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31 January 2000

Big profits mean better schools

Focus on education - Imagine private companies, with brand names as familiar as Tesco or Sa

By James Tooley

In 1999, new Labour embraced the notion that for-profit private education companies could run both a failing state school (King’s Manor in Surrey) and failing local education authorities (Hackney and Islington). It seems a fairly safe prediction that 2000 will see more private education companies taking over failing state schools.

Many people on the left believe that for-profit education companies are run by greedy business people, who exploit the poor and maximise profits to shareholders at the expense of educational standards. However, my research on private education companies for the World Bank points me in the opposite direction. If we are concerned with creating an education system that is equitable and inclusive, innovative and well-financed – and one, moreover, concerned with education and not simply vocational preparation – then we should embrace moves towards privatisation in education, however counterintuitive this may sound.

Private companies can help solve the problems of inequity because the prospect of profit creates an incentive to replicate high-quality educational provision. Some excellent state schools have succeeded against the odds in providing marvellous educational environments for children in deprived areas. But all such schools have long waiting lists. Though they have created the conditions for success, they simply turn children away once the school is full. Deprived children are thus made further disadvantaged, as they are relegated to failing schools nearby.

If for-profit companies are allowed in, however, the incentives for expansion become immediately apparent. The last thing such a company will want to do, if it has found a successful way of educating disadvantaged children, is to turn other customers away. On the contrary, its imperative will be to extend its influence and scope – and of course its profits. I am not here talking about schools such as Eton, which operate non-commercially and whose raison d’etre is exclusivity. I am talking about genuine profit-making companies, which will have diametrically opposed concerns.

They will expand by taking over failing schools in the neighbourhood and elsewhere. Competition between several education companies in the same market could easily lead to the total elimination of “sink” schools, which bump along in mediocrity. There are no “sink” supermarkets in the Tesco or Safeway chains – the brand name ensures that customers are guaranteed the same quality of service and goods whether they shop in inner-city Brixton or suburban Brighton. The same could be true if there were competing brand names running our state schools. The brand ensures high quality for all. And while it is true that the major supermarket chains avoid some areas, education companies would have an incentive to set up even in the most deprived localities because the current funding arrangements guarantee money for all pupils and extra money for those with special needs.

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Edison Schools, a US-based company, illustrates this desire for expansion very well. It opened its first four schools in August 1995 and now has 79 schools, with more than 37,000 students. Edison wasn’t satisfied with one excellent school serving a disadvantaged population. It wanted hundreds of such schools – an ambition that will be realised in due course.

But this desire for expansion is not just an American phenomenon – in my research, I’ve found education companies with chains of schools all over the world. In Brazil, Objetivo/UNIP, for example, has 500,000 school and university students across 400 campuses. In India, NIIT has more than 400,000 students and now it is expanding into 20 other countries, including, in a nice twist on global capitalist imperialism, the US. In South Africa, Educor has 300,000 students on 127 campuses.

Even China now has such chains. South Ocean Schools has 8,000 students in six schools and one university, and it has plans to open two more in the next five years; the Educational Industry Development Academy has 18,000 students in 20 schools and one university.

But let us be clear: this desire for expansion is not – contrary to the thumb-nail portrait of the private education company held by opponents of privatisation – at the expense of the most deprived. Edison Schools caters predominantly for the disadvantaged – 65 per cent of its pupils are eligible for free school meals, and the largest group of pupils is African-American.

This point can be made more generally. The profit motive has a peculiar way of making entrepreneurs see opportunities in areas that others find unpromising. Who transformed the opportunities for black teachers in the rural areas of apartheid South Africa? It was a businessman, Johann Brummer, who saw an untapped market and potential profits. Black teachers had no matriculation qualifications. Brummer established correspondence courses to help them gain these qualifications, and hence improved the quality of schooling for black Africans. Such was his success that it helped firmly establish the brand name Damelin, now part of the highly successful Educor group. Similar stories can be told from all over the developing world, where the profit motive provides the incentive for entrepreneurs to take risks for the benefits of risky customers. The self-interest of entrepreneurs has this beneficent outcome.

It will also bring much-needed investment into state schools. It is a truism that state education desperately lacks capital investment here: the Times Educational Supplement recently featured educational experts demanding £5 billion of investment in our schools for capital improvements. We know such funds won’t be forthcoming from government. The profit motive provides an alternative means.

Edison Schools invests, on average, about £1 million in every school it takes over, in terms of curriculum, teacher education and technology; it even puts a networked computer in the home of every child above third grade. To finance this investment, in November 1999, the company was launched on Nasdaq, raising $122.4 million. Prior to this, it had raised $120 million from private investors. All these are additional funds going into the state system in the US. There is no reason why similar funds couldn’t find their way for investment here in the UK, if companies similar to Edison were established here.

The for-profit private sector can also score higher in terms of much-needed innovation in schools. Real competition between expansion-hungry, quality-conscious education companies brings with it the absolute need to keep up with research into teaching and learning – because if your company doesn’t find out the best in pedagogy, a competitor will, and parents and students might be tempted away. But education companies can’t indulge in fads, like the ones thought up in ivory-tower education departments that have done such damage to many children’s life chances. If they introduce ideas that fail to raise standards or enhance opportunities, they will again risk losing customers.

The difference between this approach and that found in state schools is well illustrated in the musings of Professor Michael Barber, Tony Blair’s favourite education guru and head of the Standards and Effectiveness Unit at the Department for Education. In his book, The Learning Game, he describes a research project based at King’s College, London, which succeeded, without additional resources, in raising pupils’ attainments – by as much as 300 per cent for boys – in science, mathematics and English.

Under current conditions, hardly any schools have imitated these reforms, and Barber notes that: “in spite of this dramatic result . . . there has been no national initiative to follow it up. . . This should not be left to chance.” But is it likely that, in any other service industry (acting in the market where things are indeed “left to chance”), companies would ignore what was going on if one of their rivals found it could raise productivity by 300 per cent? What schools lack is not a “national initiative” to force them to follow best practice, as Barber suggests, but the simple market incentive of profit that encourages other businesses to seek improvement.

We don’t have to subscribe to the notion that state schools are currently failing in order to see the need for such innovation. The Campaign for the Advancement of State Education (Case) suggests that talk of failing state schools is all part of a conspiracy by people like me in order to forward our own anti-state mission.

But look at it like this. The Model T Ford was not a failure. In fact, it was incredibly successful. But just because it was a huge success at the beginning of the 20th century, doesn’t mean that we would all want to be driving around in Model Ts now. The same is true for the delivery of educational opportunities. Perhaps the model of schools we have now was educationally successful once, perhaps Case might claim that is still so even now. But this doesn’t mean that it will always be successful. Education is an industry in which improvement should be essential for survival, and so we need to embrace the incentives that the private sector can bring for innovation and replication of best practice.

I’m always struck by the number of right-thinking people who are afraid that, if private companies are brought in to deliver state education, the result will be schooling that concentrates on a purely vocational approach. This flies in the face of the evidence from around the world. Edison Schools has reintroduced Latin into its curriculum, and the big for-profit chains of schools in Brazil, for example, focus very heavily on the performing arts and music in their all-round liberal education.

I think the fear is based on a simple misunderstanding, confusing “markets in education” with “education geared for the market-place”. There is no necessary connection between the two. Many governments, throughout history and globally, have tried, or are trying to provide, education geared for the market-place through increasing their control over education, not by privatising it. And companies in the education market-place have no reason to concentrate on vocational education if that’s not what parents want – which they certainly do not, as examples around the world show.

Tony Blair famously said, while in opposition, that his government’s priorities would be “education, education, education”. John Major, not to be outdone, said that his priorities were the same, but in a different order. These sentiments were encapsulated in the “3Es”, the name of the company that won the contract to take over King’s Manor in Surrey. My view is that the solution to problems in the 3Es requires the 3Fs – freedom, family, and philanthropy. Even if some people on the left find it hard to accept the last two, my argument is that the first, giving entrepreneurs the freedom to enter into the educational supply-side, will go a long way to transforming opportunities for young people, especially those terribly let down by the current state system.

James Tooley is professor of education policy at the University of Newcastle. His new book, “Reclaiming Education”, is published by Cassell, £12.99