All Commentary
Thursday, April 9, 2015

For the Kids — and for Profit

The business of education beats the bureaucracy of schooling

The Wall Street Journal has exciting news for economic development in Africa: Well-capitalized American investors have created a company, Bridge International Academies, that provides low-cost schooling for poor African children. So far, that’s nice, but not especially exciting. After all, wealthy people have provided charity schooling for the poor for centuries. What’s exciting is that Bridge is for profit. It treats the poor as customers, not charity cases.

“How is that possible?” one might ask. “The poor can’t afford private schooling.” But they can; they have for generations; they do right now.

James Tooley of Newcastle University has shown that fee-charging private schools pervade the slums of countries such as India, China, Nigeria, Ghana, and Kenya. For a glimpse of Dr. Tooley and one of the schools he has studied, watch the first eight minutes of this BBC Newsnight broadcast from ten years ago.

As described in his illuminating book The Beautiful Tree, Tooley and his teams of researchers have mapped poor areas and then walked through them, street by street, counting schools in three categories:

  1. government schools,
  2. private schools that are “recognized” by the education authorities, and
  3. private schools that are “unrecognized” — operating illegally, completely off the radar screen of the education authorities.

The government schools are free of charge; the private schools charge fees. Tooley’s teams made unannounced visits to the schools, noted the facilities and student-teacher ratios, interviewed parents and teachers, and tested a large sample of both private and government-school students in English and math.

Tooley found that in these places:

  • Between 60 and 70 percent of all schools are fee-charging private schools, and between 60 and 70 percent of all children living there attend them.
  • The private schools are for-profit, commercial operations. Nevertheless, nearly all the proprietors, who also care about their communities, offer free places for the poorest children.
  • In tests of academic achievement administered to large numbers of randomly selected children in both government and private schools, the private-school children performed much better across the board.
  • Facilities such as drinking water were more commonly available in private schools than in government schools.
  • The private schools cost far less, with their teachers being paid a third to a quarter the salaries of teachers in the government schools.

In short, in poor countries the private sector already provides better schooling for lower cost than governments do. Education is no exception to the general rule that goods and services are best provided by entrepreneurs.

Though the private schools Tooley has identified perform better than the government schools in the same poor areas, that is a pretty low bar to clear; by Western standards they are still terribly deficient. Though their proprietors do the best they can, they make do with very limited resources. African private schooling needs improved financing and technology, and it needs experimentation with new approaches that achieve economies of scale.

This is why the Journal story is so exciting. Bridge International Academies offers all three.

Some excerpts from the article:

MASII, Kenya — An army of teachers wielding Nook tablets and backed by investors including Bill Gates and Mark Zuckerberg is on a mission to bring inexpensive, private education to millions of the world’s poorest children.

Notice the motivation: like the African school proprietors Tooley describes, Bridge is motivated by a concern for poor kids. Both desire to earn money and to help children.

In rural Kenya, 6-year-old Sharon Ndunge, sitting in a rough-built classroom with chicken-coop wire for windows, a tin roof and wooden benches, is among 126,000 students enrolled at the more than 400 Bridge International Academies that have sprung up across the country since the company was founded in 2009.

The growth is impressive: 126,000 kids at over 400 schools in six years.

Bridge’s founders are challenging the long-held assumption that governments rather than companies should lead mass education programs.

For me, this change in attitude is the most exciting part of the story. First-world investors are thinking of education as business rather than charity. Five years ago, Mark Zuckerberg donated $100 million to the Newark public schools, a generous act that I deplored as stupid, stupid, stupid, because government schools don’t have the right incentives to use the money well. Newark schools already had money; what they needed was competition. Mr. Zuckerberg’s hopes for Newark have not been realized.

While there is no guarantee that Bridge International Academies will succeed, at least this batch of Mr. Zuckerberg’s money is in the private sector, where there is competition (both current and potential), and where the money must be spent so as to please customers — parents — in order to generate a profit.

The company’s goal is to eventually educate 10 million children and make money by expanding its standardized, Internet-based education model across Africa and Asia. (emphasis added)

The Internet and Barnes & Noble Inc. Nook tablets are used to deliver lesson plans, which are then used by teachers. The tablets also are used to collect test results from students scattered across hundreds of towns and villages and serve as a means of monitoring their progress.

“It’s like running Starbucks,” said Greg Mauro, a partner at California-based venture-capital firm Learn Capital LLC, the largest shareholder in Bridge with a 15% stake, likening it to the coffee chain with standardized systems and procedures that can be replicated across new locations. If all goes to plan, the American-run, Nairobi-based education startup will seek a stock-market listing in New York in 2017, according to Mr. Mauro.

Wouldn’t that be wonderful: a for-profit, private-education-for-the-poor corporation listed on the stock exchange. Readers who are thinking that companies serving the poor don’t get listed on stock exchanges should consider Walmart, which has grown into one of the world’s largest companies by delivering basic goods to low-income people. The trick is to find ways to keep costs below what poor consumers can pay. Using information technology well and providing standardized products on large scale can help to keep unit costs down. Bridge aims to do that:

“All Bridge’s systems have been designed with the view of getting to millions of students,” said David Easton, an investment director at CDC Group PLC, a London-based investor in Bridge.

A variety of investors including:

Mr. Gates, e-Bay Inc. founder Pierre Omidyar’s Omidyar Network, textbook publisher Pearson PLC and others … already have put more than $100 million into the company…. Facebook Inc. co-founder Mr. Zuckerberg this month invested $10 million…

Mr. Gates saw “significant innovation in the approach and wanted to support it personally,” said a spokeswoman for Mr. Gates.

Readers may wonder why poor parents would pay to send their children to a private school when, as in Kenya, there is “free public [that is, government] schooling for all.” The reason is that the free government schools are a fraud. Read and weep:

Kenyan public schoolteachers spent an average of two hours and 40 minutes teaching a day, according to a 2013 World Bank report, and 45% of teachers weren’t doing their jobs: 16% were absent from school, 27% were at school but not in class and 2% were in class but not teaching. By contrast, Bridge said its teachers teach for more than eight hours each day, and there is unexcused teacher absenteeism of less than 1%.

The World Bank report squares with Tooley’s findings from both interviews with parents and direct observation. Poor parents told Tooley that in the government schools, “the children are abandoned.” For an eye-opening video illustration of the problem, note what the government schoolteacher is doing from the 5:25 – 6:00 mark in the BBC Newsnight video.

The difference between private and public schools is an illustration of what I have called the “incentive principle”: Private ownership and freedom of exchange, the foundational principles of a free market, lead people to serve others in order to benefit themselves; whereas government interventions tempt people to benefit themselves at others’ expense. (See Free Our Markets, A Citizens’ Guide to Essential Economics, chapter 3).

The incentives of the private sector regulate teacher performance very strictly. The proprietors must keep parents satisfied or lose their tuition payments. Hence they monitor teachers closely. If private-school teachers don’t show up, or show up and don’t teach, they get fired. Not so, sadly, in the government schools. Because the bureaucracy is dysfunctional, the teachers’ performance is effectively unregulated.

So the advent of Bridge International Academies is very exciting indeed. It has no guarantee of success, of course; one hates to contemplate the obstacles regulatory bureaucracies may put in the company's way. But if Bridge succeeds, like all profitable business it will attract imitators, competitors. More well-capitalized participants in the business of educating the poor will mean more innovation, discovery of better approaches and techniques, higher quality, and more affordability.

Average incomes in Africa are rising now, and education enables higher incomes. Better schooling should speed that rise, which in turn should spur demand for more and better schooling. It’s a bright prospect for once-dark Africa.