Education as a Frontier Market
By Jonathan Rutherford
17th December 2003

In July 2001, Tony Blair set out his vision for public service reform: 'I believe the private sector can help us to build new schools and improve old ones. In some cases the private sector can provide management expertise for failing schools or LEAs.' Two years later he promoted the idea of 'new forms of co-payment in the public sector.'

New Labour has intensified the reforms initiated in the Conservative's 1988 Education Act.

Bring to an end comprehensive education: break up the power and control of local education authorities: develop competing types of semi-autonomous, secondary schools.

In Higher Education academic tenure was abolished. The University Grants Committee replaced by funding bodies which used government funding as a lever for reform.

Pseudo independence.

The ideology driving New Labour's reforms of education can be found in the Department of Trade and Industry's 1998 Competitiveness White Paper, Our Competitive Future - Building the Knowledge Driven Economy . It set out a framework for Britain's industrial policy. National prosperity depends on the ability to create a knowledge driven economy with education at its core. Peter Mandelson, then Minister of Trade and Industry, delivered the New Labour line: 'Knowledge and its profitable exploitation by business is the key to competitiveness'.

Charles Leadbetter, one of the authors of the White Paper, concluded his own book Living on Thin Air with a manifesto: 'Education is the first priority, a policy for mass entrepreneurship is the second.' His priorities were adopted in the 2001 White Paper on Enterprise, Skills and Innovation , designed to prepare a workforce for the knowledge economy . 'The Government will ensure that creativity, enterprise and the ability to innovate are at the heart of the education and skills we provide to our young people and adults.'

Education and training is changed from the social provision of a public good, into a services market involving private transactions between customers and providers. Implicit in the rhetoric of the White Paper is the neo- liberal view that individual rational choice, based on cost benefit analysis, is a superior method of governing economic and social relations than one defined by social, collectivist criteria. Education and training will produce workers who are autonomous entrepreneurs rather than dependent employees: individuals who will invest in their own human capital in order to maximise their utility.

Despite his differences with Mandelson, Gordon Brown is a leading proponent of this post welfare , enterprise culture. ( In a speech to the CBI in 2001 he said):

I want every young person to hear about business and enterprise in school, every college student to know there are opportunities in business, every teacher able to communicate the virtues of enterprise.... so encouraging a stronger pro-business, pro-enterprise, pro-wealth creating environment in our country.

New Labour's market based reforms introduce economic calculation into what were previously social and bureaucratic domains, making them more receptive to private sector participation .

Value for Money institutionalises comparisons with the private sector through its focus on targets, competition and cost.

Proceduralism, audit and monitoring are transforming public sector institutions. According to Andrew Cooper, 'Professional self-discipline or self-regulation has been recast as a form of social surveillance'.

They impose an external rather than internal criteria on teachers and lecturers for assessing and evaluating their work. A culture of inauthenticity is created which marginalises ethical decision making in favour of compliance.

Private sector participation

New Labour has given prominence to the role of the private sector in public services. The 2002 Education Act allows private companies to bid against local authorities to set up new schools, as well as allowing schools to create their own companies. The greatest impact of the private sector to date, has been the private financing of public capital spending. The role of the state is changed from being a provider of schools to a renter of privately run facilities and services.

New Labour came into power faced with decades of chronic under investment in the infrastructure of schools, colleges and universities. By 2000 public investment in education had fallen to 0.25% of GDP. The decline was paralleled by income tax cuts on the top rate of earnings; down to 60 percent in 1979, then down to 40 percent in 1988.

In 1994, John Prescott and Gordon Brown addressed this dilemma in a document Financing Infrastructure Investment - Promoting a Partnership Between Public and Private Finance. It set out New Labour's approach to public sector investment. UK privatisation had peaked in 1993. The supply of politically acceptable, saleable state assets was all but exhausted. New Labour's plan for Public Private Partnerships was not so much an alternative to privatisation as an opportunity to progress the liberalisation of the state and public sector by other means.

The chosen instrument for reform was the Private Finance Initiative (PFI). Private capital would support and resource public services. Its pursuit of optimal returns on its investment would drive down costs, introduce new ways of working, and promote innovation and efficiency. The market would encourage greater local control of service provision.

In 2000, Gordon Brown told the Private Finance Annual Conference, 'I hope bankers and their credit committees get the sense of security they intuitively search for ... in the very real continuous flow of business opportunities that schools, hospitals, prisons, roads and government accommodation projects offer for the long term. These are core services which Government, whether local or central, is statutorily duty bound to provide, and for which demand is virtually insatiable.. Where else can you get a long term business opportunity like that'.

The Education PFI Market

In April 2003 the Office of Government Commerce reported a total of 93 education projects signed or completed with a total capital value of 18.5bn. The amount is based on the public sector estimates for capital expenditure which are, on average, just 22% of the total costs of PFI projects. For example: the Liverpool Grouped Schools scheme has a capital value of 72.5m. The project was signed by Jarvis. Its 2002 interim results claim the scheme will earn it 257m.

The Government is planning to double the number of business backed specialist schools to 2000 by 2006. This excludes New Deals for Schools which involves private sector partnerships, as opposed to PFI.

In March 2002, Parliamentary Under Secretary of State Catherine Ashton announced 939m PFI capital investment for 2003-04, part of a longer term 8.5bn programme on investment in school buildings .

Minister of School Standards, David Miliband told the Times Educational Supplement that there would be 'no holds barred' on the PFI schools' programme. It could include the rebuilding or refurbishment of all 3,780 secondary schools and the transfer of all school maintenance to private companies.

The market is global. Sumitomo Mitsui Banking in partnership with construction company Kajima recently won a 34m education project in Ealing.

The case for PFI has been justified on a division between non core, infrastructural services like facilities management and core social domain services like teaching. However in education, the division has been broken down by a range of techniques: the commercial sponsorship of new City Academies; introduction of Education Action Zones; private sector replacement of senior management, provision of quality control and school support services.

Problems with PFI

PFIs diminish accountability and transparency by introducing commercial, contractual relationships into the social domain of the public sector.

They are increasingly funded by arcane financial packages and vulnerable to mergers and acquisitions; exposed to rising and falling equity and bond markets, inflation, deflation, bankruptcy and grandiose corporate ambitions.

The influential European Services Forum is lobbying for public procurement in services to be part of the GATS, a move which will increase the liberalisation of the secondary market which buys and sells PFI debt and insurance.

There are important questions to be asked about who owns and is accountable for these schemes and about their affordability in the long term.

The government has actively promoted PFIs in education at a time when the DfES has reported year on year massive underspends in its budget. For example, the Treasury's current account surplus for 2000-01 alone was 23bn.

In local authority deals, central government only covers 75% of the capital costs. Who will bridge the gap twenty years down the line?

A Market State?

The total capital value of all PFI projects to date is 52.7bn. A small percentage of total government spending. The construction of PFI markets is not without its difficulties. Serco has failed to manage its 360m contract to run education in Bradford. W S Atkins terminated its 100m contract running education in Southwark. Amey has sold its stakes in its PFI contracts. Ballast plc went bust in October 2003 halting work on scores of schools. It can be argued that PFI is an expensive distraction from the unavoidable need for large scale public investment in public service infrastructure

However, creating a market in education and other public services is part of the broader attempt by countries of the Organisation for Economic Co-operation and Development (OECD), the IMF, WTO and World Bank to establish global, competitive services markets. Services form the largest sector of national economies. They create over 60 percent of world production, 71 percent in the US. Service provision and its private financing hold the key to economic growth and profitability. The global markets in education and health care are potentially huge.

The widespread use of outsourcing, market based reforms in public sector organisation, PPPs and the PFI disaggregate domestic public sector services and reintegrate them into new markets as a series of commodities. In these markets the frontier between the public and private sectors, and between social and economic domains, is being redefined. UK education is such a frontier market.

Frontier markets are powering a trend away from the traditional nation state into a new form of liberal or market state. The nation state sought to guarantee the welfare and security of its national population and provide people with public goods. The liberal or market state seeks to maximise the opportunities and choice of people. The nation state embodies the values of an ethnically homogeneous national culture. The market state promotes economic efficiency and individual choice, and seeks to minimise transactional costs. In the nation state the economic arena is the workplace and factory. Men and women are workers and producers. In the market state the economic arena is the market place. Men and women are consumers. (Philip Bobbitt, in The Shield of Achilles , Penguin 2002)

In the market state, criteria based on economic calculation take precedence over social evaluative categories to become the method of governing individuals and populations. In consequence, humanistic and social democratic approaches to education which promote equality over meritocracy, diversity over standardisation and which place value in the imagination, critical open ended thinking and the pleasure of learning are marginalised and discredited.

By Jonathan Rutherford