The Group of Eight’s higher education reform proposal (pdf) proposes a relaxation, but not abolition, of price control.
Instead of the current more-or-less picked out of the air maximum student charges, they propose a Productivity Commission study of the ‘actual and relative teaching costs by broad field of education’. Based on the ‘indicative cost’ determined by the Productivity Commission, universities could set fees up to a maximum of 25% more than that number. The only rationale given is to ‘avoid exploitative pricing’.
This is a rather curious admission. In Australia, the only universities for whom an even remotely plausible argument could be made that they have the power to price in an ‘exploitative’ way are, er, the members of the Group of Eight. Are they saying that they cannot be trusted not to exploit students, and must be constrained by regulation? There aren’t many interest groups that will own up to that.
I would have thought that with the portable scholarship (aka voucher) proposal in the Group of Eight package they already had two systems of price control, ie a market to keep sticker prices down and subsidies to further reduce the effective cost to students – though arguably the subsidies will push up fees as students will know they won’t have to pay the full amount.
Over the years, I’ve been tracking the prices of business courses for international students listed in the Good Universities Guide to see how the market works. I need to do a lot more work, such as looking at the prices in the context of enrolment patterns. But there are certainly signs of a market operating, with real price decreases as well as increases between years.
My research also shows wide variation in price, with the most expensive (the University of Melbourne) being more than twice the cost of the cheapest (the University of the Sunshine Coast). But can this be considered exploitation? As I argued in my critique of Bruce Chapman’s ideas on price control, if there is a significant premium attached to Melbourne’s brand, it is not clear that price control should allocate that value to the private benefit of the student, rather than letting the university capture some of it for its own purposes. (Disclosure: the U of M is one of my employers.)
Then there is the problem of how the Productivity Commission will go about setting the ‘indicative’ price. There is still some utility price regulation in Australia. Finding the appropriate price level is hard enough for utilities, where regulators have the advantage of a fairly standard product. But in higher education, how should the ‘standard’ be set? There are dozens of different disciplines to be considered – the idea that prices be set by broad field of study overlooks that there are wide cost variations within some broad groups, especially in science.
And what of different student preferences? Some students seem content to download materials, while others want small-group teaching. The strength of a market is that it can cater to these different preferences by pricing accordingly.
The 25% price premium allowed under the Group of Eight plan is – presuming that the Productivity Commission finds indicative costs at or above current per student revenue – going to create more room to offer different kinds of education. But why not more? The Group of Eight would take us from one size fits all to 1.25 sizes fit all.
The price cap is at best a solution to a non-problem – or at least an educational non-problem. Its only possible justification is political; that the political orthodoxy on fees is too powerful to be challenged by more than 25%.