Free Societies

Competition for standardized testing provision in U.K. schools

Standardized testing

Schools in England, Wales, and Northern Ireland have the freedom to select standardized tests for their students from a selection offered by several competitors. This introduces an element of competition amongst exam boards, something entirely unique to the qualifications and assessment system there. This arrangement has faced increasing scrutiny in recent years, however, with critics claiming that competition between exam boards misaligns incentives in a way that makes tests easier and inflates grades, leading to a “race to the bottom.” The Centre for Market Reform of Education (CMRE), an Atlas Network partner based in London, recently published a study titled “Who’s to produce and who’s to choose? Assessing the future of the qualifications and assessment market,” which examines the issues surrounding standardized testing in these countries.

The study identifies three possible paths forward for standardized testing in these U.K. countries. The system could continue under the existing user choice model, it could move to a franchising arrangement in which exam boards are awarded contracts for a set number of years, or it could move completely to government provision. Gabriel Heller Sahlgren, the author of the report, frames his analysis of the three possible outcomes by using transaction cost economics.

Sahlgren writes, “empirical evidence from related services indicates that franchising via procurement can improve efficiency and non-contractible quality in complex public services that include more non-contractible elements than qualifications and assessment, suggesting that incentives to invest in quality overall often outweigh any incentives to engage in harmful cost cutting.”

He thinks it would be untenable to move toward sole government provision of the exams. He holds that the potential for innovation is greater when the private sector is involved, and that the government is likely to give preference to nonprofit providers despite no empirical evidence that they outperform for-profit providers of similar public services.

“Theoretically, whether or not a service should be delivered by the government or externally by independent organizations depends on who is able to offer the service most efficiently — which in turn depends on the transaction costs involved in ensuring services are delivered according to expectations,” Sahlgren continues. “If the price for buying a service, including the external transaction costs, is lower than the internal production and transaction costs, there is a clear economic rationale for doing the former rather than the latter.”

The question then becomes whether user choice or franchising would be better. In the former system, users (schools) pick winners that meet their criteria. In the latter, the government picks the winners in a tendering process. Throughout the 92-page report, however, Sahlgren explains that the current market is not actually riddled with the shortcomings that the critics allege exist within it. He goes on to make suggestions for optimizing the current system rather than implementing a complete overhaul.

Some proposed reforms of the user choice system include replacing the strict equivalency framework with minimum standards, in order to encourage a richer competition that fosters greater quality and to use an empirical approach backed by statistics to compare examinations and student outcomes. To ensure full access to information, Sahlgren recommends that Ofqual — the government regulator of examinations — should conduct research about each different qualification exam and provide the collected information to schools, universities, and employers.

Sahlgren also provides recommendations for how best to implement a franchising system, in the event that the government opts for it. Some principles on which to build a franchising system include allowing a degree of discretion in the tendering process in order to encourage firms not to cut corners and to take school satisfaction into account as a measure of subjective quality. This quality should be weighed at least as highly as price, so as to avoid excessive price competition. Sahlgren furthermore advises that contracts should be awarded by each school subject, and that more than one provider should be allowed per subject in order to mitigate the risk of failure.

“In the end, we have concluded that the user choice model is a better option [than franchising],” Sahlgren concludes. “The current regulatory framework does not in fact allow for downward competition on standards, which has historically been the principal case against it. But it also ensures that competition is unable to raise standards in national qualifications. The market for alternative qualifications, however, indicates that quality competition is possible. In addition, research from other welfare services indicates that choice and competition can improve quality in the system, although the effects appear to hinge on system design. We also believe the fact that the current system considerably decreases the risk of system failure is an important reason why it should not be replaced with a franchising model that concentrates the supply of qualifications and assessment in each subject.”