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Signs of life in the debate about the role of the profit motive in education

In education, the words ‘for-profit schooling’ send many into a head-spin. In spite of the fact that in nursery education, SEN and alternative provision, and school improvement services, private and for-profit companies already make a significant positive contribution in education, lifting the barriers to their having full ownership and corporate governing authority over schools continues to be regarded by many on the Left as a potentially catastrophic move. After Nick Clegg categorically blocked it last year, Michael Gove’s recent declaration that he was open minded on the question provoked knee-jerk reactions from both Shadow Education Secretary Stephen Twigg and Former Education Secretary (and champion of ‘evidence-based policy’) Estelle Morris. In language reminiscent of the TES debates of the 1920s and 30s, and apparently ignorant of the long-term, low-yield nature of investment in schools, Stephen Twigg declared allowing for-profit providers into the sector would attract sharp operators wanting to make a ‘quick buck’ at children’s expense. Estelle Morris, meanwhile, argued that allowing the private sector to run schools for profit would undermine the ‘moral purpose’ of education, implying that business people cannot be morally purposed. What is interesting to note is that, thanks to the growing evidence base to contrary, the well-worn argument that the profit-motive compromises the educational outcomes no longer features. (Note that Morris speaks of the moral purpose of the enterprise, not the quality of moral education.) The real question for policy is whether the for-profit school model can provide a quality education. Several quantitative studies have now been undertaken on the impact of the profit motive on pupil attainment, including from the US, relating to Charter schools, and Chile and Sweden, where for profit schools participate within both countries’ universal voucher systems. James Croft overviewed these recently in an ASI research blog entitled ‘System-wide studies of the for-profit effect on student test scores’, which discredit arguments that for-profits deliver poor education due to the profit motive. Through using school pupil test data, all bar one found that the type of school -- whether for-profit or non-profit – made no difference. In both types there were broadly equally positive effects on outcomes. That exceptional one found statistically significant evidence to show that students did gain considerably by attending a for-profit school. Gabriel Sahlgren has recently highlighted a new paper that further diminishes prevailing fears over the for-profit motive. Bohlmark and Lindahl (2012) look at the competition effects of Swedish free schools upon municipal schools and between free schools, and within the study they also separate out the for-profit and non-profit impact on achievement: they find no difference between the two in terms of their ability to raise achievement. Also important, is that the positive effects of for-profits and competition take time to show – this study saw these effects one decade after the reforms happened in Sweden. It is unfortunate that Estelle Morris appears neither to have the patience, nor the interest, to address this argument and the growing quantitative evidence base which supports it. The crux of all this is, as Sahlgren emphasises, the for-profit advantage: ‘The key difference is the ability of for-profit actors to mobilise capital as well as scale up – thus providing more competition across the board.’ Allowing for-profits increases supply in the market, incentivises others to improve their performance, and provides more choice to parents – an argument which was well made by Fraser Nelson at a recent, and encouraging, Policy Connect seminar bringing together a panel of speakers from across the political spectrum to address the issue. Moving the debate on from the ideological to the practical, there was widespread agreement across the panel (including also Professor James Tooley, Pat Glass MP, and Guardian journalist Janet Murray) that the merits of a profit-making education system should be judged solely on the grounds of its capacity to address the fundamental failures of existing state provision. Key considerations addressed were the lack of capacity for growth, the need to improve performance, and stark socio-economic and geographical inequalities. Professor James Tooley presented his work on for-profit schooling in the developing world, where there has been rapid growth in for-profit schooling among the poorest sections of society, and where the profit-motive has also encouraged investment in education research, and in the teaching workforce. Both Pat Glass and Janet Murray expressed, in general, an openness to for-profit schooling, though cautioned against too heavy reliance on inference from the developing world context. Refreshingly, Pat Glass was clear on the point that funding and governance structures must always be the servant, not the master, of educational aims. Lending weight to this shift of emphasis in the debate from the ideological to the practical, yesterday the Institute of Economic Affairs issued a timely publication, The Profit Motive in Education: Continuing the Revolution, edited by James Stanfield of the EG West Centre, Newcastle University, offering a series of contributions by education entrepreneurs, giving perspective and reflections on the future from the grassroots. To frame these contributions, Steven Horwitz and James Stanfield introduce the monograph in Part 1 by discussing basic economic principles and applying these to education. Both highlight the perversions that can manifest in systems through government intervention, distorting the end result. Stanfield in his introduction outlines policy proposals to liberate education from inertia and government control, including the abolition of corporation and capital gains tax on for-profit education companies in order that school entrepreneurs choose their organisational form based on efficiency rather than tax advantage. Stanfield also suggests that a self-regulatory body for private providers (presumably with some auditing and policing powers, though he doesn’t expand on this) would do a better job than government of providing reassurance to parents in respect of management of the risk of business failure, financial mismanagement, and bankruptcy.  In this way providers would be made directly accountable for their performance to parents. In Part 2, first-hand accounts by schools entrepreneurs navigating the systems in the UK, the US, and Sweden, alongside for-profit developments supported by the UN, are presented. A chapter on profit-making in Higher Education is also included, and each provides lessons for the UK context. Toby Young recounts his journey in setting up the West London Free School, pointing out the obstacles and deficiencies in the state framework. Entry is difficult due to complex DfE application procedures, suitable sites are scarce and there is limited capital funding available. For-profits could avoid all these issues, given their ability to attract capital and preparedness to take risks; a school revolution cannot be achieved without them. The similarities between the previous Swedish system and the current UK one are obvious, and Peje Emilsson, of Swedish for profit provider, Kunskappskolan, and Barbara Bergstrom, of Internationella Engelska Skolan (IES), stress the benefits of the market model that the Swedish system now operates. Twigg and Morris should take note: Kunskappskolan did not profit until nine years after it started operating. Bergstrom, a former state teacher herself, similarly emphasises the slim margins on setting up a school on your own. Kunskappskolan’s profit-making model attracted capital investment which was prepared to support and take on risk, and the result is that Kunskappskolan in 2011 was providing to 10,000 pupils. Bergstrom’s experience has clearly been a labour of love (at the beginning she was also the school cleaner), and in 2011 IES was catering for 11,000 pupils. The clear focus, for both IES and Kunksappskolan, is on quality as the only way to attract and retain parents. It is only through quality that any profit can be generated, with parents free to switch schools if they are not satisfied. This picture is a far cry from the ‘fast buck’ and immoral practices that Twigg, Morris and others  impute to for-profit education provision. Moving on, Stanfield describes the culture shift that has occurred at the UN. The UN’s original position was, as Stanfield writes, that ‘the world of business was largely ignored or seen as part of the problem’. Now, however, due to the work of Tooley et al, UN policy recognises the benefits that business models can bring, and that profit-making does achieve positive social impacts for those at the bottom of pyramid. And this is just the start - Stanfield also highlights that the World Bank, USAid and DFID are all updating their education strategies to take into account private sector education in the developing world. Part 3 is entitled New Models of Education and explores potential models that would flourish where the for-profit motive is allowed. Anders Hultin, co-founder of Kunskappskolan and current Managing Director of School Improvement at Pearson, implores politicians to be courageous; if they want to provide more choice to parents, they must allow the market model to deliver on its own terms, and adapt to it. The profit motive has served organisations like IKEA well – why can this not happen in education? Like Bergstrom, Hultin emphasises quality is the only means to achieving profit, and profit is the measure of that quality. The key, however, is that profit is the motivator, which inspires the focus on quality. Non-profits have weaker and less sustained motivation – ‘without the motivation of profit, the quality of delivery can be jeopardised’. Professor J R Shackleton addresses the business schools that operate within the higher education sector. He presents the case that these schools, which are in high demand but are restrained by their university locations and standards, would have much to gain and little to lose by becoming fully for-profit and being relieved of government control. Fred Hess goes further in describing the potential of for-profits and free entry into the sector: schooling is not the only, nor necessarily the best form in which to deliver education to children. Allowing innovative organisations into the sector, like the booming online learning providers, encourages different delivery formats and thus increases the likelihood of a close match between children and the approach to learning best-suited to their needs. Hess proposes that school choice reformers have missed a trick – choice should intrude beyond and within the school, to choice in tutors, delivery format, instructional approaches, etc. Free entry and the profit motive keep the market innovating and improving its services to adapt to the changing needs of each generation. Their success is in the voting feet of parents and children, which is clearly empowering for the parent. Finally, Tom Vander-Ark laments the stagnation of education under the state system, promoting a similar vision to Hess, with a focus on technology. He reiterates that non-profit organisations cannot mobilise the kind of capital needed to scale up, research and innovate new ways to improve education. For-profits have a distinct advantage here. They can attract investment more readily than can not-for-profits reliant on philanthropy, and top talent to the workforce through offering share options. These centres of excellence can then be used to disseminate ‘disruptive ideas’ across both lucrative and low income markets. The overall result is a refreshing collection of work that furthers understanding through offering first-hand accounts of independent and for-profit initiatives in education, and strong arguments for allowing for-profits into education. The ban on profit-making providers is denying children and parents the right to choose and the possibility of a better education.

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About the author
James Croft is Director of the Centre for Market Reform of Education and the co-author of the CMRE discussion paper 'When Qualifications Fail: Reforming 14-19 assessment' (2012) and previously of 'Profit-making free schools' (2011).