The Profit Motive in Education: Continuing the Revolution

Education reforms at risk unless government allows for-profit free schools

The government’s flagship schools reform policy will fail to make a substantial difference unless the government allows for-profit companies to provide free schools.

A new IEA report published today, The Profit Motive in Education: Continuing the Revolution, argues:

  • For-profit schools were the key to the success of education reform in Sweden.
  • 11% of children in Sweden now go to the equivalent of free schools.
  • More than 60% of Sweden’s equivalent of free schools are run as for-profit limited companies.
  • Merit value (the average value of marks received by pupils) across all Swedish compulsory schools in 2011 was 211 points (max. 320 points); in the equivalent of free schools alone it was 229.
  • Allowing for-profit companies to set up free schools is the key to increasing investment and competition in education.
  • For-profit providers would create the innovation that is desperately needed to improve pupil performance.
  • For-profit providers would promote co-operation across a “chain” of schools throughout the country with regard to teaching methods, curriculum provision, assessment and so on. Currently, this is rare in the state system. Such cooperation lowers costs and allows more investment at the chalk face.
  • For-profit providers could take advantage of economies of scale in overcoming the regulatory and bureaucratic obstacles faced by those setting up free schools.
  • As well as investing capital, for-profit providers would take the equity risk of failure.

In the report Toby Young, free school founder, argues:

“Thanks to the complexity of the process, the scarcity of suitable sites and the government’s limited capital expenditure budget, I cannot see more than a few hundred free schools being established in the lifetime of this Parliament… The obvious solution is to enable for-profit companies to set up, own and operate free schools provided they soak up all capital costs.”

The report also examines the role of profit in education more broadly, looking at lessons for the UK from the existence of profit-making universities in the US and the role of private schools in the developing world. It recommends:

  • Ending all discrimination against private providers – so public funds follow parents’ choices about education provision.
  • Abolishing all corporation and capital gains tax on for-profit education companies.
  • Informing parents of the annual cost of their children’s education – this would help parents to know whether they are getting value for money and would provide potential private providers with important information on the costs of government schooling around the country.
  • Private providers should establish an associati