Should schools be allowed to be for-profit? - Ensuring a Learning India S5 E.006


[31st post in 'Ensuring a Learning India' series. 42 in total. One post per day. 11 more to go.]

This section deals with the legal nature of private schools. The word private is generally associated with entities, which are run by individuals (with or without aid from government) with profit motive. Entities running businesses without profit motive are called not-for-profit enterprises. In India, it is illegal to operate for-profit private schools. All private unaided schools are to be registered as a trust in order to get recognized by the boards. It is interesting to note that, for-profit players are allowed in every other aspect but not in school education.

The cited reasons for this are mainly philosophical and not because of any other empirical reason. Hence, this section will also discuss this issue from this perspective. The limitation of philosophical arguments is that is it tough to be on grey areas, and one has to take extreme position to bring back the debate.

1. Nature of education - It is argued that education is a service to the society and such activity can’t be commercialized. There are two issues with this argument.

One, if education as defined by imparting knowledge to kids shouldn’t be commercialized, then the same should apply to private tuition centers, and more importantly the technology learning products. There are many companies providing education services to schools, which are also core part of the education process. But, somehow, these are seen to be different from schools. If these are to be allowed, why not schools?

Two, there are more basic and fundamental needs for survival of human beings, which are being sold by for-profit enterprises. At some point back in time, selling food and water for money was socially wrong but today there are numerous restaurants and bottled water companies in operation, and people are enjoying their services. At even more fundamental level, air is also crucial for humans, and recently oxygen parks are being set up where people pay money for fresh air.

Some argue that these cases are different and that in the context of education, one is arguing for basic minimum education, and not for luxuries like above. This misses a point that, the debate isn’t about ‘what amount of education’ should be imparted to children but it is about the nature of organizations which impart this education.

2. Education shouldn’t be quantified with money – Similar to the first argument, it is argued that education shouldn’t be quantified with money and should be out of intrinsic motivation.

One, it is interesting to note that some of the same people who argue that imparting education should be an activity of intrinsic motivation, also demand for better salaries for teachers. If education is about intrinsic motivation, why isn’t a basic salary enough? Isn’t demanding norms on more basic salary equivalent to monetizing the activity of education? If teachers need money for being incentivized, why shouldn’t the school management also aspire to earn money, in order to be keep up the motivation?

Two, the argument that intrinsic motivation alone should matter relies on the hypothetical extremes to solve the huge problem of need for education. In each sector, there will be people working out of intrinsic motivation and some people working professionally for the sake of money. Should the reasons behind the work matter as long as they are delivering outcomes?

3. Private schools aren’t any better than government schools – It is argued that private schools, especially low cost private schools aren’t any better than government schools.

Low cost private schools may or may not be effective than government schools and it is not relevant to this debate. The point of debate here is not about the effectiveness of private vs. government but about the legal nature of the organizations. If the same school is run with same quality but on a not for profit basis, is that acceptable? It is then argued that this school has to comply with some standards and certifications. If the issue is compliance with norms, then should the nature of school, private or public, matter as long as it is complying with the norms? 

4. Private schools will loot parents – It is argued that if the private schools are on for-profit basis, they loot parents charging humongous amounts. The existing fee structures of some schools are cited as evidence for this.

One, if the not-for-profit nature is supposed to prevent such scenario, why is it happening now?

Two, this argument misdiagnoses the reason behind high fees in private school. The not-for-profit nature may be the major reason behind high fees charged by the schools. The not-for-profit nature and the norms on infrastructure have raised the bar for entry to set up a school. Practically, only people with ready cash can invest and build a school as of now. This naturally reduces the number of quality schools available. The fact that the transaction costs are higher in education, as in one can’t take their children out of the school mid-way, adds to the constraints of parents. This lack of choice decreases the bargaining power of parents and hence they are forced to yield to high fees.

Lower competition also affects teachers adversely. Less number of schools means that, they don’t have bargaining power with the school management and hence are sometimes under paid or undervalued.

Why can’t we have Venture Capitalists investing in schools as they do in other companies?

5. For-profit private schools are not a panacea – It is argued that allowing for-profit private schools isn’t a panacea and won’t solve all the ills of the education system.

It may be true that for-profit private schools may not be a panacea but that doesn’t mean that they shouldn’t be allowed. For that matter, many aspects in the world aren’t a panacea; each of them contributes their part towards the end goal.

6. Allowing for-profit private schools is equivalent evading government’s responsibility regarding school education – It is argued that allowing for-profit private schools is equivalent to evading government’s responsibility towards education. Since, education being an important aspect, this shouldn’t be done.

This assumes that allowing for-profit private schools is equivalent to closing down all government schools and government being aloof over all matters. Government can do its part and shouldn’t those who want to contribute should be allowed to do so? If allowing non-government schools is equivalent to evading responsibility, then shouldn’t the same apply to not-for-profit non-government schools as well?

7. Private schools follow corrupt practices – It is argued that management practices of private schools are corrupt and hence they shouldn’t be allowed to operate. It is true that those violating laws should be processed as per the due process of law but one of the main reasons behind these corrupt practices can also be the unrealistic nature of rules and regulations. If schools aren’t allowed to be for-profit and there are unreasonable norms for recognition, sometimes it forces people to circumvent all these.

The debate on allowing for-profit schools is often phrased as ‘Why should we allow for-profit private schools?’.  As discussed above, there aren’t any strong reasons for not allowing them and phrasing debate in this manner abdicates responsibility of people on this side to prove their point. Instead, it is time to rephrase the debate as ‘Why shouldn’t we allow for-profit private schools?’

Though there is no strong reason to disallow private schools, it doesn’t mean that allowing them will solve all the issues of education. It is not a panacea. It is quite possible that there will be some good schools and some bad schools, as like every other sector. For a better education system, we need both, better government schools and better private schools. Good government schools shouldn’t be seen as at the cost of private schools and vice-versa.

We discussed that there isn’t any strong basis to not allow for-profit schools to operate. At the same time, there are some strong reasons to allow them.

One, today it is a fact that the share of enrolments in private schools is increasing. The percentage of rural children enrolled in private schools in the age of 6-15 has increased from 18.7% in 2006 to 30.8% in 2014. In some states like Uttar Pradesh (52.8%), Rajasthan (43.5%), Haryana (53.6%) and Punjab (49.3%), this share is as high as 50%, which is a significant proportion of the school going children. If ensuring good education is the responsibility of the government, then ensuring good education to these kids is also a government’s responsibility.

One of the ways it can help these students and parents is to ensure that they have healthy choices to choose from and bargaining power. Allowing more people to enter this space, thereby increasing the competition and choice is one of the ways to do it.

Two, education as a sector desperately needs innovation and variety. It is unwise to rely only on government schools to make this happen. May be there won’t be a paradigm shift in innovations once for-profit schools are allowed, but it will at least be better than today and if not worse.

Three, the unreasonable norms and the not-for-profit clause is leading to hypocritical practices by the school managements. Many schools today are for-profit for all practical purposes. In that case, it is better to make them officially legal.


Four, legalization provides better cover for regulations. As the number of private schools increase, the need for their regulation also increases. Making these as legal entities will give good cover for these schools to be transparent and also make it easier for the government to regulate them.

1 comment:

  1. Excellent post, Karthik.

    A few points:
    1. Good to see both health and education as merit goods, with significant externalities. Does one need to create a trust for running a private hospital? I suppose the answer is no. Thus, the question is why is profit motive recognised in something as important as health, while disallowed in matters related to education?

    2. The OROP bug is sure to be caught on by government teachers as well. That will be the inflexion point for governments to decide the future of schooling.

    ReplyDelete