Who profits from Universities, if you
believe in markets?
Personally, if I wanted to set up a Masters
course, and had access to a private university, the real costs involved are very
low. If it had 8 subjects - a two semester course - and I could hire who I
wanted to teach them, a ball park estimate would put direct costs at, high end
of the range, $100,000, with some more for class teachers. Service companies
that have to carry marketing and other costs usually require a mark-up of 2.1:1
or so – to pay somebody $1000 you need to bring in $2100. Round up and that
gives a total cost of say $250,000 - if there are 50 students that gives a fee
of $5,000. Modern Universities can and do charge far more than this. But their
authentic costs are far less than a private company: their borrowing costs are
lower and their real estate is far cheaper too, and anyway they do not have to
pay dividends to shareholders. So who gets the profit? A good Masters is
profitable for the student at far higher fees, so, as economic theory would
tell us, as it Is not easy to set up a private university the resulting restriction
in supply creates rents. Price control is one way of controlling this, but that
is not what current policy is saying – rather, that fees should be
uncontrolled.
So who profits?
If we look for pork, which is the technical
term the best economists use in the bar to discuss such things, the answer is
obvious. A man a friend of mine knows somebody was hired as head of an
economics department in the UK in the late 1960s, and the Dean asked him if he
thought he needed a Secretary. He replied that he did, but he could have
managed without one. Management structures meant that he could do this, as
reporting and other requirements, to managers who managed managers and on up,
were far less. The system was far more efficient than nowadays, less costly and
probably better in administrative terms too. He had fewer equity compliance responsibilities,
as this was managed culturally, through trust, though of course sexism was an
issue. So if we look for well-paid powerful people in modern Universities, and
in structures associated with them, where do we find them? In University
bureaucracies and in the political structures (mainly in the Federal
Government) that mirror them. Measurement is of course contentious, as this
state of affairs is clearly not what the tax-payer wants, and is therefore
hidden, but it is normal for the % of total revenues that is actually spent on
teaching to be well below 50%. More tellingly, and this reflects the question
of who are the superior people who get to eat pork and who are the inferiors
who get to eat pig-meat, it has become quite normal over the past couple of
decades for cost-cutting to be borne by the academic staff rather than the
management, especially in areas that are not attractive (Arts brings in lower
value $ grants than other sectors, and since the Federal bureaucracy bases
itself on money volumes so does the University bureaucracy, so Arts generates
less pork and so its staff, eaters of pig-meat, get hammered).
So if one believes in markets, one can
expect the freeing up of fees to create major problems, as the resulting
profits accrue to those who are powerful and so eat pork (not pig-meat). Souls
have no gender, no class and no race, so the natural tendency for good
Christian thinking is to dislike pork and enable a level playing field. Many of
our national political leaders are good Christians. And in a sector such as
tertiary education, that means regulation as market failure is large and the
stakes are high. Will the penny drop? So far, it has not.
So what can we expect? It depends on how
good the economists are. Good regulation will reduce rent-creation and cut
pork. We can see this already in the treatment of coming cuts at some
Universities and TAFEs – but how much of this is actually designed to protect
core pork? Have power relations changed? It does not look as though they have.
Watch Arts and watch the TAFE system, for they are weak, which is why they have
suffered. Does it mean closing down conference organising sections and preserving
the entourage and management levels that preserve in turn the structures in
Canberra? The answer is, probably, as there is not fundamental rethinking going
on. A senior University manager, with entourage, costs maybe $1m a year.
Compare that with the teaching costs of running a good Masters. So what is
happening, with no shift in thinking, instead feels like a classic Yes Minister
response. It helps but does not solve the problem. The key indicator here will
be use of political power, driven in part by good Christian ethics, and fundamental
reorienting of the Federal bureaucracy, and what it thinks it is meant to do.
And this requires a shift away from current philosophies of service delivery
and a return to simple service, with far higher levels of trust required and
far fewer levels of bureaucracy. But that means turf and Ministers are
Ministers. But as pork increases in volume as fees increase (is it really
likely that the tax-payer will get the proceeds in terms of reduced budget
costs for tertiary education?), this could get interesting.
A second phenomenon could be the rise of
private colleges and Universities. It is striking how few these are in
Australia. Like many things, it is not in the interests of regulators to
encourage their formation, as, unlike the state-funded tertiary sector, they do
not need such profitable managing, though they do offer chance of jobs for
public servants when and if they decide to cash in their relationship capital. The possibility of large political
contributions, or their reality, does not seem to have been very successful
here.
So what seems most likely is that those who
control Universities (various bureaucrats), rather than those that own them
(tax-payers) will be the ones who profit. That is what economics tells us. Oh,
and students who, even after paying off their loans, will, obviously as they
have been able to do so, earned more because they are graduates. But those
incomes will have come from the labour market, and in Australia on the whole
that is relatively competitive. I cannot easily set up a private teaching
Institute and offer degrees, but I can easily choose what to study and what to
do with that degree. Under the current set-up, with weak democratisation, what
I cannot do is stop rent-creation from adding a very large padding to what I
have to pay for my degree.