Tertiary education reform: should we abolish fee restrictions or set up a university inspectorate?

Every 2 weeks at QUT, we set up an economic policy discussion evening. We pick a topic for debate, have someone knowledgeable introduce it, and then let 2 students argue for or against particular policy reform proposals. We go out of our way to make the policy proposals realistic such that we can have the avant garde feeling we’re debating what Australia or the world may well choose to do in the future.
Our last debate was on tertiary education reform, and you can dowload the presentation here. An academic introduced the topic. Tertiary education (university, TAFE) has expanded to include about 45% of the population between 20-24, up from no more than 5% after World War II. This has transformed universities from elite places with high status autonomous teachers to schools for adults with low-autonomy medium-status teachers. The fee restrictions have meant universities cannot charge for quality and have an incentive to get as many students in the institution as possible. This means filling all the HECS places and attracting as many overseas full-fee paying students as they can. Since universities cannot charge for quality, their incentives are not to let anyone fail since that would mean less students but no useful quality signal (since you’re not allowed to charge for quality or expand, why build up a reputation for quality?). The need of universities to pass nearly everyone was argued to have lead to a race-to-the-bottom, which reduces standards of education at universities. Australian universities, who get supplied pretty good students from the secondary schools, now have the basic incentive structure to give everyone who enters a low level of education. This situation is unsustainable because the good students will start to go abroad in droves if the present situation persists.

The long-term solution to Australias’ tertiary education woos has to be quality differentiation of students, either by having elite universities or elite degrees within universities. One of our students, Chris Coleman-Fenn, argued that the way to encourage quality differentiation was to abolish fee restrictions on students, such that universities were allowed to charge HECS students whatever they wanted in addition to how much they could lend from the government (top-ups). This would then lead to more effective competition and would allow universities to charge for the higher costs that would come with higher quality degrees (for instance, for honours streams). Another student, Andrew McClelland, argued this could be inequitable since some universities have a monopoly position in their region/discpline and could extract rents if fee controls were abolished. As an alternative, Andrew argued for a kind of university inspectorate that would rate courses between universities, thereby giving the market a strong signal that would allow quality universities and degrees to attract the better students, thereby engendering quality differentiation. That would still need to be combined with a lifting of quantity restrictions though because there would otherwise still be no incentive for universities to care about quality.
The pros and cons of both policy proposal were then discussed in minutiae here.

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16 years ago

The problem can be looked at from two angles.

Of all the people who benefit from one’s having a tertiary education, we should expect that most benefits would accrue to oneself. Those who would not go to university but for government subsidisation of their fees are precisely those who believe that their course is not worth it. And everyone else must be presumed to be getting an even worse deal out of it – and that’s taking no account of the fact that they’re being forced to pay for it. The government subsidisation of university education is the largest single factor responsible for the spread of low quality standards, precisely because it severs the payment for the service from the receiving of the service.

While it is true that the requirement for each student to finance his own education is *unequal*, in the sense that it’s easier for those with more money or access to credit, that does not necessarily mean it’s *inequitable*, meaning unfair, since there is always the possibility that those who have the finances have have sacrificed other things in order to enable them to have the education; or that those who do not finance themselves chose to spend the money or time required into things that they considered more important. So while it may be unfair, on the other hand, it may not be. There can be no automatic presumption; and there’s probably no way of knowing, short of an individual inquiring in every single case.

Secondly, even if it is inequitable, that is a problem originating in the fact of private property. It’s caused by not having enough money. People who have more money can buy more and better stuff than people who have less, not just as to university educations, but with everything: fish, eggs, cars, magazines and so on. If there is to be a social or governmental remedy to the problem, it should not be to try to take over or regulate the particular market for services in question. It should be by direct cash donation to those who are considered deserving of it. Then the donee can go and buy what education etc. they think is best, and the universities can concentrate on providing it.

Andrew McLelland, who proposed an inspectorate for information purposes, is re-inventing the wheel. There is already an inspectorate for information purposes: it’s called the free market. While not perfect, governmental attempts to duplicate its information functions invariably prove worse and more expensive.

Probably the main reason why people don’t want to try to solve the problem of ‘inequity’ by direct cash handouts is because they fear, or know, that the recipient, instead of spending the money on improving his mind, is going to spend it on an extended surfing holiday, sipping pina coladas poolside, and come back with nada. (I remember during the 1970s when Whitlam first started handing out other peoples money to my brother to go to university. He spent it on a rather large block of hash; that was our idea of improving our minds LOL. He also caught a taxi from Bathurst to Yetholme. Still, anything to avoid inequity I suppose.) According to this line of thought, paternalism is the rationale for the intervention: not a problem of quality standards or inequity at all. If this is so, the taking of money from others, who may and probably did have a higher value use for it, would not have been justified in the first place, and government subsidisation should be rejected out of hand.

Fee restrictions should be abolished. Those who think that other people should have money given to them, should give it to them themselves.