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The case for bona fide profit-making schools

Yesterday, in a panel discussion at Policy Exchange – coinciding with their release of a report advocating ‘social enterprise’ schools, which would be forced to reinvest 50% of surplus – I made the case that publicly funded for-profit schools should be allowed. Why is the profit motive important? Here, I agree entirely with the report’s conclusions. Firstly, profit provides strong incentives for schools to grow and capitalise on scale economies. Non-profit schools generally do not have these incentives. Secondly, non-profit schools have a more difficult time finding up-front capital because they cannot target investors and obtain funds in exchange for future potential profits. Thirdly, even when non-profit schools grow, they do so because of philanthropy, and there are few incentives for philanthropists to back the best schools, as evidence from California shows. In essence, in order to produce a well-functioning education market in the UK, we need a supply-side dynamic that gives parents and pupils more than just a theoretical right to choose schools. Such a supply-side dynamic requires for-profit actors. But doesn’t the profit motive drive down quality? The short answer is no. On the whole, research from America, Chile and Sweden displays either positive or null effects vis-à-vis public and non-profit schools. One study from Sweden displays a small negative effect in upper-secondary education but as I’ve argued here, the results are likely to be driven by other factors than the profit motive. [...] Read the rest of this blog at

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About the author
Gabriel Heller Sahlgren is Director of Research at the Centre for Market Reform of Education and Research Fellow at the Institute of Economic Affairs. He is author of Incentivising excellence: school choice and education quality.