The Observer gets very upset this morning about the very idea of allowing schools to make a profit.

However, there has always been one part of state education that has stood apart from the forces of the free market. That is learning – the process by which professionals help children understand the world around them, where knowledge is handed down, where friendships can bloom and character blossom.

Mighty rhetoric indeed. But it misses the point. There's simply no reason why we can't allow profit-making enterprises to run schools.

There are two levers that govern whether an operation makes a profit - what money it brings in, and what it spends that money on.

On the income side, our state schools are hamstrung. Their income is largely determined by local grants, which are themselves heavily influenced by money given to them by the Department for Children, Schools and Families. In good times, the money goes up, and in bad times, it doesn't go up. Schools can't do much about this. They can ask parents to contribute extra amounts through a 'friends' system, but they don't have control over where that money gets spent. They aren't allowed to run school meals on a for-profit basis. They aren't allowed to run school trips on a for-profit basis. They aren't allowed to make money from school uniforms. They're basically only allowed to cover their costs on school clubs. There's just not a lot they can do.

On the costs side, their single biggest cost is staff. Staff pay scales are set by agreement with unions; the only control the school has is over where in the scale a particular teacher is. Once staff have been paid, there's not a lot left to spend on anything else. There's certainly very limited scope for discretionary spending. And, because previous secretaries of state for education have gotten tired of being beaten up in the House of Commons over class sizes, or special needs, or the curriculum, all sorts of activities are now prescribed by law. That has restricted their ability to innovate. As has the crushing grip of the unions over how teaching should be run.

Additionally, we are hamstrung by nice-sounding but idiotic truisms. The biggest of all of these is the anti-selection dogma, which prevents most state schools from selecting their intake. Ostensibly to prevent schools from taking the cream of a generation and leaving behind the dregs (if you'll allow me to mix a metaphor horribly), it prevents schools from specialising into things that might actually help them. But it's daft. It means you can select a child based on their sporting ability, but an extraordinarily bright child must be educated in the same classes as their less-bright peers, simply because it sounds good when we say "they'll raise overall standards". We know they won't; "standards" will only drag them down.

It's also a bit silly. There are private universities in the world, which are allowed to run without any fear that they'll let standards slip (Why would they? It would only hurt their own admissions). And we allow private training providers, which seem to do a good job in coaching individuals and providing training for businesses.

In most other worldly problems, the ability to draw a profit has been our salvation in problems of this sort. Individuals have been incentivised to solve these kinds of problem because they, personally, gain from being the ones to crack them. Alternatively, an individual with vision can inspire capital providers to supply the necessary funds to create a solution. The state-run school has neither incentive nor ability to do this.

The Observer article admits that private enterprises have often proven themselves better at getting money to 'sweat' than public bodies, and that this ought to change. But, as the saying goes, if wishes were horses beggars would ride. We all wish that the public sector was as good at spending our money as the private sector is. But it simply isn't, and we should bow to the inevitable instead of trying to pray it away.

In these cash-constrained times, we should shake off the perceived wisdoms that surround education. We can always use regulation to knock off the the sharpest edges of the free-market, where it offends our collective sensibilities. We can - and should - allow schools to turn a profit.

Update: What takes me over 700 words, Worstall can do in three.

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Filed under: Financial management, Politics with tags education, guardian, profit