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Paying for a future by degrees

To the best of my knowledge, no government in the world has privatised education. Yet the arguments for privatising education, be it primary, secondary, or tertiary, are at least as strong as they are for privatising airlines, telecommunications services, energy and water utilities, and hospitals. The reason those arguments have not prevailed is the belief that to try to sell that to an electorate in a democracy would be an act of political suicide, while in a non-democracy the government has very good reason for wanting to own and control the education system.

I am not going to argue for the privatisation of higher education, but rather for the opening up of the higher education sector in Australia to for-profit universities.

Tuition fees at for-profit universities are comparable with or not far below those charged in traditional campus settings.  Yet one of the reasons why so much for-profit provision of university education is so very profitable is that students willingly pay for the five things they value most.

These are all year round teaching, high-quality personal learning resources (notes, videos and computer software instead of lectures for example), teaching at a location and to a timetable that is personally convenient, small class sizes with high levels of interactivity, and access to computing and networks with a minimum of queuing.

Today’s traditional public sector universities provide these features very poorly, if at all.  But when for-profit universities provide these features and scrap the manufactured lawns, the familiar sporting, cultural and social amenities —and the traditional academic staffing profile—it costs considerably less.

In essence, the fee levels set by public sector institutions have determined the fee regime.  For students who perceive the traditional public sector suite of services as constituting an inferior product, the for-profit provider fees are genuinely competitive, high margins notwithstanding.

Why are the cost structures of the existing universities so high? One reason is that in some cases more than half of their salary expenditure goes on administration.  Yet despite the sneers of some of the academics, many administrators are genuinely overworked.

The second main reason why the cost structures are so high is the high expectation of research from the academic community.  Australian universities exhibit what was introduced to me as a fledgling economics student as ‘the wool mutton paradox’. (I believe the example was attributed to John Stuart Mills but I have not located it.)

It goes like this.  A farmer notices the price of wool is rising.  So he decides to increase his sheep run.  But in producing more wool, he is also producing more mutton.  In fact, the price of mutton is steadily falling.  So, depending on their relative price movements, the farmer could actually be worse off for increasing his sheep run.

Now turn your minds from sheep runs to universities. By and large the academic staffing profile is more or less determined by the distribution of students. If the demandfor, say, psychology or management increases, the university responds, if it can afford to, by hiring additional academics in psychology and management to meet the increased demand. These academics will of course be expected to conduct research.

But by what priority did the university determine that its greatest research needs at that time were in psychology and management? In effect a significant component of each university’s research profile is determined by the distribution of its demand for undergraduate courses. Multiply that by 39 universities and you can readily conclude that the national academic research effort not only does not reflect national priorities (however they are determined); it rarely if ever reflects the considered judgement of the universities as to where, ideally, they would like to set their research priorities.

The for-profit providers do no research beyond that necessary to keep their courses up to date, and often that is specially commissioned from outside experts. As already indicated, by and large the academic staffing is part-time, and there is no expectation that they will make any contribution to research.

In terms of the revolution in opportunities for access to higher education these new structures can provide, we are still at the very beginning. The arrival and success of the private for-profit providers explodes the paradox of the rising price of access to knowledge-intensive qualifications.

The standard cost of provision throughout the world includes the cost of providing human and physical resources neither necessary, nor commonly desired, for adequate delivery of the qualification to a high quality standard. The successful for-profits provide what their students need and want, and not what traditional providers want them to want.

There is considerable room for economy in not designing and maintaining one’s own courseware, but buying it in from other universities, or specialist courseware manufacturers (a little like book publishers). Given a sufficient market, these could draw on the talents of some of the best scholars in the world in designing top line courseware for sale on a competitive basis to those universities that wished to use it. The after-sale service could include keeping the courseware refreshed each year, and providing coaching to the academics who are using it to structure their teaching.

It does not happen now because there is virtually no market. There is no market because of the dominance of the ‘not invented here’ syndrome in universities, and the entrenched power of existing academics who would obviously feel threatened by the arrival of excellent materials which can be taught by less qualified people.

A solid educational base to advanced levels must be a key element in projecting ourselves forward in knowledge economy competition, as footloose capital looks for a low-cost safe environment with a strong skills base.  Will this happen? One day it must, because it will happen elsewhere and then we will copy it.  But the signs are not good.

The Federal Government is going into the forthcoming election promising not to further deregulate university fees, thus keeping students and parents safe from price signals and price competition.

The Federal Opposition’s most recent promise is however extraordinary. It will abolish the right of Australian universities to enrol above quota Australian undergraduates on a full fee basis. Why? Because, we are told, the Opposition does not believe university places should go to the ‘dumb and rich’. Of course the claim that these are the beneficiaries is both offensive and false. And if the place did not go to a full fee-paying student it would not go to anybody else – the place is created by the student tuition fees, and would not exist otherwise.

The best thing any government can do to equip Australia for more rapid advance into the age of the knowledge economy is to facilitate the massification of higher education, and there is no effective or affordable way of doing this which does not involve further large scale de-regulation of the higher education sector, and removing the barriers that are inhibiting the birth of the for-profit university in this country.

About the Author:
Lauchlan Chipman is retired vice-chancellor and president of Central Queensland University.  This is an extract from The Centre for Independent Studies’ 18th annual John Bonython Lecture.