I recently wrote about a few claims made by the socialist writer Nathaniel Robinson regarding profits and competition in schooling. He argued that a profit and loss system would give schools incentives to provide as little education as possible and that competition would, at best, be useless to fix this. Aside from the problems I discussed in my previous post, there are a few other opportunities presented by this piece worth unpacking.

Much of what Robinson fears about privately run schools seems to be derived from this claim:

In a public school system, all money is spent on the schools. In a for-profit school system, at least some portion of that money is directed instead toward the pockets of shareholders (if it wasn’t, the for-profit schools couldn’t continue to exist).

Robinson made it clear in that article that he and his fellow thinkers see “profit” as a “dirty word.” And this would certainly seem to reflect that – if a private school is making a profit, then in his mind, it just means shareholders are pocketing money that should be spent on education. Public schools don’t have shareholders pocketing money, and therefore, no profits are draining away resources from children. To put it in simplified and numerical terms, suppose a public school receives $1000 per student. And suppose a voucher system is implemented that allows parents to use that $1000 on a school of their own choosing, rather than whatever their zip code dictates. That school might only spend $800 on education and distribute $200 to shareholders. Thus, the private school will provide an inferior service to the public school. In this mindset, “profit” seems to be little more than a form of embezzlement – illicitly taking money for personal gain at the expense of the well-being of the organization.

But why think that? This is classic zero-sum thinking. It’s not as if there is some fixed quantity of “education” that simply exists out there in the ether, and that if one system spends more money than another, the one spending more necessarily produces more or better education. To say that an organization’s profit comes at the expense of the customer only makes sense if there is some preexisting pie in a fixed and static state – and if a slice called “profit” comes out of the pie, there must necessarily be less pie for “education” (or for any other good or service you might think of).

This might make sense if you see wealth as zero-sum. In a static, zero-sum world, shareholder profit would come at the expense of customers. But if you abandon zero-sum thinking and instead come to see wealth as not a fixed pie, but as something that is produced by an ongoing and dynamic process, you can easily see the folly of this reasoning. The idea that one organization can produce more or better output than another while requiring less money or fewer resources to do so is not some paradox or contradiction. The fact that a private organization is operating profitably while a state-run organization makes no profit provides exactly zero reasons to believe the state-run organization will provide better services than a profitably run organization does.