Monday, November 24, 2014

Students pay for status under uni fee rise

With the Senate as unco-operative as it has become, it's not at all certain Education Minister Christopher Pyne's proposal to deregulate university fees will become a reality. But if it does it will involve harnessing the university status drive to help balance the budget.

The government's plan is to allow the universities to set their own undergraduate tuition fees for new students from January 2016. But this would be accompanied by a cut averaging 20 per cent in the government's contribution towards the cost of courses.

Joe Hockey has argued that fee control is holding back our unis, stopping them competing with the best overseas.

"Australia should have at least one university in the top 20 in the world, and more in the top 100," he said.

So the economic rationalists' claim that fee deregulation would make the unis more efficient is being combined with a status argument: we need to raise our top unis' rankings on the various international league tables.

What's the link between fees and higher international status? Allowing our top, research-oriented "sandstone" unis to charge much higher fees would allow them to divert more funds to their research effort (probably including paying higher salaries to attract higher-status foreign researchers), the thing that would do most to boost their international rankings.

This is the very motive for the sandstone (Group of Eight) unis' vigorous support for fee deregulation.

Both the proponents and the opponents of fee deregulation assume that the immediate fee increase needed to allow all unis to at least recover the cost of the reduction in the government's contribution to course costs would be just the first of many.

This, I have no doubt, is the main motive for the purse-string departments' advocacy of fee deregulation: giving the unis freedom to raise their fees whenever they want to will allow the government to continue to reduce its own funding of them - not just for teaching costs but also for research via the Australian Research Council.

The fact is, successive governments have been reducing their funding support for unis for decades. Although total spending on universities as a percentage of gross domestic product in Australia is about average among the advanced economies, by 2004 the proportion paid by government was third lowest. Fee deregulation would allow it to go a lot lower.

I don't doubt the econocrats are genuine in their instinctive belief that de facto privatisation of our unis would increase the competition between them, making them more efficient and improving the quality of service to students.

But this motivation would come a distant second to reducing the unis' drain on the budget. And I doubt the econocrats have given any serious consideration to the many instances of "market failure" involved in partially deregulating a government-owned oligopoly with considerable market power.
The scope for stuff-ups - "unintended consequences" - is enormous.

If the tertiary education "market" did operate in roughly textbook fashion, with individual unis lacking pricing power, competition between them would greatly limit their combined ability to raise their fees very far.

And yet it's clear the government and the sandstone universities are confident of their ability to impose big fee increases over a few years.

Why? Because they know that - though it's assumed away in the textbook model - the higher-status unis would be able to get away with making students pay for that higher status along with the cost of their tuition.

The tuition fees unis charge foreign students have long been deregulated. They vary widely between unis, with the sandstones able to charge a lot more than the "red bricks" (as the Poms would call them). As well, the level of fees charged varies by course, with those for higher-paid professions higher than for lesser-paid, regardless of differences in the actual costs of delivering such courses.

The econocrats assume deregulated fees for local students would follow the same patterns, but that's not guaranteed. There ain't a lot of precedent for this radical experiment.

Since the buyers' knowledge of the relative quality of degrees is far from perfect, there's a high risk the lesser-status unis would hike their fees by more than expected precisely to avoid sending a signal that their product was of lesser quality.

The non-sandstone unis don't like the sound of all this, but they won't openly oppose it because they don't want to publicly acknowledge their lesser status.

Meanwhile, some status-seeking students at sandstone unis could be obliged to pay not only the full cost of their tuition but also to cross-subsidise their uni's research effort.