Is there a place for the profit motive in state schools?

I had a brief period in my career when I used to speak at lots of conferences and events. It was the era of specialist schools and of sufficient funding, and there was a real buzz around sharing innovative practice (if you’re too young too remember then trust me, it really was like this for a while). My school had been developing some interesting approaches within our specialism and other people wanted to hear about it. It was like ResearchED, but much more ‘progressive’ and state funded.

In return for releasing me, my school received a payment (supposedly to pay for cover for my lessons). My school were happy to release me as it helped build the school’s reputation, grow networks and find out about other interesting projects and approaches. The payment received was more than enough to pay for the cover needed, but probably less than it cost them to employ me for a day. There was no surplus generated from this activity for the school in monetary terms, but the willingness of schools to release people like me meant that the system as a whole benefited from the exchange of educational practices. The school system was enriched, and our school was part of that self-improving system.

One of the innovations I wanted to get off the ground was an online portfolio tool for helping students capture what they had learnt through various extra-curricular activities. We were a Business and Enterprise school and were into employability and work-place skills. The networks I had built up proved very useful, and I was offered the chance to develop this tool with sponsorship from a large, multi-national company. It was a fascinating experience and I learnt a great deal about small-business start-ups and software development. We set the venture up as a not-for-profit company and sold licences for this tool to schools all over the country. It was quite successful for a while but, like all start-ups, it was a struggle to generate a surplus. Had we managed to, my school would have received some of this surplus as a shareholder and intended to put this money back in to educational projects. However, in the end we made the decision to fold the venture. I secured promotion in another County, leaving my progressive/capitalist experiment behind me.

What has reminded me of these heady days is the announcement in Schools Week that Ark Schools is developing a school curriculum programme which it plans to sell to other schools. Ark have invested heavily in not-for-profit ventures and has stated that any surplus revenue from sales will be reinvested in curriculum development work.

The announcement has attracted some criticism on Twitter. The objections appear to be made on ideological grounds; that publicly funded schools should share expertise and resources freely as we are all part of the same system. The assertion is that generating a ‘profit’ (note that it is actually a ‘surplus’ not a ‘profit’, technically, but the term profit is more commonly understood by anyone who isn’t in to corporate structures) from selling services or products is somehow immoral.

Setting aside the ethical implications for a moment, let’s consider this from an economic perspective.

For an industry to flourish and be productive there must be a level of investment in innovation. Innovation can make the delivery of a product or service more productively efficient (i.e. bringing down the average cost of production) and increase the quality of what is provided. This is known as dynamic efficiency. The school system, as much as any industry, needs to be dynamically efficient. In fact, there is arguably a moral duty to ensure this is so. There is a duty to use tax payers money efficiently and a moral imperative to ensure young people receive the best possible education.

In terms of curriculum innovation, dynamic efficiency means ensuring sufficient investment in innovation to deliver the highest quality curriculum materials at the lowest unit cost.

How might this be achieved?

Imagine a system whereby schools are banned from charging for curriculum materials. In fact, take this one step further and imagine that schools are compelled to share all its materials without charge. Also, for the sake of the thought experiment, no third parties (government or private sector) are permitted to invest, develop or provide curriculum materials. In such a system, schools use the public money they receive to develop materials to meet the needs of their cohort. Schools would innovate to the extent that limited funds allowed, but only projects requiring minimal levels of investment would be possible.

In the system described, who would write text books? Schools could each write their own text books, but this would be grossly inefficient. Alternatively, some schools could write text books and provide these free of charge to all other schools, but what incentive would there be to do so? And who would decide which schools carried the can for all the work required? Clearly such a system is not equitable or plausible. There must be some pooling of resources, some arrangement by which certain curriculum materials are agreed to be developed centrally. Without such arrangements, we have worksheet hell.

There are three solutions to the above problem. The government could commission text books and provide these for free, or for sale, to schools. Alternatively, the private sector could compete for school’s custom through a market for text books. Lastly, property rights could be enforced such that schools have intellectual property rights over the materials they produce and the permission to sell these to other schools.

Which of these solutions is the most dynamically efficient?

All three approaches have merit. In a system in which all schools teach fundamentally the same curriculum, a state monopoly in text books might be logical as it would be inefficient for multiple providers to be developing the same materials (although this may not result in the highest quality books). However, since the liberalisation of the National Curriculum, and given the choice of exam boards for GCSE, a one-size-fits-all approach is not optimal. Involvement of the private sector means economies of scale are possible, and competition should drive down costs and improve quality. However, there is limited incentive to keep re-writing text books and this industry provides quite generic materials to suit the widest audience, rather than books tailored to a particular curriculum model or pedagogical approach.

The third option, allowing and incentivising innovation by schools, is the most likely to result in text books (or other curriculum materials) that are tailored specifically to a particular model of schooling and curriculum delivery. The ‘bottom-up’ innovation promoted by this model will likely result in more diverse and distinctive curriculum materials. By allowing schools to enter in the market for curriculum materials, customers are able to see ‘proof of impact’ in a way that is not possible through the materials produced by private sector providers. However, economically, creating a market between schools for curriculum materials may not be the most dynamically efficient as this may promote multiple agents working on fundamentally similar materials.

From this economic perspective, there appear to be distinct benefits to allowing a school-to-school market in curriculum materials, but with some caveats.

Why, then, does this option seem so distasteful to many?

One objection is that allowing schools to sell resources introduces market ideology in to a state education system, and that this will somehow degrade and corrupt the system. Clearly the private sector is already involved in providing curriculum materials, most notably text books, but the divide between private-sector and state-sector in the provision of text books is clear. Once schools begin to trade in goods, the fear is that this will undermine the free sharing of resources. I have sympathy with this argument to an extent. We are all in this industry to ensure that the children of this country (or even the world) receive the best education possible, and the open sharing of ideas and materials fits this ethic well. However, if this ethic means that there are not the incentives or means to deliver certain types of materials (as is the case with text books) then we would be remiss to refuse to consider other models of service delivery. A mixed-economy appears to be best and, where concerns exist about public sector providers entering in to commercial arrangements, I would advocate regulation rather than prohibition.

Another objection is that one school will be drawing funding from another school through its commercial endeavours, and this will affect the equity of distribution of resources i.e. some children will have more spent on their education than others as a result of commercial acumen rather than student need. There is some emotive power to this argument. However, the current private sector involvement in providing curriculum materials means that tax-payers’ money is being diverted to profit. Surely, to retain these funds within the public sector, for the benefit of reinvesting in research and development, or even spending surpluses on the education of students in the here and now, is preferable to this surplus being distributed to shareholders of private sector providers? Should we be more concerned about equity than about overall welfare in this debate?

Perhaps the strongest argument against allowing state schools to operate commercially is one of risk. Entrepreneurial ventures often fail. There are moral consequences for schools if they invest tax-payers money in commercial ventures and fail to cover the costs. Whilst we may accept schools generating surpluses, it is harder to accept schools sustaining deficits as these will degrade the educational provision for the students in their school/s. For this reason, I would not allow schools (or MATs) to invest revenue funding in entrepreneurial ventures. Start-up funding should be limited to government grants or sponsors and, whilst surpluses could be reinvested in the venture or be donated to the venture-owning school/s, ventures must be set up as separate entities to the school and ensure limited liability such that deficits are not required to be met at the expense of students’ education.

The debate about commercial activity by schools tends to be polarised by ideology. Personally, I believe the ethics need to be carefully considered, but the economic rationale should not be ignored. I would like to see some entrepreneurial activity re-emerge in our state-funded school system as we are lacking the optimism, energy and spirit of innovation that existed pre-austerity. We should take a pragmatic view, promoting economic dynamism whilst mitigating against the ethical down-sides of the animal spirit.

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