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The For-Profit Education Debate

I wrote an article for the NBR on for-profit education businesses last week. You can read it either here, https://www.nbr.co.nz/node/231842, or below:


One of the publicity coups for Crimson Education has been its association with former PM John Key, who acts as an “adviser”. It’s not only him. The company also lists the former US Treasury Secretary & President of Harvard University, Larry Summers, as an adviser. And a former Auckland Grammar School headmaster is on its Board of Governors. Gaining the support of such high profile public figures has been quite an achievement. Why? Maybe since it helps convey the impression that this kind of business has been able to create a valuable service that constitutes one of the best ways to educate youngsters. World-wide, however, far-reaching concerns have been raised about whether for-profit education providers have actually been serving students well at all.


Most folks agree that private schools and private universities have delivered some of the best education outcomes. However the vast majority of them are non-for-profits. Take our own country, for example. Schools like Kings College & St Cuthbert’s in Auckland are maintained with incomes coming from their fees & Charitable Foundations. Just like Stanford and Princeton Universities in America. There are also many top ranked public schools & public universities in the world, the latter including “big” names such as Oxford and Cambridge in the UK, Berkeley in California and the National University of Singapore.


Yet when it comes to for-profit private education providers, one doesn’t have to look hard for particularly unflattering headlines. Yes, the American media is highly partisan. Yes, it regularly makes unfair comments about the US former President. But even so, just one of many examples of the bad press surrounding some of these providers comes from the likes of Rolling Stone magazine, which noted, “From targeting easy marks to dubious post-grad employment, most predatory for-profit universities follow the same script - but Trump’s is even worse”. In spite of many such US commentators taking great issue with for-profit education businesses, Americans famously have no cultural issue with the for-profit model as a general rule. So what’s going on?


Whereas the shareholder model is a proven winner in so many other industries, when it comes to education it’s not looking like the same rules apply. This topic has been studied by one of America’s most respected education economists, Larry Katz, former Chief Economist at the US Department of Labor, who is now based at Harvard, where he was one of Larry Summers colleagues. He says the problem is that we’ve had a surge of really low-quality colleges and the worst of that is the for-profit sector … It’s been a bit of a disaster. Even though these for-profit institutions have tried to be up to date, very flexible, with high-quality online instruction, we have repeatedly found very little economic return to degree programs at for-profit institutions; instead, it’s become a massive debt trap. I think there is something to be said for the quality and capabilities, the faculty, the peer effects of a traditional public or private non-profit university”.


When it comes to pre-tertiary education, another case in point relates to Charter Schools, which are tuition free and receive government funding, though are privately run, again most successfully by non-for-profits. For example, Te Kāpehu Whetū in Whangarei and the South Auckland Middle School are sponsored by He Puna Marama Charitable Trust and Villa Education Charitable Trust, respectively. Sadly this model is disliked by our present government, which turned the Kiwi Charters into “special character schools”.


Furthermore, China has recently hit the news for banning much of the private profit-driven tutoring that has grown up around its public education system. The motivation, though, hasn’t been reported as being so much about concerns regarding quality. Rather more about reducing inequality in the sense that poorer families often can’t afford it. Lessening a key source of stress for children and their parents has also been mentioned.


To be fair, maybe an exception to this line of argument is ACG School in Parnell in Auckland, which is owned by “Inspired Group”, a for-profit limited liability company. And ACG is highly regarded. One of its founders was my beloved former Grammar headmaster, the late John Graham, for whom we all had the utmost respect for being amongst this country’s finest educators.


One remembers Mr Graham as regularly being frustrated by bureaucrats who were constraining his ability to run a great school. Maybe this explained his desire to set up a private provider, though I will never know whether he was happy with the for-profit, rather than non-for-profit, structure. Yet it does appear that John Morris, another Auckland Grammar School headmaster who sits on Crimson’s Board of Governors, is comfortable with it.


Overall, though, it appears fair to say that the weight of evidence on the merits of the private for-profit education model isn’t particularly flattering, at least in terms of how well it has been serving students. One can, of course, understand why folks like Julian Robertson, the US owner of Kauri Cliffs, have invested in it, since businesses like Crimson have the potential to become seriously valuable. However, as for the ability of such for-profit providers to achieve wider aims in the realms of equipping youngsters to do well in life, which their association with some leading public figures suggests, the evidence seems far from clear.