The price is wrong

As I feared, the Bradley higher education report undermines its voucher proposal by failing to fix the price signals.

Indeed, it is worse than not deregulating fees, bad as that is. The Bradley committee haven’t even given any serious attention to how public funding could help make a voucher system work. Universities aren’t going to rush to enrol additional students under a voucher scheme if the price isn’t right. Indeed, if the price is wrong their response might be the opposite one: to use the lifting of regulation to shed uneconomic students.

The one study we have on university expenses relative to income for Commonwealth-supported places suggests that in half the disciplines they looked at universities lost money. This study has (acknowledged) data problems, but that finding is consistent with the observed behaviour of universities in trying to cut costs and recruit profitable fee-paying students. And a few of the disciplines in question did get some extra funding in the 2007-08 Budget. However, it suggests that an economically rational university would not be rushing to take extra students across a wide range of fields of study.

This costing study is not even referred to in the Bradley report. Instead, they suggest a 10% increase in Commonwealth subsidy for teaching and learning. This number appears to have been picked out of the air. Because disciplines differ in what proportion of their total price comes from the Commonwealth, this 10% has very variable consequences. In law and commerce, it will translate into only a 1.65% increase. In most other disciplines, it is closer to 7%, which may not get them to break-even, let alone pay for the lower student:staff ratios, better facilities, and higher staff salaries that the report’s authors fancifully think possible.

Their proposal to bring the private providers into the voucher system will probably also fail, because many of them have high-cost low student:staff ratios. Perhaps the TAFEs will be able to get into this market, but most others will have to stay as full fee.

They reject increased student contributions except for nursing and teaching, which will get the 25% increase all other disciplines received in 2005 (if the students work as nurses and teachers, they won’t have to repay their debt). But they hardly even argue the point. They note that Australian students pay a lot by OECD standards, as if that was conclusive.

Let’s get this clear: despite pages on how important investment in higher education is, the committee’s view is that we should continue to prohibit students making additional annual investment in their own human capital. They are lifting the seven-year limit on Commonwealth subsidy, so students can spend more over time collecting qualifications. But if student would rather spend more on one qualification – say buying smaller classes or better staff – they can forget it.

The committee can’t be bothered working out what the appropriate level of investment per student place should be, and won’t let students and universities do it for them.

While there are some sensible suggestions in the report, the committee’s intellectual and policy failure in the finance sections means that in the end it will just be another Nelsonesque patch-up, that will let the higher education sector stagger on for another few years, but leave its fundamental structural problems in place.

Given the chronic weakness of Australian higher education policymaking it is hardly surprising that the Bradley report is a dud. But it is still very disappointing.

19 thoughts on “The price is wrong

  1. Ouch. My critique from the Fin is here. I do like the introduction of a voucher system and I do like the idea that universities would be able to enrol as they please – but there is still far too much social engineering in the report. This is a “workchoices for education” policy – a step in the right directon but the foot making step is wearing jackboots. The regulatory model they propose will simply entrench an educational cartel and is inconsistent with a demand driven system.


  2. Sinc – At best, this voucher scheme could be described as a ‘latent reform’, one that might deliver benefits later if further reforms are put in place. The danger is that vouchers will be deemed to have ‘failed’ because (predictably) the positive reactions to student demand did not materialise. We occasionally see claims that price deregulation failed because under the Nelson reforms every institution went to the maximum, when that was entirely predictable given it was still below total costs in many disciplines.


  3. Andrew, you obviously didn’t read that hard enough — We won’t have students hanging around for more than 7 years since we’ll be following the recommendation than 95% of them complete their degrees (which is of course far higher than anywhere else on Earth — probably higher than what is achievable after you subtract people with serious life problems/situations across 4 years). I guess we’ll either use magic or just give degrees to the 25% or so now that don’t want to or can’t finish. That should save a lot of money and make the 40% target easily achievable (a target which surely should have been calculated based on the Access Economics figures that they actually do have, versus a good sounding number).
    More seriously, there is quite a bit of crazy stuff and figures that appear drawn from the Magic Hat that seemed to have crept in there. All these equity targets (with a 95% completion rate) without any suggestion on how to make up for the lack of education of those coming in is going to do is drag standards down even further as universities compete for that pool of money without bothering to help those once they get in (as is common on a very small scale now). We can then compare how happy students are to the Canada/US (neither of whose university systems are like ours), on surveys whose real outcomes have never been validated, hopefully before they hit the job market.


  4. I really can’t see any of this. Courses with high demand ( and high cost of delivery) end up having a high enter score. There really is no mystery to be solved.

    Engineering and medicine as examples are expensive to deliver, offer a secure career path and have a high enter score.

    If your worried about supply meeting demand adjust delivery to the places requested by VCE students.

    Or to put it another way, what is the big gain of a voucher over a filled in form. I just can’t see it.


  5. Just to repeat myself. Vouchers are a dumb idea for higher education. HECS is sufficient. In reform terms we should simply allow universities and students to buy and sell educaton as they see fit at a price they decide they are comfortable with. Vouchers only makes sense for education that is compulsory. Their application should be restricted to primary and secondary schooling.


  6. p.s. If you want to hand out grants (ie vouchers) then hand them out to a limited number of student who have demonstrated great merit.


  7. Conrad – Yes, lots of numbers drawn out of the magic hat, but this one is not quite what you are suggesting. Low SES completion has a target of 95% of the high SES rate, not 95% of commencers (though see my post from this morning on completion statistics).

    Charles – I’m not sure I understand what you are saying. ENTER scores reflect students competing for a fixed number of places. Vouchers are about financial signals to universities that if set correctly may expand that fixed number of places (and so reduce the ENTER score required).


  8. What I am asking Andrew, what extra information do vouchers give. If they don’t give entry information how will they help the system match demand better.

    If they don’t help the system match demand why are they a good thing?


  9. The main ‘information’ they are supposed to give is prices to institutions, which I am arguing won’t happen properly. There are separate proposals in the package for more information to be provided to students to inform their choices.


  10. Andrew been thinking about having faith in markets. On the one hand we have the second law of thermodynamics which has order increasing, and on the other we have us.

    Why do some have so much faith in markets? I can’t think of one sound argument for blind faith in their effectiveness.


  11. Charles – But who has blind faith? And how often does this get enacted into policy? I followed the economic rationalism debate of the 1990s pretty carefully, and what was really striking was all the criticisms like yours (‘blind faith’, ‘market fundamentalism’ etc etc) with little or no depth, compared to the often highly-detailed, empirically based working through of the issues on the pro-market side. The anti-economic rationalists would announce their triumphant discovery of some ‘market failure’, oblivious to the fact that the same issue was discussed with far more sophistication by the people they believed were ignoring it.


  12. Today the issue is not the quality of debate in the 1990, but the failure of markets in 2008. It is very easy to argue the case for a simple concept that is wrong. When the real world clearly shows there is something wrong it really is time to start thinking about it. What was missed, what went wrong?


  13. Charles – There is already a large literature on what went wrong, and it was clearly a combination of many different factors. A markets vs regulation paradigm won’t help understand it.


  14. Did I say anything about market vs regulation ( yes I know a lot of literature is debating that point). In my view markets are just a small part of the puzzle, very handy when you want competing interests to set a price, all parties are informed, and all parties have equal power, but not much use for anything else.


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