Principles for reforming higher education in Australia: is Bradley brave enough?

Authors

Philippa Dee

In Brief

The largely self-serving statements from the universities in the lead-up to the Bradley review would have one believe that this is all about how much government money will be spent on higher education, and how it will be divvied up among institutions. Principles of good regulatory design are easily lost in the process. In order to evaluate what comes out of the review, let's think about what we are trying to achieve.

Even the staunchest small-l liberal would not want to leave the Australian tertiary sector entirely to market forces. At minimum, there needs to be some accountability for the large amounts of taxpayers' money involved. But to think about how those accountability mechanisms should be designed, it is useful to think about how our tertiary institutions, as (mostly) non-profit organizations, behave.

By definition, non-profit organizations are not primarily about making profits. Their goal is to achieve some non-profit objective - let's call it a 'charter'. This is not to say that they don't care about the bottom line.

On the contrary, they will have every incentive to seek out activities that might contribute greatly to revenue, even if they do not contribute greatly to the ‘charter’ objective(s), and use those activities to cross-subsidize activities that contribute greatly to the ‘charter’, but not greatly to revenue. Think about universities that use the revenue from full-fee paying foreign students to cross-subsidize research or new course development. Theory suggests that in the limit, if external government funding shrinks sufficiently, the charter-intensive activities will be squeezed out altogether, and the organizations will behave exactly like profit-maximizing firms.

These organizations do not have an in-built incentive to ‘waste’ resources. They have the same incentive to be technically efficient as profit-maximizing firms. But they do have an incentive to define their charter in self-serving ways (eg to maximize the numbers of tenured professors employed).

So here is the case for government involvement

-to provide the government funds to allow universities to pursue low-revenue charter activities that are valued by society

-to monitor the charters of those organizations on an ongoing basis to ensure that they do not stray from those activities that are valued by society.

According to this view, governments do not have to micro-manage universities. But they do have to manage their charters. Within those constraints, governments can rely on market principles of competition and consumer choice to spur better performance in teaching (so as to attract undergraduate students) and research (so as to attract graduate students). And if need be, they can impose a quality assurance framework to ensure that all institutions meet some minimum acceptable standards.

Government involvement in higher education in Australia has been characterized by extreme micro-management, combined with an approach to the allocation of funding that has imposed the same charter on all institutions, in order to simplify the allocation process. The allocation has driven the charter, rather than vice versa.

The Bradley review has recommended a national voucher system, which will put government funding in the hands of students rather than institutions. Incentives will also be provided to enroll students from low socio-economic backgrounds, indicating that ‘access’ is now a desired charter activity. And the review has recommended a new national accreditation agency, to better ensure that minimum standards are met.

The Bradley review has *not* recommended that institutions should be able to negotiate their own tailor-made charters with government. But student choice will remain a Clayton’s choice unless institutions have this freedom. For example, the University of Melbourne should be able to offer US-style undergraduate courses, subject to meeting quality assurance requirements, but there should be no requirement for this to be imposed cookie-cutter style on the rest of the country.

If vouchers were to be the *sole* funding allocation mechanism, then the negotiation of charters could be divorced completely from the allocation of funding, substantially lessening the tendency for bureaucrats to manipulate charters to make funding allocation easier. So Gavin Moodie is wrong to say that ‘the negotiated institutional planning implied by compacts would be starkly inconsistent with the operation of a student entitlement scheme’ – the two instruments would be doing different jobs.

Instead, according to the Bradley review, a uniform charter will be imposed and enforced by the new national accreditation agency: a university would have to deliver research higher degrees in three broad fields ‘over time’ and do ‘sufficient research’ in all broad fields in which they offer coursework degrees. Even Ian Chubb argues that Australia does not need 43 different Harvard clones.

Let’s see if we can manage to increase the university enrolment rate of Gen Ys from 29 to 40 per cent under this approach!

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