Gabriel H. Sahlgren: A lesson from Sweden - the free schools revolution requires profits

Gabriel H. Sahlgren was a Visiting Research Fellow at the Institute of Economic Affairs and is the author of Schooling for Money: Swedish Education Reform and the Role of the Profit Motive.

In a fresh blow to the coalition’s free school programme, Nick Clegg has pledged that for-profit schools shall remain banned. This is unfortunate and does not make sense. By displaying continuing hostility towards profit-making schools, his ideological convictions are at odds with his progressive goals: without the profit motive, the prospect of a broad-based free school revolution - with the potential of increasing social mobility and improving educational standards for all - looks grim.
 
Consider the programme’s track record to date. By the end of September, over a year after the reform, only twenty-four new free schools will have opened up shop - of which four already existed as private schools. Unsurprisingly these schools will predominantly serve middle class pupils. The problem is that parents in less privileged neighbourhoods, unlike those in richer ones, rarely start or actively seek to promote new free schools. Currently, strong incentives to enter the education market, especially in poorer areas, are clearly absent - and these incentives can only be produced by allowing profit-making schools to operate.

What is the fuss about profits? The debate has focused much on Swedish for-profit schools - an integral part of the reform Education Secretary Michael Gove chose as a model for his own - which have been accused by various commentators of producing lower educational standards. Is this true? Up until recently, there was little evidence with which to back up ideological and anecdotal claims on both sides of the debate. My statistical analysis, published by the Institute of Economic Affairs, however, tells a story much different from the doomsday predictions. In the preferred model, Swedish for-profit schools perform 16.3% higher than municipal schools, and on par with non-profit schools, in terms of average grades. Also, the results suggest that for-profit schools especially benefit pupils from lower socio-economic backgrounds. In other words, I find no evidence that profit-making schools conform to the critics’ fears. The opposite is true.
 
Furthermore, whereas 13% of all Swedish schools are for-profit, only 6% are non-profit (with the remaining 81% being municipal schools). And while education companies start new schools and expand into new municipalities, non-profit schools remain small, selective operations. Without the profit motive, the incentive to scale up and replicate educational success is simply not there. There is nothing wrong with non-profit schools, but they are not reliable for the purpose of increasing choice and competition significantly - especially not in poorer neighbourhoods.
 
This also has negative implications for the effectiveness of the Lib-Dems’ cherished "pupil premium". The "pupil premium" - designed to give more money to schools with poor pupils - would give education companies especially strong incentives to start schools in less privileged areas. Yet, by banning such education companies from entering the market, the government destroys these prospects.
 
So much for the critique against for-profit schools. In general, it is baffling to note the failure of free school critics, including many Liberal Democrats, to accurately report the evidence from Sweden. If we were to believe the critics, school competition - spurred by for-profit companies - is to blame for everything that is wrong with Swedish education today. But, in fact, all academic research displays at least some positive effects from Swedish school competition on educational achievement. There is certainly no evidence of any negative effects.

It is true that Swedish pupils perform worse in international comparisons, such as PISA, today than before the free school reform. But correlation is not causation. There were many other reforms carried out during the same period. For example, due to educationalists’ disdain for "teacher-centred education’, teachers have been reduced to bystanders in the classroom, while education courses have been dumbed down to adapt to lower student quality. Since international research finds that teacher quality is the key variable determining pupil achievement, these developments have clearly been negative. There are other examples, such as the removal of the bell curve as a basis for grading, which, combined with a decentralised grading practice, led to grade inflation. But these changes have nothing to do with the free school reform per se.
 
Since all research points to positive effects on achievement of Swedish school competition, it is highly likely that the free school reform in fact dampened Sweden’s fall in international tests during the 1990s/2000s. This interpretation is further reinforced by an OECD study from 2007 - analysing PISA scores in mathematics and science from 265,000 pupils in 37 countries - which finds that competition from private schools generates higher grades: up to two PISA grade-level equivalents can be explained by differences in private school operation across countries.
 
Rather than closing the window on the profit motive in education, therefore, Nick Clegg and the Lib Dems should pay more attention to what the academic research says. Nothing suggests that the British education system would deteriorate, or become more unequal in terms of pupil achievement, by allowing for-profit schools to operate and therefore spur competition significantly.
 
It is time for the Lib Dems to drop their rigid ideological position, and realise that there is no trade-off between allowing profit-making schools and ensuring a good education for all. Rather, without the profit motive, a truly progressive free school revolution will not materialise and remain but a dream.