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Nick Clegg is wrong about Free Schools

September 8th, 2011 Posted in Uncategorized by

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.

6 Responses to “Nick Clegg is wrong about Free Schools”

  1. Helen Flynn Says:

    To me it’s not a question of whether profit is a dirty word, rather more whether it is a moral, efficient, or indeed the only alternative, in the circumstances you describe.

    Let’s assume I represent all taxpayers, and I am paying you £10 to run a free school. You aim to do it more efficiently, and in so doing you spend £9 on educating the children and running the school (including your own wages), etc, and then pocket the £1 as profit. The maintained school up the road spends all £10 on educating the children and running the school (including the head’s wages). Currently, the maintained school may not do it as efficiently as you, but if it can, I, as the taxpayer, would always favour that type of arrangement to a wasteful arrangement, such as you represent, where £1 of my tax is frittered away on a non-core (to education) activity. I want to see the best return on my £10, want it spent efficiently and want to see that it is all spent on education and related activities. In a sense, free schools could never actually spend the money more efficiently (and certainly never more efficiently than a well run maintained school), as some of my hard-earned taxpayer money would be wasted on profit.

    Some may argue that the£1 is a necessary cost of running an efficient school, and as such that I the taxpayer must swallow it, even though I do not like it. But this rather ignores the–literally–thousands upon thousands of schools that are doing a really good job (don’t believe the hysteria of the Mail and Express which assume that all state education is dire–it’s actually in its rudest condition of health ever–just that no-one ever talks about it, especially not Gove–why would he when he is forcing through an ideological schools revolution?). Our focus should be, like a forest of spinning plates, to keep all the plates spinning, whilst picking up the ones that are wobbling or have fallen, and to make sure that we do not waste resources in so doing, so that all our resource is targeted on what counts –children–and where the overall need is greatest.

    The issue that Liberals should be concerned with is not profit but accountability. It seems that profit and the market is the only response ever proposed where state provision is found to be not efficient. But it is not a simple “either/or”. It is a case of developing a framework of accountability (independently determined by experts, not politicians) that drives the best, most efficient use of state resources in furtherance of high educational outcomes (and I am not just talking about league tables and exam results here). This will vary from area to area and school to school –as well as from time to time–as a myriad of different factors take their effect.

    I do not believe that free schools operating for profit offer any kind of panacea to patchiness in education provision. Indeed when you add to the mixture a powerful (and getting more so in terms of centralising ever more powers to himself) Secretary of State who can change the parameters for success and can divert resources to favoured structures, how can you trust the “government” measures of accountability or what we are told are the most successful schools? We end up believing what we are told, despite what the independent evidence (not easily accessible to the vast, vast majority) clearly shows.

    It strikes me that free schools for profit more than anything else prop up a system that rewards cronies and allies with profits from taxes that Conservatives bitterly resent paying in the first place, but actually does nothing (nor is, I suspect, its real motivation) to improve the educational experiences of children.


  2. Tom Papworth Says:

    Helen,

    Thank you for your comment. Profit is only “a dirty word” because many people persist in questioning whether profit is moral. For liberals, this is particularly odd, as the whole basis of liberalism back to David Hume and beyond focuses (as I think I noted in the article) on enlightened self-interest: by pursuing one’s own ends one creates a better society for all. Note the distinction between self-interest and selfish-interest, which is one that reactionaries have consistently and deliberately blurred.

    In fact, the pursuit of self-interest often goes hand-in-hand with forms of conduct that we consider desirable and virtuous. “The habits of economy, industry, discretion, attention and application of thought are generally thought to be cultivated from self-interested motives, and are at the same time apprehended to be very praiseworthy qualities which deserve the esteem and approbation of everybody.

    In your specific example, the mistake is to see profit as wasted expenditure. Rather, it provides the important incentive to improve efficiency and effectiveness; to both drive down costs and drive up quality. Surely, “the best return on [your] £10” is not dictated by the how much is spent on the children as opposed to on the profit, but purely by the quality of the education that the children receive. Note the crucial point in the article: “for-profit schools significantly out-perform local authority-run schools”. How can it be wasteful if the children are being better educated?

    Incidentally, I find your distinction between the school that spends £1 on profit for the head-entrepreneur and the school that spends £1 on wages for the head-employee to be artificial and without justification. We may be able to blame Adam Smith for that one: I sometimes wonder how valuable the distinction between profit, wages and rent really is. If you think about it, the children still only get the £9 spent on them while both the head-entrepreneur and the head-employee spend £1 servicing their mortgage, putting petrol in their car, buying beer or whatever. Where does this profit-bad-wages-good idea come from?

    Now let’s be clear. Nobody (apart perhaps from the Mail) is suggesting that all state education is bad. There are many excellent state schools. However, to suggest that “Our focus should be, like a forest of spinning plates, to keep all the plates spinning” is to suggest that we cannot do better. The evidence from Sweden, Chile and other countries is clear: we can improve on the education provided by the state monopoly schools by allowing alternative providers to compete, and for-profit schools are a valuable ingredient in that. Please don’t let ideology stand in the way of improving children’s education.

    As for accountability, I agree with everything you say except that it should be determined by experts. It should be determined by parents. And the most powerful tool of accountability is the ability to withdraw your custom and go elsewhere. Just try moving your child to a different state school if you are unhappy with the quality of education. Unless you are rich enough to move house – and probably to change local authority into the bargain – you will get nowhere. Without the ability for parents to choose and change school, there will never be proper accountability.

    Interestingly, the report I cited was specific in stating that it was not suggesting that “free schools operating for profit offer any kind of panacea”. There is no panacea. But they do improve outcomes, especially for the poorest children. That should be our only concern. I also utterly share your concern about “a powerful … Secretary of State who can change the parameters for success and can divert resources to favoured structures”. My biggest concern about Michael Gove’s policy is that he is not marketising education but nationalising it! But free schools for profit in a free and competitive market (as opposed to in a corrupt, crony market, which is what results when politicians get involved) are the best defence against Tory efforts to centralise and nationalise education.

    I’ll conclude by saying again: the evidence shows that free schools offer better education than state schools, and for-profit schools out-perform not-for-profit schools when teaching kids from families with low educational background. That really ought to be the final word on the matter.


  3. Helen Flynn Says:

    Hi Tom
    I am an education campaigner of long standing–there is no reliable, peer-reviewed evidence that schools run at profit are better than those that are run by the state, lots of evidence from the OECD, for example. Also, see the article from today’s Observer, by way of just one example: http://www.guardian.co.uk/world/2011/sep/10/sweden-free-schools-experiment.

    Just one correction, my example about the £1 is that in the free schools the £1 is profit, even though the proprietor takes his wages before the profit. But in the maintained school, there is no profit–the wages of the headteacher (in a similar role as the proprietor) takes no actual profit, just his wages.

    The problems with free schools is that they will never provide a sustainable model to drive improvement across the system, and all the evidence is that it is the sharp elbowed middle classes or religious groups, or groups with some type of agenda who are opening them, merely causing social segregation.

    How can accountability being determined by parents be the answer when not all parents are equipped with the same skills, background and knowledge to assess either the market or accurately interpret performance data? Such a system will only ever create winners and losers. And it is easy to see who the winners will be.

    I find the last paragraph of your comment above completely off-beam, I am afraid and I do not accept your “final word”.

    It is all very well throwing political theory at education, but I would take the experience, knowledge and advice of the professionals who serve and have served as teachers, heads, lecturers, administrators in education over politicians every time in devising sensible systems for what works. Interestingly enough, they have done it for no profit over many years, with one of their main obstacles being the level of political interference, sometimes at a micro-level, which is is simply not on. Not all schools have done well, unfortunately and we must continue to work to ensure that this is not the case–but free schools working at a profit will simply not solve this problem, particularly where they create extra school places in certain areas, creating a recipe for sink schools. (And remember, that is a cohort’s life chances as the school literally withers on the vine through having low numbers and not enough money to resource the school effectively.)

    I am not ideological, just practical and working in any way that will promote equality of opportunity for all. I would de-politicise education tomorrow if I could and have politicians only work in a scrutiny function–not specifying and dictating content and structures as part of their ideological master plan, only for this master plan to be turned on its head in a few years’ time when the other lot takes over! It is simply not sustainable and not in children’s interests.


  4. Tom Papworth Says:

    Helen,

    Thank you again for your comments. I’m not sure that I agree with the SNS report, which claims that “The empirical evidence showing that competition is good is not really credible, because they can’t distinguish between grade inflation and real gains.” The report I cited was comparing test scores in-year between municiple and free schools, so grade inflation should be irrelevant.

    I also don’t agree with Vlachos that “It’s very difficult for people to make an informed choice of what’s a good school and that’s not conducive to a well-functioning market.” This information asymetry argument is regularly used by producer interests to argue that consumers are unable to exercise informed choice and so should not be allowed to exercise free choice. In fact, markets develop extraordinary ways to enable people to make informed choice in very complex areas. For example, I don’t need to know anything about engineering to know whether Fiat or Mercades make better motor cars.

    The segregation is a more complex one, and in a sense is unavoidably ideological. There is no objective answer as to whether one should corral people together or allow them to choose their own relationships, but personally, I do not believe that education should be an exercise in social engineering. Anyway, state schools are often extremely segregated due to the close links with geographical area, and the fact that house prices reflect the quality of local schools.

    Incidentally, while I know that ProCivitas is a free school, it was not clear to me on what basis Kunskapsgymnasiet was founded but it is clearly being run very badly: despite the rather odd statement from The Observer that “This has nothing to do with the schools’ managements”, it is patently apparent that it is the school leadership that decide whether teachers have to wear suits and whether students can smoke on the premises (which were issues the article chose to focus upon). As Peter Connée notes, “Fifteen years ago in Sweden, we had segregation based on where you live, now it’s based on ambition and ability.” In a society where wealth dictates where you live, there is the risk of far more damaging segregation.

    As for Vlachos’s statement that “the free schools actually have a profit incentive to reduce quality”, this is simply untrue for the reason that I explained above. If they reduce quality they destroy their brand and so make a loss – a powerful incentive which their municipality-run rivals would not share if they still had a monopoly.

    It is interesting that you refer to the “sharp elbowed middle classes” – I refer you to my comments in the fourth paragraph of my article. Why is it that ambition for one’s children is portrayed in such a negative light? Why is parental ambition such a bad thing? Anyway, as I go on to note, it is the very fact that it is ambitious parents who primarily benefit in a not-for-profit (and, indeed, a state monopoly) situation that is the main argument for profit-making free schools: they will seek to help poorer children whose parents are not mobilised.

    What is so intersting about your closing paragraphs is that it is only in an environment where free schools operate that “the experience, knowledge and advice of the professionals who serve and have served as teachers, heads, lecturers, administrators in education [can be taken] over politicians”, because in such an environment they are able to set up free schools, outside of political control (I refer you to my earlier reply with regards political control – in as much as the free school policy represents not privatisation but nationalisation of education, I agree that it is a recepie for political interference, which I oppose). It is worth noting that several of the existing 24 free schools were set up by teachers. They would not have that freedom under the old system.


  5. Charlie Says:

    Is Britain educating enough people with the technical skills for the 21st Century ? If we wish to rebalence the economy towards manufacturing and industrial needs, then we need to ensure children are studying maths, chemistry, physics, biology, geology/physical geography and modern languages. According to Prospect Magazine August 2011, p13 pupils at private schools were twice more likely to study thna their peers at comprehensives to take maths, physics and chemistry A- level and three times more likley to take foreign languages. In addition, Further Maths has become vital to study maths, physical sciences and engineering at top universities.

    Too many comprehensives fail to offer separate sciences at GSCE level and ensure pupils take rigorous academic subjects at A levels suitable for entry to read STEM subjects at the top universities. No wonder public and grammar schools continue to surge ahead of comprehensives at gaining places to read STEM subjects at top universities. Britain has greatly increased the number entering higher education since the 1960s yet we fail to educate enough people in STEM subjects.

    Historically engineering and sciences were areas where bright pupils from working and middle class backgrounds could enter the professions. As Dyson pointed out we produce 22,000 gradutes a year in engineering but need 37,000. Sending working class children to read art and huamnities degrees at ex- polys resulting in them accruing debts of £10ks will not greatly reduce social inequality as they are unlikely to obtain well paid employment. Sending a working class pupil to read engineering such that they obtain employment and become a chartered engineer will reduce social inequality. Ensuring a working class pupil has the GSCEs to obtain an apprentice in high value manufacturing or construction will reduce social inequality.
    The great disaster of the last 15 yrs was that even with the boom in construction not enough pupils left schoool with GSCEs in maths, physics, english and technical drawing such that they could be employed in the construction industry: this is why so many immigrants were employed.
    Germany has a sucessful manufacturing and construction industry because schools produce people with the right education and attitude for employment.

    Too many in the education world lack any technical education and experience of the commercial world. Schools set up by the Quakers and Non- Conformists in the 18 and 19 centuries were designed to produce people with the skills for industry and finance which enabled the Industrial Revolution to occur. After all the schools were set up people who were creating the Industrial Revolution so they knew what was required of the pupils to obtain employment in finance and industry.


  6. Trooper Thompson Says:

    This is a good article. I’ve often grappled with people who see profit as exploitative, and it’s difficult to get any sense out of them (such as by pointing out how we all try to spend less than we earn). You are probably right that it comes from internalising one of Marx’s ludicrous economic fallacies.


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