10 April 2017

How to liberate education from the state’s stifling grip

By James Tooley

For the bottom third in the United Kingdom, schooling is not good enough. International tests show poorer students are less likely to succeed than their more advantaged peers. After years of compulsory state schooling, 16 per cent of adults in England are functionally illiterate, predominantly from the lowest tertile.

These problems are not recent. The IEA’s “impressive academic studies” convinced Rhodes Boyson, who was to become education minister in Thatcher’s government, of the need for “an extension of fee-paying private education”. This required “either a cutback in taxation and generous scholarships for poorer families, or a state-sponsored voucher system for all”.

With the Conservatives in power from 1979, the Secretary of State for Education, Sir Keith Joseph, wrote that he was “intellectually attracted” to educational vouchers. A national petition demanding them strengthened the case. Yet, at the 1983 party conference, Sir Keith announced the voucher was dead.

State education’s vested interests – Whitehall, LEAs, the teaching unions – saw only risk. Moreover, they had little understanding of how educational markets work: they argued that the “ebb-and-flow of pupils” would “create difficult management and organisational problems for schools”, ignoring that this ebb-and-flow of customers is the reality for businesses every day.

The IEA brought together a group of academics to respond to the objections. But crucially, they could offer no evidence of the functioning of real markets in education. So the market solution to education floundered in the UK. The idea faced similar problems in America. Milton Friedman expressed how he had been “repeatedly frustrated” over 50 years of advocating vouchers, by the “adamant and effective opposition of trade union leaders and educational administrators to change that would reduce their control of the educational system”. Progress towards Friedman’s universal educational voucher has been almost non-existent – nationally less than one per cent of American school children use vouchers.

The problem remains to this day. When Michael Gove was Education Secretary, we spoke about market-based solutions for educational improvement. He raised the same objection: without demonstration models of markets in education, he could not contemplate political reform.

Education thus remains an area where the economic free-market revolution has had zero impact. Which is why we need to demonstrate what a free market in education can do.

By creating a chain of low-cost, high-quality private schools, within reach of those in the bottom third of family income in the UK, we will do three things. First, we will provide a demonstration model to show that the poorest wish to access private schools, and that the private sector is able and willing to respond to demand.

Second, we will provide data showing how the chain raises educational outcomes compared with the state sector. Third, the chain itself will inspire competitors to enter the market, which will bring down costs, so making educational opportunities even more affordable.

As I point out in my book The Beautiful Tree, in urban areas of Africa and South Asia, 70 per cent or more of children use private education, including in the poorest slums. In poor rural areas, the figure is 30 per cent. Testing random samples of children, controlling for background variables, those in low-cost private schools significantly outperform those in government schools.

Bridge International Academies opened its first schools in 2009. It is now the largest chain of schools in the world, teaching 200,000 children across Kenya, Uganda, Nigeria, Liberia and India. Investors include Bill Gates and Mark Zuckerberg. A more modest chain, Omega Schools, backed by Pearson, now has 60 schools in Ghana and Liberia.

These chains have proven the free-market model for bringing higher standards to the poor at an affordable price. They’ve also inspired competition: there is frequently news of some entrepreneur setting up similar chains in Africa, Asia or Latin America. Within a decade of the first introduction of the idea, it has become a proven concept.

It’s all very well, readers may respond, to think of low-cost private schools in the slums of India or Africa. Obviously we can’t do the same here: everything would be far too expensive.

Actually, we can. Low-cost UK private school fees average £15,500 per annum – obviously out of reach for low-income families.

However, a rule of thumb in private primary education is as follows. Take the annual teacher cost to the employer and multiply by three. Divide by the number of pupils in the class. This gives the likely annual fee for that class. In a UK independent school, the teacher cost to an employer might be £45,000. Multiplying by three then dividing by nine (the average class size in posh independent schools) gives fees of £15,000 per annum.

But we don’t need to follow that model. In our low-cost school, we will employ fresh, new and so lower-paid teachers. We will have larger class sizes, beneficial for our “blended learning” model – where a judicious mix of teachers, technology and peer learning ensures high academic quality. (Class size has been shown to be an educational fad in any case, not related to academic achievement until some large maximum is reached).

An average annual teacher cost to the employer could be around £26,000. Multiplying by three and dividing by 30 gives a school fee of £2,600 per annum – exactly £50 per week over the full year.

We’ve developed a business model for this and tested our assumptions with some UK private school providers. It’s viable. A school with 120 children and 4 classes could return a surplus when full (after 4-5 years) of around £78,000 per annum. Some of this surplus could be returned as scholarships for the poorest.

The investment required will be a maximum of £150,000: because we envisage renting buildings, this money is for furniture and fittings, learning technology, books, refurbishment to quality school standards, and working capital to fund losses until break even.

As a stand-alone school, it’s an attractive enough investment proposition. It is very attractive indeed if you think of a chain of, say, 50 of these schools. Our model shows that such a chain would require an investment of around £8 million, and return around £3.2 million per annum once at capacity.

This article is not primarily aimed at investors, so we won’t go into further detail here: the point is that the business is financially interesting even with school fees of only £2,600 per annum.

So why are existing private school fees so much higher? Many private schools offer scholarships, so high fees can be a form of cross-subsidy. But prices are also driven up by expensive-to-maintain buildings, Olympic-standard swimming pools, planetariums and other fripperies.

But let me emphasise: low-cost does not mean low quality. Our private schools charging £2,600 per annum will be “low frills”, but they will be of high quality. We’ll cut costs by renting buildings and sports facilities. We’ll employ good new teachers and supplement their abilities with a powerful educational model and supportive team. We’ll teach English using phonics, to ensure that all children learn to read. We’ll teach mathematics to mastery, using software where appropriate to ensure all children advance. And we’ll emphasise good discipline, as requested by poor parents.

In developing countries, children taught in such low-cost private schools dramatically outperform children from the same socio-economic groups in government schools, in key subjects such as mathematics and English. As children perform better, so they are able to access further education or employment more readily or better create business opportunities themselves.

What causes the improvements overseas is that all incentives are properly aligned; the same will be true here. Parents will be paying fees (in full or in part), so will have skin in the game, demanding the best for their children. Teachers will know that their jobs depend upon delivering high quality outcomes and will not be able to hide behind excuses; parents will not tolerate low ambitions or aspirations. The company too will know that it can only flourish if its children succeed, retaining parents and attracting more.

With all incentives in the right direction, there is every reason to assume educational outcomes will also be better than in government schools, just as in the developing world.

And alongside the creation of the chain of low-cost private schools, we also want to raise philanthropic funds for scholarships, in full or in part, as part of a voucher demonstration model.

Even without scholarships, the model we are putting forward is affordable. Using figures provided by the Centre for Economics and Business Research, we see that an average family at the cut-off point of the bottom third of income, with an average number of children, is likely to have up to £72 per child per week available as discretionary income.

So if we were unable to raise any philanthropic funds to subsidise school fees, then a family at the top end of the bottom third of income – still some of the poorest people in the UK – would just about be able to afford the required £50 per week per child.

Of course this would mean cutting back on things such as holidays, cinema, eating out, toys and sports. But if families in the UK so favour private education that they are willing to scrimp and save, then we don’t believe judgement should be passed on their choices.

We can, in other words, create a low-cost private school in the UK for £2,600 per annum, or £50 per week. This is (just about) affordable to families at the top of the bottom third, and can be made affordable to the poorest of the poor with a scholarship fund.

We will start with one pilot school, probably in the north-east of England, marketed to target communities. There is no suggestion that this will be easy – parents in England, unlike those in sub-Saharan Africa and South Asia, take it for granted that state education should be provided free.

But we are heartened by high dissatisfaction we’ve found in small-scale studies amongst disadvantaged populations in the North-East, where 80 per cent said they would prefer private school if they could afford it and 20 per cent of parents said that they might be able to afford £50 per week.

We need only a few parents to get started, as operational losses for the first two years are built into the model. A few parents reporting back to their communities the success of the new schools, and further intensive marketing, will lead to slow growth of the first school. Marketing will become easier, although never easy.

Meanwhile, we will finalise our business plan to raise the significant investment for the chain of schools, and the scholarship fund. After one year, we open a second school, and after two years, another five schools. In three years, if all goes to plan, we could expand to 20 schools, and in five years to 50 schools. This is how the African chains of schools expanded, and there seems no reason why we can’t emulate that here.

Early on, we will go after significant publicity. With The Sun or the Daily Mail onside, we will convey the miracle of low-cost private schools, operating at less than half the cost of state education, and serving low-income communities better than the government alternative.

Through such publicity, government can be encouraged to revisit the issue of financing education. Why not give vouchers to parents, so that they can make the educational choices they prefer? Inspired by the publicity and our success, other entrepreneurs will enter this market, just as is happening in developing countries. Competition will lead to further innovation – some chain will no doubt bring in fees lower than £50 per week.

Soon, a competitive market in low-cost private education will emerge. As will a further advantage of our model. Because of education’s important role in the economy, an improved education system – improved because of innovation and competition from the private sector – will lead to economic improvements to the economy as a whole.

For those who believe in free markets, it’s an anomaly that education – so important for societies to function and for individuals to flourish – is so firmly under state control. Creating a chain of low-cost, high-quality private schools, affordable to those in the lowest third, that will stimulate competition in the sector, and which will encourage government to revisit educational financing, is a compelling route to improve the lot of the poorest in this country.

State education systems are harmful, delivering poor quality and low expectations. But the proposed solution does not require any political change at first. Politicians, constrained as they are by the tyranny of the thinkable, do not have to be persuaded of any arguments here. When there is a critical mass of people ready for change, then ministers can act in complete safety.

Let politicians huff and puff about their essential role in education; they’ll be huffing and puffing to catch up when they realise the world has moved on to its private future.

This was a shortlisted entry for the Richard Koch Breakthrough Prize, organised by the Institute of Economic Affairs. 

Read the winning entry on why Britain needs a free market in taxes, and the other shortlisted entries on why we should scrap Britain’s planning laws, how to boost entrepreneurship among the poorest, the case for expanding private tutoring and how to liberate the education system from the state’s stifling grip.

James Tooley is professor of education policy at Newcastle University. He is the author of The Beautiful Tree (Penguin)