The schools’ charitable status has the perverse effect of encouraging
them to plough any surpluses into yet more capital investment in
facilities and equipment. Money that a private firm would distribute is
instead put towards a new library, sports hall or information
technology centre.

These additional facilities can be justified as extra selling points.
They make the school more attractive to potential customers. The glossy
brochure highlights the extra amenities as a competitive advantage,
giving the school an edge over its rivals. A school that fails to add a
modern science laboratory or an IT centre risks losing potential pupils
to those that do. One headteacher recently compared this to an arms
race in which schools spend on ever more expensive facilities simply to
stay abreast of their rivals.

High on the list of other factors that make independent schools too
expensive is the absence of a genuine competitive market. Real markets
tend to be characterised by the widespread availability of information,
by competition on price and quality, and by choices made by consumers.
Independent schools have what is, in effect, a captive market.

The way the state organises its schooling is such that, in some areas,
parents see private schools as the only way to ensure a decent
education for their children. Those lucky enough, or devious enough, to
live within the catchment area of a good state school can secure a high
standard of education from the state. Others have to pay for it
themselves. This does not put them in a good bargaining position with
respect to private schools. It is one reason why they have to seek out
the school place, rather than have the schools seek out their custom.

In most markets, the ability of newcomers to enter keeps the
established suppliers on their toes. This is not true for fee-paying
schools. The regulatory and planning hurdles that have to be cleared
make it difficult, expensive and time-consuming to establish a new
school. As a result, the innovative ideas and approaches that newcomers
bring are largely absent from education.

A further reason why private education remains a luxury product is that
its market is limited to those who can afford to pay twice. Parents who
pay for a private school place have also to pay in full through
taxation for the state school place that their child does not use. If
anyone who bought produce from Tesco had also to pay Sainsbury’s for
similar goods without using them, the economics of supermarkets would
be very different.

The point about the fees charged by independent schools is not that
they are too high for their existing customers. This is indicated by
the fact that they have been increasing faster than inflation and by
the steady increase in the numbers of fee-paying pupils. The point is
that they are too high for a range of potential customers eager to
secure an alternative to state education but unable to afford the
premium, luxury product that is offered as the only alternative.

There are some similarities with the way the airline industry used to
be organised. When nearly all airlines were in a cartel which mandated
virtually identical prices and services, individual carriers used to
compete on the basis of their food or their "friendliness". The choice
was straightforward: if you could not afford the high-price luxury
product, you did not travel by air.

The industry has been very different since deregulation allowed
entrepreneurs to tap new markets. There are now less costly
alternatives, including travel along different routes, new types of
service and a range of products at different prices. Perhaps there are
equivalent markets waiting to be tapped in private education. Opinion
polls indicate that the demand is there.

Several educational entrepreneurs are now talking in terms of new
private schools that would charge fees not very different from the
costs of a state education. The Conservative Party’s "school passports"
would allow parents to choose such schools as alternatives to their
local state schools. These schools would come without the centuries of
tradition or the luxurious facilities, but they would offer a high
quality education at an affordable price. There could be chains of
successful schools reproducing the winning formula and management
methods that bring results.

The future of private education may well be one of diversity of
products and prices. There will still be luxury private schools at the
top end of the market, as there is still British Airways first class
travel. But just as easyJet and Ryanair have brought the joys of flight
to many more people than could afford it before, so it may be time for
new types of fee-paying school to spread the benefits of private
education to a wider public.

Dr Madsen Pirie is president of the Adam Smith Institute. This article
was originally published in the Daily Telegraph on 3rd June 2004.

Old Teaser
Independent schools are too expensive for most people; they provide a
service that is bought by only seven per cent of the population. Yet
polls have shown repeatedly that most of us would like to send our
children to an independent school if only we could afford it.

One of the reasons for their high cost derives, paradoxically, from
their charitable status. If they were profit-making companies that
distributed their profits to shareholders, there would be incentives
for them to keep costs down and operate efficiently. They would try to
sustain dividends and share values by seeking savings.

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