Why schooling should be opened to the for-profit sector
Schools are not the only way for children to get an education, but they are a central one. And even libertarians like me, who argue the government is too large and intrusive, accept that there is a role for governments in ensuring all children are educated. Nobody wants children to grow up without the skills necessary for them to become productive members of society due to poverty or parental failure.
That means making schooling compulsory for ages six through 16, enforcing minimum standards and, at least in some cases, spending taxpayers’ money.
Schools receive taxpayer funds in a convoluted fashion. For the most part government schools are allocated money by state governments, while non‑government schools are funded by the federal government. Overall, government schools receive more taxpayer funding per student. In addition, there’s a system of government grants for various projects. This not new, but became prominent thanks to Kevin Rudd’s “school halls” program.
This system is needlessly complex and bureaucratic. A better funding approach would be to allocate taxpayer funds to children based on their circumstances and those of their parents, with parents free to choose the best school for their children and contribute extra if they think it will help. Provided the level of taxpayer funding for the poorest parents and children is sufficient to ensure a sound education, and takes account of children with special needs, this approach can be equitable.
Such an approach is often referred to as a “voucher system”. With funding attached to children rather than allocated to schools, it results in schools competing for students on the basis of quality and price. There is no real need for governments, state or federal, to own schools or employ teachers. Subject to meeting standards, a school run by a church or community group could compete on equal terms with a government-owned school.
Unfortunately, the politics of education are fraught, which means this goal is some way off. There may be a need for intermediate steps before the community is comfortable with the idea that the government’s role is to ensure all kids receive an education, rather than to provide that education.
One such step would be to counter the notion that schools should not operate as businesses with the intention of making a profit. A truly competitive educational market, with all the benefits that competitive markets deliver, is far more likely if for-profit schools vie for students alongside not-for-profit providers.
Currently, state governments do not permit for-profit schools, either explicitly or by denying them funding. Moreover, federal funding of for-profit schools is expressly prohibited. Even if they were permitted to operate by the states, they couldn’t do so on the same terms as other schools.
If they were permitted and could attract funding, for-profit schools would offer a service that is not currently available. While government schools offer free education, religious schools offer religious education. Many other not-for-profit schools cater to parents for whom high fees are not a barrier; indeed some compete on the basis of how high their fees are.
Given that for-profit childcare centres are important contributors to early education, and for-profit universities are increasing options at the other end of the educational process, it seems reasonable to expect that for-profit schools would offer a quality education at fees below those of established not-for-profit schools, particularly for those not keen on a religious education.
There seems to be little reason for an effective ban on for-profit schools other than an anti-profit mentality among policy-makers. Private investment in school education is stifled by the inability to apply the profit motive.
The current fee-charging, not-for-profit schools use their surplus funds to deliver generous remuneration to the people who run the school and to gold-plate their playing fields. For-profit schools would be more likely to use surplus funds to expand their market share, by lowering fees and investing in outcomes sought by parents.
Allowing for-profit schools, and extending existing subsidies to them, would cost the taxpayer nothing. It would have no impact on the total number of students being educated and subsidised. And if students moved from government schools to for-profit schools, taxpayers would actually see a modest saving under current funding arrangements.
Schools run on a for-profit basis should be free to participate in the education sector on a level playing field. It would give parents and students greater choice and governments less need to be educators themselves.