insider have met with staff to Sens. Elizabeth Warren (D., Mass.), Richard Blumenthal (D., Conn.), and Dick Durbin (D., Ill.), looking to reassure some of the loudest critics of for-profit colleges in the president’s own party." Alongside Miller in several of those meetings was Jonathan Swan, a former Obama administration legislative Sherpa now cashing in at Vistria. A former Obama deputy communications director has been brought on to consult as well. "The holding company set up by the investors to buy the University of Phoenix has also paid $80,000 to lobbyists," including Republicans. The band’s all back together, leveraging the relationships and knowledge and clout acquired in the public sector to rake in the bucks in the private one.

"We are excited by the opportunity to build on the transformational work being done by the company," Miller said in the press release announcing the purchase agreement. "For too long and too often, the private education industry has been characterized by inadequate student outcomes, overly aggressive marketing practices, and poor compliance." He didn’t mention that often it was he who was making the characterization. Economists have a term, regulatory capture, that describes what happens when an agency is overrun by the industry it seeks to control. What’s happening here is the reverse: a company being bought out by the very people who used to regulate it. It’s as if Lisa Jackson suddenly announced that she was buying ExxonMobil with financing from Tom Steyer. For too long, I can hear Jackson saying, the oil industry has been characterized by pollution, work hazards, and political influence. But everything will be fine when I’m in charge.

The Democratic primary race has brought into relief the differences between the social democratic and liberal views of markets. Social democrats like Bernie Sanders have an unrelenting, antagonistic, belligerent, semi-paranoid attitude toward Wall Street, toward capital, toward management. They want to fight, to break up, to overthrow the established order. Liberals like Hillary Clinton and Barack Obama and Marty Nesbitt and Tony Miller don’t oppose markets so much as they want to refine them, control them, order them according to their preferences. Tame the excesses, redistribute from rich to poor, punish bad practices, encourage consumer safety. Their judgment of markets isn’t moral so much as practical. These liberals ask how do we make democratic capitalism work? And more specifically, how do we make democratic capitalism work for them?

What I love is the finery in which they cloak their self-promotion and ambition, their quest for money and status and power, the way they pretend their billion-dollar acquisition of a company whose revenues derive from taxpayers and whose existence they lamented and sought to restrict is a valiant attempt at education reform, a noble exercise to rectify past wrongs, a sacrifice on behalf of working adults, a last-ditch attempt to save an industry’s soul, when all they are doing is exploiting connections and Marty Nesbitt’s status as the president’s best friend. And they call the University of Phoenix a racket.

Published under: Barack Obama