The government's flagship education policy, free schools, is under fire again. Appropriately dystopian in name, STEM Academy Tech City in Islington, north London, was set, until late today, to have the ignominy of being the first of its kind to face industrial action. Last-minute negotiations over what staff were calling zero-hours contracts have, for now at least, halted the series of walkouts that were due to begin on Thursday.

Unbound as it is to national pay and conditions for teachers, the free school has exercised its freedom, stipulating that, along with allowing only six months of maternity leave , it "reserves the right to temporarily lay you off from work without normal contractual pay or to reduce your normal working hours and reduce your pay proportionately. The school will give you as much notice as it can reasonably give of its need to take such action."

Free schools in effect have carte blanche to clear staff from pay books before long school holidays, rehiring them once the new term begins – despite the fact that most teachers work during these breaks to catch up on vital marking and long-term planning necessitated by an overwhelming workload. The National Union of Teachers, which represents the strikers, sees this as indistinguishable from zero-hour contracts. Headteacher John O'Shea and his chair of governors Tony Sewell, an education advisor to Boris Johnson, deny the claims.

What is happening at the STEM Academy points to a path other free schools will inevitably tread. It doesn't take much of a leap in imagination to see that market forces, always concerned with cost-cutting and profit, will come to reign supreme. In 2011 the Adam Smith Institute argued that "unless ministers are prepared to facilitate the contribution of profit-making businesses", free schools will only have a "statistically minor" impact. Many of us can still remember how free schools were sold to the public – they were supposed to be about parents having the freedom to open schools for their children's benefit, free from profit-making concerns. Yet parents are founding only 7% of proposed free schools. The notion that they would confer more power to the citizen, a unique selling point of the Tory's small state agenda, is looking like a fallacy.

We were also told that free schools would be set up to plug the national shortfall in school places, particularly those in the primary sector where the need is greatest. By September the country will need 256,000 new school places for five- to 11-year-olds. The National Audit Office analysing the capacity of 45 free schools that opened in 2012, found that they provided only 10% of the new places required. Puzzling, too, is that just over half were in areas already identified as having a shortage of places. You might wonder why the other 40% or so opened where there was not as much need. In the case of STEM Academy Tech City, the sixth-form college is positioned a stone's throw from two well-established institutions rated outstanding by Ofsted. With only about 150 students currently enrolled at a college with provision for 400, bemusement is a natural reaction to its opening in the first place.

The government recognises that the £1.7bn being spent on the free school and academy agenda is unsustainable, yet it nevertheless aims to plough on regardless. Michael Gove, in leaked minutes from his department, has begun to parrot suggestions that a more "radical route is towards fundamentally shifting the basis of our relationship with academies through reclassifying academies to the private sector". Gove is apparently influenced by the model in Sweden, where joint-stock companies manage 64% of free schools. We can't be too surprised though, can we? Privatise is the Tory answer to pretty much everything. Is the point of government really only the facilitation of this seemingly endless enterprise?

As things stand, this most expensive of pet projects isn't even bringing in dividends. Free schools are equal in performance to those that are maintained; indeed, fewer are judged as outstanding. And yet their intake is unrepresentative of their local communities. Many free schools have a lower proportion of children on free school meals or those that have special educational needs. Maybe Franz Kafka is scripting this farce, because in free schools we seem to be conceding much that has been hard won by teachers, parents and students, and all for what? Is anyone else wondering what's in it for the little people?

• This article was updated at 6.30pm due to the strike being called off.