Paying for a smarter country

By La Trobe Vice Chancellor Professor Paul Johnson, first published in the Business Spectator on 29 January 2010

Paul Johnson close up Australia needs to encourage more of its young people to complete high school and go on to higher education if it has any hope of increasing the skills within our workforce.

Following Prime Minister Kevin Rudd’s call for productivity growth, the government has recognised – by setting a target of very significant expansion within the sector – that we need to start with education. While there is a technology element to productivity growth, the main requirement is to increase skills.

In a nation that doesn’t have massively unmet demands for tertiary education, the biggest challenge will be how to expand given the relatively high personal costs of tertiary education for students and their families.

Another consideration is secondary education where there needs to be more attention to fundamental reform. Clearly, if you want to turn on the tap and have more tertiary educated graduates, you have to increase the flow down the pipe.

Then, we need to look very carefully at the process of transition from high-school to university. At the moment, we have high school exams and a high school curriculum focused on ranking students rather than preparing them for tertiary study.

There is a lot that could be done to change the senior high school curriculum and how it is taught – and likewise the first-year university curriculum – so that they fit together like pieces of a jigsaw rather than remain as they are now, two worlds separated by a high wall.

It’s a difficult policy challenge for the government because the higher education sector in Australia is primarily a Federal government concern and the secondary school system is run by state governments. But if we are serious about productivity growth and skills development we need to look at changing the supply chain.

For the Tertiary sector, one challenge is how to finance a significant expansion of students. Even though students pay a lot themselves, taxpayers pay a lot too, and it’s not clear to me that current and future tax payers want to contribute more for higher education.

But, if they aren't going to pay, what are the alternatives? Either you put more of the cost onto our students, who by OECD standards are already overburdened, or you reduce resources – and Australian universities already spend less than their counterparts in many OECD countries and now Asian countries.

That raises the question of quality. Most people would say that beyond some limit there is probably no relation between quality and resource. However, I think in education there is a relationship even if a causal relationship is not immediately apparent.

The unit of resource per student has declined dramatically over the past fifteen years and the ratio of students to academic staff has gone up a lot. As a result, Australia now ranks at the bottom end among OECD countries.

Is that affecting quality? Perhaps. Certainly it is affecting perceived quality – and such perceptions have the potential to damage Australia’s vast $15 billion international education industry.

The resource issue needs to be addressed. The government must look at the costs for students against the benefits they receive. Can students bear any more costs?

Arguably one way of squaring the circle – and this is as much a business concern as it is for government – is to explore encouraging more students without increasing the burden on the taxpayer. You can do it by promoting competition, because competition will increase both quality and reduce price.

At present there is competition between institutions, but this is extremely circumscribed by the government which decides which ones can play in the market. If the government were to allow all universities to operate ‘for profit’ (not only private universities like Bond and Notre Dam which are non-profit in any case) it might see movements in the quality/price ratios.

But here’s the rub, this would probably destroy the existing university system – a system that produces an extraordinary spread of public goods. Key among these, and critical to national well-being, is research which is a loss leader and would typically not be undertaken in private universities.