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Education for profit in the Arab world
Is the rise of for-profit educational systems good news for the Arab world?

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 Britain.

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 do it?

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 encouraging.

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.

Size matters

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 24.

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 making money.

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 of Nations.

Free markets

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 their self-love.'

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 towards equalization.'

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 like Libya.

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.

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