By: Devaansh Samant (MPA ‘23)

The recent explosion of EdTech companies presents a novel challenge for governments worldwide as they think about state-market relations in a nascent and fast-growing market. India and China have taken opposite approaches, with India opting for near-zero regulation and China for a large-scale crackdown on for-profit education companies. I argue that neither approach is optimal. A middle-ground framework focused on “constructive regulation” is the best way to navigate the inevitable marriage of education and technology in the twenty-first century.

In July 2021, the Chinese government brought down a regulatory storm on private education companies in the country. The new regulations also cover a $40 billion market for after-school online tutoring. China has abruptly banned these companies from raising capital or allowing foreign investors to hold stakes in the firms, and has also commanded them to register as “non-profits.” 

Large investors such as the US-based Tiger Fund and Singapore state fund Temasek face a complicated legal puzzle after investing billions in the sector. At the same time, EdTech companies in India have raised $2.2 billion since the COVID-19 pandemic. For example, BYJU’s – the largest EdTech company in India, boasts 70 million users for its video content. Together, India and China illustrate two divergent approaches to regulating a new market: near-zero regulation vs. a full-scale crackdown. Technological innovation is inevitable in any sector, including education. So, what strategy should governments adopt for nascent EdTech markets?

There are arguments both for and against more regulation. 

A typical argument against regulation is that it stifles innovation. This argument has come up several times in debates around the pharmaceutical industry in the US, with high drug prices dubbed the “cost of innovation.” More recently, many have brought it up to argue against regulating the technology industry at large. This argument is undoubtedly relevant for EdTech as well. By introducing a full-scale crackdown on private education, China has effectively restricted innovation to the public sector – which does not have much incentive to innovate.

The argument in favor of regulation is straightforward: There is plenty of evidence indicating that expensive EdTech solutions have no proven impact on learning outcomes. A report by JPAL reveals there is no evidence to support the claim that interactive whiteboards and virtual reality interventions improve learning outcomes. The lack of evidence is well known in India – home to one of the fastest-growing EdTech markets. For example, Vikas Verma, the investment director at VC firm Avaana Capital, says: “…the focus has been on customer acquisition. Stakeholders like parents and VCs rely on engagement and user experience as proxy indicators. There isn’t a demand for deeper metrics yet”.

At best, customers are wasting money on expensive EdTech solutions that don’t work. At worst, poorly designed but highly funded EdTech companies are crowding out more urgent and impactful work in the education sector at large.

What if governments adopted a ‘Goldilocks approach’ to regulating EdTech? Not too much, not too little. While any regulatory framework needs to be comprehensive, I am sharing a specific policy recommendation: mandate large-scale Edtech companies to display evidence-based ratings ratified by the government in all their advertising. 

‘Star ratings’ are not a new concept. For example, in 2006, India launched a Standards and Labeling program for the energy efficiency of household appliances. This policy requires all household appliances to include a prominent sticker with an evidence-based ‘star rating’ from 0 to 5, which informs consumers about its energy efficiency. Multiple studies have shown that the program has altered consumer behavior – with consumers even willing to spend more on energy-efficient appliances.

Governments could launch a similar ‘Standards and Labeling’ program for EdTech (instead of opting for large-scale crackdowns). EdTech companies can be mandated to back their claims regarding learning outcome improvement with evidence, and be awarded star ratings by the government based on their effectiveness. Such signposting allows new companies to innovate while steering consumer money towards genuinely impactful ideas.

In the end, the stark contrast between India and China’s regulatory approach towards EdTech reflects skewed thinking by both governments. The sector is neither a silver bullet for transforming education nor a wholesale scam. It is simply at a crossroads where it needs guardrails to develop further.

A regulatory environment focused on constructive regulation and evidence-based ratings, among other measures, can provide feedback crucial to streamlining market-fueled innovation, and ensure that the inevitable marriage between education and technology is a happy one.