Opinion & Commentary
University policy needs a free-market approach
More than 50 years ago, the late American economist Milton Friedman proposed combining the dynamism of the market with the redistribution of the state through education vouchers. With a quasi-voucher system for private schools, Australia has come closer to implementing this idea than the US. All school students are entitled to at least some government subsidy, regardless of which school they attend. The result, as Friedman would have predicted, has been a steady shift from government schools to private alternatives.
Despite its success in schools, and despite several proposals over the years—most recently from the Australian Chamber of Commerce and Industry last month—the voucher idea has never found its way into higher education policy.
If anything, policy has moved further away from student choice towards what UTS Vice-Chancellor Ross Milbourne recently called “Stalinist central planning”, minus the trips to Siberia for failure. In addition to the minimum enrolment target that existed before 2005, universities now face maximum total enrolment limits, sub-targets for twelve disciplinary groups, and new student places allocated to particular courses at specified campuses.
Central control has caused many problems. In the early to mid-1990s, the Keating government cut commencing medical student numbers, despite population ageing that was increasing demand for medical professionals. If we had not been able to recruit large numbers of overseas-trained doctors, this decision would have had disastrous consequences for Australian health outcomes
Even today, widespread shortages of health professionals persist that could have been avoided or much diminished with a voucher system. Student applications data shows that demand was strong for most health courses, and we know that universities were willing to supply extra places, because they did so for international students. But with government restraints on domestic student places, demand and supply could not meet.
While health places were under-supplied, science and agriculture places were over-supplied. In 2007, as in previous years, places available exceeded the number of first-preference applicants for these courses. The centrally-controlled system has not re-allocated resources to where they are needed most.
Central control discourages universities from offering better services that attract more Commonwealth-supported students. If universities enrol over 5% more students than their government-set target they must pay a penalty to the government. Imagine if Woolworths was fined for selling too many groceries, or Toyota punished for selling too many cars. Ridiculous as it sounds, that’s the policy in higher education.
With no rewards for undergraduate enrolment, teaching was neglected in favour of research, which attracted additional funds for superior performance. National student surveys in the early 1990s revealed widespread dissatisfaction with the quality of teaching. Slow but steady improvements since probably reflect responsiveness to the international student market.
The current centrally-controlled system is bad for students, who miss out on courses they want, and suffer the quality consequences of an uncompetitive system. It’s bad for the employers who have too few graduates to fill all their vacancies. It’s bad for innovative universities, which cannot easily reconfigure the courses they teach or be rewarded for success. It’s not even good for the government, which is blamed for skills shortages and unmet demand.
The alternative is to let funding follow the student. Accredited higher education institutions would receive a discipline-based subsidy for every enrolled Australian student. Student contributions could be paid directly to the university or through an income-contingent loan, as now. Government subsidy could still achieve equity goals by making universities cheaper than under full-fees, but higher education would no longer suffer the misallocated places and distorted incentives that afflict the current system of central control.
Andrew Norton is a Research Fellow with The Centre for Independent Studies.
