On private investment in education, India needs idealism without illusions

Five reasons why this should be the default position: Supply, biodiversity, meritocracy, excellence, and honesty

India hasn’t created mass prosperity alongside its magnificent creation of mass democracy because of an uneasy relationship with entrepreneurship in general. But this relationship is particularly emotional in the private provision of public goods like education and healthcare, where idealism picks solutions that are moral, simple, obvious, and wrong. Our default position in education should be idealism without illusions for five reasons: Supply, biodiversity, meritocracy, excellence, and honesty.

Supply: Princeton Professor Avinash Dixit’s suggestion that life is second-best at best implies a pragmatic acceptance that the most expensive school is no school. Ideological debates over school ownership (private or public), domicile (domestic or foreign), funding (loans, savings, or private equity), and structure (firm, company, or trust) are redundant because India will never have enough good schools. But the only way to discover good schools — those that reconcile the conflicting objectives of cost, quality, and quantity — is massively increasing supply and competition. Only half of our kids are left in government schools; if anything constitutes the infrastructure of opportunity and should be free in a country, it is K-12 education. Yet, the private sector now teaches 120+ million students: Millions of India’s poor parents pay something to avoid something free.

Biodiversity: Goodhart’s Law holds that when a metric becomes a goal, it ceases to be useful. The state’s failure to fix government schools stems from confusing school buildings with building schools. This obsession with hardware over software, like performance management, organisational culture, and governance, fails to deal with coaching factories, soft skill acquisition, multilingual instruction, exam leaks, nursery-school interviews, entrance exams that eliminate rather than select, seat shortages, uneven teaching quality, and unemployability.

Cracking this complexity requires inspiration from Hayek’s discovery principle: Unlike infrastructure, educational quality cannot be mandated; it must be discovered through competition, experimentation, and replication. Entrepreneurs making many independent and diverse tries with differing goals, strategies, and resources will not solve our education problems but will surely catalyse the innovation that could.

Meritocracy: India’s education regulations prescribe land size, building norms, and legal structures. These make setting up a school or university capital-intensive, given rising building costs and mispriced land so early in our development (a new Bengaluru or Mumbai school with a reasonable commute will pay more per acre for land than in Chicago). It’s unsurprising that most schools are not started by principals, teachers, or education technocrats because regulations are hostile to transparently raising equity capital from financial investors.

This creates an adverse selection among education entrepreneurs — most are politicians or land sharks — because success requires upfront capital and lifelong regulatory skills. First-generation entrepreneurs need financial investors; given my policeman father’s frugal savings, I couldn’t have become an entrepreneur straight after college without venture capital.

Excellence: AI is bringing weaker students to the median while making strong students stronger. The second is accelerating; the power law of 80 per cent of results coming from 20 per cent of the people in technology, innovation, research, and science is shifting to 90/10. Countries that aspire to lead the world will need to complement mass education programmes (that count students) with gifted-student programmes (that weigh them). These programmes are considerably harder and more expensive and often fail in the public sector given the scrutiny of taxpayer funding for uncertain returns and small enrolment. Elite programmes are a better fit for private institutions with risk appetite, diverse objectives, and longer horizons.

Honesty: My unscientific survey suggests that 75 per cent of capacity in K-12, engineering, business, and undergraduate education over the last three decades is legally, but not spiritually, non-profit. This massive mislabelling of organisations confuses parents, confounds regulators, and denies the Indian state legitimate tax on surplus. The lack of trust around price vs cost also motivates ineffective price controls; private schools need to cover their costs and invent 20 different fee categories. A dishonest legal structure discourages financial investors who bring superior governance, technology, and management, higher accountability for labour law and child safety compliance, and reduced education inflation by funding technocrats.

Educator John Gardner challenged policymakers and entrepreneurs to design education systems that are equal and excellent. The difficulty of this trade-off is dismissed as a lack of idealism by thinkers who don’t do and a lack of pragmatism by doers who don’t think. Historian Thucydides warned us that any army with a big gap between its thinkers and doers will have its fighting done by fools and its thinking done by cowards. The same doer-thinker disease that hurts Indian education has a simple medicine: Idealism without illusions.

The writer is co-founder of Teamlease Services and co-author of Made in India