The Returns to a Good Education

William lives with his two young children in a small tin house on a narrow road in Lagos, Nigeria. He sells vegetables for a living at the local market. William does not have a formal education, but he knows that education is the route to a better life and, like every parent, he wants the best for his children. He could choose to send them to their local public school, a large and recently renovated building, but he hears from his neighbors that the teachers are often absent. Instead, he spends much of his meager income on fees at one of the local, low-cost private schools. He knows the owner, and believes that she is serious about giving his children a better education and the life chances that he never had.

This was a high-stakes decision for William, and he is not alone. Every parent needs to choose the schooling option they believe will give their child the best possible education. And across Africa and Asia a clear trend is visible: Parents like William are voting with their feet and turning in their collective millions to the private sector.

While parents all over the world are making these practical choices on a daily basis, in London and Washington, policymakers at the UN and elsewhere are also talking about education, but it is ideology not reality that drives their debates. Last month, for example, the Special Rapporteur on the right to education submitted a report on the explosion of the private schooling sector from a human rights perspective to the UN General Assembly. While the report notes that every child has the right to a high-quality primary education, it contains deep suspicion of non-state education, particularly for-profit providers, and concludes that education is a public good that the state should provide.

But with more than 70 percent of children in Lagos and many other cities already in private primary schools, we need a far more pragmatic and outcomes-driven approach. The heartbreakingly poor quality of education in both the public and private sectors is the real challenge, not the false dichotomy between the two. Every child has the right to access an education that unlocks her potential, no matter what school her parents choose.

In some countries a third option unites the two sectors in a public private partnership (PPP) for education—a policy that enables the state to regulate, quality-assure, and finance privately managed schools. It is the framework under which Ark operates its 31 primary and secondary academy schools in the UK, and KIPP its 125 charter schools in the United States.

Seeing the benefits that PPPs can bring to strained public education systems, fledgling policies are emerging in many emerging markets. From Delhi to Johannesburg, Kigali to Karachi, progressively minded governments are considering experiments that leverage the entrepreneurialism, innovation, and capital of the non-state sector to improve learning for poor children. But this is a difficult arrangement to get right; policy makers need to consider the impact that the PPP will have on government, schools and, most importantly, learners and their parents.

Ark is supporting a number of government partners as they consider establishing PPP policies, and in doing so faces the same question time and time again: Should PPPs allow school operators to draw a profit? In a socially important, fiscally lucrative, and heavily unionized sector, profit can be a dirty word. As the UN report showed, discourse quickly becomes ideological in arguments about the marketization of education and the “true” agendas of all parties. But if school operators are delivering learning outcomes and improving education for the poorest, is it possible to retain a moral objection to profit?

Limited volume of school operators

In the slums in Delhi, and the suburban townships outside Nairobi, a significant risk to PPP policies remains the same: the limited supply of quality operators ready and able to manage schools. In a world where government resources for education are dwindling, we urgently need new financing options. Commercial operators have increasingly found alternative capital, and can expand more rapidly than school chains reliant on philanthropic capital. And excluding commercial capital from a system reduces the number of would-be education entrepreneurs.

This perspective resonates with Spark Schools, a for-profit start-up network in South Africa that is already making waves with its handful of schools in Johannesburg. Spark believes that a model reliant on charitable subsidy rather than commercial capital is not viable. Without commercial investors (including Pearson’s Affordable Learning Fund, or PALF), Spark would not have a chance at scaling its impact. Schools run at a cost roughly equivalent to the government’s per-pupil expenditure, aiming to demonstrate that significantly higher quality is possible at the same price point, even in a for-profit model.

Other school operators point to the efficiency and accountability incentives brought by commercial finance. Bridge International Academies in Kenya, a for-profit chain with more than 300 schools and 100,000 learners, believes that its commercial drivers force schools to contain costs and set the network on the path to sustainability far more quickly. And it makes schools accountable to parents (their customers) who could choose to move their children elsewhere if dissatisfied.

Often the oversight provided by for-profit governance structures is beneficial to the sector as a whole; it holds management accountable for outcomes from both their shareholders and the government. PALF stipulates in all its shareholder agreements that schools need to report learning outcome metrics quarterly, along with financial performance. This ensures that companies focus on running an efficient operation and delivering results for their students.

Profit—a tough political sell

Despite these benefits, there are few examples of geographies that have allowed for-profit PPPs from the start, although many governments, including Punjab in Pakistan, have adopted voucher programs that include for-profit schools. Governments embarking on PPPs are already taking a progressive stance and will face fierce opposition from politically powerful domestic vested interests—particularly teacher unions. Allowing for-profits in may simply be too politically explosive.

This calculus is not unique to emerging markets. In the UK, the Conservative government recently pledged that it will not allow for-profit schools, in an effort to defuse tensions with the teaching profession before next year’s election. And in Rwanda, even with its highly empowered central government, is not even entertaining the idea of for-profit PPPs, because it would trigger hostile opposition.

The difficult double bottom line

In many emerging markets, the government can fund private operators, but cannot provide proper oversight or implement strong accountability mechanisms. In this context, a PPP policy contains operational risks and may attract enterprises that do not place learning at the heart of their mission. This challenge is not unique to education. As in every sector where there is weak regulation, there is great potential for misincentivizing operators—private or public. And while fraud is certainly not restricted to the for-profit sector, fraud (or indeed low academic performance) in a for-profit school intrinsically attracts an angrier response from the media and public than in a nonprofit or local government school. Governments need to take policy implementation seriously, and build the necessary capability for proper monitoring and school quality assurance.

Running schools in disadvantaged areas anywhere in the world is complex and challenging, with tight operating margins. Ark is one of the highest-performing networks in the UK, and runs with the rigor and efficiency of a commercial entity. Yet even in the UK’s well-resourced system Ark will only achieve full sustainability when it reaches 50 schools and the economies of scale a network of that size brings. While managing an efficient operation and delivering better outcomes should be complementary objectives, the mandate for delivering both, without sufficient oversight on the latter, could result in the prioritization of financial returns over better educational standards. Policymakers need to be able to identify clear attainment metrics and hold operators to account based on their performance.

Time to move beyond ideology

At policy level, education remains highly ideological with a deeply embedded mistrust of the private sector. But William and millions of other parents have no interest in theoretical debates; they simply want to make the best choice for their children. The need for good-quality operators is urgent and the supply is low. Excluding for-profit private operators limits choice, diversity, capital, and innovation, and is not in the interests of William or his children.

Governments need to develop strong, transparent, achievement-driven standards for public and private schools. With the right mechanisms in place, and a laser-sharp focus on results, progressive governments can leverage the private sector to stimulate a well-resourced and diverse ecosystem of education entrepreneurs. This thriving ecosystem will allow innovation of new models to drastically improve learning for low-income children and allow parents like William to make choices that will give their children the good education they deserve.

Read more stories by Katelyn Donnelly & Susannah Hares.