Australia’s Universities: Last of the Great Socialist Enterprises?

Let me begin by turning to the issue of enrolment. The reason that enrolment is such an ordeal is neither staff stupidity nor indolence. The vast majority of university employees are dedicated professionals who work long hours for below-average salaries. Most love their work and their institutions, and they want to see universities thrive.

The real problem is philosophical and systemic. The people who work in institutions like hotels and private hospitals operate in a competitive, market-driven environment. They know that their livelihood depends on pleasing their guests and patients and keeping them out of the hands of their competitors.

Universities are different. In an era when electricity suppliers, telephone companies, airlines, hospitals, tram companies, and even prisons are required to compete on service standards and price, higher education remains the last of the great socialist enterprises.

Here is how the Australian system works.

A small group of undergraduates, around 10 per cent, pay the full cost of their education. These fee-paying students are mainly international students although a small number are Australian. There are also post-graduate fee-paying students studying in courses such as the MBA. In either case, full-fee paying students do not receive taxpayer support.

The remaining 90 percent of undergraduates have their university education subsidised by the Commonwealth. Universities receive around $10,000 for each of these students. The Commonwealth recoups part of this funding from the students, either as an up-front payment or through a surcharge to their income tax once their income reaches $21,000 per year. In other words, students borrow the money and pay it back through their taxes.

The Commonwealth Government, after consulting universities, determines each university’s share of the subsidised undergraduate places. No matter how good they are or how weak they are, no matter whether they teach obscure courses or popular ones, no matter how well they treat students or how poorly, every university in the country receives an allocation of subsidised places. This number becomes the university’s enrolment target. The government extracts a heavy penalty from universities that fail to reach their targets, so most deliberately overshoot. The extra students are funded by the government at a low marginal rate. At present, there are so many marginally funded students at our universities, they could easily fill a new large-sized university.

Because of their prestige, location, or range of subjects, students clearly prefer some universities to others. However, because a university has only a fixed number of subsidised places, it cannot expand its intake to meet the demand. The result is that students may not be admitted to their preferred institution. Students excluded from their first choice of university, usually on the basis of their secondary school performance, try their second choice, or third choice, or even fourth choice.

In other words, by giving each institution an enrolment limit, the government protects the less popular universities and the less popular courses. Students excluded from their preferred university wind up at a less preferred one. Because they too must meet their targets or risk penalties, the unpopular universities cannot reduce their intake in response to low demand. The result is that they may be forced to admit students who have little chance of completing their courses successfully.

Because every university has a monopoly on its share of government-funded places and because the Commonwealth decides how much students should pay (and how much of their fee should be given to universities), it is difficult for universities to think of students as customers. They are a necessary part of the higher education system, universities would be quiet without them, but they are hardly a controlling force.

So, the real reason that it takes a whole day to enrol is because students are simply bit players in a system controlled by the Commonwealth and the providers. Remember when Telecom took weeks to install a phone? Remember when bank tellers would go to lunch leaving a queue of people standing at the desk? This is how government monopolies behave. To many outsiders, and to many insiders, universities remain large public works projects with guaranteed lifetime employment.

Thus far, all attempts to change the current system by giving funding directly to students have been resisted by a coalition of academic and student unions in collaboration with an odd mixture of Labor and National politicians. But, the pressure is inexorable, and change is inevitable.

This brings me to why universities will be forced to change.

Higher education is increasingly an international enterprise. With the advent of the Internet, satellite television, mass recruitment of overseas students, and the establishment of campuses in distant locations, every university in the world can reach students any place in the world. Our universities are now in a global competition, and with formidable competitors.

Let me give you an example. I spent the early years of my career at the University of Texas, in the medical school. I still receive the campus newspaper, the Daily Texan, 22 years after leaving. Recently, the newspaper contained an advertisement for a business manager for the Department of Obstetrics and Gynaecology. The advertisement went on to describe the department. Among other pertinent facts, it noted that there were 90 academic staff and that the department budget exceeded 27 million US dollars.

These are astonishing figures.

All of the departments of Obstetrics and Gynaecology in all Australian Universities combined would not even have half that number of academics, and we run entire medical schools on budgets of less than $27 million This is the kind of international competition we face.

If Texas decided to beam courses into Australia via satellite television or to teach to Australian students over the Internet, or even to open a branch campus in Australia, we could not stop them—and we should not be surprised if that is exactly what they decide to do. The famous MIT (the Massachusetts Institute of Technology) has opened operations in Singapore and in Cambridge, England.

What applies to teaching also applies to research. Cutting-edge research requires enormous resources. Universities without these resources will simply be left behind.

To make matters more desperate, we are not only under pressure from rich research universities, but also from low cost, high volume, private universities. The largest private university in the USA is the University of Phoenix, which enrols more than 40,000 students at campuses around the country. These students study at night in easily accessible rented office accommodation. To make things simple, students study one subject at a time. All of the subjects are popular ones - business and IT mainly. The staff consists of part-time teachers who work for casual rates; they teach from standardised curricula and they are not paid to do research. There are no sports facilities, student lounges, or refectories, so the University of Phoenix has a low cost structure. This means it can charge modest fees and still deliver a profit to its shareholders.

Australian universities are being squeezed from both directions. Our salaries and facilities do not compare with those offered by prestigious international research universities nor can we compete on price with low cost private providers such as the University of Phoenix. If we want to survive, then we have no choice but to change. Deregulation of the university system will be the engine that drives change.

I will now turn to what Australian Higher Education will look like when change finally occurs.

Australian higher education currently exists in a policy vacuum. We seem unable to have a sensible debate about its future. No one seems to have noticed, but a demographic time bomb is ticking away. Without any increase in the proportion of the population attending university, my own state of Western Australia will need to enrol 30,000 new students in the coming two or three decades. The present funding arrangements will not be able to accommodate this avalanche of new students and muddling through will not work. To prepare for the future, we must change now.

First, we need an explicit policy decision. Are we going to make higher education available to all Australians who can benefit, or will we continue to restrict access to universities. Higher education for all Australians sounds impossibly utopian. How can we afford it? But restricted access also has costs. In today’s world, an educated population raises the standard of living of the whole community. Limiting access may turn out to be more expensive for Australia, and more destructive of our economic and social aspirations, than opening education to everyone with the desire and ability.

If we decide to expand access to higher education, then we have to tackle the question of who pays. The current system where some students are subsidised while others are either excluded or must pay the entire cost from their own resources is simply not equitable. A system that gives everyone who can benefit from higher education access to a means-tested entitlement to funding is fairer and will allow more people to attend university. But, this change alone is not sufficient. A workable funding system must put power where it belongs, in the hands of the consumers. I realise that the politics will be tricky, and there will be many details to argue about, but I believe that Australia will eventually wind up with some form of means-tested entitlement system in which students will have considerable influence in a university’s funding.

When this happens, universities can be cut loose from regulation and allowed to teach what they wish and to charge students what they wish. Equity can still be preserved through scholarships, government subsidies, and income-contingent repayments, but in a deregulated environment, there will no longer be any monopolies. Universities, private and public, will compete on an even playing field.

What will happen then? Despite the fears of National Party politicians, the regional universities will probably fare well. They are often the only game in town and command great loyalty. Their costs are lower than those of universities in large cities, so they can compete by recruiting local students as well as city dwellers attracted to residential education at relatively low prices. Some regional universities will also benefit from their unique locations. In any event, in the Internet age location is less of a disadvantage, so some may elect to offer their courses world wide, or to be agents for overseas universities.

The older city-based universities will also benefit from a deregulated system. They will be able to expand in some areas to meet student demand, or they may contract their undergraduate numbers to build up their postgraduate areas.

My guess is that some of our older institutions will combine with other universities to approach the size and strength of their state and provincial counterparts in the USA and Canada (say 35,000 to 50,000 full-time students). Because of their prestige, they will command higher fees, which will translate into higher salaries for their staff.

Because many are already the first choice of most students in their states, the former technical institutes are also likely to do well in a deregulated environment. Their courses are popular with students and most will be able to expand their intake to give them needed economies of scale. I expect that these universities may gradually give up their attempts to offer liberal arts subjects as they will have difficulty competing with the older research universities. Instead, they will grow their strong areas of engineering and technology.

Private universities modelled after the University of Phoenix will do well from deregulation because they will be able to exploit their low cost structures to offer education at low prices in high demand areas such as business and information technology. Private universities that currently do not have full access to government-funded students should also benefit from a deregulated environment because they will be able to compete with public institutions for public funds.

In conclusion, a deregulated environment should lead to a much changed higher education landscape. There will be fewer institutions. Most will be larger, but a few will be smaller. Customers will have greater choice and greater control over what gets taught and when. The country will benefit from having stronger institutions.

Oh yes, and one more thing. Enrolment queues will certainly disappear.