On Saturday, The Observer reported that Nick Clegg had defeated a bid by Michael Gove to let free schools make profits in the state sector in what the Observer described as “a massive ideological battle over the coalition’s education policy.” Gove apparently hoped that a shift in education policy during a second-term Conservative administation would allow profit-making providers to deliver state-funded education.
The Liberal Democrat deputy prime minister trumpeted his success as one of three victories over Gove in a speech on Monday. His other victories include a guarantee that the next wave of free schools will be set up exclusively in “deprived areas” or those in need of new places, and a change in the admissions code that will require free schools to at least match the local authority average for the number of children on free school meals in each school.
Unfortunately, the first victory is a devastating blow to the chances of achieving the second and third, and to the educational prospects of the least advantaged in general.
Many of the existing 24 free schools have been set up in area where there are already sufficient places and pupils are already being served well. The critics suggest that what is happening here is that free schools are primarily benefiting articulate, organised, well-resourced parents – though they are more typically caricatured as “sharp-elbowed” and “pushy”. It is the loathed middle classes that are benefiting the most (loathed primarily by the Observer-reading middle classes, it might be said).
If this is true, it is hardly surprising. Many of the schools are being set up by parents groups to benefit their own children. After all, there’s no incentive like the prospect of improving one’s child’s life. The problem for poorer children from “disadvantaged” backgrounds without well-organised parents is that there is very little incentive for providers to set up a school in their area at all. True, some genuine charities and philanthropists will wish to help those in need, but these are simply too few and too far between to make a significant impact.
Which is where the profit motive comes in. As we all know, incentives matter. Something other than charity is needed for most people to devote their energies to benefiting others. What drives most people is self-interest, which liberals consider to be “enlightened” so long as this pursuit of self-interest benefits others.
The problem is that somewhere along the line we seem to have forgotten that. For many people, profit is a dirty word. Large swathes of society, including (sadly) large numbers of people who identify themselves as liberal, have internalised the Marxist belief that profit is inherently exploitative: that profit must be made at somebody’s expense. This is particularly odd, because Marx’s belief only stands up if one accepts his Labour Theory of Value, which most people and all liberals would reject out of hand.
In fact, in a genuinely free economy, it would be impossible to profit unless by doing so one also created something of value to others. As David Henderson observes, “In a competitive market economy, profits can only be made through serving the wishes and interests of people. Within such an economy, enterprise profitability depends on performance in that service: profits are performance-related.” Yet the idea that profit is a zero-sum game – that it is derived at the expense of others – remains common.
Even many liberals who accept that profit has a role to play have a blind-spot where “public services” are concerned. As one commentator observed (incorrectly) in response to a debate on Lib Dem Voice on this subject, “it has been proved time and time again that when the profit motive is introduced to public services, it is the profit motive that predominates over quality and consistency of provision.” In fact, at least where the profit motive has been accompanied by genuine competition, by consumer choice in a free market, what has predominated has typically been a massive improvement in quality, customer service and efficiency. This is as true in education as it is in any other area.
Indeed, where some system of parental choice has been applied alongside genuine competition among providers, the profit motive has been crucial in ensuring the policy’s success. Evidence from Chile (which has a voucher system that does not discriminate between providers) and from Sweden (the inspiration for the UK’s current free school’s policy) show that non-state providers significantly out-perform local authority-run schools even where researchers controlled for pupil background (parent’s socio-economic status; whether they were recent immigrants; etc.). On average, not-for-profit schools slightly out-performed for-profit schools, but both significantly out-performed state/local authority schools. What is more, where parents had low educational achievement, the value added by for-profit schools massively out-performed either not-for-profit or state schools.
So we see that for-profit schools provide the best outcomes for children from families with lower educational levels. And for-profit schools significantly out-perform local authority-run schools. Any opposition to for-profit schools is therefore misguided. But, some might argue, why not ban profit-making schools on the grounds that it was the not-for-profit, non-state schools that performed best? Is the ideal not a voucher system with only not-for-profit providers?
There are two problems with this. Firstly, as noted above, among children from low education backgrounds for-profit schools are the best. But, secondly, as was discussed earlier, the profit motive is essential in widening access to these non-state free schools. Again, evidence from Sweden is compelling. In 2009, two thirds of independent schools in Sweden were commercial companies. What is more, not-for-profit schools do not have the incentives that profit-making schools have to expand, meaning that many not-for-profit schools remain small. “Idealism is scarce and local“, and consequently far fewer children would have benefited from this higher quality education had it not been for the profit motive.
Fears about the profit motive in education are mistaken. A free market is education drives up both quantity and quality: competition forces all providers to up their game, while profits provide the incentive to open schools in areas of no direct benefit to the provider and also compensates for the risks involved in investing in a new area or expanding an existing organisation. The biggest winners from all this are the poorest children and those from backgrounds with the lowest education: for-profit schools yield the best outcomes for them and are anyway the only route through which most children will see a free school in their area.