Low price fee paying schools are argued to be accessible to the poorest. They are also thought to benefit from competition and the assumptions of efficient markets. This presentation will: • identify the main drivers of costs in national education systems • illustrate the range of prices that are needed for solvent school financing in countries with different levels of GDP per capita • identify likely levels of teachers salaries necessary for self financing at different fee levels • compare costs to households with household incomes • discuss under what conditions an efficient markets hypothesis might hold and under what conditions it will not.

1. Who Pays the Piper?
Can Low Price, Fee Paying Schools
Self Finance
and Enrol the Poorest?
Keith M Lewin
www.create-rpc.org

2. Outline
•
Meanings, Markets, Mechanisms and Motives
•Definitions and Concepts
•Setting the Scene for Discussions of Finance and
Effectiveness
•Do Efficient Market Propositions Hold for School Choice?
• How far is affordability a constraint and what are the
prices needed for solvent school financing?
Privatisation of public or publicisation of private?

3. Definitions and Key Concepts
• Private school are schools financed wholly by income from fees and charges
for students (and voluntary donations by others?); to qualify private schools
must be or aspire to be legal entities subject to public benefit regulation
• This definition excludes many other types of privately managed but publicly
financed schools and community financed schools that are run with CSO type
governance and are not for profit.
• Private schools must have a business model (they are businesses); they must
be legal entities, they must publish accounts, they must declare beneficial
ownership, and it should be clear how they are financed, and what rates of
return they generate on invested and borrowed capital
• Private schools must employ teachers and other staff legally at or above
minimum wages.
• There is no private schooling (pedagogy, curriculum, examination), only
privately financed schoolng, that may or may not emphasise different methods,
choice of content, and may elect to take different (public) examinations.
•
• There is no private school system in most counties, but a collection of private
sector providers mostly operating independently

4. Financing Education: States and Markets – Who Pays for What?
100
GDP
90
80
70
60
%GDP for Devt
50 Govt LDC
%Govt
40 Budget
for Ed
30
20 %GDP
for Ed
10
0

5. Demographics, Labour Markets and Choice
More workers
than children
Falling numbers
enter labour
market

6. Demographics, Labour Markets and Choice
Fewer workers
than children
Growing numbers
enter labour
market

7. Zones of Inclusion and Exclusion
Where are the Private Sector Providers?
100 Unlikely
Zone 1 to Enrol
No
Never
90 Enrol
Should Access CREATE
Enrol
Zones of Exclusion
80
Zone O www.create-rpc.org
70 Zone 2
No No
Pre- Primary Drop Outs Access
60
% Participating
School
50
Zone 4
40 Zone 3 At Risk
Primary Leavers
Overage, Low Attenders and Achievers
No
30 Zone 5 Drop Outs Access
20 Zone 6 At Risk
At Risk
10 Secure Enrolment, Attendance and Achievement
Access
0
1 2 3 4 5 6 7 8 9 10
Primary Grades Lower Secondary Grades

8. Performance Skews and Implications
70
70
60
60
Percentage of Schools Accra
Percentage of Schools --Accra
50
50
Public 40
40
30
30
20
20
Private
Public
10
0
Q5 Q4 Q3 Q2 Q1
Quintile of School by Average Score

9. India

10. Where are the private schools?

11. The Efficient Market Hypothesis
Are the Propositions Valid for LFPS for the Poor
• Choice is only determined by price and not constrained by wealth,
location, social/religious group, transfer costs, opportunity costs etc
• The universe of possible choices is wide i.e. many viable options
• Information is freely available (e.g. on performance, facilities, fees
charges) to all actors in a timely way and is independently verified
• There are no significant barriers to exercising choice (e.g. enrolment fees,
calling in of credit, opportunity costs, social exclusion)
• Principal (purchaser) and agent (service provider) share the same goals
and motivations and are not displaced by intermediaries; what is sold is
what is bought
• Supply and demand are not distorted by public subsidies either open (e.g.
capitation, scholarships, teachers salaries) or concealed (teacher training,
curriculum development, cost of buildings)
• Markets for capital do not fail, and behave rationally in seeking returns

12. Choice, and Location
Constraints on Choice
Costs
Transfer Costs
Distance
Safety
Social Group
Information
Capacity
Public Low Fee Mid Fee High Fee

13. Choice, Affordability and Perceived Quality
Costs
Perceived Quality

14. Tanzania - Affordability
Affordability
50000
45000
40000
35000
30000
25000
Total Urban Household Expenditure/ month
20000
Government School Fees ++ /month
15000
Total Rural Household Expenditure/ month
10000
5000
0
1
5
9
13
17
21
25
29
33
37
41
45
49
53
57
61
65
69
73
77
81
85
89
93
97
101
105
109
113
117
121
125
129
133
137
141
145
149

15. Poorest = GBP 200 week = USD 300 = USD15,600 per year
10% on education costs = USD 1560 per year per household
Income per class PTR 25:1 = 25* 1560 = USD 39,000 No default
Direct cost of qualified teacher = USD 50,000 + on costs = USD 75,000
Infrastructure, ancillary staff, overheads = +USD 75,000
Building costs/ rent = USD 75,000?
Profit/investment = USD 25,000
Total Income needed per 25 students =USD 250,000
Fee per student =USD 10,000
Low cost private schools in London charge USD 11,000 = £7,000
This is affordable at 10% for income £70,000 = USD 100,000+

16. Affordable Costs for Households + School Cost Drivers
Self Financing Fee Costs - Simulations
Primary Lower Sec Upper Sec HE + Other Total
Pupil Teacher Ratio 30 25 20
Teacher salaries /GNP/capita 1.5 2 2.5
Non teaching salaries/GNP/capita 0.5 1 2
Non salary expenditure/GNP/capita 0.5 1 2
Teacher salaries as % of total recurrent 60% 50% 38%
Total unit cost % GNP /cap 8% 16% 33%
School age pop as % total pop 20% 6% 5%
% school age pop enrolled (GER) 110% 105% 105%
% budget on higher ed + other education 20%
%GNP Needed 1.83% 1.01% 1.71% 0.91% 5.46%
GDP Primary L Sec U Sec
500 42 80 163
1000 83 160 325
1500 125 240 488
2000 167 320 650
10000 833 1600 3250
50000 4167 8000 16250

17. Markets and States – Contentious Propositions
Are they True?
• States are failing to met the educational needs of their
populations; the private sector can reach the places and people
the public sector cannot in ways which are equitable
• The private sector is more efficient and effective than the public
sector in delivering educational services to the poor;
• Effective demand generates affordable low cost providers
• Competition between the private and public sector for children,
teachers, and other resources promotes improved standards and
has no adverse effects
• The private sector has sufficient capacity to meet a substantial
proportion of additional demand for educational services
• “Public Private Partnerships” can offer enhanced service
delivery with more access, greater efficiency and effectiveness,
and positive effects on equity – but for which services, for
which purposes, at which levels, under what conditions, and
what kind of impact on equity?

18. Who Pays the Piper?
Can Low Price, Fee Paying Schools
Self Finance
and Enrol the Poorest?
Keith M Lewin
www.create-rpc.org