Profit motive can boost the poorest

Far from excluding disadvantaged children, allowing commercial firms to run schools could benefit the least well off the most

Gabriel Sahlgren

Progressive politicians around the world fall over themselves to reassure their publics that they oppose private-sector companies making a profit from running state-funded schools. They are very often joined by many in the education community, who consider the introduction of the profit motive to be anathema.

Why? A key argument against the profit motive in education is that it would reduce equity. Commercial interests, it is claimed, would mainly focus on students from high socio-economic backgrounds who are cheaper to teach, thus increasing school segregation and leaving the poor further behind. Instead of producing a tide that lifts all boats, profits would allegedly lift some and sink others, reproducing and increasing existing inequalities in the education system.

But is this the case? Not necessarily. I believe that it is not, in fact, clear that profit-making organisations have strong incentives to focus on advantaged students.

Why? For a variety of reasons. More affluent parents already have plenty of choice. They can move closer to good state schools, purchase a private education, push for - or set up themselves - non- profit, state-funded free schools, and in other ways play the game to secure for their children a place in the school of their choice. Poor parents do not have the money to engage in these activities. It is always the poor who are underserved in a system where choice is constrained to the middle and upper echelons of society. Consequently, it would be natural for leaders of commercial education companies to see this underserved segment as a promising untapped market.

Indeed, the empirical evidence lends credence to this argument. In the Swedish voucher system (in which parents can apply a certificate issued by the government towards tuition at a private school), for-profit free schools tend to enrol students with backgrounds more similar to those in municipal schools than non-profit free schools.

At the upper-secondary school level (ages 16-19), in fact, there is basically no difference between the municipal and for-profit free school sectors in terms of student composition. Non-profit free schools, on the other hand, tend to enrol more advantaged students in compulsory and upper-secondary education.

We see a similar picture in Chile. While its voucher schools charging top-up fees naturally tend to enrol students from high socio-economic backgrounds, for-profit schools not charging fees enrol more disadvantaged students than municipal and free non-profit schools. In other words, profit-making businesses often move into disadvantaged neighbourhoods, giving parents there more choice than would otherwise be available.

Equity is essential

This is important from an equity perspective. International research suggests that larger enrolment shares in publicly funded independent schools reduce the impact of parental background on achievement in Pisa (Programme for International Student Assessment) and Timss (Trends in International Mathematics and Science Study), the two main international surveys. As choice is expanded to include poorer parents, by enabling them to attend independently operated schools, the unfair advantage of having a privileged background declines in importance.

England already has a vibrant non-profit school sector that has mostly catered for more affluent families, but without bona fide for-profit providers, choice is unlikely to expand sufficiently to where it is most desperately needed.

The same applies to expanding excellence among the good schools that serve poor students. In order to raise the performance across the board in poor communities, it is naturally desirable that the best schools offer their education to more than a small number of lucky students. Yet there are few incentives to do so in the non-profit sector.

There is nothing wrong with non-profit schools. But to achieve the scale needed to reach the poor, and to scale up excellence among them, for-profit companies have an important role to play.

Of course, other institutional factors are important for the impact of the profit motive in education. For example, with well-differentiated funding, companies have stronger incentives to target poor students because they are compensated accordingly. Also, planning laws make it difficult to build schools, regardless of ownership structure, thus partly strangling the supply-side potential of profits. Clearly, the overall system design needs to be coherent for the profit motive to reach its potential as a driver of equity.

A system in which proximity is the key determinant of student allocation restricts school choice to parents with means, and decoupling choice from the size of parents' wallets is an attractive alternative to such a system.

Without profit-making companies, it is unlikely that choice will expand to a degree that all students benefit in practice. While the profit motive is not sufficient for ensuring an equitable education system that raises standards for all, it is an important ingredient in a reform package designed to produce such a system. Under the right circumstances, it is clear that profit can be progressive.

Gabriel H. Sahlgren is director of research at the Centre for Market Reform of Education and author of Incentivising Excellence: School choice and education quality.

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Gabriel Sahlgren

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