For-profit free schools: the evidence from Sweden
15 December 2010
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Economic Theory
11 November 2024
Should for-profit free schools be banned? The UK debate regarding this issue has so far provided heated rhetoric, but little evidence to back it up. In an IEA discussion paper, released today, I therefore analyse Sweden’s voucher reform and the role of the profit motive. Prior research has limited relevance to this issue since it does not examine differences between non-profit and for-profit schools; as the profit motive is controversial, this gap is important.
In the light of recent debate, I first review the research regarding the voucher reform, showing that all studies find at least some positive effects on educational achievement – no studies of which I am aware detect any negative effects. While some find stronger effects than others, even smaller positive effects are conspicuous considering the context. The voucher programme was implemented during an economic crisis, leading to cuts in school funding during the 1990s. Meanwhile, unemployment and residential segregation increased. Combined with other negative changes (see the paper), the evidence seems clear. Voucher reform may not be a panacea, but, at the very least, it can increase educational achievement on the margin despite economic/social instability – which is highly relevant in the current UK context.
Although still a subject of debate, the most recent comprehensive studies show that Swedish school segregation is almost entirely linked to residential segregation, suggesting that the reform programme made little difference to this measure. Furthermore, free schools enjoy higher satisfaction levels among parents and teachers, while research shows that competition brought higher salaries to the latter. Overall, therefore, Sweden’s free schools reforms have been successful.
Secondly, I provide quantitative evidence indicating that for-profit schools do not conform to doomsday predictions. Both non-profit and for-profit schools outperform municipal ones even when utilising a wide range of relevant control variables. Furthermore, the for-profit effect is particularly strong among schools with low average parental education levels – while also being significantly positive in higher-level categories – suggesting that for-profit schools especially benefit students from lower socio-economic backgrounds. The evidence, therefore, indicates that fears of a reduction in quality due to the profit motive are unfounded.
Finally, about 65% of Swedish free schools are for-profit and there is a reason why: the profit motive provides strong incentives for entrepreneurs to start schools and expand – while non-profit structures appear to have stultifying effects. Whereas Swedish for-profit schools expand, non-profit schools remain small, local operations. Banning for-profit schools does not generate more non-profits filling the void; it just leads to fewer free schools, thus lowering competition and quality.
The Lib-Con coalition is correct in pursuing the free schools reforms, but it should revoke the ban on for-profit schools since these actually perform better than municipal schools. Furthermore, the profit motive played a key role in increasing Swedish school competition – without it, the UK’s reform may fail. As the number of schools opening next year already has been revised down dramatically, this may soon become painfully obvious. Michael Gove once claimed that he saw the “future” in the Swedish voucher reform. Ironically, he missed an integral component in making that future successful.
Gabriel H. Sahlgren is the author of Schooling for Money: Swedish Education Reform and the Role of the Profit Motive.
In the light of recent debate, I first review the research regarding the voucher reform, showing that all studies find at least some positive effects on educational achievement – no studies of which I am aware detect any negative effects. While some find stronger effects than others, even smaller positive effects are conspicuous considering the context. The voucher programme was implemented during an economic crisis, leading to cuts in school funding during the 1990s. Meanwhile, unemployment and residential segregation increased. Combined with other negative changes (see the paper), the evidence seems clear. Voucher reform may not be a panacea, but, at the very least, it can increase educational achievement on the margin despite economic/social instability – which is highly relevant in the current UK context.
Although still a subject of debate, the most recent comprehensive studies show that Swedish school segregation is almost entirely linked to residential segregation, suggesting that the reform programme made little difference to this measure. Furthermore, free schools enjoy higher satisfaction levels among parents and teachers, while research shows that competition brought higher salaries to the latter. Overall, therefore, Sweden’s free schools reforms have been successful.
Secondly, I provide quantitative evidence indicating that for-profit schools do not conform to doomsday predictions. Both non-profit and for-profit schools outperform municipal ones even when utilising a wide range of relevant control variables. Furthermore, the for-profit effect is particularly strong among schools with low average parental education levels – while also being significantly positive in higher-level categories – suggesting that for-profit schools especially benefit students from lower socio-economic backgrounds. The evidence, therefore, indicates that fears of a reduction in quality due to the profit motive are unfounded.
Finally, about 65% of Swedish free schools are for-profit and there is a reason why: the profit motive provides strong incentives for entrepreneurs to start schools and expand – while non-profit structures appear to have stultifying effects. Whereas Swedish for-profit schools expand, non-profit schools remain small, local operations. Banning for-profit schools does not generate more non-profits filling the void; it just leads to fewer free schools, thus lowering competition and quality.
The Lib-Con coalition is correct in pursuing the free schools reforms, but it should revoke the ban on for-profit schools since these actually perform better than municipal schools. Furthermore, the profit motive played a key role in increasing Swedish school competition – without it, the UK’s reform may fail. As the number of schools opening next year already has been revised down dramatically, this may soon become painfully obvious. Michael Gove once claimed that he saw the “future” in the Swedish voucher reform. Ironically, he missed an integral component in making that future successful.
Gabriel H. Sahlgren is the author of Schooling for Money: Swedish Education Reform and the Role of the Profit Motive.
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This issue highly debated in Sweden right now and even the center-right coalition seems to have reached some sort of consensus that the reform that Gabriel describes has been a failure. The profit not only creates an incentive to be more “efficent” but also an incentive to give students higher grades than they deserve. Sweden has seen an extreme inflation in grades since the private school reform, and even those who advocated it most strongly have now had to back down a bit. It’s safe to say that we will see a big reform of the Swedish school system within the coming 4-8 years.
There’s no academic evidence that the reform brought negative effects in terms of achievement (all studies find some positive effects). However, some find smaller effects, indicating that the reform was not a panacea (unsurprisingly) – see the paper. Again, there’s no evidence that grade inflation has been higher in independent schools or in municipal schools subjected to competition (Skolverket 2010). Furthermore, grade inflation did not begin in 1992 with the voucher reform; back then our grading system was based on a bell curve. There was little deviation up until 1998, when we scrapped the bell curve. Decentralised grading in such a context inevitably leads to grade inflation.
[…] Now a new report from the IEA revisits the question, this time with the benefit of data from more recent years and when the Swedish education sector has become more competitive. Like Rebecca Allen, Salhgren is keen to acknowledge that school choice is far from a panacea for all educational woes. However, contrary to what the critics feared, the benefits that do exist are more concentrated on those from less privileged backgrounds, not the more privileged. School segregation is mostly down to Sweden’s increased residential segregation, not the existence of Free Schools. Moreover, Salhgren finds that teachers benefit from increased salaries in areas where Free Schools are competing to employ them. […]