Stop subsidising for-profit education

Among the many failures in the education ‘reform’ movement, the attempt to promote for-profit education has been the most complete. The Swedish experiment, for quite a few years seen as the exemplar of success, has turned out very badly.

In the US, the for-profit schools company Edison failed completely. Far worse for-profit universities like Phoenix, which have prospered by recruiting poor students, eligible for Federal Pell Grants, and enrolling them in degree programs they never finish. Phoenix collects the US government cash, while the students are lumbered with debts they can never repay and can’t even discharge in bankruptcy.

Several years ago, there was a major scandal in Victoria (which led the way in privatising vocational education) about similar practices.

This did not, of course, lead to any change for the better. Instead, governments across Australia followed the Victorian model. For-profit providers responded by emulating the University of Phoenix, with recruiters offering free laptops to anyone will to sign up for a course and the associated debts: the targeted groups were low-income earners who would not have to repay the income contingent loan except in the unlikely event that the course propelled them into the middle class.

This isn’t just a matter of fringe players: a report on A Current Affair[1] identified some of the biggest for-profit firms, such as Evocca, Careers Australia and Aspire. The Australian Skills Quality Authority is supposedly investigating. However, as with the authorities that are supposed to regulate greyhound racing, the obvious question is why, when these rorts have been common knowledge for years, a current affairs show can find the evidence ASQA has apparently missed.

It’s clear enough that privatisating VET-TAFE has been a failure, as would be expected based on international experience. But the answer isn’t to go back to the past. Rather, we need a national framework for post-school education, with funding both for TAFE and universities on an integrated basis.

There’s still the problem of how to wind down the for-profit system. I’d suggest that we could start by converting the better ones into contract providers of TAFE courses, and then gradually absorbing them into a unified system.

Those who don’t like that deal could compete like good capitalists in the open market, charging upfront fees and serving whatever market they could find, subject to ordinary consumer protection laws.

fn1. Presumably reflecting a change in the audience, A Current Affair has started targeting large-scale corporate wrongdoing rather than going solely after the easy target of dodgy tradespeople and low-grade con artists. Unfortunately, the story was spoiled by an apparently irrelevant attempt to drag in the Mormon affiliations of some of those involved in the basis, but you can’t have everything.

94 thoughts on “Stop subsidising for-profit education

  1. @TerjeP

    So your goal is to lower the price of private schooling?

    I can’t think of any reason why that should be a goal deserving of public support.

  2. Terje

    For a price signal to work reliably, the product has to be a commodity (ie, simple, uniform, easily graded, readily quantified) and the externalities low. If you think that education has, or can have, these characteristics, I pity you. if you think that these characteristics are not required, and that price signals work reliably for almost anything, I pity you further. It is of course both permissible and common to keep one’s beliefs quite separate from observed reality, but it does not help when evaluating complex phenomena.

  3. @TerjeP
    “…Additional supply will foster price based competition…”
    Peter T has already given a more informed answer, but this is an assertion. Based on ideology not any sort of evidence at all, you have ignored JQ’s reasoning. Can you think of anything similar to education where this has been the case?

  4. @TerjeP

    John Quiggin supported his conclusions by reference to empirical data. You may consider his data unreliable, or insufficient, or misinterpreted, but it exists, and it’s not dogma.

  5. J-D :
    @TerjeP
    So your goal is to lower the price of private schooling?
    I can’t think of any reason why that should be a goal deserving of public support.

    I can’t think of any good public policy reason to maintain a prohibition that makes private education more expensive. If you can then I’d love to hear the details. The ban on subsidises for children at “for-profit” schools is as arbitrary as if we decided that there should be no subsidy for children at Anglican Schools. As it stands we are happy to give a subsidy to providers motivated by Government or God but not those motivated by profit. Why the need for such prejudice?

  6. J-D :
    @TerjeP
    John Quiggin supported his conclusions by reference to empirical data. You may consider his data unreliable, or insufficient, or misinterpreted, but it exists, and it’s not dogma.

    There was zero data provided by JQ. There may well be data that supports his argument but it has not been provided. I actually provided a scholarly paper with data but JQ dismissed it as out of date and inferred it was biased. He can do that if he wants but you can’t accurately claim that JQ has provided any alternate data. At least not in the post he has made here.

  7. @John Brookes

    I agree with the point about exams. Well designed carriculums that are independantly set and assessed are the key. Unbiased and transparent feedback is essential for any control or management system.

    Funding methods affect fairness of access, but it’s the lack of quality control and lack of visibility to students about what the outcomes are that leads to the private rip-offs.

    By the way, there are plenty of not-for-profit rip-offs also in the non-government sector. In fact these are probably even worse. On top of accepting government money and loans to provide poor education, the directors of private not-for-profits also employ their family at high wages to do nothing, who then can all deduct of almost all personal expenses from taxable income.

  8. @TerjeP

    In my view, the generic default position is not for the government to fund something but rather for the government not to fund it — no matter what the ‘something’ is. There is no need for negative arguments against publicly funding something when there are no affirmative arguments in favour of publicly funding it. I would say this about anything whatsoever. For example, in this context, I would say that if there are no affirmative arguments in favour of public funding of schooling-in-general, then it shouldn’t be publicly funded — no negative argument against doing so is required. I emphasise the word ‘if’ because I want to emphasise that I am not here taking any position on whether there are any affirmative arguments in favour of public funding of schooling-in-general. I know many people think there are and I’m not here disputing that. I’m just using an example to illustrate the generality of my position.

    However, it is not obviously the case that arguments in favour of public funding of schooling-in-general automatically translate into arguments in favour specifically of public funding of the schooling of children at for-profit schools. There’s a step in your chain of reasoning there that you have not spelled out, and this is why I say that you have not made the case in favour of your stated position.

  9. @TerjeP

    John Quiggin cited (by URL link) two sources of data. They are not scholarly sources, but ’empirical’ is not a synonym for ‘scholarly’. ‘No support from scholarly sources’ is not synonymous with ‘no support but dogma’.

  10. J-D,

    The articles JQ linked to are essentially just opinion pieces. I don’t see how you can refer to them as data sources. Even to claim they are “non scholarly” data sources is an overstatement.

    As for the default position of what should or should not be funded I agree with you most of the way. But to then carve out some students on the basis of school type, be it “Anglican Schools” of “for-profit” schools of whatever, does in my view require some justification. Otherwise we could say that an education subsidy that only applies to white kids needs no justification but extending it to black kids needs to be justified. Placing the onus of proof in such a way seems absurd to me. A subsidy needs to be justified. If we accept the idea that the education of children should be subsidised then any exceptions such as black kids, Anglican providers or for-profit providers all then require justification.

    As such it is my view that any decision to exclude for-profit schools from student subsidy needs to be justified. And as far as I can see no robust justification has been given. Just hand waving.

  11. Terje,

    Clearly you didn’t read the Slate article I linked to above. The voucher system in Sweden has been a stuff up because:

    – well over ten thousand students have been left in the lurch after private providers declared bankruptcy. Naturally the state then has to pick up the mess left by these private sector fails

    – PISA rankings fell to below the OECD average and the lowest among the Nordics

    – The voucher system has provided an incentive for teachers to give their students soft grades, with disastrous consequences for the quality of education

    Other than signed affadavits from dancing bears and hoola hoop girls, I’m not sure how much more evidence is needed.

    I would personally go much further than the good Professor and ban all private schools for reasons of political economy. That is to say, we need vocal and articulate middle class parents to have a stake in quality public education otherwise it runs the risk become nothing more than a mediocre safety net for the poor.

  12. Terje: if you are trying to get people to change their mind, you need to explain to them what you think and why it’s better than what they think, not just state your conclusions.

    If I tell you I’m not convinced of some conclusion of yours, does it push you to change your mind? Why do you think that it works differently the other way?

    [there’s a trick you can use that might make arguing this way easier: you never state what you think, only why you think it. If you’re correct and doing it properly your conclusions are implicit in the evidence you’re looking at; if your data is up to scratch people will be convinced to come to your conclusions even if you never mention what they are.]

  13. Collin – that is pretty much the point I was directing at JQ. He has not made a persuasive argument that would change anybody’s mind. Of course the opponents of profit will cheer at his commentary regardless.

  14. @TerjeP

    The articles John Quiggin linked to contained assertions about facts. You may think those assertions were inaccurate, or that they are being misinterpreted, or that they are irrelevant to John Quiggin’s conclusions or insufficient to establish them, but saying that a conclusion is supported only by inadequate information, misinterpretations, inaccuracies, and irrelevancies is not synonymous with saying that it is supported only by dogma.

    The general form of the argument John Quiggin is making against public subsidies for for-profit education providers is clear enough to me: public subsidies for education should not extend to for-profit providers because subsidised for-profit providers fail to deliver the goods. Clearly you are not persuaded that there is adequate evidence to establish that for-profit providers fail to deliver the goods, and I am not trying to persuade you of that. However, I hope you would accept that if the case were made out that subsidised for-profit providers fail to deliver the goods, that would justify excluding them from receiving public subsidy. If you are asking what possible reason could there be for excluding them, I hope you would acknowledge that, as a possibility, that’s a reasonable answer. If you want to argue that for-profit providers should receive the same subsidies as not-for-profit providers even if they fail to deliver the goods, I want to dispute that. But if you only want to argue that you are satisfied on the evidence that they do deliver the goods, that’s not an argument I’m interested in getting into. I just want to make the distinction clear.

  15. However, I hope you would accept that if the case were made out that subsidised for-profit providers fail to deliver the goods, that would justify excluding them from receiving public subsidy.

    If “for-profit” schools were substantially and consistently inferior to “not-for-profit” schools as measured by reasonable criteria then all else being equal I would agree with the argument for excluding them from the general subsidy of childhood education. However I have no reason to believe that they are inferior. In fact the limited data from Sweden that I have managed to find indicates that they are as good as or slightly better than the alternatives. This notion is also supported by the fact that many parents choose to send their kids to such schools. The examples of Swedish “for-profit” schools that failed financially indicates that they failed precisely because parents withdrew their kids suggesting that parents are responsive in their decisions to poor schooling and suggesting the sector as a whole must therefore be healthy.

    And for what it’s worth the schools that did fail financially seem to have been merely taken over by new owners/management rather than closing down. People that see this as some serious problem must imagine that public schools never close down which is simply untrue.

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