The Profit Motive for Schools

The last and most controversial requirement for an effective education market is that a significant percentage of schools be operated for profit. The importance of profit making can easily be grasped by looking at the different responses that non-profit and for-profit schools have to pent up consumer demand. Even the most highly regarded non-profit schools, such as Philips Exeter and the Laboratory School at the University of Chicago, serve only about a thousand more students today than they did a century ago. They have expanded their waiting lists instead of opening new facilities for two reasons: first, they lack an incentive (profits) sufficient to overcome the risks of expansion; and second, they are funded in significant measure by alumni who seek to perpetuate a tradition rather than to commercialize a popular service.

For-profit schools behave differently. When demand for their services rises, they open in new locations, buy-out less successful competitors, and expand existing sites. Kumon, the for-profit Japanese tutoring chain, expanded from one student in one country to 3 million students worldwide in just fifty years. Some non-profit schools, such as those run by the Catholic Church, have expanded without the lure of profits, but for-profit status has proven to be the most effective and universally applicable force in disseminating popular educational services.