Is the Commonwealth a university customer or shareholder?

Universities … should be accountable to the taxpayers who sustain them…

Universities have a responsibility to demonstrate to taxpayers that they are efficient and well governed.

Education Minister Julie Bishop, in a speech to the Australian Financial Review Higher Education Summit last week.

That’s certainly how the Commonwealth sees universities – as federal government institutions that spend the Commonwealth’s money and are therefore ‘accountable’ to it. But one immediate problem here is that universities are not federal government institutions, but (with the exception of the ANU) creations of state legislation with accountability mechanisms, mainly in reporting information, established by state governments.

Another way of looking at is that the Commonwealth is simply a major client of universities. This is an analysis they have impliedly encouraged, by moving away from block grants, which universities could spend on very broadly defined purposes, to funding of programmes with specified outputs. For example, instead of providing a block grant for teaching, as occurred until 2004, the Commonwealth now specifies – sometimes down to specific courses at specific campuses – how many student places universities will provide. If the Commonwealth is simply a client of universities, it is entitled to ensure that the university supplies the number of places it said it would, but has no authority beyond that, just as when you order something from a retailer you are entitled to get what you pay for, but not to instruct them to reduce the number of people on their board of directors.

But instead of seeing the Commonwealth as a customer, Bishop sees it as a shareholder entitled to tell universities how to run their business:

The sector needs to continue its governance reforms so that taxpayers can be assured that the institutions – in which they are effectively shareholders – are being run efficiently.

But even if we accepted this metaphor, how much power should a minority shareholder have? After all, Commonwealth direct grants now constitute only about 40% of total university income. And since they are not entitled to receive dividends, why does it matter to them that perhaps universities aren’t as efficient as they might be?

Though I don’t find Bishop’s analysis very convincing in theory, historically there has been an ‘accountability’ problem in universities. Though universities were responsible to their governing bodies, often these were stacked with internal interest groups and political appointments – not necessarily people inclined to or even capable of setting goals and standards and ensuring the university met them. And until the last decade, there has been little market accountability either. However, the structures of Councils and Senates, and the quality of their membership, has been much improved since the 1990s. Part of this was due to Commonwealth pressure, and universities are probably better for it.

What’s less clear is that we need another round of governance reform compared to other accountability possibilities, such as exposing universities more fully to the domestic market. Indeed, it seems odd that the government is lecturing universities on the need to manage themselves better, when their largest management problem is that they are not allowed to make some of the most important management decisions themselves – such as how many students they will take in what courses and at what price.