SHOULD for-profit companies be allowed to run schools? I strongly believe they should. But my reasons are somewhat different from those typically advanced; hence, I shall elaborate on them in this note.

Let me begin with a personal disclaimer. Neither my organization nor I have any interest, now or in the future, to run schools! I have co-founded and run an education non-profit (Eklavya School, Ahmedabad) for six years and have been running a for-profit education company (Educational Initiatives Pvt Ltd.) for the last nine years. The non-profit is a non-profit in both letter and spirit, and the for-profit company actually places its social change mission above its profit goal (though it has been profitable from its second year.)

At the outset let me state that I do not believe that the private sector has all the answers to India’s problems, least of all in education. Nor do I believe that the private sector is inherently far more effective than either government or non-profits (rather I believe that every sector has its share of effective and ineffective players). I also strongly disagree that the market knows best, more so in a specialized area like education with limited information availability.

Nor do I believe that any existing for-profit school model is the ideal or correct one. Rather, I argue that if we legalize for-profit run schools, the resulting ecosystem (which would continue to include – probably be dominated by – government and NGO run schools) can lead to a significantly improved educational system. Of course, the for-profit schools would play an important role towards that goal.

While I do not see the private sector as the solution to our problems, I disagree even more strongly with those who distrust all for-profits and would like to completely ban private players in education. Many educationists argue that any partnership with or outsourcing of educational work (especially the running of schools) is an abdication of its responsibility by government. I disagree.

In my view, the key reason why we should not exclude for-profits from education is a very simple one: the challenge in education is large and extremely complex, and all possible energies and resources must be directed towards solving it. Disallowing for-profits excludes a significant section of people and resources from even engaging with the problem. For-profits, in my view, bring in passion, expertise and innovation. The entry of an increased number of players will cause poorer quality representatives (of profit as well as non-profit varieties) to get shaken out, especially if there is a simple and transparent regulatory and complaints mechanism in place.

 

Let us first explore some of the conventional stands from both sides of the debate, starting with the arguments of those who favour ‘privatization’. In seminars on privatization, one often hears that government has not been able to run many things successfully; hence we need privatization. Some speakers even argue that everything should be privatized, including schooling. Often there is the ‘pragmatic’ argument – since the law that schools should be non-profits is in any case violated quite blatantly, it is time that it be changed.

An underlying theme of these arguments is the claim that the ‘market knows best’. In for-profit schools, since the desires of the fee-paying parents have to be accommodated in the designing of the education experience, this would lead to an improvement in satisfaction. As per this school of thought, profit-making schools for the poor (called ‘low-cost private schools’, ‘budget private schools’ or ‘affordable private schools’) represent popular dissatisfaction with the government schools. Since they deliver, as per their proponents, higher quality education at much lower cost as compared to government schools, it is axiomatic that such schools should replace the ‘inefficient’ government system.

 

Before discussing the above claims, let us consider some arguments of those who take a contrary view. An extreme position is that we need a Common School System – schools run by the government which are the ‘same’ for all – rich and poor. This clearly implies that no kind of private school (for the rich or poor, or even non-profit NGO run schools) should be allowed at all.

Many who argue against the entry of for-profits into schools share a similar deep-rooted distrust of for-profits, especially corporates. Large corporates, especially those that have a visible presence, or in some cases near monopoly (like Microsoft and Intel) – are specifically targeted. Corporates, it is argued, are inherently bad and harm society, because they are mean, profit-seeking machines. While we may for various reasons tolerate them in some sectors, they should nevertheless be kept out of education. Education should not be ‘commercialized’.

It is interesting to examine the stands taken by politicians and the courts on this issue. Broadly, politicians tend to be flexible and take a stand that ‘sounds right’ in a particular context. In forums on privatization, they may argue in favour of allowing for-profit schools, while elsewhere, they usually take the more populist stand that education should never be ‘for-profit’. Some states have taken significant steps to control the fees charged by private schools (though others have chosen to officially not interfere).

The stand of the courts can best be described as ‘poorly-informed’ and ‘superficial’. There are Supreme Court verdicts (viz. T.M.A. Pai Foundation and Ors. vs State of Karnataka and Ors, Supreme Court, 2002) that have consistently held that education cannot be a profession or trade under the meaning of Article 19(1)(g) of the Constitution, but must be pursued as a charitable, not-for-profit activity and regulated by the state accordingly. This stand, I believe, reflects more a certain philosophical orientation than what may deliver the best benefits to the students concerned.

The rest of this note looks at some of these arguments but also tries to examine the best way for a society like India’s to provide high quality education to its citizens. That ‘way’ is distinct from both the right and left extremes and focuses essentially on ‘doing whatever works best to provide high quality education to students.’

 

The strong argument against for-profits is that they are motivated by greed and exist solely for profit. And if they exist solely for profit (or mainly for profit as per a milder variation), they are prone to cut corners and exploit both employees and customers to increase profit since the fundamental concern is not the customer, or the person being serviced, or even the quality of the service, but simply the profits that can be generated.

The above argument holds only for bad, poor-quality for-profits. It is true that no for-profit can survive for any length of time without making profits. But to conclude that a for-profit exists solely (or mainly) to make profits just because it cannot survive without profits, is like concluding that human beings exist solely (or mainly) to breathe because, after all, they cannot survive without breathing!

 

Over the past few years, I have come to realize something very interesting and non-intuitive. The term ‘profit-making company’ evokes a different response in India as compared to many other places. In India, especially in the post-independence period, the dominant view about business and profits is negative. The late C.K. Prahalad described this best. In a talk, he said, ‘Where I come from, business equals cheating.’ So this is something, probably in our subconscious, which we need to realize. Yet, interestingly, there is a completely different view of profit in many societies, which is that businesses add value to society and improve the quality of life. The best businesses are the ones that are both successful and ethical. These are societies where the culture of giving is strongly established – a business tycoon is as likely to donate his money to a university as to leave it to his children.

Nor is it the case that this thinking is alien to India. In Buddhism, for example, ‘sama aajiviko’ is one of the key aspects of the eight-fold path. The way one earns a living should be such that it does not hurt or harm anyone. Making profits by cheating or even cutting corners is just not acceptable, as per this philosophy. Equally that there is nothing wrong in business if this is kept in mind, and it is genuinely seen as a way to serve society. (And if you are unethical or greedy, even as a non-profit or in your individual life, that is not ‘sama aajiviko’). Mahatma Gandhi’s concept of trusteeship is also very similar.

Many of our views on for-profits are probably determined by our subconscious view of their role. I prefer the second one – partly because I run a business which was motivated by a desire to create something useful for society and not, I believe, by greed and partly because it represents a more positive view of people’s motivations.

Many great businesses and businessmen have lived by this philosophy and continue to do so. Collis Huntington, founder of one of the world’s largest shipbuilding companies said, ‘We must build great ships. At a profit if we can, and at a loss if we must! But we must build great ships.’ Similarly, IBM is reputed to have bet its future on the IBM 360 computer and Boeing on the 747 plane – these companies risked their very existence (not just the possibility of a loss) to push the frontiers of a field in which they were the world leaders. All these products went on to revolutionize not just the companies or their sectors, but society itself!

A corollary of the larger argument made by their detractors is that ‘for-profits venture only into areas which promise clear profits.’ As the above examples show, I believe that the greatest businesses succeed in areas where conventional wisdom says that money cannot be made, certainly not easily.

 

Now that the philosophical legitimacy of for-profits has hopefully been established, it is worth analyzing many of the conventional stands described earlier before getting into the specific reasons why I think for-profits would add value when it comes to running schools.

The simplistic view that government has proved inefficient and private players are efficient is neither strongly backed by data, nor does it acknowledge the fact that many tasks taken up by government (like providing health and education services to the underprivileged) are at a scale and represent a challenge far bigger than the many ‘successes’ of the private sector. At the same time, the private sector has demonstrated its efficiency in many cases, and would, over time and with engagement, be able to add value to the goal of providing quality education at scale. The fact that the law prohibiting for-profits in schooling is blatantly violated in practice needs to be factored in when debating this issue, though by itself this does not constitute a sufficient basis to legalize for-profit schools.

 

That the market knows best is an appealing idea. However, there seem to be two reasons why this is not true in education, yet. One is that most parents – rich and poor, educated and uneducated – ‘leave education to the schools’ and accept the clearly defined goalposts of education without discussion or question (possibly because they are seen as very high-stake and individuals feel powerless to challenge these accepted norms). The second is that information, and informed debate, on issues such as, what is important for a child to learn, what is a good education, is rare. Under these circumstances, the market does not, unfortunately, know best.

In a sense, the complexities of learning and education are not unlike the complexities in medicine, though they may not have the same life-and-death consequences. But just as we do not let the market decide which is the best medicine for malaria (certified experts do that), we cannot leave it to parents alone to decide whether their children are best educated in English or the mother tongue, and whether pre-schooling is desirable and how much rote learning is desirable. Therefore, we need to create a system which trains and certifies experts in these areas – the current systems, for example, in teacher training, do not do that.

Similarly, there is little evidence on low-cost private schools, that they produce acceptably better learning than what is already available to the poor. On the contrary, a visit to any low-cost private school would almost invariably suggest they do not (while possibly providing other things worth admiring about the school, like the grit of the teacher-entrepreneur who started it). I think we need a more balanced stand on low-cost private schools. Government and society must see them as complementary or as a part of the larger schooling system and provide free support to them and their teachers. They should not be forced to shut down, or be harassed by education officials with sticks like ‘Right to Education minimum norms’, though at the same time they should not be projected as a quality alternative to government schools, at least not yet. I believe today people at both ends of debate focus only on half the picture.

 

The idea of a Common School System is an inherently worthwhile one. When our company was asked to advise senior officials in Bhutan who were planning to encourage private schools, we dissuaded them and emphasized the benefits of the Common School System ‘they already have’ and convinced them to strengthen it. The main reason why I think it is not practical in India today is the extreme diversity of ground reality, where even the government-run schools are marked by tiers and differentiation. A Common School System could – I believe, should – be our vision 50 years from now. But it is not a solution for next year.

The notion that someone makes money – profits – out of an activity like education rankles many people and is labelled as commercialization of education. I think private healthcare also rankles, but profit-making restaurants, even buying bottled water does not seem to generate a similar ire, though one can argue that some people should not make money out of providing basic necessities to others. My perspective is different – I believe that the quality of the education, healthcare, food or water provided is far more important than the legal structure of the entity that provides the service. Essentially, that if an offering adds value to society, legitimate ‘profits’ are perfectly fine.

Finally, coming to the responses/reactions of politicians and courts. Possibly the way toward is for these ideas to be widely discussed in society so that level of debate becomes deeper and more sophisticated. Of course, it would help if politicians took stands based on conviction and judges did better homework before pronouncing judgements.

 

The for-profit model is inherently a sustainable one because funds are generated through value-addition and not from some other source of funding. Usually, for-profits tend to use resources more efficiently than non-profits probably because they usually charge the people who use their services, unlike non-profits. I saw this first-hand during the 2001 Gujarat earthquake when we were involved in helping rebuild schools, and found that the kind of money that was available to us allowed us to negotiate better terms from suppliers of cement and steel. Our chairman, who also headed a company, shared that when they had to buy these commodities as a corporate, funds were much less freely available, and they had to negotiate much harder! Accountability and better financial controls, I find, tend to make for-profits use resources better than non-profits.

Second, the non-profit model is inherently not a very sustainable one. I have seen established non-profits continue to do good work over years, and yet remain at the mercy of donors. This forces them to develop expertise in a new area – fund raising – which, in a sense, means defocusing from the core area. For-profits deal essentially with one constituency – their clients – and their efforts of training, sales and customer education are all directed towards this group and hence synergistic.

Incidentally, I believe that non-profits should continue with their aim and vision, but function in a for-profit model. For example, a non-profit working in the area of disability should, I believe, start a private company and work in that area. Instead of seeking grants from donors, it should charge fees either from the people it is working for, or from those supporting the cause. Those who cannot afford to pay can certainly be cross-subsidized. The organization can clarify in its mission (as we have in our company) that ‘commercial success without impact will be seen as failure.’

 

What gives for-profits an edge over non-profits on all these dimensions, and can non-profits develop them? I believe there are some inherent strengths in the for-profit model that are difficult to replicate in the non-profit model:

1. Discretionary profits are essential for innovation and excellence: As Bill Gates puts it, discretionary profits go back to fund research and innovation. Before you get one thing that works, you often have to try ten things that fail. And I can say this from our own experience. If you are an NGO asking for funding, most funders are not willing to fund experiments that will get you answers. Profits let you do that. If a company has profits, it can try ten things and one of them may work. Without the ability to try those ten things, the one that works may not be discovered. So that cycle has to be funded in some way, and profits are one way to do that.

2. Human nature: For-profits align individual interests and larger interests far more effectively than non-profits. After tasting some success, human beings become broader in their outlook, sometimes more philanthropic. But a large number of people feel insecure at the start of their career and prefer roles that seem financially attractive.

3. In for-profits, the group one works with, the one from whom one gets feedback and the one who pays for the services are the same; this is a stronger model because the feedback is quicker and more accurate.

 

The arguments so far have related to the structure of for-profits and non-profits. But for-profits bring very real advantages to the problem they attack, far beyond some fundamental strengths they may have.

The first thing an entrepreneur brings to the table is passion for his work or his goal. This may not be true for every person working in the organization and would be far less true for the low-quality organizations, but definitely holds for many entrepreneurs who usually have an easier ‘salaried job’ option that they choose not to exercise. (In many cases entrepreneurs or corporates start with narrower aims of survival or profit, but move up to higher goals like excellence, attaining leadership positions, and so on which represents this passion.)

The importance of this passion cannot be over-emphasized. Passion is a combination of rational effort and affective energy and – I would argue – is the most important prerequisite for any change or innovation that has or will happen!

The other thing corporates bring to the table often is expertise, and I would say that many of them do manage to institutionalize this expertise fairly well. Talking of education, imagine if there was an organization that had deep expertise in language learning in primary classes, and another had deep expertise in assessment and another with deep expertise in special education – that’s what is needed today. The very reason this kind of expertise is uncommon in education is because the field has been restricted to non-profits for so long.

 

We often ask ourselves and others, ‘Why is it that we are able to build better mobile phones every few months, but unable to improve our education system in decades?’ I think the answer is that we have an ecosystem when it comes to mobile phones (and cars, construction, textiles and printing) where deep expertise in various sub-disciplines is developed and then synergistically applied to solve a problem. We have schools that are over a hundred years old, but the specialized expertise development that one may expect in sub-disciplines leaves much to be desired.

It is not impossible for a non-profit to develop such expertise, but the combination of factors that needs to be in place (which is not very different from the other items in this list) for this are far more likely to happen in a for-profit.

The third contribution of a corporate is innovation – a new way to look at an existing problem. Recent examples in India relate to privatization in telecom and air travel. Innovation requires the space to experiment and that often comes from discretionary profits. Non-profits also innovate, but since all these factors are strongly synergistic and aid each other, overall non-profits seem to manage the combination less effectively, especially if the problem is a tough one to solve and needs a fresh approach.

Innovation also comes from continually seeking the best in different fields – e.g., in human resource management, information technology and finance – to make the organization more effective. Again, for-profits tend to do this far more effectively. Another equally important prerequisite for innovation is research, again aided by discretionary profits.

 

A fourth advantage for-profits have is target-setting, planning and processes. This may seem minor, but makes an enormous difference in practice. Target-setting pushes us to stretch, planning provides the discipline, and processes help reduce the dependence on individuals. A contrary view is that commitment by itself can make a difference. Though they need not, many non-profits seem to approach their task that way.

No sector can flourish unless it can attract the best minds. And usually, people move to sectors or jobs where they get paid well. This is, in practice, a big advantage for-profits have, as they are able to pay higher salaries. Though non-profits often have more committed members, attracting talent is critical and for-profits are better placed.

Competition has a lot of positives because it forces you to do your best and stay on your toes. There is also a cross-pollination of powerful ideas, when two bright organizations (or individuals) pit their wits against each other.

Each of the above advantages by themselves can be replicated in a non-profit. But they actually represent a synergistic, mutually strengthening ecosystem that is almost impossible to find in a non-profit (except one that runs for all practical purposes like a for-profit). And education needs passion, expertise, innovation and the best minds. All these can be brought together by for-profit organizations.

 

There are clearly some risks of allowing for-profits in education but I think they are very different from what people may usually believe. There is, for instance, the risk of greedy businessmen hijacking the system prior to a proper framework and appropriate regulations being first put in place. Another concern, particularly for entrepreneurs is: ‘Are there profits in providing good quality education?’

Positive for-profit participation can happen best in a culture of ethics and one that is geared towards value-addition. These cultures do not exist a priori and will have to be created collaboratively by all. Consider the recent idea of PPP schools floated by the government. Government wanted corporates to take this up as CSR projects. Corporates – especially those in education – wanted the efforts to be funded completely so that the ventures would be profitable. (In a culture of ethics and value addition, government would have planned to bear all the costs, and corporates would have looked at this as CSR. So we clearly have some way to go!) Similarly, the expertise mentioned as a strength of for-profits will develop only when there is a focus on research. Here too government can help, both by providing strong incentives for research in this area as also by actively initiating research through its own institutions.

 

The framework within which for-profits could participate would need to be one with minimal controls while simultaneously emphasizing transparency and monitoring of outcome norms by autonomous institutions. Specifically this means:

1. The corporates running schools will have almost complete freedom on what they do within the school, but will be required to be transparent about the functioning. For example, they would have to share annual accounts, admission processes including fees, salaries drawn by senior officials (or lists of all officials earning more than a particular amount), amount and percentage of budget spent on research with some details of projects therein, scores of their teachers in the centralized recruitment tests, and so on.

2. Regular, third party assessment of outcomes and the dissemination of these outcomes will be funded by government but overseen by an independent agency. This will include both academic and non-academic outcomes. Schools that do not meet certain pre-specified norms for more than a certain number of years in a row, will have to close down. (The norms will not penalize schools for low/ absolute levels of outcomes, but focus more on the improvements shown over successive years.) International benchmarking will also be done regularly on all these parameters. All quality norms will apply equally to all schools, irrespective of school type – meaning that neither a school run by government nor a large corporate will be excused from the norms set.

3. Government will start institutions of national importance with the aim of doing research on helping students learn better and for schools to be more effective. I like to call them ‘science of learning centres’. High quality teacher training will also be offered at some of these institutes, but teachers will be recruited not based on the teaching degree alone, but through centralized recruitment tests.

4. Government will launch educational campaigns aimed at society in general and parents in particular, to encourage debate on what is good education. The quality of issues covered in these campaigns will get more sophisticated over time.

5. Specific areas where private sector participation is particularly welcome will be specifically identified and publicized. For example, one such area could be remedial schools, especially in rural areas. Government could empanel a group of private service providers who could approach parents based on their children being identified as requiring remedial support. Parents can choose the provider, and based on that (possibly vouchers) payment will be made by government.

6. Meanwhile, allowing for-profit players into education would not dilute government responsibility to provide education for all, even in the private schools. The role of government schools will remain central, but government will encourage private participation in specific areas by offering incentives like tax breaks in those areas.

 

If our goal is to provide meaningful, high quality and holistic education to all in the country, ensuring that the quality is uniformly high for all sections of society, we will need to be open to new ideas and models. In current-day India, such a model would probably be a mix of for-profit, non-profit and government education delivery mechanisms, encouraged by policy and systems to work together and mutually synergise, and with quality monitoring by independent agencies at key outcome stages.