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«The Regulation of Private Schools Serving Low-Income Families in Andhra Pradesh, India PAULINE DIXON pauline.dixon JAMES TOOLEY ...»

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The Review of Austrian Economics, 18:1, 29–54, 2005.

c 2005 Springer Science + Business Media, Inc. Manufactured in The Netherlands.

The Regulation of Private Schools Serving

Low-Income Families in Andhra Pradesh, India

PAULINE DIXON pauline.dixon@ncl.ac.uk

JAMES TOOLEY james.tooley@ncl.ac.uk

E.G. West Centre, University of Newcastle, Newcastle upon Tyne, England, NE 1 7RU Abstract. This paper sets out some findings of a research project carried out in private unaided schools in lowincome areas of Hyderabad, India. The part of the research project documented here was designed to examine the question: ‘Is the regulatory regime conducive to entrepreneurial action and market discovery’ with particular reference to the low-income schools in Hyderabad. This paper is narrowly focused, setting out the results of pattern matching empirical data with the Austrian economic concepts of entrepreneurship, rivalry, and market discovery.

The research discovered that two regulatory regimes exist, one that is set out ‘on paper’ in the Education Acts and associated rules, and another that operates ‘in practice’. That is, there is a combination of regulations ‘on paper’ and regulations existing in an ‘extra-legal’ sector. Generally it was found that the regulations ‘in practice’ are consistent with market principles. Conversely the regulations set out ‘on paper’ are not conducive to entrepreneurial innovation and market discovery. Recommendations for potential policy initiatives include the possibility of legitimising the ‘extra-legal’ sector by introducing self-regulation possibly via self-evaluation systems for the private unaided schools.

Key Words: competition, entrepreneurship, profit, regulation, private schools, low-income families, developing countries, India JEL classification: B53, I22, I28, I38, K23.

1. Introduction This paper sets out some of the findings of a research project carried out from November 2001 to December 2002, in private unaided schools serving low-income families in the metropolitan twin cities of Hyderabad and Secunderabad, in the state of Andhra Pradesh, India (the twin cities are referred to locally, and therefore throughout this paper, as “Hyderabad”). The original project’s aim was to identify ways to assist with capacity building and improvement in private schools aimed at low-income families in India. This brief included an examination of the regulatory environment, its impact on the private schools and its potential reform. The specific focus of this paper is the extent to which this regulatory environment is conducive to entrepreneurial action and market discovery.

There are three differentschool management types in India—government, private aided (“Grant-in-Aid” schools), and private unaided schools. Government schools are run by

–  –  –

government employees and owned and funded by the State. Private aided schools are run by private management, but have teaching staff funded 100% by the government and follow Grant-In-Aid codes. Private unaided schools are run by private management and receive no grants or aid from the State; they are also supposed to follow regulations specifically targeted at private unaided institutions. The research described here focused on private unaided schools serving children from ‘notified’ slum areas, as defined in the Census, (Singh 1997) and/or the Hyderabad Urban Community Development book (MCH 1998).

Private unaided schools may be “unrecognised” or “recognised”; that is, if a school is ‘recognised’, then it is supposed to comply with government regulations conferring recognition status—although in practice, as we shall see, this is far from being the case.

Throughout this paper the term school ‘entrepreneur’ will be used for what is legally termed in Andhra Pradesh the school ‘correspondent’; that is in practice the person who runs and manages the school (although technically, because of the regulations on profit, each school belongs to an education ‘society’, rather than to any proprietor). The research has found that the ‘correspondent’ has the characteristics and qualities of the ‘entrepreneur’ in Austrian economics. That is, the entrepreneur is regarded as a speculator, dealing with uncertain events, anticipating the future demands of the consumer. He will be successful in accumulating personal profit only if he recognises and anticipates future events unnoticed by others. The entrepreneur’s activities determine the employment of the factors of production under the sovereignty of the consumer. Entrepreneurship is the ability to see what others cannot, with the entrepreneur driving the market process. These meanings provided by Austrian economics correspond with the role of those who manage and run the private schools in the low-income areas that participated in this case study. These ‘correspondents’ search for profit, as well as new and innovative methods to serve the consumer well, and are the driving force in the private school market, driven by the competitive nature of the sector, as well as profit and consumer demands.

There are three main issues that motivated the wider study. First, this research examines the private school sector because it may be an important provider of education in developing countries. Numerous comparative studies have been undertaken in a wide range of developing countries that has shown private schools to be superior to government schooling, in terms of educational efficiency (after controlling for socio-economic factors and the possible bias that parents choose private education for their more motivated and able children), and cost-effectiveness (Jimenez, Lockheed and Wattanawaha 1988, Jimenez and Cox 1989, Alderman, Orazem and Paterno 1996, Kingdon 1994, Govinda and Varghese 1993). In India and other developing countries, government schools have also been found by research to be failing to provide quality education, especially for the poor (The Probe Team 1999, Dr` ze and Sen 2002, Aggarwal 2000, Watkins 2000).

e Second, even though much research has shown that private schools may be superior to government schools in terms of efficiency and cost-effectiveness in developing countries, international and national policy makers seem to neglect the private sector in terms of its potential contribution to achieving ‘education for all’. Although the significance of achieving universal primary education is generally accepted, it is often seen as the role of governments and bilateral and multilateral agencies to solve the problem of achieving ‘education for all’


(Bashir 2002, Dr` ze and Sen 2002, Watkins 2000, Sen 1999). Probably this is because it is e widely assumed that private education does not cater for lower income families. However, there is a growing body of research that point to a private schools’ market serving ‘poor households’ (Aggarwal 2000, Alderman, Orazem and Paterno 1996, Dr` ze and Sen 2002, e Tooley 2001, Tooley and Dixon 2003, Watkins 2000). This research adds to this body of literature.

Third, regulation of private education is also an under-researched area. There is a lacuna in the literature on regulation of private education and virtually nothing on regulation of private schools in developing countries, and, in particular, on regulation of private schools catering for low-income families. Research on regulation of education in developing countries and transitional economies tends to focus on higher education (Koutsky 1996, Maxwell, Provan and Fielden 2000, Moja et al. 1996, Richardson and Fielden 1997).

Conversely, much of the literature that exists in the area of regulation of private primary and secondary education tends to examine private schools in America rather than in developing countries (Foley 1996, Randall 1992, 1994, Carper and Devins 1985, Baintron 1983, Diehl 1983, Encarnation 1983, Erickson 1984, 1986, Murnane 1986, Smolin 1986, Furst 1985, Hirschoff 1986, Chubb and Moe 1990). But regulation is very important, because regulations have the capacity to stimulate or stifle the market for private education, as well as affect the quality of education provision. It is assumed by governments that regulations may be used to inform consumers of school quality and to disseminate information transparency within the market. Regulations that enforce quality standards, it is assumed, will discourage and protect consumers and other providers from any ‘fly-bynight’ operators setting up that may try to “hoodwink parents”. Consistency of enforcement eradicates the uncertainty for providers of any unnecessary intervention and provides consumers with the certainty that those being regulated are abiding by the same rules. Regulations governing private unaided schools are a powerful instrument in directing policy, thus the importance of the research is its conclusions concerning the future of the regulation of private education serving low income families in developing countries.

The specific focus of this paper is whether the rules and regulations that govern the private education market in the low income areas of Hyderabad are conducive to entrepreneurial

action and market discovery. In fact, the research uncovered two regulatory environments:

There is one set of laws and rules that appear ‘on paper’ as laid out in the Education Acts and associated codes and rules, and another which exists ‘in practice’, made up of a combination of some ‘on paper’ rules together with an ‘extra-legal’ set of unwritten practices. The next part of the paper (Section 2) outlines the research method, both for the wider project and for the particular focus of this paper, the ‘pattern matching’ of the regulatory regime with concepts of entrepreneurial action and market discovery. Section 3 provides some of the findings about the private unaided school sector in Hyderabad, while Section 4 provides a brief outline of Austrian theory concerning regulation. Section 5 outlines a summary of the findings in Hyderabad regarding the private unaided school regulations and how the findings “pattern matched” with profit, entrepreneurship, and competition. The final section considers implications for policy.


2. Research Method

The research was carried out in Hyderabad, Andhra Pradesh, using both qualitative and quantitative methods, although most of the work comparing the regulatory regimes ‘on paper’ and ‘in practice’ is based upon qualitative research findings. A sample of fifteen private unaided schools was opportunistically selected by “cold-calling” on schools during visits to the city and requesting an interview with the school manager. Each school had to

satisfy the following conditions:

• It had to serve children from a notified slum area, according to the Census (Singh 1997) and/or the Hyderabad Urban Community Development book (MCH 1998);

• The school manager had to agree to the presence of a researcher in the school for significant amounts of time, in particular to interview teachers, students and parents; to observe classes; and to divulge financial information;

• The manager appeared to be aware that improvements could be made to the school and expressed at least some interest in working with the team in such improvements.

In the event, many more than 15 schools wished to take part, and an arbitrary selection was made from the list to ensure a balance of neighbourhoods and fee ranges. After the first school manager interview, and parent, pupil and teacher interviews, had been conducted, one of the schools dropped out of the research, the manager being unwilling to divulge sensitive financial information, although he was happy that the data collected from parents, teachers and pupils continue to be used in the research. Hence all the interview data for school managers, parents, teachers and pupils was collected from the 15 schools, while data on pupil and teacher numbers and finances is reported from the remaining 14 schools.

Three Hyderabad-based researchers were appointed, to be engaged in interviews, class observations, and collection of other relevant data. Structured interview protocols were designed by the Newcastle team, who trained the researchers in their use. The researchers were fluent in the main local languages, (Telugu and Urdu), as well as in English, and translated between the languages as required. The project commenced in November 2001, and was concluded in December 2002. Whilst visiting Hyderabad, the researchers from Newcastle took part in school social functions such as presentations of prizes, concerts, science fairs and sports days, which had the effect of building up a strong rapport with the school managers. There were also termly meetings organised with the school managers, to explore the project findings and discuss their implications for school improvement.

In total 15 school managers and 244 teachers (all the teachers in the schools on the days that the researchers called, with the exception of those related to the school manager) were interviewed. 315 pupils in total were interviewed, with 21 selected from each school, that is, a boy and girl randomly selected from each class from 1 to 10, plus one from the nursery classes. The parents or guardians of these children were also interviewed, either in their homes or when the parent came to collect the child. The school managers were interviewed on at least three occasions for information regarding the regulatory environment, their reasons for setting up the schools, their backgrounds, and their finances. Teacher interviews explored issues relating to salary, experience and qualifications. Parental interviews were


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