We have the right to be treated fairly. America's Big 3 standardized testing companies (ETS, ACT Inc, and College Board) are classified as "501(c)(3) non-profit organizations" (the same status as most churches, community groups and charitable organizations). That means that the IRS has exempted them from paying taxes because of the valuable services they are providing for the American education system. In return, these non-profit companies have promised to serve American students and educators. They must be held to a higher standard of corporate responsibility than an ordinary, tax-paying company. American standardized testing companies have a solemn responsibility to American test takers to be fair and ethical in all of their practices and policies.
An astute free-market thinker might ask, "Why, if one testing company is acting with impropriety, doesn't some entrepreneur come along and develop a competing test?" Such an entrepreneur would be destined to fail, and the reason has to do with "natural monopoly". Because major standardized tests are typically natural monopolies, it is practically impossible to compete. (If that sounds complicated, the LSAT example will help explain things.) There is essentially no way to beat them out of a market once they have established a monopoly hold on it.
"In that case," one might suggest, "why don't Americans describe the problems and call on the Big 3, as supposedly responsible non-profit organizations, to address them?" In 1980, a reporter named Allan Nairn, under the sponsorship of Ralph Nader, did exactly that. He released a report titled, The Reign of ETS: The corporation that makes up minds, a work of over 300 pages that detailed the many ways in which ETS was acting unethically and failing in its non-profit responsibilities. Incredibly, rather than responding to Nairn's level-headed investigation with positive changes, ETS instead wasted its resources attempting to refute almost his entire work. ETS stubbornly refused to change for the better, even faced with Nairn's hard facts. Nairn's report, despite being researched and written 31 years ago, continues to be an almost eerily accurate depiction of today's arbitrary, irresponsible, ethically deficient ETS. Even in the most high-profile cases of criticism, the Big 3 - particularly the industry goliath, ETS - refuse to change.
The Big 3 aren't going away, and they aren't changing. So how can Americans possibly bring ethical behavior and accountability to the industry?
Despite holding a number of unregulated monopolies, the Big 3 operate in a legal gray area because of their non-profit statuses. As non-profit corporations, they are not subject to the jurisdiction of the Federal Trade Commission, which "monitors and enforces anti-trust and competitive issues" in every other American industry. For example, the FTC has said of ETS:
It appears that the Federal Trade Commission lacks jurisdiction to deal with this issue, even if the alleged conduct might otherwise constitute a violation of the laws we administer...
[I]t appears that [ETS] is a non-profit organization. The courts have held that the Federal Trade Commission does not have jurisdiction over alleged unfair and monopolistic methods of competition by non-profit associations on the basis that they are not a 'person' within the meaning of the FTC Act.
(Nairn, Allen. The Reign of ETS: The Corporation That Makes Up Minds. 279)
In fact, the Big 3 are not subject to oversight from any entity, government or otherwise. They seem to be untouchable.
They aren't untouchable. Non-profit status is a privilege which can be revoked by the IRS. Should any one of the Big 3 lose its non-profit immunity from antitrust law, it would become immediately subject to FTC scrutiny - and would be an excellent candidate for the same kind of regulation imposed on other monopolies.
The Big 3 have given the IRS and the American people many reasons to revoke their non-profit statuses. The IRS has strict rules on non-profit conduct, the most significant being that a non-profit may not be "operated for the benefit of private interests" (IRS "Inurement/Private Benefit" Rule). The Big 3 flaunt this IRS restriction, and others, in many ways:
• Excessive Profit (violates "Inurement/Private Benefit" rule and commitment to non-profit status)
• Executive Compensation (violates "Inurement/Private Benefit" rule)
• Governing Board Compensation (violates "Inurement/Private Benefit" and "Unpaid Directors" rules)
The Big 3 have two choices:
1) Make big reforms to profit margins, executive compensation, governing board pay, sales of test prep materials, political lobbying activities, and recognization of test-taker rights.
2) Continue abusing non-profit status and lose it. Pay taxes, be held accountable to antitrust law, and be regulated like other corporate monopolies.
Read more about the ways the Big 3 are acting unethically:
• Big profits
• Exorbitant CEO compensation
• Paid governing boards
• Test prep sales
• Political lobbying
• And more...
Visit our pages for each of the Big 3:
• ETS
• ACT Inc
• College Board
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