Recently some attention has been drawn to the dysfunction of Australia’s “demand-driven” higher education system, where incentives have wrought havoc on taxpayers’ funds and ­national productivity

By Adam Creighton (for Business Spectator)

In Adam Smith’s 18th-century Scotland, as part of a long tradition going back to ancient Greece and Rome, students paid university professors directly.

The quality of education was apparently much better than in Oxford, where teachers, being paid by endowed colleges, tended to ignore their students.

Incentives matter as much in higher education as in private ­enterprise. The Parliamentary Budget Office has laudably drawn attention this week to the dysfunction of Australia’s “demand-driven” higher education system, where incentives have wrought havoc on taxpayers’ funds and ­national productivity.

While the crazy acceleration in the number of subsidised student loans for vocational courses — ­average annual growth of 147 per cent a year in loans for courses of highly dubious quality — warrants most immediate attention, in the longer term, Australia’s highly inefficient universities are probably a bigger drag on the nation’s prosperity.

Fifty years ago, barely 70,000 people were studying at university (about 0.5 per cent of the population). Last year, more than 1.2 million people were studying at Australia’s 39 universities, so the value of the education provided clearly is of huge economic consequence. These institutions received about $9.3 billion in direct federal funding this financial year, while student assistance (which includes the cost of the subsidised loans) came to $4bn.

Because selling degrees to foreign students (which make up almost a quarter of the total) has become such a highly lucrative export industry, universities tend to avoid public scrutiny.

It’s highly possible generous subsidies have underpinned ­bureaucratic bloat within universities and encouraged too many people into university study, with the unfortunate side-effect of diminishing the quality and reputation of degrees. Rapid growth in enrolments by high-paying foreign students with relatively poor English, and the implicit pressure on academics to pass them, has exacerbated this trend.

The University of Western Sydney, the country’s largest, reflects the problems at all universities. Only 45 per cent of its 3315 staff in 2014 were classified as “academic”. And these would include many individuals — such as faculty deans — who are in practice largely administrators. Moreover, it doesn’t factor in the encroachment of form-filling and grant-applying on academics’ work hours.

Meanwhile, “professional” staff at UWS jumped 12.4 per cent in the same year to 1825, more than double the growth rate of academic staff. In fairness, some of these roles would be quasi-­academic in nature — librarians, for instance — but anecdotal experience suggests a large share is administrative.

Top administrators can be paid close to $1 million a year. This is unconscionable — universities are not businesses; regulations ensure they have guaranteed access to public money.

Also, is it not perverse when good academics — most university senior management were once academics — are motivated to leave teaching and research and become administrators?

Pundits and politicians talk relentlessly about improving productivity (the quality of outputs for a given set of inputs), but in education — among the fastest-growing sectors of the economy — it is almost a foreign concept.

Retention rates of commencing bachelor students at UWS is less than 80 per cent, a figure that has steadily fallen since 2009, according to its latest annual report. In general, more than 7000 students with ATARs below 50 (signalling they finished year 12 far below the 50th percentile of finishers) were made offers by universities in 2014. Department of Education data show barely more than 50 per cent of students with ATARs between 30 and 49 who entered university in 2005 had completed their degrees in 2013.

These outcomes might not be so bad were academics’ incentives so focused on publication rather than teaching. The habit of ranking academics and institutions based on their publishing record has led to a proliferation of journals filled with articles, often of dubious enduring quality and influence. Probably more people will read this column than 99 per cent of academic articles taking many months of work.

Why, given such sobering facts, would government want to accelerate university attendance further? Yet, Labor in government pencilled in a target of 40 per cent of young Australians with at least a bachelor’s degree by 2025. Having people in formal education for longer than necessary can help make the unemployment rate lower than it would otherwise be, as such people aren’t actively looking for work. But it’s not clear it serves either the students’ or taxpayers’ interests.

The value of education is firmly etched in the pantheon of motherhood statements. But interestingly, not many jobs actually genuinely require a university education. Many top bankers and barristers never formally studied finance, economics or law. Few journalists have journalism degrees. The vast bulk of jobs are learned on the job, for all the talk of our new high-tech era.

If anything, technology has made jobs easier.

University study is in many cases better described as consumption rather than investment. There is nothing wrong with fun and personal enrichment, but such pastimes are less deserving of taxpayer support.

There are no easy solutions to the education productivity crisis. But unshackling universities from excessive federal government ­micro-managing and limiting the number of taxpayer-supported places to students who achieve a high academic standard would be good places to start.

This article was originally published here.