Helping the public to go private

Independent schools are too expensive for most people; they provide a service that is bought by only seven per cent of the population. Yet polls have shown repeatedly that most of us would like to send our children to an independent school if only we could afford it.One of the reasons for their high cost derives, paradoxically, from their charitable status. If they were profit-making companies that distributed their profits to shareholders, there would be incentives for them to keep costs down and operate efficiently. They would try to sustain dividends and share values by seeking savings.

The schools’ charitable status has the perverse effect of encouraging them to plough any surpluses into yet more capital investment in facilities and equipment. Money that a private firm would distribute is instead put towards a new library, sports hall or information technology centre.

These additional facilities can be justified as extra selling points. They make the school more attractive to potential customers. The glossy brochure highlights the extra amenities as a competitive advantage, giving the school an edge over its rivals. A school that fails to add a modern science laboratory or an IT centre risks losing potential pupils to those that do. One headteacher recently compared this to an arms race in which schools spend on ever more expensive facilities simply to stay abreast of their rivals.

High on the list of other factors that make independent schools too expensive is the absence of a genuine competitive market. Real markets tend to be characterised by the widespread availability of information, by competition on price and quality, and by choices made by consumers. Independent schools have what is, in effect, a captive market.

The way the state organises its schooling is such that, in some areas, parents see private schools as the only way to ensure a decent education for their children. Those lucky enough, or devious enough, to live within the catchment area of a good state school can secure a high standard of education from the state. Others have to pay for it themselves. This does not put them in a good bargaining position with respect to private schools. It is one reason why they have to seek out the school place, rather than have the schools seek out their custom.

In most markets, the ability of newcomers to enter keeps the established suppliers on their toes. This is not true for fee-paying schools. The regulatory and planning hurdles that have to be cleared make it difficult, expensive and time-consuming to establish a new school. As a result, the innovative ideas and approaches that newcomers bring are largely absent from education.

A further reason why private education remains a luxury product is that its market is limited to those who can afford to pay twice. Parents who pay for a private school place have also to pay in full through taxation for the state school place that their child does not use. If anyone who bought produce from Tesco had also to pay Sainsbury’s for similar goods without using them, the economics of supermarkets would be very different.

The point about the fees charged by independent schools is not that they are too high for their existing customers. This is indicated by the fact that they have been increasing faster than inflation and by the steady increase in the numbers of fee-paying pupils. The point is that they are too high for a range of potential customers eager to secure an alternative to state education but unable to afford the premium, luxury product that is offered as the only alternative.

There are some similarities with the way the airline industry used to be organised. When nearly all airlines were in a cartel which mandated virtually identical prices and services, individual carriers used to compete on the basis of their food or their “friendliness”. The choice was straightforward: if you could not afford the high-price luxury product, you did not travel by air.

The industry has been very different since deregulation allowed entrepreneurs to tap new markets. There are now less costly alternatives, including travel along different routes, new types of service and a range of products at different prices. Perhaps there are equivalent markets waiting to be tapped in private education. Opinion polls indicate that the demand is there.

Several educational entrepreneurs are now talking in terms of new private schools that would charge fees not very different from the costs of a state education. The Conservative Party’s “school passports” would allow parents to choose such schools as alternatives to their local state schools. These schools would come without the centuries of tradition or the luxurious facilities, but they would offer a high quality education at an affordable price. There could be chains of successful schools reproducing the winning formula and management methods that bring results.

The future of private education may well be one of diversity of products and prices. There will still be luxury private schools at the top end of the market, as there is still British Airways first class travel. But just as easyJet and Ryanair have brought the joys of flight to many more people than could afford it before, so it may be time for new types of fee-paying school to spread the benefits of private education to a wider public.

Dr Madsen Pirie is president of the Adam Smith Institute. This article was originally published in the Daily Telegraph on 3rd June 2004.