With ‘vouchers’ for universities seemingly on the political agenda, there are polarised views of their likely effects. I am saying that if the price signals are right they could bring supply and demand for university places into better alignment.
But critics warn that deregulation could produce a mismatch between what students demand and what the economy needs. It could also encourage providers to invest only in higher-demand and low-cost courses.
This is a bit like saying we need government schools because otherwise kids from poor families would get a bad education – using a failing of the current system as an argument in its favour. The Weekend Australian did not use what I told them about how for years a chronic oversupply of science places has existed alongside chronic undersupply of places in health-related courses, despite serious labour shortages in the health professions.
The applications data shows that demand for courses shifts towards labour market shortages (see figure three in the University of Melbourne submission to the Bradley review). The blockage in the system is in supply, which is largely controlled by the government. In practice, the government’s only steering mechanism has been new places, rather than redistributing existing places. If there are no new places, inertia prevails.
A strength of the voucher system (if combined with the correct price signals) is that it creates a permanently operating steering system operating via student demand and entrepreneurial initiatives by higher education providers. We don’t have to hope that a government a) has the information needed to act, b) has the inclination to act, and c) has the new money to act. These conditions existed in the mid-2000s, but apart from a few flow-on effects from Labor election promises have now ceased. We are back to drift.
There is no reason to believe that higher education providers won’t provide all courses for which there is demand and the price is right (indeed, history shows they will often provide even if the price is wrong). Everyone concentrating on the same areas would correct naturally; they won’t get enough students.
The issue is what happens when demand is low for a course believed to be of some cultural, scientific or strategic significance. The current policy is to force universities to subsidise those areas from their other operations. But the long-term incentive that creates is to avoid any area which may end up as low demand. The better policy approach would be to direct public subsidy to areas of possible market failure such as these low demand courses, and so create an incentive to offer them. Instead, we spend public subsidy on courses that don’t need it, such a business and law, and require universities to correct market failure with profits from full-fee students.
I’ve read many of the submissions to the Bradley review, and the only serious work on how to allocate university places is on the voucher side. It’s not enough to show some imperfection in the capacity of voucher systems to meet the economy’s need for labour; no system can perfectly predict what future job markets will do. Submissions needed to show how the centralised model could improve on its poor performance of the past. So far as I can see, nobody even tried to do this.