Will markets foster higher education diversity?

One of the more curious claims made in submissions to the higher education review is that markets will drive homogenisation rather than diversity. In my submission (pdf), I identify four market design problems that I believe limit diversity:

* access of foreign-owned providers to the FEE-HELP loan scheme is made very difficult (I expand on this here)

* Commonwealth-supported places are not available to most private providers of higher education

* student contribution amount regulations means that all public universities have to operate at the bargain-basement end of the market (though the effect of this has been alleviated somewhat by international student fees)

* a rigid quota system of allocating student places limits the scope for disciplinary specialisation

On reading submissions from the private providers of higher education I should probably add a fifth factor, the inefficient systems of accreditation and accountability to which they are subject. This reduces the financial viability of small and start-up institutions. (They are not questioning the need for accountability and accreditation, but they have to go through quite similar processes multiple times for different authorities, and some state government higher education authorities are very slow.)

None of the submissions asserting this point provide much detail to support their homogenisation claim.

The NTEU (p.20) thinks that Hotelling’s law applies to higher education, which means that they believe it is rational for higher education providers to make their products as similar as possible. This means that differentiation will be through ‘marketing and branding’ rather than genuine differences.

It’s true that degrees with similar names will often have similar content; this is a product of common professional admission requirements or core knowledge that everyone with that qualification would be expected to have. But there is still scope for considerable diversity in how the material is taught (online/classroom, small classes/large classes, lecture/socratic method), when it is taught (part of Bond University’s innovation was teaching year-round, for example), and the campus context – from none in the case of online, to a residential campus with a wide variety of student services. The current system pushes convergence on large classes over about 6 months of the year with minimal additional campus services (thanks to VSU price restrictions).

Perhaps the NTEU’s argument is that a market would create a new point of convergence, reflecting a new set of environmental pressures. That may be the case with year-round teaching; the current system reflects the history of universities as being run in the interests of the producers, who want to do research, rather than consumer, who may want to finish his or her degree more quickly. However, it is hard to see why there would be convergence on other aspects of educational delivery, since there are likely to be markets for all the options.

The Innovative Research Universities Australia submission (pdf, p.46) claims that

institutions will all seek to maximise their offerings in those fields of study that attract high student demand, particularly if that market demand allows them to charge high fees and/or the the field of study is less expensive to deliver.

It’s certainly true that institutions will do more to seek to satisfy demand under a market system, but markets have strong self-correcting mechanisms: if too many institutions compete for the same group of students some institutions will lose out. In any case, as I have pointed out before, demand-side market share between disciplines is quite stable over time. Why would universities engage in cut-throat competition for (say) business students when students in other fields of study can be had with much less effort?

Lyn Meek and Vin Massaro refer only (pdf, p.3) to an uncited ‘substantial body of higher education policy research literature’. This literature is, I presume, that relating to ‘isomorphism’ (eg here).

The main point to draw from the ‘isomorph’ argument is that most of the universities are motivated more by status than by money or the interests of students. They will therefore try to copy those institutions seen as being of high status – in Australia, the comprehensive research universities – rather than differentiate themselves.

There is something to this point (eg pathetic attempts to look good in global rankings). But it goes more to the issue of whether or not institutions would give up on research, and focus instead on teaching, than on whether they would differentiate their teaching services. The market pressures would remain, I think, to offer more variety in the student market, and some high-prestige universities would almost certainly decide to charge more and offer much higher levels of service.

Whatever the public universities do, the private providers will offer added diversity. Simon Marginson, who has supported the isomorph argument in the context of public universities, supports this point:

“We have a burgeoning private sector. It fills a gap in the (post Dawkins university) system, which is a lack of small specialist institutions,” he said.

At minimum, more equal treatment of private providers, as opposed to the status quo discrimination against them and their students supported by Innovative Research Universities Australia, will add to the diversity of Australian higher education.

19 thoughts on “Will markets foster higher education diversity?

  1. “more equal treatment of private providers”
    If that includes the thousand and one money costing regulations, then your arguments are reasonable. If it doesn’t, then public universities are essentially being handicapped.
    “if too many institutions compete for the same group of students some institutions will lose out”
    That seems likely, but surely false. Why does every university in Australia have an MBA course, for example? Why is there a massive oversupply of students in areas like law? It’s because most 17 year olds are not 100% logical in their choices — marketing works well.
    “focus instead on teaching”
    This is never going to happen. The problem now is that no teaching only university is going to be able to get staff and keep them up to date in many discipline areas (e.g., engineering, most science courses). This is why almost all teaching only universities in the US are liberal arts universities. At present, cheap courses are used to subsidize other courses in Australia, and no government is going to let any university chop all their expensive courses to compete. The other problem is that any university that does become a teaching university will lose tons of money since they will not be able to compete for all the research money available — I imagine most universities now make more money from this than undergraduate students — so it doesn’t make sense without massive changes to the current environment.


  2. the current system reflects the history of universities as being run in the interests of the producers, who want to do research, rather than consumer, who may want to finish his or her degree more quickly.

    Where did you get this silly idea from? Most academics want to do nothing, not research. Most succeed at this. Those who want to do research make the time. Peter Boettke has comment on this at his blog.

    the universities are motivated more by status than by money or the interests of students.

    I think that’s true. There are two reasons for this. First universities get their money too easily. As Michael Jensen writes, in the case of private sector cash rich organisations, those organisations with easy money will pursue mangerialist objectives and not the interests of their primary stakeholders (shareholders in the private sector or students in the case of universities). The solution here is student funding, not university funding, i.e. fully portable HECS places. (Or, of course, full fees). Second, there is absolutely no incentive to act in student interests. There is no clear feedback from students to the university bottomline. The money paid out for increasing CEQ (or GTS) scores is symbolic and is not substantial. The solution to this problem (Andrew doesn’t agree) is to make the university accountable to its alumni. Allow the university graduates to elect the university council and so the past students who can best determine the value of the education they received can influence the current university behaviour.


  3. Conrad – Unless you go to open days, there actually isn’t very much course level marketing – institutional marketing is more common (and very vague as a result). Law’s share of all applications has changed little over time – 5.08% the first time it was separately categorised in 1997, and 5.80% in 2008. Job prospects remain better than average: 8.2% of 2006 law graduates were still looking for FT work about 4 months after completion, compared to 15.5% of all graduates. The census data shows about 60% of working graduates are legal professionals and another 20% are in other managerial and professional occupations. If we assume lawyers tend to be humanities people, the comparator group would be arts graduates where only about 50% work in managerial and professional occupations. So law remains a good bet compared to likely alternative degrees. This isn’t just a function of successful older law graduates; the 80% in professional and managerial occupations result is achieved by the 25-29 age group.

    It’s true that all (or virtually all) unis offer MBAs, but with widely varying prices. The 2006 data I have shows an average price of about $26,000, but with a standard deviation of about $10,000. Patterns of demand are very different at p/g level compared to u/g. People from a wide variety of first-degree backgrounds do MBAs as they move into management roles, while most other p/g qualifications are updgrades on original field of study.


  4. Sinc – The reason I don’t agree with you on alumni is that a friend of mine at the U of M used to work with ‘convocation’ (fancy name for alumni involved in governance). They were mostly old duffers with nothing better to do. In the US, there seems to be a perception that the reputation of your alma mater affects the current value of your credential. I doubt that is true here beyond the first couple of jobs, after which proxies can be dispensed with and applicants can be judged on the previous experience and performance. Alumni have no incentive to make good governance decisions.


  5. Alumni have no incentive to make good governance decisions.

    I disagree. Shareholders as a group also have little incentive to make good governance decisions – yet we know that shareholder control is important in public corporations. Andrei Shleifer of Harvard University (and co-authors) has very carefully documented the value of having greater shareholder control (yes, I know about his other troubles). The reason why only ‘old duffers’ are involved is convocation has no power.


  6. The bad language made this hit moderation.. I’ve taken out the offendings words..

    “Most academics want to do nothing, not research. Most succeed at this. Those who want to do research make the time”

    SD, this is just not true. No-one I know works less than 40 hours a week — most people more — all for a rather poor academic salary. Evidence for this is the fact that Australia can’t get decent staff anymore in many areas due to a government monospony keeping wages down. If it was such as an easy job, all fields would be overwhelmed by great staff given the lifestyle trade-off of doing nothing.


  7. “The census data shows about 60% of working graduates are legal professionals”

    That can’t possibly be correct. I was under the impression that there were as many people in law schools as there are lawyers. If we assume this is correct, then it means each 3 years the workforce could be entirely replenshished. If the average workspan in the legal profession is 30years, that means you have 3/30 = 10% chance of working in the legal profession. Even if legal profession is a far broader net than lawyer, I can’t see how you can get to anything like 60%.


  8. I have dug further on this. Graduate careers reckons that there are 60,000 legal professionals. If 20 universities teach law in Australia and each has 1000 students, then that gives you 20,000 law students in Australia — this still only gets me to 30% of those with a law degree work as a legal professional.


  9. “That can’t possibly be correct. I was under the impression that there were as many people in law schools as there are lawyers.”

    Conrad – You should never believe factoids of uncertain origin. This is what we know from the most reliable sources: DEEWR data shows for 2008 there were 5,672 acceptances into law and in 2007 24,949 full-time equivalent Australian students enrolled in subjects classified as law. That will include people doing law units as part of other degrees (eg business law as part of commerce) and people who will drop out. Unfortunately I can’t find completions data by narrow field of study, but perhaps around 4,000-4,500 LLB completions a year.

    According to the 2006 census, 84,519 persons list law as as the field of study for their highest qualificaition. That understates the number of LLB holders, as some will have higher degrees in other fields. At least 5,107 should be added to this – people working as legal professionals but listing some other field of study as their highest qualification. So 89,626.

    According to the census, 48,001 persons gave job descriptions classified as ‘legal professionals’. This does not include articled clerks, who are blurred into a separate category. On this raw data, 53% of idenfitied law graduates are lawyers. After removing those not in the labour force, I get a bit over 60% of law graduates as lawyers.

    All complicated by Australian law graduates working overseas and foreign law graduates working here, but a more positive outcome than you suggest.

    As many posts have argued, the natural state of the graduate labour market is significant oversupply. To argue that people foolishly choose law, you need to point to some likely better option for these people. Within humanities type disciplines, I don’t know of any.


  10. No-one I know works less than 40 hours a week — most people more — all for a rather poor academic salary.

    Conrad I don’t doubt for one minute that academics manage to fill 40 hours or more with activity – I just refuse to categorise it as ‘work’. A lot of what academics do is not value adding – even within the University framework.


  11. I’m reminded of an exercise we undertook several years ago. The university decided to engage in some Activity Based Costing and asked us all to fill out a spreadsheet outlining the hours we spent doing things. Some of my colleagues got into an ‘arms race’ of hours worked. Unfortunately, they didn’t count up how many hours there are in a week and how many hours the average human sleeps for before filling out the forms. 🙂


  12. “A lot of what academics do is not value adding – even within the University framework.”

    SD, my suggestion then is that your complaints are better directed at what might be described as appalling management most universities in Australia seem to have (micromanagment, outright bad managment, paranoia etc. — all the usual) rather than the low level academic staff.

    Try adding up all the hours you did useless things for, not because you wanted to, but because you had too (including e.g., fighting with beuracrats/fixing machinery that should work /pointless meetings/marketing/chasing money you don’t actually want/etc.), and then consider what it must be like for someone that isn’t a level E and can’t just tell people where to go when they are told to go to, say, the meeting with the library staff. As should be self evident, a lot of everyone’s time is getting wasted. Now add some time for teaching. How much time do you have left?

    So the answer to this is that if people aren’t doing research, then it’s not necessarily because they don’t want too, but because other people are wasting their time and they often don’t have a lot left, unless they want to work 70 hours a week. You might also want to consider everyone that does research that needs money also. If you don’t get funding (not uncommon with an ARC success rate of 20%), then switching over to theoretical problems in X (X = physics, biology, etc.) isn’t necessarily easy nor especially productive for many people.


  13. I understand both the sentiment and the fraustation. I wasn’t born a level E – like most other level Es I rose through the ranks and have done a lot of the crap work. I totally agree that a lot of what goes wrong is due to senior management. People who want to run what are essentially utilities like go-go companies. Yes, all that is true. But I have also spent time as a Head of School and a Dean (Research) and IMHO a lot of academics just don’t help themselves. (Most of the meetings that I attended during that time had absolutely nothing to do with either teaching or research).

    People have got to learn to say ‘no’ and also learn to prioritse and most importantly learn to work consistently. Write a lot, write often.

    The biggest losers from the system are young female academics who don’t like saying no.


  14. I think your last sentence really hits the nail on the head in terms of one of the problems — if you create a system that only unpleasant and difficult people succeed in, it’s no real surprise that doing a decent job teaching is not exactly high up many people’s agendas and that many people simply use dirty strategies to manipulate student impressions rather than doing a good job.


  15. Which sentence is that? I think you’re over-reacting. Academia is not unpleasant and difficult at all. In the ‘real world’ (some) people have jobs where they have to account for their time in 10 minute slices. When I was HOS some staff couldn’t tell me what they had done for months on end.


  16. Sinclair – Interesting that you mention Oakeshott. I read a lot of Oakeshott at university, but as you suggest not because he was taught. I think it was one of the more erudite left-wing students who suggested I read Rationalism in Politics, and it went from there.


  17. Sinclair, in your submission, you say

    “Many, if not most, economics students will never have heard
    of Friedrich von Hayek.”

    How about your students? Is von Hayek on their reading lists? Et tu, Sinclair?


  18. LoL. Despite my best efforts I don’t get to teach “many, if not most, students”.

    I do manage to sneek some Hayek into the intro lecture in my Advanced Corporate Finance subject, and I did manage to get a reference to Mises into an Investments subject. Of course there is quite a bit of Hayek in my Public Sector Economics subject, but he tends to get overshadowed by Buchanan – the students find him harder to read than Hayek, so we spend more time on Buchanan than Hayek.

    Andrew – on that same basis I got to read Hayek and Mises while do a masters on asset pricing theory.


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