Do government rules stop innovation in Australian higher education?


Stephen Matchett, from the Australian, got upset with my earlier post. Apparently there is nothing stopping Australian universities from being innovative and:

Blaming the bureaucrats does not cut it.

Hmmmm. To quote Stephen back to himself, gosh, where did that come from.

Australian universities are tied up in government rules and regulations that prevent innovation. The most obvious one relates to revenue at the undergraduate level. An Australian university gets paid the same per-student fee for an undergraduate course  regardless of quality. This results in mediocrity. To see this, think of a simple comparison. Suppose the government decided on the following. Having a car is important to Australian families, so the government will set the price of a car at $10,000. The government will pay $2000 of the price with the other $8000 paid by the buyer. The buyer can use an income contingent loan to pay for the car to avoid equity issues involved with upfront payment.

What would be the outcome of such a policy? Well, you can kiss goodbye any car that costs over $10,000 to make. There would be no innovation in the car industry (no point spending money to innovate if you cannot charge consumers more for a better product). There would be little differentiation (cheaper to produce a mass homogenous product). The policy would lead to Australian families having access to cheap, homogeneous and mediocre cars.

Would this be bad policy? Of course! But this policy pretty much describes the limitations placed on undergraduate business education in Australia. And if Stephen Matchett thinks this is good policy – well, sorry mate, you are wrong!

Could there be a better policy that allows more innovation but keeps equity? Yes! For a start the government could lift the cap on University charging. If Universities were able to charge fees that reflect the quality of their degrees then they would have the incentive and funding to enable innovation. The government could still provide each student with a subsidy equal to the current payment for a course (about $2000 per year for an undergraduate business course). HECS would be available, but Universities that offer a better quality educational experience would be able to charge an appropriate fee that reflects the higher cost of the higher quality degree.

Would competition between Universities work? It would take time and the government might need to phase in the change over time, to allow new products to be developed and Universities to focus on their preferred part of the higher education market. But overseas experience shows that competition would lead to a wide range of different tertiary education experiences with different fees. The US system – like it or not – shows that competition leads to innovation and variety. It provides students with choice.

Would there be equity issues? Possibly, but the government could help with this by offering (or requiring universities to offer) scholarships for students with high academic performance who come from poorer backgrounds. And the HECS scheme provides the opportunity for poorer students to defer payment until they begin to earn a return on their studies.

The current one-size-fits-all approach to University funding promotes homogeneity and mediocrity. It would not be acceptable in almost any other area of Australian life. So why does Stephen Matchett want to keep this mediocrity in higher education?

Are the bureaucrats to blame? Well it is their rules that hold our universities back. So the answer is, yes!

9 Responses to "Do government rules stop innovation in Australian higher education?"
  1. But Stephen, the other Stephen might have a point in the sense that we can’t just blame the bureaucrats.  No given university seems willing to admit that their own offerings are on the mediocre side, that there might be a better educational outcomes possible, and most tiptoe around the fear of being labelled ‘elitist’, ‘for rich kids’ and/or ‘moneygrabbing’. 
    You only have to see the uninformed vitriol levelled at Melbourne for the relatively non-revolutionary Melbourne Model to see that it is extremely difficult to manage the message about education in this country.

  2. Hear hear on most of this Stephen, but I would add another vital ingredient, which is the appointment process of Vice Chancellors and members on University Councils (sometimes called the Senate). As I understand it, in most cases this is decided by state Ministers who are not in the eyes of the public held accountable for whom they appoint. You can imagine what that leads to. Australian universities have started to resemble royal courts in their internal operation.

  3. Stephen,

    Paying a course through a tax funded income-contingent loan isn’t the same as paying for it out of your own pocket so presumably the elasticity of demand will be different. If you remove caps on course fees what’s there to stop universities from jacking up prices and gauging tax payers?

  4. An alternative is to remove caps on international places and fees (if they exist), change immigration and other policies to make our education sector more attractive than the US or UK to fund domestic students.

    Require a minimum number of domestic places and universities can compete and ‘innovate’ for the international student market.

  5. Should introduce a voucher system for degrees. Government gives you a HECS voucher for a certain amount, and if you really want to get into a more expensive degree, you have to pay the difference yourself.

    HECS voucher value would be (in part) determined by your ATAR score. 

  6. DavidN – two things. First, we have the experiment with income contingent funding and deregulated fees in graduate study in Australia. While there are other regulatory issues in graduate study, a clear outcome of the limited freeing up of graduate study is the wide range of fees and products across institutions. MBAs provide a good example, with different universities offering different length products, different ‘experiences’ and very different fees. New government regulation will kill some of this differentiation. However, it is clear that there is more innovation in graduate study where price controls are less, and there is a lot of price competition. 
    Second, there are no caps on overseas students and I have noted in previous blogs that overseas students currently are cross subsidising our domestic students. But the international student market is very competitive. Australia has been very lucky in terms of early entry, geographic location and perception of safety. Universities have, until recent years, also benefitted through migration laws. My expectation is that in the future, any attempt to continue to cross subsidise domestic education through international student fees will become less and less viable. The students will just go elsewhere, including to the rapidly growing university sector across Asia.

  7. Stephen, to borrow the US as an example you’ve previously used, the experience has been that college fee inflation has far outstripped growth in median household income. Not having looked at Australian uni fee inflation (I presume fee growth has been slower) are Australian circumstances so different that deregulation will lead to greater price competition than has already been shown in the US?

    Other relevant articles from The Economist, here, and here.

    I agree that greater innovation is welcome but I’m concerned that fee deregulation will lead to rent being transferred to the tertiary sector.

  8. With to respect to international students it may be a highly competitive market but why couldn’t we gain a competitive edge over other countries via immigration policy?

    Sure there may be a ‘rapidly growing university sector across Asia’ but China and India have a population over a billion a piece, with large growing middle class, poor education infrastructure, and demand for quality English tertiary education. Is the quality and quantity of these new Asian universities so great that Australia wouldn’t be a preferred option given the right inducements in immigration?

    I keep hearing on the news that we have a skills shortage (e.g. engineers and doctors). International students are wealthy, will be paying for their own education, already have some immersion with Australian ‘culture’, and will presumably have good English skills. For them, Australia provides high wages, high quality of life, free from political/religious/whatever discrimination, i.e. attractive emigration location.

    It seems to me a win for everyone. 

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