Australia's Universities - a personal Mea Culpa

In my last post I talked about universities and competition for students. In this post I want to look at the question of university funding. I also pose the question to what degree do I share the guilt - the mea culpa in the post title - with others for current problems.

In Monday 8 January Sydney Morning Herald Fred Hilmer had an opinion piece in which suggested that funding constraints were threatening the future of Australian higher education. This was followed by a letter to the editor on 10 January by Stephen Buckle suggesting that the funding crisis was greatest in the humanities and pure sciences.

I will leave it to you to read the full pieces. Here I want to look at the background to current problems, including the role that I played in earlier debate.

Economics of Education

To start with some economic theory. I have a frustration here because I wanted to check some of my facts, but the on-line economic literature is locked up behind economic walls that I cannot access because I am not connected with a university nor can I afford to pay access charges myself just to check a few facts. So I have to rely on my memory.

Classical economics talked about land, labour and capital as the three factors of production. Land was fixed, so if income increased the increase had to come from additional labour or capital. The problem then was that income had increased more than could be explained by additional labour or capital. This led Edward F Denison to postulate that the unexplained increase came from improvements in labour brought about extra education. In turn, this led to considerable interest among economists in the contribution made by education to economic growth.

In 1965 Dad took sabbatical leave and went to work for the Economic Commission for Asia and the Far East as an economist. His core task for the year was the preparation of a major report on education across Asia. As part of this, he looked at the economics of education including Denison's work.

I picked this work up a little later.

While I had had no intention of becoming an economist, I found myself working in the Australian Treasury as an economist. In turn, this led me to decide that I should do a Masters in Economics. Because my honours degree had been in history with a simple major in economics, I needed to do a Master's qualifying first. This required me to do two full year subjects at honours level plus a sub-thesis, achieving distinction level in all three. I selected the economics of education as my thesis topic.

In my thesis - really a literature review - I looked at different ways of measuring the economic return from education. One way of doing this was to calculate the extra income earned by individuals as a consequence of extra education. While this was significant, there was still an added national income component that could only be explained by the presence of what economists called externalities.

In simple terms, investment in individual generated a return to the nation. However, each individual only captured part of that return in terms of increased personal income. This meant that the nation as a whole would under invest in education if that investment came solely from the amount that individuals were prepared to spend on their own education in anticipation of increased personal income.

Current education policy rests on this simple analysis. With HECS, each Government funded student bears part of the cost of university education linked to expected increases in future income, paying the amount back out of that increased income. Then there is the direct Government subsidy linked to the broader externality benefit.

Fred Hilmer's core argument, one that I agree with, is that the Government now has this equation out of balance, that the Government contribution is now too low, meaning that overall investment in higher education is too low. Fred in fact goes further than this, arguing (my words) that Australia is now milking past investments, mining the capital created from past investment. Again, I would agree with him. However, I would go further and argue that there are now a range of interlinked systemic problems within higher education.

Now why do I think this and that I share part of the guilt for current problems? To understand this, we need to look at the history of higher education in Australia after the second world war.

Post War Higher Education - Initial Period

Australian higher education expanded significantly over the 1950s and 1960s. However, prior to the Whitlam Government, numbers at university while growing fast were still limited. During this period universities relied largely on fees to fund recurrent expenditure, with Government increasingly funding capital spending. Governments in fact payed most fees - the majority of students were on Government scholarships (mainly means tested Commonwealth scholarships plus non-means tested but bonded Teachers College scholarships) - but universities had great autonomy.

Impact of the Whitlam Government

The Whitlam Government abolished university fees and greatly expanded university places.

This expansion had major pluses. Don Aitkin, for example, argues that the great expansion in Australian mass education at all levels was one of, if not the, greatest achievements of the post war period. But it also had significant minuses.

The first difficulty at university level is that the Whitlam approach proved too expensive and could not be sustained. This could well have been true even at the best of times. But the period of the Whitlam Government coincided with the end of the long post war boom and the arrival of the economic troubles of the seventies.

I have briefly explored elsewhere the way in which these events in combination with other trends brought about a revolution in public administration including the end of the welfare state. In the case of higher education, it led Australian Governments to look to ways of reducing higher education costs while finding new ways of funding education.

One outcome was a dramatic reduction in university autonomy combined with forced restructuring of the sector. Our public universities ceased to be truly autonomous institutions and instead became higher education service providers. A second outcome was pressure on universities to increase productivity, in part achieved through mandated cost reduction.

These mandated reductions may have improved productivity in statistical terms. However, and as I discussed in a earlier post in the context of network industries such as electricity and telecoms, such apparent improvements can be grossly misleading.

Impact of Forced Restructuring - Armidale Case Study

I saw at first hand the way these various processes brought my old University close to the point of collapse, in so doing destroying years of work by thousands of people.

In 1981 Armidale had two tertiary institutions, the Armidale College of Advanced Education and the University of New England. Canberra mandated that they must merge, arguing that there was no justification for having two in one place, that productivity gains could be achieved through increased size.

I was back in Armidale at the time as a post graduate student and was opposed to the merger on both educational and historical grounds. I just thought that the arguments were wrong. So working through the VC on one side and Peter Monley, a friend who was on the Armidale Council, on the other I organised a protest meeting that drew 5,000 people to Armidale's mall.

The merger was blocked this time, but ultimately proceeded because the pressure from Canberra was just too great. The statistical productivity gains were achieved by the simple expedient of reducing the combined funding available to the merged institution by the amount Canberra estimated that the merger should save! This was actually a double hit, because mergers always involve some form of implementation cost.

A few years later in another round of Canberra mandated mergers, the University was merged with the Northern Rivers CAE and the Orange Agriculture College to form a networked university still under the name University of New England. As part of this merger, the old University's reserve funds built up through careful management by Professor Gates, the previous VC, were used to fund development elsewhere in the network.

When the network finally collapsed in great acrimony, the University of New England lost the coastal campuses built up by the pre-networked institution and was left not just without reserves but with added debt. The institution's basic survival itself was now in question. It would take years to rebuild.

The University of New England is a stark case of the way changing Canberra policy affected a single institution. But the story does not end here.

Less Elitist but also less Egalitarian

Prior to the Whitlam changes, Australia's higher education system had been both elitist and egalitarian. Elitist in the sense that the proportion of the population attending university was limited. Egalitarian in that the combination of means tested Commonwealth scholarships with bonded Teachers College scholarships allowed students access to university regardless of parental income. Importantly, the proportion of students that had to work to support themselves was much smaller than today, allowing for a more intense university experience.

The Whitlam changes in combination with other events over time have made our higher education system less elitist, but also much less egalitarian.

University scholarships of all types were cut back, effectively reducing access for lower income groups. The introduction of HECS itself was arguably neutral in social terms. However, the discount on payment in advance was not because it provided a direct benefit to higher income families who could afford to pay up front. Then the introduction of full fee places provided a further benefit to higher income families by giving them another option in a competitive environment.

Further Changes - the start of mea culpa

Other changes to the higher education system proceeded in parallel. Here we get into areas covered by my mea culpa plea. In saying this I am not saying that I was directly responsible for the changes, although I did have some limited influence in a few areas. Rather, that the ideas and arguments that I espoused were part of a corpus of ideas that collectively influenced the process.

I was and remain a supporter of administrative reform, including many of the key ideas associated with things such as the New Zealand model in public administration. However, I feel that the way that reform proceeded in practice has had many perverse results, introducing real distortions into the system.

From early 1983 to mid 1987 I was an SES (Senior Executive Service) official in the Department of Industry and Commerce/Industry, Technology and Commerce with particular responsibility for the development of policy towards Australia's high technology industries. Then from mid 87 to the early nineties I ran a national consulting and research operation out of Armidale focused on the electronics, aerospace and information industries. This had a major lobbying and public policy stream.

In DIAC/DITAC my core concern was to find a way to build an Australian presence in the high technology industries. Here I formed a view that our higher education system was an impediment to improved performance along two key dimensions.

The first dimension was the failure of the system to provide the people we needed to support industrial development. Here I argued that we needed more IT professionals, that the universities were and could not provide this because they were unresponsive to market forces. My suggested solution to this was Commonwealth funding of specific IT places at university.

This approach was initially opposed by the Commonwealth Department of Education. They argued that the Commonwealth provided general funding and that it was then up to the universities to decide where to focus in terms of places. We won this one in that the 1987 Information Industries Statement provided for the allocation of funding to create specific IT places, the first time that the Commonwealth had intervened in this way.

I still think that we were right here. However, it did have the longer term effect of further limiting university autonomy.

Universities and the Commercialisation Push

The second dimension was commercialisation of the results of university research.

We argued that Australia had a strong track record in the development of new knowledge, a very poor track record in the translation of that knowledge into product and services that could provide a base for effective industrial development.

Part of the problem here lay in our fragmented and under-developed industrial structure. This was a problem that we were trying to address through other policy initiatives. But part of the failure lay with the universities and their inability to facilitate the commercialisation of knowledge, especially scientific knowledge.

We were not alone in feeling this. The outcome was a series of measures designed to force universities to focus on commercialisation and to build links with industry and other research bodies.

Again, I do not back away from this. If Australia is to grow, we need to get get economic benefits from university research. However, the continued emphasis on commercialisation has, to my mind, introduced growing distortions into the university system.

We (I and my Ndarala colleagues) explored some of these issues in our post on the Ndarala Group blog on the institutional and process issues associated with science commercialisation.

Today almost the whole funding system focuses on applied research. The problem in this is that there is now very little scope for "pure" research. By "pure research" I mean simply study driven by intellectual curiosity without any focus on immediate practical outcomes.

Universities are not just machines for achieving economic, industrial or community objectives. They are intellectual communities that challenge, or should challenge, the way we think and act. When we look back, most great advances (and some disasters, too) have come from independent thought carried out in isolation of practical objectives.

The problem, today, is that this type of thought and research has become very difficult. Without losing sight of commercialisation, we really need to refocus on universities' traditional role, leaving shorter term paybacks aside. But this requires a fundamental paradigm shift.

Higher Education as an Industry

One of my interests in Government was industrial and structural reform with a special focus on the service sector. As part of this, I looked at sectors such as telecommunications and higher education that had previously been considered as Government service areas, not industries as such.

This approach reflected my Department's focus as the industry Department. I argued that education - primary, secondary and tertiary - should be thought of as an industry sector and analysed in the same way as any other industry sector. I also suggested that this would generate new policy approaches.

I was also interested in the broader contribution - not just commercialisation - that education and especially the training sector could make to industrial development. The education sector was thus both a major industry in its own right and an important enabling industry for other sectors.

I continued these interests after I moved into consulting.

From this background, I now want to look at three things in a little more detail as case examples: the application of industry policy to higher education; overseas students; and the interface between the education and training systems in Australia.

Application of Industry Policy to Education

As mentioned already, from an industry policy perspective the education sector is both a major industry in its own right and a major enabling industry contributing to development in other areas.

As a major sector in its own right, industry policy focuses - or should focus - on the industrial, economic and policy settings that will facilitate the growth of, reduce impediments to the growth of, the education industry as an industry.

As a major enabling sector, industry policy focuses - or should focus - on the industrial, economic and policy settings that will help maximise the contribution of the education industry to other sectors.

These are different perspectives from those associated with either education or broader social policy. This may be difficult to see, so let me try to illustrate.

Government policy towards the education sector is riven with conflicts of interest because of the way policy is administered.

To begin with, Governments at all levels own the majority of education assets, so we have the role of Government as owner. Then Governments are the major funders of education at all levels, so they want to control spend while setting priorities for that spend. Governments are also regulators of what is one of the most highly regulated sectors in the country.

If this is not complicated enough, ownership, spend and regulation are split across levels of Government in an increasingly complicated way. Public universities are funded under state legislation but are now Commonwealth funded. The states own and largely fund public schools, regulate schooling in general, but then have to deal with increasing Commonwealth funding especially targeting private schools.

All of these different elements affect structure and performance within the education and training sector in complicated and sometimes contradictory ways. Yet in all this, there is now no one really responsible for looking at education and training in general, higher education in particular, from an industry policy perspective.

Is this important? I think that it is, very.

To take one example, education is now Australia's fifth largest export industry with the value of exports estimated at $A9.8 billion in 2005-2006. Since we only imported around $A720 million of education services, the net contribution to our balance of payments was very substantial. Further, because of the way our universities have been funded, overseas full fee paying students are now critical to the financial viability of many institutions.

In her paper Higher Education in Australia - 2016 looking back, Sandra Welsman painted a dramatic picture of the potential impact of the changes now underway in higher education, suggesting (among other things) that our export of educational services might vanish as quickly as it had arisen.

Sandra was writing in January 2006 and would be the first to admit that she might be wrong on individual points. But there is no doubt that the broad picture she paints of a higher education sector facing dramatic change is correct. Yet debate on the direction and implications of that change process for such a major sector is strangely muted simply because there is no industry policy focus.

This reflects the failure of those such as myself who were interested back in the eighties and early nineties to get the new thought approaches to stick in any institutional way. Already in decline under the last Hawke and then the Keating Governments, they finally vanished along with so many other industry policy approaches on the election of the Howard Government.

Overseas Students

I now want to extend the argument by looking in a little more detail at the case of overseas students.

When I first set up a consulting operation, we did a fair bit of work for Austrade on the development of export strategies in areas like computer hardware, communications equipment and broadcasting and television. My people including Andrew Davis and and Liz Noble also did a lot of work in the education and training area looking at structural change in the sector as well as the interfaces between the sector and other policy areas. As part of all this, over the period 1988-1990 we did a series of research papers on the export of education services.

We correctly forecasted the growth in exports of education services, although we underestimated the scale of growth. We did not, however, properly identify all the implications of that growth on industry structure, performance and culture. Part of the reason for this is that we failed to predict the extent to which Government policy would perpetuate and in some ways accentuate rigidities in higher education.

I have already discussed the financial pressures placed on Australia's public universities. Faced with these pressures, faced with constant change and limitations in the domestic marketplace, our universities seized the opportunity to attract overseas full fee paying students with vigour and enthusiasm. This has had profound effects on university structure, culture and performance.

I will list just here:

1. The varying success of our universities in attracting full fee paying students has had a significant impact on industry structure, creating a pattern of relative winners and loosers that has then flowed through into changes in position in the domestic marketplace.

2. As already noted, our success in attracting overseas students has made some universities as well as some courses within universities very dependent upon the fees so generated. Any downturn in demand could have dramatic effects not just on those institutions, but on our higher education sector has a whole. Without being too dramatic, the viability of Australian higher education depends upon continued export success.

3. The importance of overseas students has created pressures on standards within universities, leading in at least a few cases to things such as marking scandals that have the potential to threaten the reputation of the higher education system as a whole.

4. The now high proportion of overseas students at certain institutions and in certain courses is affecting the culture of the institutions and the nature of the university experience for all students in ways not always welcomed by Australian students.

None of this should be read as opposition to overseas students. My point simply is that the framework we presently use in thinking about the higher education sector means that we do not properly address issues associated with industry structure and performance.

The Changing Interface between Education and Training

The changing interface between education and training is the last issue I want to discuss, focusing on the change process in the training sector and the way that process has affected higher education. Again, part of my message is the way current analytical frameworks limit the questions we ask, the way we think.

Back in 1980 when I was Assistant Secretary heading the Economic Analysis Branch in the Department of Industry and Commerce, a key concern was (and this will sound familiar) the way skills shortages were affecting resource development.

The economic troubles of the 1970s had been followed by a mining boom. Because training of all types had been cut back during the downturn, we were suddenly experiencing substantial shortages of skilled labour. Here we faced real problems in quickly increasing skilled labour supply because of long training pipelines. The problem was accentuated by industrial rigidities associated with a rigid award system that made it difficult for industry to move people between activities.

These problems were not really addressed until after the election of the Hawke Labor Government in 1983. Then the close relations between the Labor Government and the trade union movement, the flow on effects of the Hawke concensus approach, the growing recognition of the global international challenges facing Australia, together with growing recognition of the problems in Australia's system of technical education all combined to allow the launch of what became known as the Dawkins Training Reform Agenda.

The Dawkins Agenda drew from Australia's particular circumstances but was set against a backdrop of international change in training and especially in the UK, Europe and New Zealand, change that drew in turn from the international standards movement. The concept of competence or competencies was central to this.

While early elements of the Dawkins reforms had begun while I was in Government, the launch of the Agenda itself came after I had left Government.

Both I and my key colleagues were very excited by the new developments because we saw competencies in combination with recogntion of prior learning as a way of freeing up the education and training system, leading to the creation of a fully articulated national framework that would allow a multiplicity of education and training providers while also offering individuals greater flexibility and choice.

In a recent post on the managing the professional services firm blog I gave an example of the potential continuing power of competency based approaches looking especially at the ophthalmology vs optometry case.

In simple terms, if you can define the core competencies associated with qualifications or activities and then combine this with a simple standards based approach to the acquisition and recognition of those competencies, then you open up the possibility of an almost infinite combination of paths to the achievement of the skills in question. In turn, this cut to the heart of the protection afforded existing suppliers including universities, allowing for easy entry of new providers. So we promoted and supported the new approaches as best we could.

From my perspective, two linked things then went wrong.

The first one was the effective capture of the Training Reform Agenda by existing vested interests, especially in the Government vocational education sector.

While the competency approach itself survived, its rigid and cumbersome implementation effectively acted to protect existing suppliers. In so doing, we lost the opportunity to create a new globably competitive training industry. Part of the reason for this is that the whole thing was seen as a training issue without sufficient recognition of the industry development opportunities.

The second and arguably more pernicious outcome was the way in which concepts and approaches intended to improve training performance spread to the univesrity and school sectors.

There is a difference between the two. Training focuses on the capacity to do, education focuses on the to think. Both are important. But the capacity to do is enhanced by the capacity to think.

I am the first to argue that our universities have not paid sufficient attention to teaching. I would also accept that universities who have moved into the training arena are, too, subject to the same type of assessment and performance criteria. However, I do not accept that the story ends here.

If I or my children enroll at a university I expect more. I expect that university to teach us to think, to provide intellectual stimulation. I expect my daughters in particular to gain more than I could teach them through simple skills acquisition. Too many of our universities no longer provide this.

This is the crux of my argument in this post and the reason why I say mea culpa because I, too, have helped to bring this situation about.