Can the Government cross the for profit Rubicon


Michael Gove, the Education Secretary, has always been in favour of opening up the supply side in education and likes the idea of parent- led groups, community organisations and not for profits helping  to set up new free schools.

But he has shied away from allowing private companies to profit from running state schools.  Too politically sensitive, he believes. In short, a stick with which unions can hit the Government.  He told the Hay Festival this week (quoted in the Guardian 1 June ) “  I am a Conservative, I do not have an ideological objection to businesses being involved, but the professionals should make that decision,” Gove intoned “My view is that school improvement will be driven by professionals, not profitmakers.” As if education professionals and profit makers are two different species.

While trusting the professionals, he also says that he would listen to parents to see if they want profit making companies involved. Are his comments a nuanced shift in position in favour of the private sector?  Possibly. We know that there are voices in the Tory party keen to allow profit making, pointing out that it already happens in state education. And the architects of the so-called  ‘Swedish model’,  much admired and invoked by Gove ,say that the  free schools revolution in Sweden would not have happened, without the profit motive as a key driver.

There are some in the party (yes there are cracks, but not divisions) who think that the Tory leadership is so keen  to offer their communitarian  credentials that they  risk looking  hostile to private enterprise and the profit motive,   which are  so deeply rooted in the Tory tradition.

Goves rhetoric has certainly favoured  parent, not for profits and community groups. He has said the groups with whom  his department was in  discussions  in connection with running academies were not-for-profit organisations (but you can bet the New Schools Network and some parents groups  has been talking to for profits)  .  But he has also suggested before, to the Times, that he was not opposed to private sector involvement in running state schools.

Companies can, as it happens, already make profits from schools under existing legislation that allows governing bodies to contract out services, under an arrangement known as the management fee  or Edison model. However, this approach was not encouraged by the last government. However,  the system of charging management fees is now  being seen by some  as a way to incentivise private firms to run schools. Just one pioneering school has been allowed to do this, so far,  in England- Turin Grove school in Edmonton, north London .The management fee was  paid to Edison Learning which has a  sound track record of running Charter schools in the States. In April 2007, the governing body, working with the local authority, granted a contract to Edison Learning, to lead and manage the school for three years.

Of course there are some very good not for profits out there, particularly in the education sector who have proved themselves. Indeed, more involvement from them marries well  with Tory ideas about  the Big Society, as opposed to Big Government. They will play an important role in supply side reforms, and so they should.  But  it is  also true  that  not for profits don’t have access to the financial muscle and capital enjoyed by companies in the private sector, and capital is precisely what will be required to truly  revolutionise the supply side in education – and deliver Goves vision . Indeed one of the concerns over these reforms is how they are going to be paid for, and where the capital is  coming from. Indeed critics suggest that funding is not currently available to fund such rapid expansion and surplus places in the system. And not for profits, while keen to be involved in this revolution, are worried about the lack of clarity on the capital issue too.

And what about the profit motive? Ask not for profits whether they aim to make a surplus every year and they will respond in the affirmative. The  Private sector calls a surplus- a profit. And you will find that most charities subscribe to the dictum- no margin, no mission.

The  reality on the ground is that the way Charities, social enterprises and private sector companies operate nowadays is not so very different. Sure, Charities must demonstrate  they deliver public benefit and Social enterprises that they have- social or environmental objectives- but they are all informed now by commercial disciplines and have to compete for contracts in the market. They are all staffed by professionals with an eye  on the bottom line. All are generally enterprises in which assets are held and business transacted in the name of the enterprise rather than the individuals involved. To survive grow and be sustainable, all need to generate or bring in more revenue than they spend on operations. All are involved in producing a good or service , ostensibly for  society (although the robust  public benefit requirement for charities  is a significant factor in ensuring their status). Some of the surplus or profit is re-invested in the organization (although laws, especially tax laws, place limits on how much non-profits are allowed to re-invest) either to replace aging and worn out assets (buildings, machinery, etc.) or to acquire new assets needed to expand and develop the organization. However, it is the distribution of the remainder of the profits that is one of the key differentiating characteristics between for profit and non-profit organizations. In a for profit organization the profits that are not re-invested in the organization are distributed to the owners of the corporation as cash. In the case of a non-profit organization the profits are used to provide goods or services to the group or groups the non-profit was formed to benefit. Of course there are other differences in for instance their governance which we need not to go into here. But sometimes it is very hard to distinguish objectively how a charity differs in the way it operates from a private sector company. So its not the issue of surplus that really matters its what you do with that surplus that is the issue.

But it is worth remembering that a private company  would only really wish to become involved in state schools if it was permitted to create chains of schools and secure the economies of scale that go with that. So they would seek to invest their surplus from any engagement with state schools in that chain to create a sustainable model.

So call it what you like surplus, profit or margin. It is not such a big deal after all ,particularly as Governments have  already permitted the private sector to make profits from just about every aspect of state education, whether its in providing   learning support  materials, exams and tests, big government contracts (Literacy and Numeracy), schools inspections, management of special schools, prisoner education, teacher training, local  school improvement services,  research and evaluation, running local education services , supporting Academies and so on. Even, as we have  seen , managing  a state school. So, whats the big deal? . The private and not for profit sectors should  both have a role in running state schools and let them compete to deliver  real choice to parents. What is striking about the new political landscape is how politicians agree on ends-better quality public services, better schools, more equity and social justice. They quibble over means. But a diversified  supply system is much more likely to deliver  to consumers what they  want, with their different preferences ,than a one size fits all model. Its not rocket science.



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