Education Jul 3 2012

To profit or not

Last month I was invited to speak at a conference of housing professionals on the subject “To Profit or Not To Profit”.  The government is now trying to entice private sector providers into the social housing sector and I was asked to give a perspective on this issue from the education sector’s point of view.

The government is making the case with both sectors that past policy has failed to deliver. The new emerging line is that only private providers can improve quality, supply (in a time of austerity), more diversity of provision and responsiveness to consumers.

The main difference is that this is being done overtly in housing, with plans for statutory regulation. In education the process is taking place by stealth with the mass conversion of maintained schools to academy status being the main staging post along the way.  These new schools are simply governed by a contract with the Secretary of State, they are not obliged to abide by School Teachers Pay and Conditions which in the longer term will make schools a much more attractive option to private providers.

Does this matter? Some would argue that it is just a logical next step. After all we have had profit making providers of services in schools for the last 25 years since Local  Management of Schools was introduced.

Many heads and governing bodies use a range of providers from both not for profit and private sectors to meet school improvement and wider aims. But overall this has been managed within a “not for profit” governance model with public rather than private interest at its heart.

Moreover private hasn’t always meant better. Some academies now buy back services from local authorities because they provide better value for money and there have been low points in the outsourcing of some services. Remember the private contractors who moved into the school meals service, took advantage of the abolition of basic nutritional standards and fed a generation of children turkey twizzlers?

Regulations were brought back but now the champion of healthy school meals Jamie Oliver finds himself fighting the same battles over again with academies that are exempt from regulations that cover maintained schools.

There have also been problems with some governing bodies getting short changed while trying to manage complex contracts for services like photocopying and ICT.

We don’t yet have any state funded schools run expressly for profit and only a handful of local authorities or governing bodies have chosen to subcontract full day to day management to a private company. Schools run expressly for profit would be a fundamental change but the current Secretary of State says he has no problem with this and there are plenty of plenty of the edu companies hovering in the wings.

I believe some of the fundamental arguments in favour of for profit schools need to be challenged.

The first is about QUALITY.

The assertion that a profit motive will lead to improved performance and higher standards is not borne out by the evidence. Similar arguments have been used and dis-proved when it comes to independent state schools and we are now seeing that ‘independence’ is not a golden bullet.

In the few cases, like Turin Grove School in North London, where school management has been outsourced here, it hasn’t been wholly successful. The school was closed in 2010 and re-opened as an academy. In the countries where profit making is used more routinely– Sweden and America – there is a very mixed picture.  Neither country performs particularly well in international league tables. Sweden’s performance has slipped relative to other countries and their system has become more segregated. So much so that the Swedish government has now introduced new regulation to include all schools including free and for profits.

A recent study by the US National Education Policy Center showed a significant proportion of for profit schools failing to reach national standards, being closed down and their charters being transferred to other providers

The second argument is about the RIGHT TO FAIL.

It goes something like this; liberalisation shouldn’t just allow competition but also permit failure, forcing some providers out of business and allow others to expand. This maybe acceptable for the corner shop but children aren’t like tins of baked beans or loaves of bread. They have a right, especially if they come from chaotic or disadvantaged backgrounds, NOT to be enrolled in institutions that may be subject to serial takeovers and management reorganisation with all the disruption that entails. Surely it is far better to prevent failure in the first place?


Supporters of profit making schools are often frank about their motives  i.e financial return rather than altruism.  The ability to make a profit will encourage capital investment, they say, thereby reducing the burden on the state at a time of austerity.

Refreshingly honest but what happens when desire to make money outweighs the public or community interest? There are already stories emerging about private companies in the employment sector indulging in unethical and possibly fraudulent behaviour linked to a desire to make money.

In schools profit would almost certainly be linked to results. So they would be even more incentivised than they are at the moment to admit and retain the children most likely to succeed and to avoid or lose those most likely to fail, who may also be the most expensive to teach because they need wider range of services. Very often this will be a child with particular needs or from the most challenging family.

In the US Charter schools (which are not all for profit) there is a new phenomenon known as  “dregs sifting”, the opposite of cream skimming as the essay by Adam Swift and Harry Brighouse in this publication explains. Some charters pick of the most motivated and aspirant working class families leaving the rest to the public schools (which incidentally perform just as well according to national research).

Moreover schools have a wide range of other roles beyond simply delivering high test and exam results. How do you put a financial value on social cohesion, inclusion, child well being, provision of other services to the local community? And if they don’t have financial value how quickly do they go by the board as part of profit driven cost cutting?

Private providers are also heavily sold as a means to EMPOWERING PARENTS.

It is claimed that they would need to be more responsive to their consumers, in the same way that fee-paying schools are said to be. However most fee-paying schools are charities, so not for profit

There are already examples of for profit chains of private schools where parents have revolted because too high a proportion of the fee income was being siphoned off into hands of directors rather than ploughed back into the schools.

To be really viable private providers want and need chains of schools – these may not necessarily be in the same geographic areas.

As we are already seeing in the health service, costly procurement processes favour large, possibly multi-national corporations, at the expense of smaller locally based suppliers.

So one of the perverse consequences here might be that the introduction of private providers will in fact remove schools from their local communities, making it harder for parents to influence, seek redress or hold schools to account

Where once you could take you banner to the town hall, in the “for profit” future you might have to take it to Dubai, New York or Stockholm.

The counter argument is that parents would just take their children out of schools if they weren’t providing a good enough service, thereby holding schools to account. But parents don’t always act as rational consumers in this way. It is disruptive to move children around serially, especially if they are happy or have good friends.

Finally there is the not inconsequential issue of ACCOUNTABILITY AND TRANSPARENCY

There is already enough obfuscation about the funding of academies and free schools. They are exempt charities, so not obliged to file an annual return to the Charity Commission and even though academies are covered by FOI, the government often uses commercial confidentiality to block release of information about them. Performance tables show revenue and expenditure per pupil for maintained schools but not for independent state schools so again it is hard for parents to judge efficiency and hold to account. Once public services are fully outsourced it becomes much harder to “follow the public pound’ and judge value for money.

The English schools market always been diverse with many more different ‘types’ of school than exist in most countries But in spite of all these different types of schools there is little room for real diversity of provision.All non-fee paying/state schools, even so called “free” schools, are held tightly accountable by league tables and Ofsted via an increasingly narrow range of indicators. Real freedom to innovate is mythical.

The public sector isn’t perfect. There is much to celebrate, although we rarely hear about the many examples of excellence in the media, but (as in the private sector) there are also pockets of poor management, inefficiency, complacent performance and in some cases lack of responsiveness to the local community.  But creating yet more diversity of provision by the introduction of profit making schools isn’t the answer. The countries that have consistently good outcomes for pupils – and by that I mean equity and high standards – don’t have for profit schools.

Instead they build autonomy and a degree of diversity into strong locally accountable governance structure and a “middle tier’ that is usually municipal.  So rather than pursue more diversity by creating schools in which the public interest is so clearly threatened by private gain, we should be focussing on a clear and effective regulatory framework that can:

  • spot and prevent failure rather than acting when it is too late
  • ensure schools are held to account
  • ensure  that the public interest trumps financial incentives
  • safeguard the interests of pupils and the wider community.

It isn’t necessary to introduce a profit motive to do this.  Profit would undermine inclusion, social cohesion and the wider role schools play in society without necessarily improving standards for all.

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