Tag: profit

Education under the New Swedish Order

Just over a week ago, Swedes threw out the relatively pro-market coalition that had goverened the country for the past 8 years, handing power (though not an outright majority) to a new left-of-center coalition. Swedish students’ falling scores on international tests were a key cause of public dissatisfaction, and they have been widely blamed on a nationwide voucher-like school choice program introduced during the early 1990s. But as I point out in an op-ed in yesterday’s Svenska Dagbladet, the facts simply don’t support that narrative. Here’s the English draft of the op-ed:

Sweden’s collapsing performance on international tests was clearly a factor in the recent election, and redressing that slide will be a priority for the new government. A good first step in charting the way forward is to understand what has gone wrong and what has gone right in the past. Unfortunately, the most popular narrative about Swedish education trends is badly mistaken.

Many have blamed Sweden’s falling international test scores on the proliferation of free schools, merely because the decline is thought to have followed their large-scale expansion. This would be a common logical fallacy even if the timing were correct—but it isn’t.

Between 1995 and 2011, Swedish math scores on the Trends in International Mathematics and Science Study (TIMSS) fell by a massive 56 points. But the vast majority of that decline—41 points—had already taken place by 2003. In that year, 96 percent of Swedish students were still enrolled in government schools.

Another international test, the Programme on International Student Assessment (PISA), began in the year 2000 and has the advantage of breaking out the scores for government and private schools. The last PISA test was administered in 2012, by which time government school scores had fallen by 34 points while free school scores had fallen by only 6 points.

Anders Böhlmark and Mikael Lindahl’s long-term nationwide study helps to explain these trends: increased local competition from free schools actually raises the performance of students in both sectors—on both national and international tests. But, since free schools still enroll a small fraction of students nationwide, the benefits of this competition have yet to be felt in many areas.

Of course, none of this is to suggest that there are no bad private schools. There has never been an education system in history capable of producing only good schools. The best that can be hoped for is that unsuccessful schools close while good schools expand. And that is precisely what has been happening in Sweden.                                           

Much has been made of the failure of JB Education, which attracted too few students to remain financially viable, and was forced to shut down. This was regrettable for everyone directly concerned, in the short run. In the long run, it is better than any realistic alternative. In most countries, including the United States, atrocious government-run schools are able to continue operating indefinitely because they face no meaningful competition—the poor parents they most often serve simply cannot afford any alternative. These schools are numerous enough that a term has been coined to describe them: “dropout factories.” Swedish families are lucky that they can far more easily escape such schools.

Not only does the Swedish system pressure failing schools to close, it encourages good ones to expand. International English Schools is one of the highest-performing school networks in the country, even after controlling for the parental level of education and immigrant background of its students. It is also one of the fastest growing, now operating 25 schools serving nearly 18,000 students. IES has plans to continue growing so long as demand for its services remains unmet. But if IES’s emphasis on academics and civil classroom behavior seems too traditional for some families, there are many other options to choose from. Another large and successful network is Kunskapsskolan, which allows students to proceed through the curriculum at their own pace, combining tremendous student autonomy with weekly one-on-one meetings with teachers.

But not all good private schools grow. Specifically, non-profit schools tend not to build large networks, no matter how good they are. As a result, thousands of students who might benefit from their services never get the chance to do so. The only good schools that consistently “scale-up” in response to rising demand are those operated as for-profit enterprises. This is not a coincidence. Building a network is both risky and expensive. The profit-and-loss system provides both the resources and the incentives that allow and encourage successful enterprises to grow.  

Sweden is fortunate to have harnessed that system to spur the growth of its high performing schools. Chile does the same thing, and has become not only the highest-performing nation in Latin America but also one of the fastest-improving countries in the entire world on international tests. If Sweden wishes to become a fast-improving nation educationally, the evidence strongly supports preserving the entrepreneurial freedoms and incentives that promote the growth of successful education networks.

Teachers — and Unions — Like Profits, Too

By now you’ve probably seen the economically ignorant, Ed Asner-narrated polemic from the California Federation of Teachers that “explains” how the rich hurt everyone because they are just so darn greedy. At one point in the original version the already loathsome Richy Rich actually goes so far as to relieve himself on the middle- and lower-class people above whom he rises  on his pile of cash. Don’t look for that “trickle down” visual now, though. It seems the CFT has edited it out after getting, shall we say, less than positive reviews for it. The rest of the tedious allegory, however, isn’t much more subtle.

It’s the reality-denying hypocrisy of it all, though, that is so grating. You see, teachers and unions want to profit just as much as reviled “Wall Street fat cats.”

“What?!” I can hear the teachers reading this scream. “I don’t do this for the money! How dare you, sir!”

Mr. and Mrs. Teacher, please bear with me for a moment.  I mean you no harm.

First, undertsand what profit is. Basically, it is making more from providing something than it costs to produce it. So if you are a teacher and use your earnings to buy food, housing, cable television, garden gnomes, airplane tickets, plastic surgery – anything – you are making a profit. And on an hourly basis likely a good profit, outpacing accountants and auditors, insurance underwriters, registered nurses, and other professionals. And that is without considering quite generous benefit packages public school employees often get.

Those concrete things, though, are not the compensation limits. There’s also substantial job security that comes with tenure, and in conjunction with teaching not being especially hard to break into, relatively little personal risk. Contrast that to entrepreneurs – you know, people who sometimes become fat cats – who often risk much of what they have to try new things that often end in failure. Such risk is a huge cost teachers simply don’t deal with.

In addition, while working with children is often very challenging, it can also be very rewarding. Who doesn’t get a kick out of the antics, questions, and comments of little kids? (I mean, they say the darndest things, right?) Or enjoy seeing their smiling faces. And when they get older, it can be very gratifying to guide them or inspire them as they contemplate what they want to do with their lives. In contrast, running a business  involves often stultifying detail work such as running payroll, securing office space, keeping “the books,” dealing with detailed government regulations, etc.

Finally, and perhaps most importantly, there is nothing wrong with making a profit! Indeed, being profitable is generally the key to knowing that what you are doing is in demand – that you are providing something that makes other people better off – and, because you are earning more than the cost of production, you are doing something sustainable. So teachers, don’t disdain profits – embrace them!

Perhaps, though, be concerned about how you are getting them.

While there is far too much crony capitalism at work – businesses enriching themselves through government and politics – in general, companies can only make profits by earning the voluntary business of customers. In other words, they have to provide something people want, at a cost they are willing to pay. Payers have to feel they are better off.

Not so for public school teachers. Rather than getting paid by voluntary customers, they are ultimately paid with money extracted through government. Whether taxpayers like it or not, they are forced to pay for public schools. Which is, of course, why teachers’ unions are so deeply involved in politics.  They want to take people’s money no matter what.

The real irony is that many teachers could probably get paid more – in Korea some get MUCH more – were free enterprise rather than socialism allowed to reign. But we have a government monopoly, which is ripe for union control. One system, without any real competition, is best suited to have one employee rep. Allow people to freely choose among autonomous schools, however, and schools would have big incentives to pay the best teachers well because providing a great service – not throwing around political weight – would be the key to success.

Teachers, ultimately, are human beings, and on the whole almost certainly enjoy profit as much as anyone else. That’s not a problem. The problem is how they – and much worse, their unions – make it.

The Morality of Profit

The free market needs and deserves a moral defense. Cato senior fellow Tom G. Palmer delivers part of that defense, regarding economic profits, in a new video:



This is an installment in a series entitled “The Morality of Free Enterprise,” a joint project of the Atlas Economic Research Foundation, where Palmer serves as the vice president of international programs, and the John Templeton Foundation.

Palmer is also the director of Cato University; so if you’d like to hear more from him, we hope you’ll register today and join us July 24-29 in historic Annapolis, Maryland for our annual summer seminar on political economy. Students may also apply for a scholarship.