Profit warning – schools neither better nor worse in Michigan

“A recent report examining Charter Schools in Boston found that for-profit providers managed to raise mathematics scores by more than half a standard deviation per year in middle school, compared to non-profit provision.”

This is good news for students at Charter Schools in Boston (Massachusetts not Lincolnshire) with an interest in maths and a worryingly large chunk of Policy Exchange‘s case for allowing for-profit providers to own and run state-funded schools in the UK.

That said, if you’re not satisfied, there’s plenty more equally underwhelming evidence where that came from, including: “Research undertaken by Hill and Welsch compared Charter Schools operated by for-profit and non-profit providers in Michigan over a four year period (between 2002 and 2005). The model was controlled for student and district characteristics and the results concluded that the type of ownership of a school (profit or non-profit) does not affect the delivery of education services in either a positive or negative way.

Charter Schools are the US equivalent of Free Schools although, unlike UK Free Schools, they can be run by for-profit providers and 56% of them are – as are 64% of Free Schools in Sweden. Policy Exchange, a centre-right thinktank with strong links to prime minister, David Cameron, think that for-profit providers should be allowed to set up UK free schools too. The above quotes come from its paper, Social Enterprise Schools: A potential profit-sharing model model for the state-funded system, which was launched last week.

Some readers might be surprised that these quotes are from a report in favour of this form of marketization rather than against it but it’s quite possible that ‘for-profit providers don’t make things worse’ is as good an argument as they need to make at this point.

This is partly because – I write, preparing to duck flying objects from friends and family members in the teaching profession – I see no obvious reason why the fact that the people ultimately owning and managing a school are able to make a profit from doing so should, in itself, make the academic performance of pupils in that school worse. And partly because politicians on all sides seem ready to listen to more or less any idea for public service reform that might save them a bit of money, even/usually in the short term.

Rather than actually proposing a ‘profit-sharing model’, the bulk of the report is actually made up of similar, lengthy attempts to convince readers than profit-making in public service provision not bad or dangerous. So, a section on existing private sector provision of nurseries, special schools and pupil referral units is hammered home with the point that:  “There is a very obvious intellectual incoherence to arguing against allowing any element of profit making within the mainstream schools system when profit making companies are already successfully providing educational services to our most vulnerable children i.e. children with special needs and very young children.

While those who argue that children and young people are inherently more likely to be mistreated in an educational setting run by a for-profit provider may struggle to make that (not very sensible) argument coherently, I imagine a very small percentage of those who object to for-profit provision of mainstream education do so for that reason.

A more widely held, and quite coherent, view is that given the limited resources we have to spend on state-funded education, it would be better if as much as possible of that money was spent on actually delivering education rather than on paying dividends to investors in for-profit schools.

The question, I would think, for most parents and young people, is not will the sky – or the school roof – fall in if for-profit providers are allowed into mainstream education in the UK but ‘what positive social benefits might they deliver that couldn’t be delivered by non-profit or state providers?’

Again from the US, we’re given the example of Charter school-chain, Edison Education:  “Edison is the oldest EMO (education management organisation) in the USA, opening its first four schools in 1995 having spent three years developing their school design. It has since become one of the USA’s largest Charter School management organisations and was running more than 3,600 schools by 2006… Edison Education operates on a 5% margin.

Research into Edison’s work undertaken in Arizona may shock some readers:  “Its findings demonstrated that for-profit organisations operating as a chain are likely to generate efficiencies by pooling together resources, research and development, best practice and information processing.

And, er… : “In the case of Edison, they translate their principles to all elements within the schools, with incentives reinforcing this. Longitudinal case studies of 25 Edison schools indicate that schools which succeeded in sufficiently implementing all of the Edison principles also show the highest level of student performance.

So, there you have it, economies of scale reduce costs and Edison’s best schools are better than some other ones where they haven’t managed to get their employees to follow their ‘principles’ quite so well.

If you’re not particularly sold on the social benefit of massive corporate school chains saving money on back office before paying it to their shareholders, then there’s always increasing capacity in the system.  We’re told – based on Swedish experience – that successful non-profit free schools choose not to expand while profit-making schools, driven by desire for more profit, do so.

But is this the full explanation for non-profits not scaling up? Or will the arrival of Big Society Capital change the situation for successful free schools in the UK by enabling them to get the cash to grow if they want to – and people want them to.

Social Enterprise UK, chief executive, Peter Holbrook, was unhappy at Policy Exchange’s use of the term ‘social enterprise’ to describe a model of for-profit school that distributes 50% of its profits to shareholders. He said: ““We need to be very clear about the difference between the private sector and social enterprise. Many charities and not-for-profits are now badging themselves as social enterprises and our sector is growing. It is a real asset to the UK. It would be dangerous for our sector if social enterprise was adopted by the private as a convenient badge to take advantage of current trends.”

That seems sensible to me but, either way, if you don’t see providing more opportunities for investors to make a profit as a social good in itself, the case for for-profit schools is not a clear one.



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4 responses to “Profit warning – schools neither better nor worse in Michigan

  1. David, it would be me least of all, to disagree with Peter about the risk of social enterprise being hijacked by business. After all, we have an example to illustrate it. After I tweeted it today, I gained Peter as a new follower.

    I’m sure you’ve been wondering at the sudden clamour to be seen to be a social form enterprise. Mark Zuckerberg’s recent ‘coming out’ being a classic example – “We aren’t really a company” Even the RBS sponsored Social Enterprise magazine was taken by surprise.

    It was a Facebook comment that brought this to my attention just days ago. The top 20 names of signatories to the Principles for Responsible Investment have a combined worth of 30 trillion dollars. Zuckerberg is gearing up Facebook for an IPO and he’s not paying attention to the chrysalis which is Big Society Capital:


  2. David, in the capacity as a Mother and Parent Governor (and not as SFUK), the over-whelming case for for-profit schools is to encourage expansion in order to address the crippling shortage of school spaces. Our local town is being regenerated (well, there’s an awful lot of talk about regeneration) and the starting point is housing – yet the infrastructure isn’t in place to support more families. If for-profit schools are more motivated to grow in order to increase profits – and as long as that profit isn’t generated by squeezing more cash out of desperate parents and it is used for community benefit – then surely it makes sense? And do we need to worry about how to define them?


  3. Beanbags admin

    Hi Sara,

    I understand there’s a need for new schools, I’m just not convinced the model being suggested is the answer to the problem. If the suggestion was that profits were re-invested in the community, it would be a different issue. Policy Exchange are suggesting a model where 50% of profits are reinvested in the school (not distributed) and 50% are paid out to shareholders.

    The problem is that investment by for-profit companies in setting up a schools business doesn’t bring extra money into the social economy on a long-term basis. It brings in money on a short term basis that the state effectively repays in dividends that – see A4E – may be heavily out of kilter with the initial investment. It’s true that some companies might go bust and not make their investment back but they’re not reducing the costs of education in the process of doing so.

    Temporarily leaving any ideological or philosophical issues aside, if for-profit schools aren’t going to actively reduce costs – to the buyer – then they don’t solve the problem of lack of resources to pay for schools to be set-up.

    The effect of introducing for-profit providers into the market is (at best) to postpone that problem for a while but in the long-term it’s more likely to make it worse. There’s no reason why councils shouldn’t be able to develop new schools if local people want them to but an alternative option is that more free schools could be funded through loans/social investment – they still have to be paid but once they have been paid back the community owns the school, and 100% of profits can be spent on education.


  4. There’s the rub David, it was the P-CED model of ‘at least 50% of profit’ re-invested into the community that we introduced to the UK in 2004 with a business plan. In 2005, I’d described this and our earlier work in a letter to SEC chair Baroness Thornton. She never responded:

    An impossible dilemma for SE UK. The social model is ‘not invented here’ and the 50% profit model ‘not wanted here’

    Meanwhile on Education, what Seth Godin is saying in his Stop Stealing Dreams manifesto, may be of interest:


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