for profit in the Arab world
Is the rise
of for-profit educational systems good news for the
United Arab Emirates: December 07, 2004
Meet Sunny Varkey, a Dubai-based entrepreneur who
made his fortune with for-profit elementary schools
in the UAE, and whose company also owns a construction
firm and hospitals.
'We take care of you,' says the founder of the Varkey
Group, 'from the cradle to the grave.' The Indian-born
Varkey is the child of school teachers who first arrived
in Dubai in 1959 - a time when the emirate was little
more than desert, with scattered developments along
the coast and inland.
Varkey's parents shortly began teaching English to
local students in Bur Dubai, for a fee of 25 Indian
rupees a month, and that small business grew into
Our Own English High School, which was founded in
1968. Meanwhile, young Sunny was studying at a boarding
school in India, then went on to complete his education
In 1977, Varkey returned to Dubai. After a stint
at a local bank, he opened a small trading company,
then became part owner of the Dubai Plaza Hotel.
Meanwhile, Varkey's parents continued to teach English
at their makeshift institution until, in the early
1980s, the Dubai authorities told them that they either
had to construct a purpose-built facility or shut
down. That's when Sunny stepped in - and took the
first small steps towards building his vast fortune.
GEMS across the globe
Today, Varkey's for-profit educational empire - run
under under his Global Education Management Systems
(GEMS) business unit - stretches across much of the
globe. Described as 'an educational management consultancy
and systems provider, offering total education management
solutions,' GEMS manages schools in the UAE, Qatar,
India and Britain, and is looking to expand in the
near future to the United States.
Varkey's venture has proved highly controversial
in Britain, where local councils are objecting to
his plans and have proved hostile to any form of competition
to state-run education.
While the Blair government has been pushing for private-public
partnerships in a range of sectors - and while a recent
poll in Britain showed that 53 percent would opt out
of public education if they could afford to - doubts
have been raised about how GEMS schools can compete
on both price and quality.
In Britain, independent school fees can exceed £20,000
a year; Varkey's schools will charge as little as
£5,000. How, critics ask, does Sunny Varkey
I recently spoke to the self-made millionaire, who
chatted with me via speakerphone in his car while
driving through Dubai. 'We have budget, mid-market
and premium schools,' he says. 'Think about Mercedes-Benz:
you've got S-class to E-class, but there's quality
running all the way through. We have the same thing.
Take another analogy. On an airplane, you've got economy,
business and first class. There are some things that
are common in each class but, at the same time, there
are things that are different.'
These are unsettling analogies. While we are all
born into different circumstances - rich or poor,
with apparently limitless opportunities or seemingly
none at all - the role of the state should be to level
the playing field, not to exacerbate inequality. And
to the extent that for-profit education necessarily
promotes the latter, its mission seems misguided.
But whether you're a committed free marketeer or
a diehard socialist, the real questions aren't ideological,
but practical. How will for-profit education impact
society? Will economy, business and first classes
of early education increase social inequality? And,
most simply, how can a businessman like Varkey offer
more (or the same) for less?
'Education is a highly labor-intensive activity,
with wages usually accounting for 80 percent or more
of the school budget,' says Henry Levin, a professor
at Columbia University.
'This means that the main cost-cutting opportunities
lie in cutting personnel costs by using either cheaper
personnel or fewer of them. Thus for-profit schools
may use more part-time personnel (forgoing staff benefits),
less experienced teachers whose salaries are lower,
larger class sizes or shorter school days.'
Worldwide, for-profits schools are a relatively recent
phenomenon. But some studies have been done and, from
the point of view of a parent, the results are not
Levin points to the example of Chile, where for-profit
schools have existed for more than two decades. 'For-profit
schools [in Chile] have lowered their costs by hiring
part-time teachers, paying lower salaries and enlarging
class size,' Levin says. The impact on educational
achievement is obvious.
It's notable that parents at GEMS' first school in
Britain raised objections after the Varkey Group took
over an existing private school. Their complaint?
That class size was increased from 15 students to
Keep in mind, too, that most private schools in the
world are non-profit. As Levin points out, 'The problem
for entrepreneurs is that for-profit schools compete
at a disadvantage against not only public schools
but many non-profit schools as well. For a variety
of reasons, nearly all private schools set tuition
below levels that would allow full cost recovery.'
For-profit schools can't do the same kind of fundraising,
and they are unlikely to receive the same kind of
state subsidies. For-profit schools necessarily have
to cut corners somewhere; their goal, after all, is
According to Varkey, some 35,000-40,000 children
in the UAE are educated in the public school system,
while roughly 115,000 children attend private schools.
(It's worth adding that the waiting lists at the better
schools in the country are so long that many expatriate
businessmen with families have been forced to send
their children to overseas boarding schools.)
It is unquestionably a good thing that Varkey stepped
in to help fill the gap. And there is a fine argument
to be made that if a private company can provide a
good education - at no direct cost to the state -
then there is no harm done.
Further, the driving idea behind school vouchers
- provided by the government, and allowing parents
to choose among both public and private options -
is that market forces will lead to the closing of
bad schools and the expansion of good ones. It's the
force of the so-called 'invisible hand,' first described
by Adam Smith in his 1776 classic treatise on economics,
An Inquiry into the Nature and Causes of the Wealth
Smith's argument was that each individual seeks to
amass wealth 'intending only his own gain' but that
because he must always offer something of equal value
in return, everyone wins.
'By pursuing his own interest,' Smith wrote, 'he
frequently promotes that of the society more effectually
than when he really intends to promote it. I have
never known much good done by those who affected to
trade for the public good.' In short, it's the theory
of the free market.
Smith was a profoundly religious man, who believed
the goal of life was to maximize happiness for all.
He felt that this was best accomplished through a
free-market system, where people were forced to think
about - and then provide - what other people wanted.
Natural self-interest - the so-called 'invisible
hand' - would lead us to improve the lot of others.
'It is not from the benevolence of the butcher, the
brewer or the baker that we expect our dinner, but
from their regard to their own interest,' Smith wrote.
'We address ourselves, not to their humanity but to
Sunny Varkey, perhaps unawares, clearly subscribes
to many of the ideas expressed in The Wealth of Nations.
'At all our schools,' Varkey told me, 'when parents
pay money they expect value and service - and we're
always on the cutting edge of service. If I want to
attract parents, I have to provide the right facilities
- and keep on doing that. Unless I deliver what I
promise, I'm not going to be successful.'
Varkey - who seems to be a good, caring man - certainly
cannot be faulted for serving his own interests while
simultaneously serving the public good. But consider
Adam Smith's examples of the free market at work:
the butcher, the brewer and the baker - not the teacher.
What would happen if we truly applied free-market
principles to the educational system? What would happen
if we had multiple classes - economy, business and
first - of childhood learning?
The privatization of basic services like education
would not necessarily mean that no child was left
behind. On the contrary, privatization could be seen
as alternative for those who simply don't want to
provide for the poor. As one commentator has noted,
'By removing public schools from direct public control,
privatization would undermine the democratic drive
Would you mind if everything in the world were privatized,
I asked Varkey at one point. He paused, and the line
whispered with static. 'Look at health care. Almost
everything has been privatized, almost everywhere,'
Varkey said. 'Because when the private sector is involved,
you have innovation, you have entrepreneurs who can
take the initiative. They'll go the extra mile.'
In the Middle East, after decades of experimenting
with various forms of state socialism, there's clearly
been a sea change in thinking about the right balance
between the public and private sectors. In the Arab
world, central planning is out - except in rare cases
Across the region, diversification is in, and privatization's
all the vogue. Entrepreneurs like Sunny Varkey are
now held up as role models - self-starters who see
a niche, then fill it - and Arab governments host
annual galas to celebrate their businessmen (and women)
of the year.
At the same time, educational standards in the Arab
world desperately need to be raised - as the UNDP's
Human Development Reports make abundantly clear. To
achieve that, resources need to be redirected and
new investments must be made.
Arab governments should look hard at the example
set by Sunny Varkey, and then apply his best practices
to state schools. But while schoolchildren in the
region should by all means read Adam Smith, they should
not be left at the mercy of the invisible hand.