Dose of competition can lift higher education productivity and quality

A little competition would do universities some good. Flickr/Michael Matti, CC BY-SA

Higher education has barely been touched so far by national competition policy. It was almost invisible in the original Hilmer Report of the mid-1990s, but features in the draft Competition Policy Review led by Professor Ian Harper and released this week.

The Harper draft report recommends extending competition policy to human services, including higher education. It discusses access to the title of “Australian University” and suggests that discriminatory funding arrangements (such as the 70% funding of students at private providers) be subject to a stringent public benefit test.

This makes sense because higher education is one of the sectors with the largest potential for productivity gains. Here the government stands not just to save money in this highly subsidised industry, but better education enables workers to be productive over the long term in a complex and rapidly changing global economy. The long-term flow-on productivity effects from quality higher education make it such an important sector for the Harper review.

This is not about narrowing and dumbing down the university experience (we’ve had too much of this already – partly due to government policy) but is about producing flexible and critical minds. The humanities have an important role here. Competition tends to enhance choice and diversity.

Fred Hilmer, who led the original competition policy review and went on to become vice-chancellor of the University of New South Wales, has been calling for a renewed commitment to the competition policy principles. As the Harper review was announced, he supported a wide scope for the review and called on the government to show the courage to take tough decisions on the basis of its recommendations.

University leaders need to look into their own backyard, because many of the most outrageous and damaging violations of competition policy principles are in higher education. For instance:

  • A long-standing cartel of heavily government-subsidised providers called universities severely restricts the entry of new providers. In the past this has been defended on the basis of maintaining quality, but the new quality regulator, TEQSA, has rigorous procedures, which apply to all institutions delivering higher education, regardless of their history. Having an impartial quality regulator was a necessary step for the next stage of reform. New providers also face unreasonably high hurdles and long delays to be able to use the title of “university”, which would enable them to compete on an equal basis with the incumbents, especially in the market for overseas students. Asking existing vice-chancellors to advise on processes for new universities is like asking Telstra executives to design the rules for new entrants like Optus when telecommunications was opened up.

  • Government subsidies are highly discriminatory, violating competitive neutrality. For instance, under the new demand-driven system of student funding, only students at the incumbent public universities are subsidised.

  • Government funding for research is restricted to universities. The Australian Research Council Act and associated documents quite sensibly restrict grants to institutions with the physical and intellectual infrastructure to support research. In practice, the list of the institutions that is eligible to apply for funding is (you guessed it!) the incumbent universities. Surely an institution like the Australian College of Theology, established in the 1890s well before most of the universities, with excellent library facilities, quality processes praised by TEQSA and a distinguished record of research and PhD supervision, is better able to support Australian Research Council projects than many of our universities? Why can academics in the small theology departments within our newer universities (such as Charles Sturt, Flinders, Murdoch) apply for Australian Research Council funding and not Australian College of Theology academics? Allowing all researchers an equal chance to apply would be budget-neutral as the available pot of money for which they are competing remains constant.

  • Government funding for the training of PhD students is also restricted to universities. If a well-qualified student is thinking of enrolling in a PhD then government support is available if the student enrols in a university, but not in one of the other higher education providers that are currently accredited by TEQSA to offer PhDs. Some have a superior research environment to universities. It says something about quality that some students enrol outside universities despite the crippling financial disadvantages. Surely funding for PhDs should follow TEQSA’s accreditation judgements. The impact on the government budget would be minimal as the existing policy mostly reallocates PhD students between institutions.

The benefits of fixing these competition policy failures are not just for the approximately 10% of students, teachers and researchers outside the universities. The big benefits will come from the competitive discipline that a level playing field imposes on the incumbent university providers that are 90% of the system. A level playing field will mean that universities have to improve their teaching, trim some of the fat from their marketing and administrative budgets, improve their human resource management practices, and improve the quality and relevance of the research.

There are huge gains to be made from getting serious about competition policy in higher education. Do not doubt that entrenched interests in the universities and higher education unions are strong, well connected and will fight hard against reforms. The size of the gains at stake is indicated by the squealing and obfuscation that followed suggestions of reform.

The vice-chancellors squealing loudest are identifying their institutions as most vulnerable to competition from private providers on anything like a level playing field. The louder they squeal the clearer is the need for a good dose of competition in teaching and research.