Free schools: Lessons in store

In the Nacka shopping district in southern Stockholm is a mall filled only with high schools. The glass and steel Kunskapsgalleria, or "knowledge gallery", looks like an ordinary retail complex, with a restaurant, cafe and a lofty atrium rising through five balconied floors. But the shop fronts are school gates and the advertisements promote education businesses rather than luxury merchandise. As shoppers mill through nearby arcades, a stream of backpacked youngsters flows through the building.

For the architects of Sweden's education reforms, this nexus between teaching and commerce is the ideal of state-funded but independently run free schools, known as friskola.

Two de­cades on from the audacious experiment in opening up state education to the market, a fifth of pupils, or about 312,000 children, attend friskola . Of these, two-thirds go to in­stitutions run by companies rather than co-operatives or charities, and four of the 10 largest education providers are owned or backed by private equity investors.

No other European country has entrusted so much of its children's education to private companies.

For years, the system won the admiration of free-market advocates around the world - particularly Michael Gove, the UK's former education secretary, who declared in 2008 "we need a Swedish education system". Education experts at the Cato Institute, a libertarian think-tank in Washington, have looked into what US charter schools could learn from the similarly autonomous friskola. For politicians wishing to improve schools without raising taxes, Sweden seemed to have found the answer: parents had greater choice, new schools brought higher standards and spurred existing institutions to improve.

Strong test scores in the early years appeared to back up Sweden's theory that market competition was the best way to improve results, drawing a flood of companies into the market. One teaching union leader recalls that it used to be "easier to start a free school than a fish and chip shop".

But as friskola have proliferated, Sweden's confidence in for-profit schools has been shaken. Traditionally top of the class in education, Sweden has tumbled in international test rankings, with the OECD's most recent Pisa results showing scores falling dramatically in reading, maths and science to a position well below the average for developed nations.

Scandals in company-run schools have outraged parents further. Public anxiety about the state of Sweden's schools has put its for-profit model - not just for schools but in other areas of government such as health and social care - at the top of the agenda in next month's general election.

Jonas Sjostedt, leader of the Left party, sums up the public's disillusionment. "The belief [in Sweden] that deregulation is the solution for anything, from running railways to educating kids, has been huge," he says. "This is now over. There are parts of our lives the market cannot fulfil."

As the Conservative party in Britain considers whether to extend its free schools policy to allow profitmaking companies to run institutions, the focus is on Sweden once again - but this time for less flattering reasons.

On the island retreat of Skansen Marcus Stromberg, chief executive of Sweden's largest education group, is briefing colleagues from EQT, his private equity parent company . AcadeMedia receives SKr5.1bn ($730m) a year from the government to run 285 schools and preschools across the country, as well as 130 adult education facilities. It is second only to the municipality of Stockholm in education funding receipts.

While the company has steered clear of public scandal, some of its closest competitors have attracted controversy. A year ago JB Education, owned by Axcel, a Danish private equity company, declared itself bankrupt, causing panic among its 10,000 students. This spring, Swedes were appalled by reports that the Halsans chain of preschools had cut its food budget to SKr9 ($1.30) per child per day. Toddlers were being given only crispbread and water. Halsans denies that bread and water has ever been its "recommended breakfast".

Despite a hostile political climate, Mr Stromberg strikes a positive note. He tells the FT that responsible providers such as his are "taking away the black holes and bureaucracy that municipalities have", and insists that a limited company is "the best organisation to create good quality at a low cost".

AcadeMedia makes about 7 per cent profit, or SKr528m a year before tax, on its schools and preschools. Since the government pays a set fee per child, the business must attract more customers to make more money. Education providers argue this model ensures that only high-quality, successful schools are profitable. Detractors say it encourages free schools to waste taxpayer funds on expensive advertising campaigns.

When asked how it makes cost savings, AcadeMedia says economies of scale on procurement and a central administration are the largest drivers of efficiencies. However, staff is the most significant cost for any education provider, and the company admits that its teacher to pupil ratios are higher than those in municipality schools. It also says that some of its schools pay lower salaries than their state-run counterparts, often because its teachers are younger. Public anxiety about teaching quality in privately-run schools has prompted the government to bring in new training standards.

But in Mr Stromberg's view, the preoccupation with profit is misplaced. "Is a company good for society? Do you need companies to invest more in the school system? These are really the questions," he says. "The question is not about profit."

AcadeMedia owns two of the sixth form colleges in Nacka's Kunskapsgalleria arcade, though this is not immediately evident since the company's branding does not appear on either of their logos. (AcadeMedia has kept a very low public profile.) One of its colleges, Rytmus, specialises in music and has a cult following among Swedish teenagers. Lars Ljungman, its headmaster, spent 20 years teaching in the public sector before taking over the free school two years ago.

"I was curious to find out what it would be like because within the public schools it was always said that [the education companies] were so greedy, that they didn't give to the students," says Mr Ljungman. "I was thinking about whether I would have less money to spend on my students but on the whole, I have more to distribute for my pupils and teachers."

He also praises the flexibility of the friskola system, contending that it makes it quicker and easier to get things done than in the public sector.

However, away from the classroom - and AcadeMedia's press team - one Rytmus teacher is less complimentary. "These companies are like parasites, nothing more nothing less," the teacher says.

The expansion of the highly popular Rytmus model to Gothenburg, Malmo, Norrkoping and Orebro is financially driven, the teacher argues. "Rytmus is like KFC, it is a brand," the teacher says. "Expansion is just a way of making more profit. It is about 'reaching future customers'."

This position has gained currency in the Swedish media and among the electorate. Mr Sjostedt, leader of the Left party, a possible coalition partner in a future centre-left government, is campaigning under the slogan "Not for Sale", a pledge he has applied to education, health and welfare.

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"They're not [running schools] because they like kids or because they're interested in education," he says. "They are doing this because they're interested in fast money."

Mr Sjostedt reels off several examples of bad practice that have blighted the reputation of private education providers, but admits that drawing a definite link between the poor Pisa results and the increase in private provision is "more complicated".

"It's not always the fact that the private schools get worse results . . . but they do harm [to the system] because traditional municipality schools have to adapt to a market system and they often lose their best pupils," says Mr Sjostedt.

This is the most common complaint about free choice in schooling, one with which US and UK politicians are also grappling. Critics contend that middle-class parents are likely to be drawn to the newer free schools, leaving poorer children stuck in poorly-performing older institutions.

Clear figures with which to compare the results of friskola and municipality schools are difficult to obtain. Friskolornas Riksforbund, the free schools' trade association, quotes research showing that their pupils leave primary education with grades 10 per cent higher than the national average. A separate review of the Swedish evidence carried out by Rebecca Allen, an academic at the UK's Institute of Education, concluded that the positive effects of free schools were marginal because the benefits were focused on children from highly-educated families.

Bertil Ostberg, state secretary for schools, admits that "free choice has led to bigger differences between schools". He lays the blame partly on politicians who introduced friskola, saying they were "naive" to think these institutions would be run by teachers and parents. "Now we have got these big companies and they are often owned by venture capitalists and they have seen education as a good way of earning money."

A working group is considering whether legislation should be introduced to prevent private equity groups from taking ownership of free schools because they do not have the "long-term interest" to make them succeed.

"If you really want to improve education you have to invest in the training of teachers and raising the teachers' competence and it takes time," Mr Ostberg says. "And if you're a [private equity business] or venture capitalist . . . do you really have the interest to make sure that the results are better in a 10-year perspective?"

<>Critics suggest that the government's concessions are an uncertain and tardy response to the public outcry. It is striking that the OECD, whose ratings have caused such anxiety, is agnostic on the issue of profit.

The organisation advocates a tougher inspection regime for Sweden but Andreas Schleicher, head of the Pisa assessment programme, does not criticise commercial gain. "We should not underestimate the money that gets wasted in education systems through all sorts of ways," he says.

Mr Schleicher cites OECD research showing that in the US only half of the spending per student arrives in the classroom.

"That worries me a lot more than someone extracting three, four or five per cent of the profit," he says.

Whatever the outcome of the election, Sweden will change. While Mr Sjostedt promises to rid swaths of the public sector of private interests altogether, Mr Ostberg's Liberal party - part of the centre-right coalition - will at least curb company ownership.

Harry Klugsbrun, the senior partner at EQT responsible for AcadeMedia, is undaunted. The company has already expanded its pre-school chain to Norway and hopes to set up in Germany within the next 18 months. The path across Europe is set and, regardless of what happens in Sweden, there are plenty of "positive drivers" for his business elsewhere.

"You have . . . education being a prioritised area. You have governments wanting to spend more on educating their citizens and future citizens, and you have the demographic growth of populations," Mr Klugsbrun says. "So there's good underlying growth, which we like."

Social spending: Nordic model cracks under private pressure

The Nordic model has long been synonymous with bountiful government spending on welfare, writes Richard Milne.

But Sweden's revolution in the past eight years of centre-right rule in bringing the private sector into not just schools but hospitals and care homes has ignited talk of a change in the Nordic model. The Economist declared: "The streets of Stockholm are awash with the blood of sacred cows."

Companies, often backed by private equity firms, build many of the kindergartens and hospitals, and run retirement homes and health clinics. Figures suggest about one in six krona spent by local authorities on schools, hospitals and retirement homes in 2012 went to private companies.

The advance of the private sector into public services has upset many on the centre-left, frontrunners in next month's elections. "All regard the Nordic model as a role model. But we have huge stress [being put] on it in Sweden with a conservative government," says Karl-Petter Thorwaldsson, head of LO, the Swedish trade union confederation.

Various scandals have hurt the perception of private equity firms. Swedish media reported about a private equity-owned care home in Stockholm where pensioners were often neglected. Staff reportedly weighed nappies to check they were being used to the full extent. Healthcare workers have complained about increased stress because of the constant emphasis on efficiency.

Schools, healthcare and elderly care are of concern to voters but leftwing parties have different ideas on how to deal with the private influence.

Former communists of the Left party have gone the furthest in wanting to ban private companies from making a profit. But that causes unease among many Social Democrats, the largest centre-left party, which is well aware that hundreds of thousands of people attend privately owned schools or hospitals every day.

Stefan Lofven, the Social Democrat leader, describes his approach as pragmatic, wanting tougher regulation of private companies but without threatening their profits entirely. Talking of free schools, he says: "Out of 4,000 some may not deliver good results but many do. If a company makes a small profit, should we close it? No. The main issue is they deliver."

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