Why more expressways don't fix traffic jams

When Marion Terrill, of the Grattan Institute, set out to find out how much commuting times had worsened in Sydney and Melbourne, she discovered something you’ll find very hard to believe. But it would come as no surprise to transport economists around the world.

Everyone is sure traffic congestion has got much worse in recent years. This is only to be expected since Sydney’s population grew at the annual rate of 1.9 per cent, and Melbourne’s rate grew even faster, at 2.3 per cent, between the censuses of 2011 and 2016.

Both cities have grown much faster than the Australian population overall. People are crowding into our big cities, much to the disapproval of many people already living there.

Why are they piling into already-crowded cities? For reasons economic geographers call “economies of agglomeration”. One way for countries to get richer is for their businesses to pursue economies of scale; another way is for businesses and their workers to pursue the gains from agglomeration – a fancy word for piling things together.

There are three kinds of agglomeration economies. They come from matching (in a big city, people are more likely to find a job, while businesses are more likely to find the particular workers they need; there can be greater specialisation), sharing (less idle capacity in, say, car parks, or waiting around for customers), and learning (more workers for you to see and imitate; knowledge and know-how shared face-to-face).

Sharing, matching and learning can occur in two ways. When a lot of firms in the same industry gather in the same city, or just because a lot of people and firms are located together, making the city large enough to justify, for instance, heart and lung transplant centres.

Of course, along with the great benefits of crowding together go the costs of crowding together - such as feeling terribly crowded.

There are more people per square kilometre living in the centres of our big cities than there were five years ago. Sydney’s population density has increased by 23 per cent – and Melbourne’s by a mere 46 per cent.

And surely more crowding means more traffic congestion. But this is where Terrill and the co-author of her report, Hugh Batrouney, found their first strange fact. Between the last three censuses, from 2006 to 2016, there’s been virtually no change in the distance between where people live and where they work, measured as the crow flies.

Next surprise came from the HILDA survey – household income and labour dynamics in Australia – which, among other things, asks people how long they spend commuting.

In the four surveys between 2004 and 2016, for both Sydney and Melbourne there was no change in the fact that a quarter of workers had one-way commutes lasting no longer than 15 minutes. One half of workers had commutes no longer than 30 minutes.

When you take it up to the experience of three-quarters of workers, there was some increase over the years in Sydney, but only a small increase in Melbourne. Other figures, from Transport for Victoria, tell a similar story.

So, we all think the increasing traffic volume is leading to greater delay and, hence, longer commute times, but the best available actual measures of commute times say they’re little changed.

Find that hard to believe? Well, as I say, few transport economists would. Why not? Because it fits well with what they call “Marchetti’s constant”. Marchetti was an Italian physicist credited with discovering the empirical truth that the average time spent by a person on commuting is about an hour a day – 30 minutes each way.

The amazing truth of this “constant” has been shown by many studies of many cities around the world.

And it fits with another empirical regularity known as the “Lewis-Mogridge position”, formulated by those gents in 1990: “traffic expands to meet the available road space”.

The government notices that traffic is particularly congested on a certain road, so it builds a big new expressway. When it opens, the time taken to get from A to B falls dramatically. But when people realise this, more of them stop travelling to work by public transport and start going by car.

So many people do this that the speed gain disappears within months, even weeks. The time taken to get from A to B goes back to about what it was before the expressway was built.


The only change is that a higher proportion of workers are able to go by car. The traffic jam is often just shifted to another place on the road network.

Getting back to road congestion in Sydney and Melbourne, how can the gap between what we think has happened and what actually happened be explained?

One possible part of the explanation is that although the traffic really is heavier, making trips less pleasant, this doesn’t prolong the time of the trip as much as we think it has.

But the main explanation – both in Oz and in other countries – is that commuters adapt to the greater congestion.

They take evasive action by moving to a job that’s closer to home, or moving to a home that’s closer to the job. Or they stop going by car and start using public transport.

One thing that really has changed with our bigger cities is more crowded trains and buses.

It’s as though each of us has our own internal, unconscious regulator that draws the line at 30 minutes and, when that limit is exceeded, prompts us to take steps to get travel times back down to where they should be.

Terrill and Batrouney are clear on this: in neither city was enough new infrastructure built between 2011 and 2016 to explain why the huge population growth didn’t lengthen commute times.

The government didn’t fix it, you and I did. Which says we ought to be wary of thinking the obvious – and only - solution to greater crowding is greater spending on transport infrastructure.

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The great drawback from 27 years of economic sunshine

Talk about ingratitude. It’s enough to make a grown economist cry. The nation’s dismal scientists labour mightily to produce almost three decades of continuous economic growth, and few people care.

In April this year a venerable crowd called CEDA – the Committee for Economic Development of Australia, the gentlepersonly end of big business – conducted an online survey of almost 3000 people from all states, asking for their thoughts on the economy.

Asked whether they’d gained from 26 years of uninterrupted economic growth – actually, it’s now ticked up to 27 years – only 5 per cent said they’d gained a lot, with 40 per cent admitting they’d gained “a little”.

That left 40 per cent saying they’d gained nothing and 11 per cent who didn’t know. This is deeply shocking for most economists, who hold as their highest article of faith the belief that the public is crying out for unceasing and rapid growth in the size of the economy – by which they mean an ever-rising material living standard.

But if you and I gained little from all the economic growth, who do we think gained a lot? Well, 74 per cent thought large corporations had, but only 8 per cent thought small and medium-sized businesses had.

Just over half of us thought foreign shareholders gained a lot, whereas only 31 per cent thought Australian shareholders did.

Almost three-quarters of us thought senior executives had gained a lot, a third thought white-collar workers did well, and only 12 per cent thought blue-collar workers did.

These answers don’t add up. They reveal that the public’s understanding of how the economy fits together is confused.

While it’s probably true that big businesses are, on average, more profitable than smaller businesses, it’s a mistake to think big business has been coining it over the past three decades, with most of small business struggling. Were that true we’d have heard a lot more howls of complaint.

It’s true that our mining companies did exceptionally well from the resources boom, and that those companies are about 80 per cent foreign owned, but mining accounts for only 6 per cent of the economy. Looking overall, foreign owners would account for more like a third of businesses. And it’s wrong to think foreign shareholders get a better deal than local shareholders.

People often forget that, when you trace it through, the shares in Australia’s big listed companies are owned mainly by Australians with superannuation and other savings for retirement. So, if big companies have done well over recent decades, that means yours and my super balances are a lot higher than they were. This not a gain?

It’s true that the incomes of senior executives have grown a lot faster than the rest of us over recent decades. But with a workforce of 12.6 million, that’s just a relative handful. Say there are 400 big companies. If each of those has 10 people on million-plus salaries, that’s just 4000 of them.

Make it 40,000 and you’re still not talking about many people. Enough to be envious of but, arithmetically, not enough to make a big difference. Were we to take their millions off them, there wouldn’t be enough to give the remaining 12.6 million of us much more than a small pay rise.

In other polling, many people – even many West Australians – say they have nothing to show for the much-trumpeted resources boom. Do you remember the four or five years before 2015 when the dollar was worth a bit less or a bit more than $US1? It was up there because of the resources boom. And, whether or not they realise it or remember it, the many people who took the opportunity to go on an overseas holiday or three were getting their cut from the boom.

What’s the bet all those people with seniors cards, paying only nominal amounts to use public transport, think they’ve gained little over the decades? The aged have done a lot better, mainly because of changes made by the Howard government. And that’s before you count the rising value of their homes and investment properties.

It’s the young who are much more justified in lacking gratitude.

Speaking of which, most people don’t get the point when reminded of our 27 years of uninterrupted economic growth. It doesn’t mean we’ve had twice the growth other countries have had, and so should all be rolling in it. We’ve had more, but not a huge amount more.

No, what it really means is that the others have had three or so severe recessions in that time – including the Great Recession – and we haven’t.

The one great drawback of going for so long without a recession is that so many people have no experience of how much harm and hurt they cause – how depressing they are – while others have forgotten it.

Still, voters have precious little gratitude to give politicians and bureaucrats, and absolutely none for what amounts to the absence of something that would have been terrible. And anything good that happens to us, we soon take for granted.

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Boards and managers responsible for reducing banks' value

Too few of us realise it, but we should thank God (and my new best friend, Peter Costello) for our independent central bank. Prime ministers and treasurers seem to say little that’s not point scoring, and Treasury is now highly politicised, but we can always rely on Reserve Bank governors to be frank about what’s happening in the economy and what should be happening.

Last week the latest of our straight-shooting governors, Dr Philip Lowe, offered his conclusions on the shocking revelations of the banking royal commission. His wise words are worth recounting at length, to be sure you don’t miss them.

As Lowe reminds us, finance is all about trust. The first line of the voluntary “banking and finance oath” (which more bankers should now be taking) says “trust is the foundation of my profession”.

Australian banks have a strong record of being worthy of the trust that is placed in them to repay deposits, but in other areas trust has been strained.

The royal commission has highlighted three issues where work is needed to restore the public’s trust. First, Lowe says, “the inadequate way in which banks have dealt with conflict of interest issues”.

Second, “the way that poorly designed incentive systems can distort behaviour – promoting a sales culture at the expense of a service culture, and promoting the short term at the expense of the long term”.

Third, “the fact that the consequences for not doing the right thing have, in some cases, been too light”.

Central to fixing these breaches of trust is creating a strong culture of service within our financial institutions, Lowe says. This starts with correcting the system of internal reward established by the board and management.

“The vast bulk of the people who work for Australia’s financial institutions do want to do the right thing, and they do want to serve their customers as best they can. But, like everybody else, they respond to the incentives they face.

“If they are rewarded on sales or short-term objectives, it should not come as a great surprise that that’s what they prioritise.”

In the minds of economists, incentives can be negative (sticks) as well as positive (carrots). “One of the things that influences incentives is the consequences and penalties that apply when something goes wrong.

“Strong penalties can play an important role in incentivising good behaviour, and this is an area we should be looking it.”

But it’s worth distinguishing between the penalties that apply for poor conduct and those that apply for granting loans that can’t be repaid, Lowe says. “On conduct issues, we should set our expectations and standards high, and if they are not met the penalties should be firm.”

With bank lending, however, it’s trickier. “Even when banks lend responsibly, a percentage of borrowers will end up in financial strife and be unable to meet their obligations.

“We need banks to be prepared to make loans in the full expectation that some borrowers will not be able to pay them back."

Get this: “Banks need to take risk and manage that risk well. If they become afraid to lend simply because of the consequences of making a loan that goes bad, our economy will suffer.”

So it does seem true that Lowe fears the banks will overreact to the punishment and tighter regulation imposed on them following the royal commission’s findings, and that this could lead to them crimping economic growth.

(Just how concerned Lowe is about this is something the media can only speculate about. Top econocrats will always be sotto voce, for fear a loud shout of warning may be self-fulfilling. The media trumpet dire predictions because they don’t imagine anyone will take them seriously.)

Back on the public’s trust, having clear lines of accountability can help. But “we should not lose sight of the fact that it is the banks’ boards and management that are ultimately responsible for the choices that banks make. Creating the right culture is a core responsibility of boards and management.”

One thing that would help, Lowe says, “is for financial institutions to a have a long-term focus and reflect that in their internal incentives. Managing to short-term targets might boost the share price for a while, but this short-termism can weaken the long-term franchise value of the bank.

“I would argue that the franchise value is more likely to be maximised if our financial institutions have a long-term perspective, treat their customers well, reward loyalty rather than take advantage of it, and invest in systems and technology that deliver world-class financial services . . .

“Doing this would not only be good for bank shareholders, but also for the broader community.” Well said.

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How about a Robin Hood carbon tax to combat climate change?

What does a public-spirited citizen do when a government makes a solemn commitment to do something important, but simply can’t come up with a policy measure to keep that commitment? Why, they come up with their own suggestion to fill the vacuum.

If you haven’t guessed, the government in question is Scott Morrison’s. The solemn commitment is our Paris agreement to cut our greenhouse gas emissions by 26 or 28 per cent from 2005 levels by 2030.

As part of his overthrow, the government backbench refused to accept former prime minister Malcolm Turnbull’s NEG – national energy guarantee – policy. But Morrison hasn’t been able to come up with a policy measure to take its place.

The public-spirited citizen – or citizens – are Richard Holden, an economics professor at the University of NSW, and Rosalind Dixon, a professor of law at the same uni (who just happen to be married).

This week the pair launched a proposal for an “Australian climate dividend plan” as part of the uni’s “grand challenge on inequality”.

The plan is for a carbon tax, levied at the rate of $50 per tonne of carbon dioxide emissions, not just from electricity generation, but also from transport fuels, direct combustion, fugitive emissions and industrial production processes.

The pair estimate the tax would raise net revenue of about $21 billion a year – and would, of course, raise the retail prices of electricity, gas, petrol, diesel, cement and various other products subject to the tax.

Not likely to be politically popular? Here’s the trick: the $21 billion would be returned to every Australian citizen of voting age, in the form of a tax-free “dividend” payment of about $1300 per person per year.

Because the amount of tax a person paid would vary with the amount of their consumption of taxable items (which, in turn, would vary roughly in line with the size of their incomes), but everyone’s dividend would be a flat $1300 a year, this would produce net winners and net losers.

Holden and Dixon estimate the average household would be a net $585 a year better off. The poorest 25 per cent of households would be better off by more than double that. The net losers would be people whose high spending on taxed items put them on incomes way above average.

Get it? The tax would be highly “progressive”, taking from the rich and giving to the poor. There need be no concern that low-income families would be adversely affected by the new tax. (This, BTW, is how the plan fits the “grand challenge on inequality”.)

And don’t forget this. Pollution taxes such as a tax on carbon are intended to encourage people to avoid paying them. How? By using or doing less of the undesirable thing that’s being taxed.

There are many ways a family could reduce the carbon tax it pays. Avoid wasting electricity and gas. When replacing household appliances, make the next one more energy efficient. Make your next car more fuel efficient.

And here’s an idea: why not generate your own power by putting solar panels on the roof? The higher cost of electricity from the grid would mean the investment paid for itself all the quicker.

In other words, an individual family could increase its net saving by paying less tax but still getting its $1300 annual dividend.

Of course, if too many people did that, the total amount of tax collected would be a lot lower and so the amount of the dividend would need to be reduced.

And, indeed, since the object of the exercise is to significantly reduce our carbon emissions, the tax’s ideal is that next to no one ends up paying it. The more successful the tax, the less it collects. If so, the dividend would start high, but gradually fall to zero.

Since the higher prices of the taxed products they produced would discourage their customers from buying as much, the carbon tax would also create an incentive for the affected businesses to find ways of reducing the emissions caused by those products.

Innovations that made this possible would be very valuable. One obvious way for electricity retailers to reduce the tax on their product (and hence, its price) would be to buy more renewable energy (whose generation involves few emissions) and less coal-fired energy (whose generation involves heavy emissions).

Underlying the economists’ preoccupation with “putting a price on carbon (dioxide)” is their concern that the greenhouse gases emitted by use of fossil fuels impose a cost on society - global warming – that isn’t reflected in the prices charged by producers of emission-intensive products and paid by their customers.

This means that, left to their own devices, the price mechanism and market forces will do nothing to discourage private sellers and buyers of these products from imposing the “social” cost of global warming on all of us.

In other words, emissions and other forms of pollution are outside the economy’s system of private prices. That’s why economists call them “externalities”. Because they’re a cost to society, they’re a “negative” externality. (An example of a “positive externality” is the small benefit to the rest of us when little Janey takes herself off to uni to get an education, which she does purely for her own (private) benefit.)

In econospeak, the point of “putting a price on carbon” is to “internalise the externality”. To get it into the prices charged and paid by private sellers and buyers. Why? To give them a monetary incentive to find ways to reduce the social cost their polluting activity is imposing on us.

In the absence of a carbon price, polluting coal-fired electricity has an undesirable price advantage over non-polluting renewables electricity. This is the economic justification for government subsidy schemes for renewables electricity and household solar power systems.

But Holden and Dixon remind us that, if we introduced their Robin Hood carbon tax, those subsidies would no longer be needed, saving governments (and often, other power users) about $2.5 billion a year.

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ALIGNING INSTITUTIONAL INCENTIVES WITH GOOD SOCIAL OUTCOMES

Talk to University of Sydney Association of Professors Symposium, Friday, November 23, 2018

The other day I noticed a tweet that was in the form of an incomplete statement, to be finished by the hearer: At the end of this course, students will be able to . . . The tweet suggested Socrates’ ending would be “know that they know nothing”. The education administrator’s response would be “I’m sorry, but that is not a measurable learning outcome”.

I want to give you an economic journalist’s perspective on the symposium’s question of What should Universities be? Economic journalists take a great interest in budgets, particularly the federal budget. Politicians are eternally conscious of the public’s unending demand for more government spending on 101 worthy projects, but – at least in the politicians’ belief - the public’s steadfast reluctance to pay the higher taxes needed to fund that higher spending.

By the late 1980s, the Hawke-Keating government realised that free university education – which had failed to achieve its goal of significantly increasing the proportion of students from low-income homes – could no longer be afforded, particularly because it involved taxpayers who had not benefited from higher education contributing to the education of students from better-off families gaining, at no tuition cost, an education that brought them significant private benefit in the form of higher lifetime incomes. In what I regard as one of the most important applications of applied micro economics in our times, Professor Bruce Chapman, of the ANU, invented what is properly know as the income-contingent loan, but we remember as HECS, an ingenious way of requiring students to contribute part of the cost of their education, without discouraging students from poor families from going to uni. The introduction of HECS and the advent of full-fee paying international students were the first steps in reducing the burden of universities on the federal budget. The Howard government greatly increased HECS and universities greatly increased their reliance on revenue from international students, with the government taking every opportunity to reduce its share of the cost of a growing local student population. Unis were freed to set their own fees for post-graduate degrees and diplomas, and have turned this into a “nice little earner”. If you remember, at one stage the Howard government even allowed unis to charge a full fee to local undergraduate students whose marks fell not too far short of the cut-offs applying to Commonwealth-supported places, until the incoming Rudd government put a stop to the practice.

The one development which didn’t fit the feds’ trend of expanding the universities’ revenue-raising capacity as a way of reducing their own contribution was Julia Gillard’s decision to relinquish the feds’ control over the number of funded undergraduate places for local students and allow them to be “demand driven”. This was part of a plan to greatly increase the proportion of school-leavers going on to higher education. To universities that had been under so much pressure to generate their own funding, this was like the opening of a great safety valve. The following years saw a huge increase in the number of undergrad places. My guess is that it was the second-tier and regional unis that did most to increase their numbers. When the demand for places had exceeded the government-limited supply of places, universities had used high ATAR cut-offs to select the brightest available students. Admittedly, when a policy decision is made that a higher proportion of each cohort should receive a university education, a reduction in entry standards is inevitable. But the abandon with which some universities dreamt up reasons for admitting students with limited qualifications has been, to coin a phrase, unedifying. It didn’t disguise the unseemly rush for money from the government’s open coffers.

What followed with the election of the Abbott government was, with hindsight, eminently predictable. The increased cost to the feds of demand-driven places was unsustainable, and the only answer was to reduce the proportion of feds’ contribution to undergrad places, while allowing the universities to cover this loss by deregulating fees. To me, it was impossible to not to see where this move was intended to take us: as unis progressively increased their fees, the feds would progressively reduce their contribution to teaching costs until the cost of university teaching was completely off the federal budget, leaving only the cost of the HECS loan scheme and the cost of research funding. As the Group of Eight used their pricing power to really ramp up their fees, changing students a premium for their greater social status and more centrally located and better-appointed campuses, and using that premium to subsidise their research effort, it might be possible for the feds even to cap their contribution to research costs. The more the sandstone unis ramped up their fees, the more scope they would create for second-string unis to raise their fees, even if to a much lesser extent. The claim that market forces would prevent unis from abusing their pricing power was naive economics. The existence of HECS meant the price students were paying was government-subsided and of uncertain size over the distant future. Universities of lesser reputation or regional location would be unlikely to compete by charging a lower price than other second-string universities because the difficulty of knowing the quality of their degrees before actually undertaking them meant students would use price as an indicator of quality. Thankfully, fee deregulation was blocked by the Senate. The Coalition government has since tried to make savings in other ways, finally succeeding in abandoning the demand-driven system and capping the number of Commonwealth-supported places. I’m not sorry to see an end to the demand-driven approach. It created the perverse incentive of encouraging unis to get more funding by further lowering their entry standards.

What this story amounts to is that, for the past 30 years, successive federal governments have worked to get university funding off the federal budget. Although it’s possible to point to snippets of economic fundamentalist thinking – eg competition between universities would prevent them from abusing their right to set their own fees – there’s been no government report that has recommended such a policy and I don’t believe it’s the result of some grand “neoliberal” conspiracy. Rather it’s been an undeclared, unplanned, backdoor privatisation of the universities. I believe it’s happening in an ad hoc way as Treasury and Finance have looked at each year’s budget and tried to find ways of reducing the deficit by saving money here and saving a bit more there.

Because it’s not genuine privatisation – because universities remain government-owned agencies, subject to quite a high degree of regulation by the federal Department of Education and Training; because university education is in no meaningful way a market in which profit-making universities compete against one or two formerly government-owned unis – this backdoor privatisation has left universities rudderless, with no boss to report to, no simple objective of maximising profits, no one telling them what their objectives should be. University leaders have found themselves overwhelmingly preoccupied with a task their academic careers have not prepared them for and for which there’s no precedent to follow: raising sufficient revenue to fund their ever-growing establishments. Little way of knowing how to find the best trade-off between the funding imperative and the maintenance of traditional standards of teaching and research, let alone such airy-fairy notions as the pursuit of knowledge just for its own sake.

Little wonder then that so much of universities’ present performance is open to criticism.  My greatest fear is that a university degree is not as valuable, not as rigorous, not as life-changing and life-preparing as it used to be. That gaining a university degree has become more like being processed through a sausage factory, with ever declining staff-student ratios, with lecturers who have far less personal interaction with their students, lecturers who are rewarded for gaining research funding by being give money to pay some part-timer to take their place in lectures (another perverse incentive), with videoed lectures placed on websites so that students don’t have to physically turn up, with assignments and exams that are easier to pass, with essay assignments that aren’t marked with comments as conscientiously as they should be, with informal quotas on how few students may be failed and informal rules on how vigorously widespread plagiarism should be detected and punished.

I worry that the period of demand-driven open slather, combined with overly ambitious parents and universities’ eternal quest for more funding, has led to too many not-particularly-academically-inclined young people going to uni when they would have been better served going to TAFE.

I worry that, heightened by the Howard government’s perverse attack on compulsory student unionism, universities have become places you visit between your employment obligations, not places you hang around most days, debating incessantly with your friends.

I worry that too many international students are paying big bucks for degrees than haven’t taught them as much as they should have. Like many others, I worry that universities have become too dependent on revenue from international students, particularly from China. In the longer term, this revenue source will diminish as Asian countries get more universities of their own. In the short term, unis could be hard hit by a sudden deterioration in relations between Australia and China.

I worry that universities have become bad employers, mistreating young people seeking an academic career by keep them on successive short-term contracts when they should be given permanency. I worry about professors who take advantage of their young helpers’ job insecurity.

I worry that in their newfound search for a lodestar, universities have settled on key performance indicators, debatable measures of academic effort and excellence and, above all, international university rankings, most of which value research excellence more highly than teaching excellence. The trouble with relying on such “metrics” is that they too often create perverse incentives, and are too easily gamed, not just by staff but by university leaderships themselves. I accept the value of the universities’ contribution through research. But research effort whose primary objective is to gain promotion, or to get the university a higher league-table ranking, may not be research that’s worth taxpayers paying for.

So, what can be done to better align institutional incentives with good social outcomes? One good outcome is students who’ve been taught to think critically, whose outlooks and values have been broadened beyond those they got from their families, and who have been left with inquiring minds and a love of learning. Another good outcome is research motivated by a genuine spirit of inquiry, rather than as a means to the end of promotion or higher ranking on league tables. Yet another good outcome is vice-chancellors unafraid to proclaim to the world that a primary objective of their university is knowledge for its own sake. Vice-chancellors willing to argue that humans have always been an inquisitive animal, and that the richer we become the more we can afford to indulge – yes, indulge - our curiosity. That learning is an end in itself, not just a means to better jobs and higher incomes.

How can we better align incentives with good social outcomes? For a small start, politicians should stop encouraging the unhealthy obsession with league tables by boasting about well we’re doing. I believe it is reasonable to require students to bear part of the cost of their tuition (at present, about half), particularly because of use of HECS-style concessional arrangements for repayment. But I don’t believe it’s reasonable to require students, rather than taxpayers, to contribute to the cost of university research. The Productivity Commission has already pointed out that students whose course puts them in the top tier for HECS payments – such as law and business students – are being required to make such contributions. The Productivity Commission has also pointed out that the universities’ preoccupation with international league tables is also motivated, at least in part, by a desire to attract more international students and be able to charge them higher fees. This is not healthy.

The logical implication of all I’ve said is that federal governments should abandon and reverse their covert ambition to get universities off their budget. Government’s should bear more of the cost of universities, and be braver in asking voters to pay higher taxes as a consequence. Politicians would be assisted in this if there was greater confidence by voters that youngsters going to university were being well taught. Inevitably, any significant increase in public funding is likely to come with strings attached. At least in principle, I’m not sure it would be a bad thing for universities to have their owner and paymaster give them a clearer indication of what the community requires universities to be. In practice, however, greater central regulation may not be as sensibly done as we would like.

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