Profit-making schools are not the answer

I'm just back from the launch of a new report by Policy Exchange, which calls for profit-making companies to be allowed to use government money to run state schools. The report has generated quite a bit of attention in the press, so I thought it was worth examining their claims in more detail.

1. Profit-making schools would drive up standards

The report claims that having the profit motive would encourage schools to compete and improve. While competition has worked to raise standards in some public services (most notably health), there is less evidence that it works in schooling. The OECD's analysis of its 2009 PISA results is clear on this point, stating that 'countries that create a more competitive environment in which many schools compete for students do not systematically produce better results.'

In fact, the OECD finds that the most important factors in raising educational standards are the quality of teaching, high levels of school autonomy coupled with robust accountability, and comprehensive strategies for narrowing attainment gaps between children from different class backgrounds. This is where policy should be focused - major structural reforms to increase competition are looking in the wrong place for answers.

2. Profit-making schools would bring new providers into the market

There are good reasons why we should want a more diverse range of providers in our school system. They can bring new expertise, energy and innovation into state education. But they do not need a profit motive to expand. Indeed the report notes how the (not for profit) academies and free schools programme is already doing this in spades - within two years 96 free schools have opened and there are now over 1,500 academies. Academy chains in England are moving to scale and expanding much faster than chains of Charter schools in the USA. Allowing profit-making companies is not necessary to increase innovation in the system. Besides, the profit margins on the social enterprise model proposed by Policy Exchange would be too small and too risky to encourage commercial companies to enter the market in the first place.  

3. Profit-making schools work well in other countries

The international evidence cited by Policy Exchange to prove that profit-making schools are more likely to raise standards is - at best - partial. As a forthcoming report from IPPR shows, the countries that have tried it are Sweden, Chile and a handful of US states. In Sweden and Chile, profit-making schools failed to achieve better results than not-for-profit schools.  In the US the picture is more mixed, with the experiment working better in some states than others. On the basis of international evidence, it is not possible to claim that profit-making companies will necessarily provide better quality schooling. On the other hand, it is not possible to claim they would drive standards down either. The only real conclusion to draw from international evidence is that allowing profit-making providers to run schools would involve a lengthy and expensive round of structural reform that made little difference to standards.

4. Profit-making schools would generate more investment in schools

Capital spending on schools is being cut by 60% in this Parliament. But that does not provide a justification for bringing the private sector into mainstream school provision. The cost of capital for government is far lower than for commercial operators, and indeed is currently at historically low levels. The private sector would need to factor its higher cost of capital into the fees it charged the state for educating children - which would simply increase pressure on recurrent education expenditure, in both the short and long term. In short, it would increase pressure on state spending. 

It is also worth noting that any capital contribution the private sector could make would be tiny in relation to the capital expenditure requirements of the state sector. There simply wouldn't be enough commercially run schools to make a big difference in overall investment.

In summary, allowing profit making schools would not result in the improvements that Policy Exchange suggests. None of this is to say that there isn't a need to reform our school system in the face of the considerable challenges it faces. But we need the right reforms - not a costly and contentious structural change that will fail to drive up standards and result in greater pressure on the public purse.

Jonathan Clifton is a research fellow at IPPR. Follow him on twitter @jp_clifton