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Higher education isn’t like other markets

The Conversation     |     3  September 2014

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The government’s higher education reform package has been referred to the Senate Education and Employment Legislation Committee for consideration and report by 28 October.  Leo Goedegebuure,  director of the LH Martin Institute, argues that “if higher education policy research has resulted in anything significant over the last decades, it is the almost uniform agreement that unregulated market coordination does not work”.  Just look to the “mother of all unregulated systems” in the US and the concerns of US families and policy-makers.

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Tertiary education is an experiential good, meaning that the value of it can only be truly assessed a number of years after consumption.

Further complicating simple ideas about price is the fact that enrolling in tertiary education is not a simple transaction in which you buy something tangible. The outcome is also the result of the time and energy you invest yourself. As buying a gym membership doesn’t make you healthier, enrolling in university doesn’t fill you with knowledge. This makes an accurate evaluation of its price difficult.

The higher education market, like any other market, has imperfections. Higher education providers are in a pretty good position to keep negative information out of the public domain given there are no effective consumer organisations in the sector.  This is made worse by the fact that Australia has a relatively small higher education sector dominated by a few big players.  Opening it up to private providers will only marginally alter this.

We have been assured by many university spokespersons that an extreme hike in fees will not occur.  In the past Australian universities have demonstrated they are socially responsible organisations.  From this some solace can be derived. But we should not forget that the stakes are high.

Learning from the US: the mother of all deregulated systems

When thinking about how the sector in Australia can move forward, we should look at what has happened in the mother of all deregulated systems, the United States.  Years of steady increases in tuition fees have resulted in student debt being larger than credit card debt at over US$1 trillion.  Problematic as that is, far more important is the fact that parents and students now, for the first time, are questioning the value of traditional universities and have started doubting whether they are getting value for money.

Politicians in the US have lost their faith in universities being able to contain their costs.  To the point where President Barack Obama has made a promise to reform the system.  The Bill and Melinda Gates Foundation has also got involved, urging the sector to increase productivity. This has brought institutional leaders together to more seriously consider what alternatives lie ahead now that pricing appears to have reached its ceiling, with the exception perhaps of the most elite institutions.

What they have come up with is a comprehensive change agenda that focuses on:

This has not resulted in a series of “ready to implement” solutions as these issues are hard and wicked.  But they have charted what needs to be done, and suggestions have been formulated on how this may be done.

Key to that is revisiting the missions of universities and asking what must be done to achieve their aims and what is not core to achieving them.  This must be followed by a true understanding of the costs it takes to deliver these aims, and work from there in trying to maximise outputs and perhaps even improve.

In the United States it has taken the institutions the better part of 25 years of continued price increases to come to the understanding that simply raising tuition fees while not addressing productivity and outcomes has not been the way to go.  If anything good is to come out of the deregulation initiative in Australia, our institutions need to embark on this course much more quickly.  Some have already started, but far more is needed.

If we think of this as a sector-wide issue right from the start and not from an individual institutional perspective, we’ll be better placed to cope with the changes. Australian institutions are renowned for their competitive streak.  It would be better for the sector and the country if we collaborated in working through solutions to prevent the “easy” way out of continued price rises.

Some of these solutions will require significant time to materialise, and it is always easier to deal with the pressures of today than work towards longer-term objectives.  But this is where strategic leadership really comes to the fore.

This article By Leo Goedegebuure, LH Martin Institute, UnivThe Conversationersity of Melbourne, was originally published on The Conversation.
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