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U N I V E 

R S I T I E S 



1. Oiir Universities: Backing Australia's Future (2003), Commonwealth 
Department of Education, Science and Training. 

2. Bishop, Julie (2006), Keynote Address to the John Curtin Institute of 
Public Policy, Perth. 

3. Australia's Universities: Building our Future in the World, A White 
Paper on Higher Education, Research and Innovation (2006), ALP. 

Regulation and markets 

Margaret Gardner and Julie Wells 

There has heen much critical comment in recent years about 
the tensions between the regulation imposed on public uni- 
versities and the flexibility needed to compete effectively in 
international and national markets for students and funding. 
In the partisan world of politics each side points the finger 
at the other as the author of “too much” regulation. And yet 
there is a shared set of underlying assumptions about the 
interplay between regulation and markets that has led to 
more regulation without necessarily improving the outcomes 
for or from universities. 

What are these assumptions about the relationship between 
universities and government? First and fundamentally, there 
is consensus that government has the right and the respon- 
sibility to determine the outcomes it seeks for the funding it 
provides. Second - and related to the first - it is expected 
that universities have a responsibility to maintain in part the 
intellectual and cultural fabric of the nation and of society 
generally. Third, universities are also expected to contribute 
to the economic outcomes of the nation through meeting 
industry and student needs. Finally, universities are expected 
to be effective and efficient organisations, managing their 
funds wisely and generating sufficient revenue to maintain 
their operations and infrastructure. 

These assumptions are each eminently reasonable. It is their 
enactment in policy that has increased competition, intensi- 
fied regulation and driven down government funding to public 
universities while increasing it for private providers. They 
have been accompanied by an emphasis on competition and 
market-like settings - usually created through regulation - to 
encourage universities to be efficient and responsive to eco- 
nomic needs. They include a further range of regulations that 
seek to ensure that universities meet the policy objectives that 
government has defined as providing for the public good. 

The impact of these changes has not been aU negative. Aus- 
tralia has created a vibrant international education presence, 
now recognised as a major contributor to the economy as the 

third largest export earner in Australia. Australian universities 
have also become more flexible and responsive to changing 
student and industry needs. However, difficulties have been 
created by increasing competitive pressures between institu- 
tions while at the same tune requiring more detailed regula- 
tion of what is done and how it is done. 

Government funding support to private providers has encour- 
aged greater competition in the space dominated by public uni- 
versities. However, public universities are constrained by their 
enabling Acts and government and community expectations to 
maintain a range of capabilities that provide expertise and facil- 
ities in the areas that do not attract private providers or private 
funding. Limits on the capacity of universities to compete are 
embedded in funding agreements with government. Universi- 
ties can only change the site of delivery (and the range of pro- 
grams offered to outlying campuses) with explicit permission 
from government, while a private provider can choose what, 
where and how it delivers. It is no accident that private provid- 
ers are concentrated in areas of high demand and profitability, 
such as Business, and located in major metropolitan centres. 
Private providers can bid for government funds in profitable 
areas, while remaining free to direct their core activity as they 
choose. Meanwhile, declining government funding for public 
universities has meant that maintenance of quality of educa- 
tion, research and infrastructure in the areas expected to pro- 
vide a long-term contribution to the public good must come 
from private contributions by students or others. 

This has given rise to two outcomes that run counter to 
government’s stated objectives. First, building regulatory 
frameworks around market forces leads to homogeneity of 
behaviour in our institutions. In the vocational education and 
training sector, where competition between public and private 
providers has a longer history, Anderson argues that their mis- 
sions are converging. Public and private providers are increas- 
ingly competing in similar markets and are similarly reliant on 
public funds for their operation, while the government’s role 

22 Regulation and markets, Margaret Gardner and Julie Wells 

vol 49, no 1 & 2, 2007 




in planning provision has given way to that of a market facilita- 
tor and purchaser of services.* In higher education, the line 
between private and public universities is also blurring to the 
point of disappearing, and more salient distinctions may be 
drawn between those that are explicitly operating on a ‘for 
profit’ basis and those who are not. The implications of this 
are not adequately recognised or addressed in our current 
regulatory frameworks. 

Second, declining funding for the public good activities 
of public universities and the need to cross-subsidise these 
particular activities from private funding means increasing 
focus on ways to attract private funding. Legislators implic- 
itly encourage such cross-subsidisation, but they commonly 
decry the removal of small and specialised programs or cam- 
puses, for example - even when those decisions are dictated 
by efficiency considerations. More regulation is suggested or 
imposed to deal with domestic concerns, whether they involve 
the access of particular groups of students or of regions or 
professions and occupations. In this case, regulation operates 
to protect governments’ interests in the context of the mar- 
kets they have encouraged. 

How might regulation and financing arrangements be 
redrawn to help achieve better outcomes from and for Austral- 
ian universities? Policymakers need to reconsider the whole 
regulatory framework for higher education. Currently most 
debate around regulation centres on the activities of public 
universities. There are explicable reasons for this focus, since 
universities remain the dominant segment of higher educa- 
tion and the overwhelming majority are public’ universities. 

Yet while private providers remain a relatively small part of 
the Australian higher education landscape, their numbers are 
increasing, as changes to the MCEETYA protocols on higher 
education accreditation smooth the way for new domestic 
and international providers. Under the ALP’s current policy 
proposals, the competitive advantages for private institutions 
in enrolling students into high-demand, high-return programs 
would increase.^ TheALP would abolish full-fee-paying domes- 
tic undergraduate student places - presumably replacing them 
with publicly-subsidised places - while offering a public sub- 
sidy to private providers by extending a government-under- 
written loans scheme to their fee-paying students. Australian 
undergraduates would be able to pay fees to a small domestic 
private provider (or an overseas university) but not to an Aus- 
tralian public university. The ostensible policy objective is to 
maintain ‘merit-rankings’ in Australian undergraduate places 
in public universities. However, making public universities 
entirely responsible for merit-based entry ignores the issues of 
merit, equity and quality across the sector as a whole. 

The trend inAustraUa has been to encourage growth in num- 
bers of higher education providers, and increasingly to allow 
private providers access to public funding. Wlien private pro- 
viders are compared to public universities we find that both 

vol 49, no 1 & 2, 2007 

rely on a mix of public and private funding. However, the 
overall objectives being sought from a mixed public/private 
higher education sector are not clear. 

One of the stated objectives of current policy - for which 
there is bipartisan support - is greater diversity and (suppos- 
edly in consequence) a higher degree of specialisation. Yet 
there is no necessary link between specialisation and diversity. 
Private providers individually tend to be more specialised, but 
viewed as a totality they do not give a more diverse suite of 
higher education offerings since they are concentrated in par- 
ticular fields and locations. And yet policy discussion is focused 
on urging public universities to specialise, as if that in itself will 
create greater diversity in the higher education sector. Public 
universities could concentrate on their strengths, and yet - fol- 
lowing the model of the private sector - the overall choice and 
diversity in the higher education system could become more 
limited as a result. In thinking about diversity, therefore, the 
objectives for the whole sector must be considered, not just 
the outcomes being sought from public universities. 

Another focus of higher education policy is quality. There 
needs to be clarity about objectives which are necessary for 
the public good, and which the higher education sector as 
a whole should deliver. In the United States, where a mixed 
system of private and public higher education provision is well 
entrenched, the accreditation of universities and other higlier 
education providers is coming under increasing scrutiny. In 
the face of concerns about falling participation rates among 
younger Americans and complaints of declining graduate skills, 
lawmakers are questioning whether the current emphasis in 
accreditation on probity and financial viability is sufficient. 

The Draft Report of the US Secretary of Education’s Commis- 
sion on the future of Higher Education notes that ‘accreditation, 
once primarily a private relationship between an agency and 
an institution, now has such important public policy implica- 
tions that accreditors must continue and speed up their shifts 
towards transparency where this affects public ends.’^ These 
‘public ends’ include recognition of qualifications by employ- 
ers, graduate outcomes and student satisfaction. So, an impor- 
tant step in policy would be outline the regulatory framework 
required for the whole sector, now that institutions are sup- 
ported by a mix of public and private funding. 

There is also a need to apply a whole-of-government perspec- 
tive to international education and research. Because tmiversi- 
ties are key components in the emerging knowledge economy, 
governments’ stake in their work has never been higher. As 
Etkowitz writes, ‘ [the] . . . “capitalisation of knowledge” ... is the 
heart of a new mission for the university, linking universities 
more tightly to users of knowledge and establishing the univer- 
sity as an economic actor in its own right’.'* Therefore, it is in 
government’s interest to forge active partnerships with univer- 
sities, not as public sector agencies but as significant players in a 
large and increasingly significant global service industry. 

Regulation and markets, Margaret Gardner and Julie Wells 23 




In the international arena, the international student experi- 
ence is increasingly being subjected to a consumer protec- 
tion regulatory focus. In this context compliance regimes 
are the same for public and private providers. Yet, if interna- 
tional education is seen as a separate domain and not as part 
of the overall quality of education in Australia, then there is 
little hope of building sound policy settings for the long- 
term. Around us are countries with higher education poli- 
cies that set aspirations for their role in the region and back 
that with investment. 

Yet in Australia, where public universities have been very 
successful in international education, there is no such sense 
of national aspiration. Major policy shifts, such as voluntary 
student unionism, were undertaken apparently without con- 
sideration of the impact on the quality of campus life for inter- 
national students, who typically spend many more hours than 
domestic students on campus. 

Finally, there is a need to reconsider the underpinning logic 
of the current regulatory framework. At present it uses com- 
petition or market-like settings to induce greater efficiency 
and responsiveness in public institutions. Then it uses a mix 
of consumer-related regulation and compliance to deal with 
any perceived market failure or excess in privately funded 
areas, international and domestic. And it reserves the right 

to direct public universities to serve specific economic and 
social goals. While the policy rhetoric is about diversity and 
quality, the interaction between these policy drivers may not 
facilitate either of these objectives. 

Until regulation moves away from selective interventions 
and an over-concentration on directing the behaviour of our 
public’ universities, the benefits of an increasingly interna- 
tionalised and significant sector for the future of our society 
and economy will not be realised. 

Professor Margaret Gardner is Vice-Chancellor and Presi- 
dent, RMIT University. Dr Julie Wells is Director of Policy 
and Planning, RMIT University. 


1. Damon Anderson, Trading places: the impact and outcomes of 
market reform m vocational education and training, National 
Centre for Vocational Education Research, January 2006 

2. Australia's Universities: Building our Future in the World, ALP 
White Paper on Higher Education, Research and Innovation, July 
2006 . 

3. Discussion Draft - US Secretary of Education’s Commission on the 
future of Higher Education, August 2006 p. 23. 

4. Etkowitz, H, The evolution of the entrepreneurial university, Inter- 
national Journal of Technology and Globalisation, vol 1 no 1 2004. 

The big changes are yet to be seen 

Ian Young 

Over the last ten years, I have given many presentations 
to staff on university or faculty directions. Although many 
items have come and gone over that period, one comment 
which seems to be constant in all of these presentations is 
that ‘Higher Education in Australia is undergoing change’. 
Yet in many respects, the really big changes are yet to occur. 
Change is not the exclusive preserve of the present Coalition 
Government. I suspect a Labor Government may even hasten 
the pace of change. 

Two major changes are about to impact our universities. 
Firstly, we are running out of students! By 2010, Australia’s 
demographics dictate that the number of Year 12 leavers 
wOl start to decline. At the same time, our large international 
market will come under increasing pressure. I am an optimist 
concerning international education, but the growing inter- 

national competition and the increasing capacity to provide 
high quality education in many of our source countries will 
place our market dominance in international education under 
threat. At the same time as student demand will be easing, pri- 
vate providers will be increasing competition. 

Such providers will not attempt to go head-to-head with 
universities in their traditional programs. They will selectively 
target areas where they have a strategic advantage, such as 
short courses and some business programs. Australia’s univer- 
sities would make a serious mistake if we arrogantly assumed 
that such providers will be, by definition, low quality. High 
quality, low cost and highly efficient competition will become 
common in the future. 

There is no doubt that the present situation warrants atten- 
tion. We presently have a situation where some universities 

24 The big changes are yet to be seen, Ian Young 

vol 49, no 1 & 2, 2007