According to Denise Bradley, it is
pathetic that lifting price caps — a minor issue no one had ruled out — had displaced debate about how to bring education sector funding up to a level that supported a modern services economy.
But as I argue in my new CIS Issue Analysis paper, which came out today, this is a major issue, and in fact identical to the issue of how funding reaches the level appropriate to a modern services economy. (I summarise some of the arguments in this newspaper article).
The Bradley report has no answers to key question such as
* how do we know what level of investment is necessary?
* if we can find that out, how do we ensure the investment occurs in a price-capped regime?
I don’t think it is even possible for the federal government to know the appropriate level of investment. Students and the institutions they may attend are too diverse for this knowledge to be available to a central planner.
But even within the central planning paradigm, the federal government has never done what I call a normative cost study, ie working out what minimum standards we should aim for and determining what funding level would be necessary to reach that minimum standard. It hasn’t even done a large-scale review of current costs for twenty years. And Bradley does not even recommend that either of these things be done now. So we are expecting people who show no sign of even understanding the role of prices, let alone of having any history of setting them competently, to suddenly do this professionally in the future.
Bradley’s call for more public funding is essentially to repeat the strategy that led to the current problems. There is no analysis of the fiscal and political reasons why governments of both parties have allowed funding to fall over time (it’s in my paper), and no explanation of why we could reasonably expect the future to be different from the past.
The Bradley committee suffers from the great social democratic delusion – as does commenter Russell on schools – that the solution to under-performing public services is just another few billion dollars in handouts or another program tweaking away, when in reality there are fundamental structural flaws that stand in the way of reliably good performance.
Andrew Norton 
Further evidence that spending more money on public schools will not necessarily improve outcomes. The Victorian Auditor-General has examined initiatives by the Victorian Education Department to improve literacy and numracy. The victorian Government has spent $1.19 billion over six years on these initiatives. The AG conclusion – over the 10–year period to 2007, the Department’s ‘efforts have not resulted in a marked improvement in average literacy and numeracy achievement across age groups’.
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Both fascinating and depressing, Andrew. Table 1 on funding by discipline shows that the Commonwealth contribution ranges from 17% of total funding (and obviously a smaller share of course costs) for law, accounting and commerce to 71% for agriculture and 81% for science. Some might agree with this as an approximation for the extent of the relative positive social externalities from doing these courses, but it would be nice for the government to be explicit about it.
Based on the especially low funding for commerce and law, there must be a business case for someone to set up a private institution to provide these courses, poach the best (teaching) academics, charge only somewhat higher fees than the universities and allow students to defer through FEE-HELP. The fact that Bond University has thrived since FEE-HELP was made available to its students suggests that ‘affordability’ issues from higher fees can be readily addressed by a loans scheme.
The question I have is: if, as you say, students are the only large constituency with a strong interest in ensuring higher education is properly funded, why has no government bitten the bullet on fee deregulation? Are other voters so hypocritical that despite our indifference to universities’ welfare, we don’t have the stomach for the inevitable squeals from students? (baby boomer parental guilt?) Or is it the power of academics from weaker institutions who might lose out under deregulation?
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How interesting. The Bradleys et al. know very well that the current system isn’t working, and they realise that solving the problem will involve deregulation of fees and administration.
But they just can’t bring themselves to say it. Instead, they keep nibbling around the edges, hoping that some other solution will appear, and will work.
But Bradley’s comments on vouchers may be a good sign: with most other options exhausted, and the system still in trouble, we are getting closer to the sensible solution.
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Rajat – My impression is that there is very little intellectual interest in higher education policy, and therefore negligible levels of understanding of the role prices and fees pay. The intellectual problem on prices and fees with the Bradley report is less that they arrived at the wrong conclusion than that they did not even know which questions to ask. Nor are they clear what role subsidies play within the pricing system, which is why they resort to near-ridiculous comparisons with other countries – they cannot identify the underlying principles, so they take a comparative approach.
Aside from how depressing this is policy-wise, it is depressing for the work I have done over the last decade, since I have been the main person regularly raising prices as an issue.
Jeremy – Maybe I should be grateful they have reached a half-way point with vouchers, albeit again not really understanding them. But this was market ideas essentially winning by default: in the submissions I read (and I read them from all the major interest groups, institutions and individuals, plus assorted others) only pro-voucher advocates seriously considered allocative mechanisms.
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Ironic that those who operate in higher education policy have little intellectual interest! But surely policy-makers aren’t stupid – they know the type of report they will get from a certain person and would have known that they could have gotten get a more constructive report from someone more market-orientated. I suspect that although the political pain from higher fees may be relatively modest, the payoff from getting it right is even smaller.
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Am I reading the IA paper wrong or does Nursing seriously cost 50% more in total than law? You’ve argued before that with deregulated fees most courses would increase in cost. If that’s the case would it not then make sense for the government to at least let courses like law increase substantially to properly reflect the future income they generate?
Methinks this would also make courses like Nursing and Education (where there are shortages) relatively more appealing. Not sure if that’s actually in my interest though since anything that helps continues the shortage in qualified nurses will lead to me getting paid more.
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Mitch – Courses with clinical components are more expensive to teach. The Access Economics study of 2005 costs put both nursing and law in the loss-making category, but it is likely that costs vary between universities.
But I think it is the wrong way to think about this issue to ‘let courses like law increase substantially to properly reflect the future income they generate’. The problem is the word ‘properly’. The purpose should not be to tax earnings as such, though likely earnings will affect student price sensitivity. But if a university wants to offer a cheap law course, they should be allowed to do so.
Though I have a ‘corrections and clarifications’ watch on science applications, the history is that changes in relative prices have no discernible effect on relative shares of applications. There are strong theoretical reasons for this:
1) Applications are driven by interests, which will greatly narrow the range of course contenders for most people.
2) For students who are highly sensitive to financial factors, fiddling with prices – which will amount to a few thousand dollars up or down in 7-10 years time for people who defer their tuition costs – would do very little to narrow the earnings gap between say law and nursing or education. So if they are primarily interested in money, they should still choose against nursing or education.
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