Renewable energy: Vision or mirage?

• As renewable energy sources produce power intermittently, they cannot replace gas, coal and nuclear generation, even with further development.
• Solar and wind energy have no prospect of becoming economically competitive in an unrigged market. Government intervention will lead to higher energy costs and jeopardize energy security.
• Increased investment in wind turbines will do little to reduce carbon emissions and fossil fuel consumption.

The report ‘Renewable Energy: Vision or Mirage?’, released today by the Adam Smith Institute and Scientific Alliance, reveals that the government’s focus on renewable energy sources is misguided. The UK’s plans for renewables are unrealistic, and these technologies cannot provide the secure energy supply the country needs. Present policies will lead to an energy crisis by the middle of this decade.  The key points from the report are detailed below:

• Wind and solar power do little to reduce carbon emissions, as they need large-scale back up generating capacity to compensate for their intermittency.
• With the decommissioning of many of the UK’s coal-fired stations – and nearly all existing nuclear reactors – over the coming decade, energy security is now a priority for policymakers alongside the drive to reduce carbon dioxide emissions. However, even ignoring cost issues, problems of intermittency mean that renewable technologies are incapable of making a major contribution to energy security.
• The Renewable Energy Roadmap for 2020 is hugely overambitious. Renewable energy generation is currently 28% below its already reduced target. Subsidising renewable energy also comes at a cost to consumers who pay for it through higher electricity prices. Nuclear and gas are the most viable energy sources to avoid a capacity crisis in the near future.

Wind turbines are not the solution

• To achieve current targets for wind turbines for 2020, almost 5 wind turbines must be installed every working day, with the majority of them offshore. This is unrealistic.
• No matter how much wind capacity is added, there is no way of storing the energy long enough to avoid the need for backup generators. It cannot ensure the lights stay on, so there can be little reliance on it.
• Experience in other countries shows that a large investment in wind turbines must be matched by large-scale conventional back up generating capacity, which makes any reductions in CO2 emissions quite modest.
• Wind farms in the UK have a capacity factor of only 25%; investment in these farms would not be a commercial proposition without subsidies, even ignoring the intermittency problem.
• Wind power operators in the UK get a higher subsidy per MWh than in other countries in the EU and yet many approved wind farms never get built due to problems connecting to the Grid. Onshore wind turbines face much opposition from the public and off-shore turbines are more expensive to install.
• The operational life for wind turbines is just 20 years. This is much shorter than for coal, gas or nuclear and is another factor making wind power an expensive option.
• Planned high investment in wind power up to 2020 will preclude the possibility of investment in diversified and efficient generating capacity. Wind power is an inefficient of use of taxpayers’ money, is not as green as commonly perceived, and will not provide for the energy needs of the UK.

Solar power

• This is high cost and inefficient at our high latitude.
• The focus of subsidies has been on small scale, domestic installations which are intrinsically less cost effective.
• As there is no technology for long-term, high capacity storage of electricity, this technology cannot help to meet Britain’s energy needs.
• Large solar farms are difficult to build as they need a large land area. This acts as a financial disincentive – nuclear and coal-fired power stations need much less land.

It is difficult not to conclude that the official enthusiasm for renewables has more to do with the power of the green lobby than economics and energy security. Martin Livermore, joint author of the report, adds:
 
“For too long, we have been told that heavy investment in uneconomic renewable energy was not only necessary but would provide a secure future electricity supply. The facts actually show that current renewables technologies are incapable of making a major contribution to energy security and – despite claims to the contrary – have only limited potential to reduce carbon dioxide emissions.”
 
“Consumers have a right to expect government to place high priority on a secure, affordable energy supply. It seems that ministers have not yet realised the need to invest in more nuclear and gas generating capacity if the electorate is not to be badly let down.”

Download PDF

First we kill all the bureaucrats

Yes, I know, Henry IV by Willy Shakes, it's "first we kill all the lawyers". But tempus mutandis and all that and I'm afraid that the time has come to cleanse the land of bureaucracy. Simply attack with fire and sword and chase anyone with a clipboard into the wilderness.

But with the addition of a heavy helping of red tape, a police force managed to stretch the description to 45 pages in a 10,000-word tendering document for catering firms supplying snacks to beat officers.

This is not how you deal with such matters. How you do deal with such matters is a phone call to the local sarnie shop and a request for 150 rounds of sandwiches to be ready at 10 am tomorrow please. Yes, I do know this, I have long experience of the catering industry, have even at one time owned a delicatessen.

Lothian and Borders Police in Scotland published the “invitation to tender” in October, setting out the precise requirements for sandwiches, crisps and bottles of water in lunchboxes for officers on duty at football matches in Edinburgh.

The force, which has up to £70,000 to spend on just 7,500 packed lunches per year, specifies that officers will require a baguette measuring 11 inches long, and containing one of 17 different fillings set out in a separate spreadsheet, which include brie and cranberry, smoked salmon and cream cheese and prawn mayonnaise.

Who on earth came up with the idea of an annual tender for such a requirement? We're talking of an average of 20 sandwiches a day: and how on earth can a sarnie, drink and crips cost £10 a pop?

Other sections of the document cover health and safety rules, requirements for environmentally-friendly packaging, compliance with anti-discrimination and anti-bribery laws, as well as a host of financial and legal clauses.

This is all to give the police officers who attend footie and rugby matches their legally mandated free lunch. Venues which, I am absolutely certain of this, all have their own catering operations. And really, even if a pie won't do (which, given Scottish pies, they might not), have we really reached the point where a police sergeant of some 20 years service is considered incapable of organising the delivery of 150 mixed baps from Greggs the Baker?

Yes, yes, I know, how trivial, Tim's getting worked up over nothing: but I'm afraid this is how the entire country is being run. And I really cannot think of a solution that does not involve the phrase "kill them all".

Although I will accept one which allows us to crush these enemies and hear the lamentations of their women.

HS2 may be heading for the siding

The recently announced postponement of a decision on the controversial HS2 project, ostensibly on environmental grounds, raises various questions. The Government claims to have found a spare c£500 million, which would enable additional tunnelling to be built in the Chiltern Hills area, where opposition to HS2 is particularly strong. To be fair, £500 million of additional investment – when compared with the £45.5 billion invested in the Royal Bank of Scotland – may not seem a vast amount.

However, as the ASI’s recent publication High Speed Fail pointed out, the financial case for HS2 is already very weak, even before further tunnelling expenditure. Put simply, the numbers do not ‘stack up’. Indeed, assuming that HS2 eventually reaches Scotland, over £50 billion will have been spent. Given that the recent Autumn Statement revealed that the UK’s already horrendous public debt – now close to £1 trillion – continues to rise well ahead of expectations, the case for pushing HS2 into the siding gets stronger.

After all, like virtually all high-speed lines, HS2 will probably be loss-making, even with the pay-as-you-go funding model proposed by the Department of Transport. Between now and mid-January, expect the Treasury to crawl over the numbers, especially those relating to the capital cost and the projected size of the fare-box once Phase 1, between London Euston and the West Midlands, is operational. By Treasury standards, the projected Benefit Cost Ratio (BCR), which was sharply downgraded earlier this year to just 2x (including wider economic impacts), is very modest.

There is, though, considerable momentum behind the HS2 project, especially from those believing – rather optimistically - that it will sharply narrow the north/south divide. Of course, there is no certainty that the Government’s decision next month on HS2 will be final. The focus, though, will be on the financial analysis within the Treasury who will be very hard-pushed to claim the numbers really do ‘stack up’.

Let us assume that they're honest

Tim Taylor has a nice piece about the recent arguments over what the top tax rate could be to maximise revenue: where the peak of the Laffer Curve is that is. Various of the usual types have been jumping up and down in excitement at a paper that shows that it could be 76%. It isn't, it's 54%, that's the total tax rate including VAT, NI and income tax and, in what is really the great switch in the paper, that takes no account whatsoever of the changes in long term incentives, it looks only at the short term. Scott Sumner is incandescent about the paper, a point which Taylor addresses.

It is also fair to note that political beliefs probably play a role in these differences. Greg Mankiw is a Republican-leaning economist: he was chair of the Council of Economic Advisers in the George W. Bush administration and has been an adviser to Mitt Romney. On the other side, Peter Diamond is a Democratic-leaning economist: Barack Obama attempted to appoint him to the Federal Reserve Board of Governors, and when he was blocked by Republican senators, his name was rumored as a possibility for Obama's Council of Economic Advisers. To be clear, I'm not suggesting that either author would consciously shade his analysis to fit pre-existing political beliefs. But I do believe that when working through a complex model with a number of discretionary choices, we all have a tendency to come out with what seems a "reasonable" answer--which often happens to be not too far from our preexisting beliefs.

Sumner does indeed assume that: but I think that the causation goes entirely the other way around. It isn't that our pre-extant political beliefs make us pick the numbers which lead us to our desired solution. It's that our beliefs about what are the appropriate numbers help to determine our political beliefs.

In this example the numbers chosen by Diamond and Saetz do lead to what we might call a left wing solution. Much higher taxes on the rich. The sort of numbers that Sumner or I would put into the same equation would lead to a much more "right wing" solution, a lower peak for the Laffer Curve. The numbers we're talking about are things like the effect of higher taxes on the propensity to work and so on.

But I don't think that Sumner and I would put in lower numbers in order to get a lower Laffer peak: just as I don't think that our two lefty economists would do the opposite (I can think of plenty of people who would but not these two of this stature). Rather, I think that it's our prejudices about what these elasticities are which lead to our having right or left views on tax rates. Perhaps prejudices is too strong there: our inclinations as to what the numbers are given our own view of the world.

As an example, my marginal income comes from freelance writing. There are enough outlets that I can, if I need a bit more money, just write for more hours. Not go off to the pub, sit at the keyboard instead of taking the bike out for a spin. I know what my reaction to 70% tax rates would be: I'd shoot off on the bicycle and over the Portuguese hills and have a few pints when I came back. My output would decline and decline quite substantially. So I'm prepared to believe, primed to believe, that work effort is quite elastic as compared to tax rates. Other people might have very different ideas about life and the work life balance: no harm in that. They might be more swayed by prestige for example, or have always worked in jobs where income doesn't vary much with effort or hours (like a university professor for example). Thus, from their own experience, their own internal values, they're predisposed to believe that work effort, hours, have a low elasticity with respect to tax rates. Because people are more motivated by things other than post-tax income.

Of course, where we're trying to see what the effect on the entire economy is we're supposed to be inputting the numbers that apply to everyone else, not what apply to us alone. But where there is judgment, where there are choices as to what number to use, I really do think that it's our own opinions, our own experiences, of what these numbers are that then feeds through into our having right wing or left wing results.

I've rather over-egged this argument in order to get the point over. But I do think it to be true that it isn't that we choose economic models, or numbers to put into them, because we want to reach a conclusion that accords with our political ideals. Rather, our political ideals grow out of what we think those numbers are before we start to run them through the models. And I think this goes far beyond simple economic models as well. I, to use my favourite subject as an example once again, absolutely despise having to fill out paperwork. It is, I am certain, because of my hatred for having to do so that I am so vociferously opposed to a governance system that insists on people filling out paperwork all the time. I'm sure you can think of other examples of the same point: our own character, our own wants and desires, do get projected onto the world around us.

All of which is grist to the mill of the classically liberal world view of course. Those who wish to may, whatever consenting adults voluntarily choose to do. But the impositions upon such in what they must do or may not do have to be incredibly limited, for what must and may not be done is being determined by those internal prejudices of those doing the deciding rather than the free will of the participants.

Holland gives smokers a break

The current issue of the British Medical Journal carries an angst-ridden letter titled ‘Can the Dutch Government really be abandoning smokers to their fate?’ Since June 2010, the largest party in the Dutch parliament has been the People’s Party for Freedom and Democracy which, as its name implies, is anathema to the public health establishment. Last year, it relaxed the Dutch smoking ban after a grass-roots campaign led by small bar owners. This year it decided that there are better uses for public money than funding anti-tobacco advocacy groups whose beliefs are fundamentally at odds with Dutch liberalism. STIVORO, the Dutch equivalent of Action on Smoking and Health (ASH), received 2.7 million euros in 2011. By 2013, it will have to rely on donations from the public, which, in all likelihood, means it will have to close down. In addition, pharmaceutical nicotine products will no longer be handed out for free on the taxpayers’ shilling.

The BMJ letter paints a terrifying picture of a nation without a professional anti-tobacco lobby. Strangely, considering their imminent plight, none of the ‘abandoned smokers’ have put their name to it. Instead, it is written by fifteen anti-tobacco lobbyists whose livelihoods depend on the largesse of the state. They claim that the government is “closing down its tobacco control operation”. In fact, smoking prevention programmes will continue in schools and the majority of bars will remain ‘smokefree’. Physicians will continue to provide assistance to smokers who wish to quit, and nicotine patches will still be available over-the-counter to anyone who is not deterred by the 90% failure rate of such products.

The real concern of the letter-writers, who include a consultant to the pharmaceutical industry alongside employees of STIVORO, ASH and the UK Centre for Tobacco Control Studies, is that governments elsewhere might follow suit. Worse still, if smoking prevalence continues to fall in the absence a professional anti-tobacco lobby, politicians might begin to question the efficacy of tobacco control methods. Across Europe, health lobbyists of all persuasions have cause to be worried. The declining fortunes of leftist parties, combined with the dire economic situation, leaves the ranks of the ‘public health professional’ vulnerable to budget cuts. In Britain, Alcohol Concern recently lost its core funding from the Department of Health after one too many criticisms of government policy. Consensus Action on Salt and Health has also seen its grant disappear.

Under Labour, the third sector was awash with government cash and lobby groups masquerading as health charities provided noisy support for policies which had little grass-roots support. When an industry does this, we call them front groups. When the government does it, we call them stake-holders. Under the Lib-Con coalition, these groups have become more truculent and Andrew Lansley must wonder why his department is funding organisations which are unrelenting critical of his government.

The BMJ letter is careful to praise the coalition’s policy on tobacco whilst giving the implicit warning that any budget cuts will leave blood on their hands. Having painted a grim picture of what the Netherlands might look like without free Nicorette gum, they warn: “Every death that ensued would not just be the responsibility of the tobacco industry, which continues to promote its lethal product, but also of every politician in the Dutch Government who chose to look the other way and allow it to happen.” This hysterical reaction sums up everything that is misguided about the health lobby. From their perspective, smoking can be the blamed on the tobacco industry or it can be blamed on the government, but individuals themselves can never be held responsible.

This message is in stark contrast to the words of the Dutch health minister, Edith Schippers, who has said that “the state is not a nanny” . Her policy is to take a “middle path”, discouraging smoking while allowing “adults to decide for themselves over lifestyle decisions.” Such a philosophy is barely comprehensible to the anti-tobacco lobby whose current demands include the abolition of branded cigarette packaging and smoking bans in cars, private apartments, parks and beaches. If the demise of STIVORO prevents such draconian measures in the Netherlands, the government will not be “abandoning smokers to their fate”. It will be finally giving them a break.

Is this a watershed moment for Europe?

Ignore the people fretting about a “two speed Europe” today. There’s been a two-speed Europe for at least as long as the Euro has existed. Actually, it's been a multi-speed Europe, when you count things like the Schengen area, the EEA and, indeed, the EU itself. There’s no problem with having a multi-speed Europe, if Britain’s in the right lane. The real question is whether any of this will mean anything after the real world has its say.

The EU really has done some good things – it has helped to make war among European states unthinkable, and upheld free trade when some governments might have preferred protectionism. But history shows that variety is the spice of life. One of Europe’s great strengths throughout history has been its divisions, which allowed small states to try out things like the rule of law and protections for property rights where bigger states didn’t need to bother. Quite often, harmonization for the pikes means death for the minnows.

So the Prime Minister deserves congratulations for his vetoing of the proposed EU treaty, which would have paved the way for a Financial Transaction Tax. As the ASI and others showed in reports this year, it would be a disastrous tax for Britain while doing comparatively little to the rest of the EU. And a step away from the harmonization road is welcome, and long overdue.

What does the future hold for Europe? If we lived in normal times, it would be pretty clear. We would be on the road to a core of countries who will basically act as a single state, with increasingly harmonized tax, spending and regulation, with fiscal transfers at a federal level so that, ultimately, German taxpayers will be paying for Italian pensions. Countries like the UK, Sweden, Norway and others would have a few toes in and a few toes out. (I’m sure this is what Sarkozy really wants as well – Ireland was granted an exemption from the Financial Transaction Tax without much fuss, but this is a convenient way of pushing the more troublesome UK out of future decision-making.)

But these are not normal times, and that’s what’s been so strange about today’s coverage of the summit. Most of the media seems to have forgotten that Greece is functionally bankrupt, Italy is heading there, and there are plenty of other big dominos that are ready to fall as well. Tom’s post yesterday was prescient: all of this is a distraction from the real world of insolvent states. None of this has anything to do with the eurozone crisis. 

This summit’s grand positioning reminds me of that odd plan to unite France and the UK on the eve of France’s fall to Germany in 1940 — ambitious, and deluded. However lofty the rhetoric is, however significant Cameron’s veto seems, events will probably render all of this moot. The EU may not be interested in reality, but reality is most certainly interested in the EU.

Labour on the financial sector: Amnesia or duplicity?

Douglas Alexander, Shadow Foreign Secretary, was whingeing on the Today programme this morning about Cameron’s failure to repatriate regulation of the UK financial services sector.  The truth is that Labour, voluntarily and unnecessarily, gave Brussels responsibility for financial services regulation only in 2009.  The UK is left with merely supervising the EU’s rules.

As we pointed out in a blog and a letter The Times printed in June 2009, Gordon Brown gave these rights away merely to get Sarkozy to attend his London G20 in April.  It was mere Brownian vanity.  The evidence is a letter from the then Chancellor to his French opposite number.

Our Au Revoir to the UK Financial Sector blog at the time read:

Neither the City nor the Tories have risen up in protest.  Do they believe Lord Mandelson’s soothing words that he will see the City all right?  More likely is that the large British banks would actually prefer EU to British regulation and are lobbying to that end.  Angela Knight has said as much in Parliament’s house magazine in the last few days.  This is carrying hostility to the FSA too far.

We have seen what Brussels regulation has done for our fishing industry and this will be no different.  The Spanish and others wanted to trawl in our rich fishing grounds and now the French and Germans want to trawl in those financial services, and that’s almost all financial services, where the UK is pre-eminent.”

Cameron is no hero, he is merely trying to cover up inadequate opposition when the time was right.

The NHS needs radical reform

• The NHS is a monopoly that does not provide comprehensive or high quality healthcare.
• A social insurance scheme needs to be introduced, funded by employer and employee contributions along with co-payments from patients
• Hospitals should be removed from government ownership and sold to private groups to create genuine competition and choice for patients

In a report released today, the Adam Smith Institute calls for radical reform of the NHS. The government’s current plans are trying to introduce competition to improve health care quality, but seek to do so only in a limited and overly bureaucratic way.

Instead, our report proposes the gradual selling off of all hospitals to multiple private groups, in order to introduce real competition and drive up standards. The sales receipts from this would be used to establish a health insurance fund.

The fund would be entirely self-financed through employer and employee contributions and co-payments from patients.  With the NHS no longer needing the £105bn in government funding the treasury could afford to cut direct and indirect taxes to offset the additional contributions individuals would make to the health fund scheme.

The report also argues that co-payments are essential for any health care system to be viable in the long term. Without them, costs will keep spiralling upwards uncontrollably. Introducing co-payments would move English health care towards a European-style social insurance system (with proven better performance than the NHS). It is proposed that these co-payments should be set at around 20% of treatment costs, but limited to a maximum of £6000 per patient per year.

To ensure costs are not onerous for patients, private insurers should be encouraged to enter this secondary market on a needs-blind basis. As the maximum insured risk is only £6000, insurance cover should be available for around £250 per annum.

The report’s author, Chris Davies, has experienced over 45 years of NHS care and writes candidly about the many ways the service has failed him. Many of the health conditions he has experienced were caused by incorrect and inadequate past NHS protocols, forcing him to spend large amounts on private healthcare or on going abroad for treatments to fix problems caused by the NHS.

After being failed repeatedly by the NHS, which he sees as a fifties-style nationalized service that does “time wasting and inconvenience on a monumental scale”, he has written ‘Reforming the National Health Service: Reflections on four and a half decades of NHS care’ to argue that the NHS cannot continue failing patients and should be radically reformed.

Tom Clougherty, Executive Director of the Adam Smith Institute, adds:

“Britain’s anachronistic healthcare system is failing its patients and the government’s proposed reforms will do little to change this. The NHS continues to consume a large amount of the government’s budget but does not deliver the quality of service that is to be expected in a wealthy, developed nation.

“As our author points out, we urgently need to reform the NHS and seek out alternatives to a one-size-fits-all nationalised service. Adopting a European-style social insurance model, and transferring England’s hospitals into diverse private ownership, will inject real choice and competition into healthcare provision and give us the patient-centred system we desperately need.

“We must not let nostalgia about the founding of the National Health Service get in the way of the desperately-needed reform of this sector.”

Read the report here.

New at AdamSmith.org: Does the profit motive hurt school quality?

Opponents of the idea that schools should be owned and operated by businesses for profit often claim that such can only come at the expense of quality. Until relatively recently, advocates of the model have had to base their argument on case study evidence, mainly of the performance of proprietorially owned chains. However, system-wide studies are now beginning to emerge and it is worth bringing these to wider attention.

In the US, the most noteworthy study of the for-profit effect has been undertaken by Hill and Welsh, who used school-level data to compare for-profit and non-profit charter schools in Michigan. A four year panel of data was constructed (2001-02 to 2004-05) , with all Michigan charter schools which had students taking either the required 4th and/or the 8th grade state level math exam, referred to as MEAP scores (Michigan Educational Assessment program), included in the analysis. A random effects model was employed, controlling for student and district characteristics. The results were published as ‘For-profit versus not-for-profit charter schools: an examination of Michigan test scores’ (Education Economics, 2008), with the authors concluding that they could find no evidence to suggest that the type of ownership of a charter school (profit or not‐for‐profit) affects the delivery of education services either way.

Read this article.

System-wide studies of the for-profit effect on student test scores

Opponents of the idea that schools should be owned and operated by businesses for profit often claim that such can only come at the expense of quality. Until relatively recently, advocates of the model have had to base their argument on case study evidence, mainly of the performance of proprietorially owned chains. However, system-wide studies are now beginning to emerge and it is worth bringing these to wider attention.

In the US, the most noteworthy study of the for-profit effect has been undertaken by Hill and Welsh, who used school-level data to compare for-profit and non-profit charter schools in Michigan. A four year panel of data was constructed (2001-02 to 2004-05) , with all Michigan charter schools which had students taking either the required 4th and/or the 8th grade state level math exam, referred to as MEAP scores (Michigan Educational Assessment program), included in the analysis. A random effects model was employed, controlling for student and district characteristics. The results were published as ‘For-profit versus not-for-profit charter schools: an examination of Michigan test scores’ (Education Economics, 2008), with the authors concluding that they could find no evidence to suggest that the type of ownership of a charter school (profit or not‐for‐profit) affects the delivery of education services either way.

In the same year, Chumacero and Paredes published a study, analysing Chilean voucher reform (‘Should For-Profit Schools Be Banned?’ (MPRA Paper 15099, University of Munich, 2008). In respect of standardised test performance at 4th grade, they showed that pupils in for-profit voucher schools scored 3-15 points higher than their peers in government schools. While non-profit schools performed higher than for-profits on this study, their findings were sufficient to show fears of the profit motive in Chilean education to be unwarranted.

In 2010, Peterson and Chingos’ study of the Philadelphia School Reform Commission’s intervention 2002-08 broke new ground (‘Impact of for-profit and non-profit management on student achievement: the Philadelphia Intervention, 2002-08’, Program on Education Policy and Governance Working Papers Series PEPG 09-02 (Harvard University, 2010). Their research took individual test score data in maths and reading from 2001 and 2002 and then tracked student performance annually to 2008 in order to estimate the relative impacts of the different management frameworks. The study encompassed all 30 elementary and middle schools contracted out to for-profit EMOs, and all 16 contracted out to not-for-profits, in addition to the 71 schools remaining under regular school district management. The impact of not-for-profit management, when compared with regular school district management, was negative in respect of both maths and reading, and more markedly so in maths (albeit statistically significant in only the first year after the intervention began). The impact of for-profit management, on the other hand, was generally positive, though only in maths was it deemed statistically significant. In comparing the relative performance of for-profit and not-for-profit EMOs however, Peterson and Chingos commented as follows:

‘The differential impact of for-profit and non-profit management is especially sizable. Using the estimates given above, students in schools under for-profit management gained between 70 per cent and greater than a full year’s worth of learning in math more each year than they would have had the schools been under non-profit management. All of these differences are statistically significant. In reading, students learned approximately two-thirds of a year more in a for-profit school than they would have had the school been under non-profit management. All but one of the differences are statistically significant’ (p. 4).

Later in the same year, Gabriel Sahlgren provided an even more comprehensive school-level data-set, this time comprising all Swedish schools with at least 15 9th-grade students on roll between 2005 and 2009 (‘Schooling for money: Swedish education reform and the role of the profit motive’ (IEA, 2010). The data-set amounted to 6,935 observations (1,543 schools) and included 725,195 students out of a total of 737,788 graduating in that period, excluding only Special schools and those that do not conform to the standard grading practice.

Sahlgren set out to test the ‘deterioration thesis’ – that is, that the profit motive steadily compromises educational standards over time. Having coded the schools according to ownership structure, straight statistical-profiling showed significant differences in the performance of for-profit, not-for-profit and municipal schools. For-profit independent schools did better than municipal schools and not-for-profit independent schools did better than for-profit schools. In the regressions however, controlling for a wide range of demographic, socio-economic and other contextual factors that influence grades, post-reform for-profit and non-profit independent schools emerged showing more similar positive effects on the average school GPA, raising it by 5.61 points and 6.16 points respectively. (A dummy variable was included to control for the influence of the more exclusive independent schools established prior to the 1992 reforms.)

Applying further controls for (regional) municipality variables, non-profit independent schools raise the average GPA by 5.74 points, whereas the for-profit schools raise it by 4.50 points (p. 18). The impact of the for-profit independent schools was strongest where there were high numbers of pupils from low socio-economic backgrounds, increasing the average school GPA by 11.64 points, compared with non-profits’ 4.39 points (p. 19). For-profit schools were further shown to be beneficial for students from all backgrounds, with the largest effect for students from low-educated families. (Note that this contrasts with the findings of the more widely publicised study of the overall Free School effect by Böhlmark and Lindahl which found the positive effect for pupils with low-educated parents or an immigrant background to be ‘insignificant’ (Böhlmark, A. and Lindahl, M. ‘The Impact of School Choice on Pupil Achievement, Segregation and Costs: Swedish Evidence’, IZA Discussion Paper No. 2786 (Bonn: Institute for the Study of Labor, 2007). Accordingly, Sahlgren concludes, the performance of for-profit independent schools should serve as a guideline for municipal schools regarding minimum acceptable levels of student achievement (p. 20).

In a subsequent study, appended to a later version of the 2010 paper, Sahlgren addresses the problem of endogeneity – that even after controlling for these variables it might still be the case that pupils in Free Schools may be more, or less, able, motivated, etc. than those in municipal schools. Citing a study by Tegle (Tegle, S. ‘Påverkar förekomst av friskolor betygen i grundskolan? – En statistisk analys av samtliga elever i årskurs 9 år 2006’ (Stockholm: Svenskt Näringsliv, 2010), which suggests that not taking this into account would be to significantly underestimate the positive effect of Free Schools generally, Sahlgren explains that he initially decided not to apply controls addressing this phenomenon so as to err on side of caution in testing the deterioration thesis (p. 24). After employing Instrumental-Variable models explicitly designed to deal with endogeneity, the influence of both for-profit and non-profit Free Schools was found to be much stronger, increasing the GPA by 33.74 and 33.86 points respectively and representing an increase of 16.3% in comparison with municipal schools (p. 25).

In summary, not only did Sahlgren’s results overturn the deterioration thesis, but they also strongly suggest that, taking endogeneity into account, for-profit and non-profit schools are equally good at raising standards.

To my knowledge, there have been no further systematic, long-panel evaluations of individual test score gains that estimate relative impacts under similar operating conditions since the publication of Sahlgren’s study.

Revised extract from ‘Profit-making free schools: Unlocking the Potential of England’s Proprietorial Schools Sector’ (© ASI, 2011). James Croft is an IEA education research fellow and Director of the Centre for Market Reform of Education.