Drummond Memorial Lecture
The Competing Objectives of Australian Higher Education Policy
19th Annual D.H. Drummond Memorial Lecture
July, 2010
“Higher Education is central to achieving the Government’s vision of a stronger and fairer nation. The Government is proposing a landmark reform agenda for higher education and research that will transform the scale, potential and quality of the nation’s universities and open the doors to higher education to a new generation of Australians.”
So begins the introduction to the Commonwealth Government’s latest policy document on Australian Higher Education immodestly entitled, ‘Transforming Australia’s Higher Education System’. In her address at the Universities Australia Conference in March of this year, the then Minister of Employment and Workplace Relations, Julia Gillard captured much of the Government’s reform agenda in a single sentence when she said:
“Last year, and at last budget, I crystallized the approach this Government has taken to reform by delivering funding that meets the demands made by students, coupled with exacting targets, rigorous quality assurance, full transparency and an emphasis on equity.”
The only significant missing element in the Minister’s statement was ‘mission-based compacts’, which, in DEEWR’s own words, are to be “agreements between universities and the Australian Government detailing public funding commitments and reciprocal institutional commitments. They will support universities to pursue their distinctive missions and to contribute to the Australian Government’s aspirations for the higher education sector as whole.” So, the government is also promoting greater diversity among universities and its strategy for doing so is mission-based compacts in which universities will be required to specify what is distinctive about them and to formalize this in what amounts to service level agreements with the Commonwealth.
The major tenets of the government’s reform agenda can be summarized by way of the following Table.
|
Objective |
Strategy |
|
Participation |
Demand-driven allocation of student places
Higher Education Participation and Partnership Scheme
|
|
Diversity |
Mission-Based Compacts |
|
Quality |
Performance funding
Tertiary Education Quality & Standards Agency |
As the Table indicates, the Commonwealth government is seeking to:
1. Promote participation, particularly among low SES populations. This is the so-called ‘40-20 agenda’ under which 40% of Australians between 25 and 34 years are to hold a bachelor degree and 20% of low SES groups are to participate in university education. Their primary vehicles for achieving this are: (a) ‘Demand-driven’ student funding, and (b) the Higher Education Participation and Partnership Scheme
2. Promote diversity in the sector through the creation of ‘mission based compacts’;
3. Promote quality through: (a) funding that is to be allocated to universities according to how well they perform on standardized quality measures, and (b) the establishment of a new and more potent quality assurance agency to replace the Australian Universities Quality Agency or AUQA called TEQSA.
While it is hard to argue with the Government’s objectives and each one of its strategic initiatives has prima facie plausibility, taken together the policy framework is a muddle of internally inconsistent incentives that pull universities in different directions. In particular, the policy contains both incentives and disincentives to increase participation rates, as well as incentives and disincentives to diversifying universities. Unless and until the government clarifies its thinking in these areas, its reforms are unlikely to deliver anything like a revolution in higher education because genuine innovation is being constrained. In this paper I will argue that the government’s policies compromise both its participation and diversification agendas. First, participation:
Participation
In what is arguably the single most dramatic policy initiative since the Whitlam government made university education free in 1972, the Rudd government announced in 2009 that from 2012, universities will be funded for as many students as they are willing to accept. In the past, universities negotiated for their share of a national allocation of student places and there were severe penalties for going above their entitlement. This practice of capping student places had the effect of protecting universities for which demand was relatively low. Students who were turned away from universities where demand was high and enrolment quotas filled quickly could still get a government-funded place at their second or third choice of institution.
In 2012, all that will change and funding will be allocated to the student not the university. Eligible students will receive an entitlement to a government-funded place and it will be up to students to decide where they want to spend it. In essence, the government is trying to create a free market in student places in the belief that the best way to maximize quality and responsiveness is to make universities compete for every one of their students. Universities will decide their own entry standards, enrolment targets and discipline mixes, based on the size and nature of the student body they want to attract. As far as the government is concerned there will be no limit on the number of domestic students who can attend university – if the universities are prepared to accept them, the government will fund them. This, then, is the ‘demand-driven’ approach to the allocation of student places.
In an effort to ensure that low SES groups get to share in the feeding frenzy, the Commonwealth Government has created the Higher Education Participation and Partnerships Scheme, which provides universities with an added financial incentive to accept students from low socio-economic backgrounds. The HEPP scheme replaces the Higher Education Equity Support Program and consists of two components:
1. A participation component, worth $325 million over four years. Under this component, universities receive funds based on their respective share of domestic students from low SES backgrounds attending university throughout the country.
2. A partnership component, worth $108 million over four years. Under this component, universities will receive funding for collaborative projects with other education providers designed to increase participation rates among low SES groups.
In summary, then, the government has provided a financial incentive for universities to grow by uncapping the number of funded student places available to them and an additional financial incentive to choose in favour of students from low socio-economic backgrounds. It is already abundantly clear that the government will succeed in its first objective of increasing participation rates, at least in the short-term, as universities have begun over-enrolling even before the cap is lifted in 2012 in anticipation of the pipeline funding that will flow when this year’s students hit third year in 2012. In other words, many universities have been prepared to forego the Commonwealth funding on some of this year’s intake because they have done the arithmetic and realize that when this year’s students get to third year, the uncapped Commonwealth funding will kick in and the universities will recover all of their losses and more from 2010 and 2011. From the government’s viewpoint, of course, this is great news – its ‘demand-driven’ policy is doing precisely what it is supposed to do: increasing enrolments. So why amd I unconvinced by the policy?
Well, let’s now look at some of the unintended consequences of the policy. The first of them stems from the fact that demand-driven funding removes restrictions on supply without doing the same on price. As you would know, the monetary value of a student place is a combination of the Commonwealth contribution plus the student contribution, otherwise known as HECS, and the policy prevents universities from raising the price of HECS. So, while the government is trying to promote competition by removing enrolment caps, it has simultaneously imposed the distinctly anti-competitive practice of price-fixing. Under these conditions, the market is not free as students are unable to choose between university providers on the basis of price, the way they would if they were buying a car or a haircut or any other kind of consumer good or service in the market place. Price-fixing means that universities are deprived of one of the most immediate and fast-acting means of differentiating themselves. Universities at the top end cannot charge a premium for their brand and lower-ranked universities cannot attract students by offering degrees at lower prices. So here we have the first contradiction in the Commonwealth government’s policy agenda - the one policy initiative contains an incentive to grow but at a cost to one of the other items on its reform agenda - diversification. Indeed, this combination of capping prices while uncapping places may well be responsible for bringing down entire universities. This is because in the absence of price differences, more and more students are likely to be attracted to larger, more popular universities based in the cities and away from smaller, less popular ones in regional locations. Ironically, then, demand-driven funding may well grow demand while shrinking supply, or at least the number of suppliers.
I turn now to the government’s other vehicle for growing participation rates – the Higher Education Participation and Partnership Scheme. In this case, the mixed policy message is even starker because the amount of funding that flows to any university for its low SES students will be the sum of that university’s share of the national pool of low SES students attending university plus another amount for collaborative projects aimed at attracting more low SES students into university. Under these conditions, then, the one scheme contains both an incentive to compete with other universities as well as an incentive to collaborate with them. Such a policy places universities squarely on the horns of a dilemma – should we come up with secret schemes of our own to attract low SES students or should we work with other universities on collaborative approaches? To answer this question, you need only reflect for a moment on how the money will be distributed. Because the competitive part of the HEPP Scheme is three times the size of the partnership part, my money is on competition rather than co-operation. And if UNE’s early experience so far is anything to go on, I have every reason to be confident in this prediction. Even though UNE already has way above the national average in low SES participation rates, we have had considerable difficulty enticing other universities to collaborate with us to grow this number still further. More than one university has already politely told us that they are working on a scheme of their own, thank you very much, and they are not about to share that information with us. And who can blame them – that’s precisely where HEPP is leading them. This problem need not be fatal to the government’s agenda, of course, as competition between universities for funding may well drive up low SES participation rates; it’s just that if the game really is a competitive one, universities can do without the distraction of penalties for not collaborating at the same time.
Diversity
I have made the point more than once in this paper that the Commonwealth earnestly wishes that universities would differentiate themselves from one another so that students can be provided with a greater range of choices in what they study and how they study it. And I have tried to show that some aspects of the government’s own participation strategy will undermine this aspiration. In this section of the paper, I want to examine the government’s primary vehicle for promoting diversity and identify one more formidable obstacle to achieving it - the government’s approach to quality assurance.
As previously indicated, the Higher Education Reform Agenda mandates ‘mission-based compacts’ between universities and the government. These compacts are intended to be the main driver of diversification. In the government’s own words,
“(c)ompacts will define an institution’s particular mission and describe how it will fulfil that mission and contribute to the Australian Government’s sector‐wide policy objectives. They will facilitate alignment of institutional activity with national priorities.”
If you have been following my various public statements about UNE, you will know that I have spoken proudly about what a unique university this is, with its unrivalled residential college system and its reputation for the quality of its student experience both on- and off-campus, so I welcome the government’s encouragement to enshrine what is unique about us in a compact. But while compacts may be driving us toward distinctiveness, the government’s indicator framework for performance funding is pushing even harder in the other direction. Under the framework, DEEWR will soon promulgate a series of accountability indicators that will be assessed annually and significant sums of money will depend on our performance against these measures. Among the proposed performance measures, for example, are progress and retention rates. The logic is that if students drop out or fail, the university must have failed the government in its objective of increasing the number of university graduates. On the face of it, this might seem like a fair enough proposition. How could anyone object to rewarding universities that are successful in retaining and graduating their own students? The short answer is because indicators like these will drive universities into the arms of students who are easy to teach and away from the very students the government wants us to attract –those from low socioeconomic groups. And not just towards students who are easy to teach but towards subjects that are easy to teach as well. Remember that in the post-2012 environment universities will be able to teach as many students as they like in whatever disciplines they like, so with very significant amounts of money now depending on performance measures like progress and retention rates, why wouldn’t universities select in favour of easy-to-teach students and put them in easy-to-teach disciplines? Why not give up altogether on languages, philosophy and mathematics and mount courses in exclusively high demand courses with high pass rates? Only one thing is certain: universities will once again do the arithmetic and do whatever comes out in their financial interests, not necessarily the nation’s. That’s how free markets work.
In fairness to DEEWR, it has yet to bring down its rules of engagement for performance funding so I need to keep an open mind on this aspect of its reform agenda. After all, there are ways of reducing the risks I have identified. DEEWR could, for example, adopt what we might call ‘value-added indicators’ that provide a reasonable balance between student inputs such as academic ability, degree of course difficulty, and outputs such as student attainment. But even if they do that, the imposition of any form of standardised performance funding, by definition, must drive universities towards uniformity rather than diversity. Furthermore, for every financial incentive there will be a disincentive and some of them will certainly be in nobody’s interests. To continue with my earlier example, performance funding tied to retention rates, even if adjusted for student ability and course difficulty, will discriminate against universities that specialize in vocational education. For them, employment rates would be a far better measure of success. If after 2 years of an engineering degree, a student is lured to the west to earn a handsome salary in mining, why should the university be accused of failing either the student or the nation? After all, it is thanks to that student’s education that he or she got the job in the first place and the student can always complete the degree, possibly at another university, once the mining boom ends. As a matter of fact, it is very well established that most students drop out of university for reasons that have absolutely nothing to do with the quality of the education they have received. Overwhelmingly, students drop out for personal reasons like obtaining or losing a job or changing their personal circumstances in some other way. So why should universities be either punished or rewarded for that? The answer in my view is to adopt performance indicators that are aligned to individual university compacts rather than standardized across all universities. But this is not where the government is heading, I suspect because they want to build a ‘My University’ website where all universities can be compared with one another, like they have imposed on high schools.
The performance indicator framework will be buttressed by a new quality and standards assurance agency known as the Tertiary Education Quality and Standards Agency (TEQSA). Like its predecessor, the Australian Universities Quality Agency (AUQA), TEQSA will act as quality watchdog over the sector but TEQSA’s powers will be considerably greater than those of AUQA. At the extreme, TEQSA will have the power to remove a university’s right to award degrees, so universities potentially face even greater danger than financial penalty if they fail to measure up under the indicator framework. Not surprisingly, Universities Australia has been staunchly resisting the imposition of this new quality agency, but to my knowledge, no-one has yet drawn the government’s attention to the inconsistency of their policy of micro-managing standards while simultaneously embracing a free market philosophy
Summary
In summary, then, from the year 2012, the Commonwealth Government’s Higher Education Reform Agenda will bring us:
1. A “free” market with fixed prices
2. A “diversified” university sector with fewer universities over time
3. A low SES “partnership” scheme that rewards competition rather than collaboration, and
4. An approach to quality assurance that promotes uniformity rather than diversity
All of which brings me back to the proposition with which I began. By attempting to pursue multiple objectives and to build in checks and balances, the Commonwealth government has sent us mixed messages and conflicting incentives in their Higher Education Reform Agenda. A more coherent policy framework that succeeds in giving effect to what I take to be the government’s priorities would:
1. Uncap student fees as well as student places,
2. Allow universities to choose whether their HEPP funds are calculated on the basis of individual performance or the performance of any consortia they wish to establish, and
3. Jettison the standardized indicator framework in favour of compact-specific performance measures
While the second of these initiatives could probably be adopted without too much discomfort in Canberra, I can’t imagine the third and definitely not the first being embraced by the Commonwealth government any time soon. Well, certainly not before August 21st anyway.
Jim Barber
Vice Chancellor