Universities face new world of fierce competition

Australia’s new ‘demand-driven’ system of higher education, where universities decide how many students they will enrol, means some will thrive with expanding enrolments and quality offerings while others will be bankrupted and fail to attract sufficient students.

“No sector introduced to a market rationale is ever the same,” said Professor Glyn Davis, chair of Universities Australia and vice-chancellor of Melbourne University.

Speaking at the National Press Club in Canberra as part of the Universities Australia national conference this week, Davis warned that for individual institutions to go on growing, they would have to win students from each other.

This had set them “on the path to fierce competition”.

“A demand-driven system is micro-economic reform similar to the deregulation of banking in the 1980s, to the introduction of private providers into public utilities in the 1990s, to the contracting out of government services in the 2000s,” he said.

“Like those changes, the introduction of market arrangements will profoundly alter the sector. It means that students – not Commonwealth bureaucrats and, increasingly, not academics – will decide what universities teach.”

With universities no longer guaranteed a certain number of enrolments, a market had replaced student quotas and the protection it provided, Davis said. But at the same time the market was constrained: institutions had to compete on quality because they were not allowed to compete for domestic undergraduates on price by setting their own fees.

“In the international arena, by contrast, Australian universities have long competed on quality and price. Indeed Australian universities rely on international income, essential to cross- subsidise teaching for domestic students...For some universities, international students make up over half their enrolments [but] this may not continue.

“China, Hong Kong, Singapore and South Korea have built high-quality universities. Their best students may no longer seek education abroad. As the [Australian] dollar continues to rise against major currencies, the cost of study in Australia becomes ever higher. So our universities face competition at home and abroad – from each other, from emerging international alternatives, and from a rapidly growing private sector.”

Although Australia had only two private universities, Davis noted there were more than 140 private providers, public vocational colleges and international institutions that offered higher education courses. Each wanted its share of the domestic and international student flow.

“The competition, already vigorous, will be unremitting. Markets change everything,” he said. “Market discipline is an uncomfortable fit for a sector inclined to view education as more than a commodity. Markets change everything. The introduction of a market logic will upset hierarchies and impose rapid institutional transformation.”

In a demand-driven system, Davis said, students would “vote with their feet”: they could leave one university for another more congenial, for an online course offered from the United States, or a degree available at a local technical and further education (TAFE) college.

The new policy environment had profound implications for the way each university operated but also necessitated reflection and change from the sector’s peak body, Universities Australia (UA), Davis said.

Instead of pleading with government for more funding, UA would have to focus on securing a fair competitive environment: a regulatory environment that set clear rules of engagement while leaving each university scope to develop a distinctive contribution.

“If government is no longer to dictate the number or allocation of students, then it must hold the ring – create the setting in which market forces can deliver growth, while ensuring that quality, access and reputation are not lost amid the frenzy,” he said.

“This is a different role for government. It makes most existing regulation of the sector irrelevant and calls instead for intelligent and agile market design.”

The membership of UA would become more diverse than ever and over time the demand-driven system was likely to push universities in very different directions. Yet they retained an enduring shared interest in the policy framework that held up the market – accreditation, common qualification standards, quality controls, visa policy and public investment – all essential to maintain a high international reputation for the sector.

He said the organisation “must do something uncomfortable” by becoming part of the political process and articulating and promoting a vision for higher education in Australia. This year, it would “marshal the talent and ideas of its 39 university members” to develop a comprehensive statement for Australian higher education policy.

As a first step, UA had commissioned its first detailed national polling on Australian attitudes to higher education. From the middle of the year it would run public meetings across the country to engage communities about their aspirations for higher education and well before next year’s federal election, it would publish a detailed policy position, a comprehensive statement about what the sector wanted from the next government.

There were tough questions to answer, Davis said. For example, how to fund important disciplines that failed to attract students? “In a market these just disappear. As a nation, we should have a different view about the intellectual and practical importance of some courses with little popular appeal.

“How should policy respond where there are sharp shifts in market share, or even failure in some institutions? In other sectors, the introduction of a market sees rapid consolidation of companies. Will universities be allowed to form alliances, to amalgamate with TAFEs and private providers?

“In a market, universities must be able to capitalise on their strengths, to find a compelling niche in this brave new world. Yet closure of courses or campuses is always controversial, and often subject to political direction. How will the new policy framework allow meaningful diversity amid the likelihood of unpopular decisions?”

With more players than universities in higher education, Davis asked what the role of private providers should be. And, if international institutions set up in Australia would they also claim a share of taxpayer support?

“And the toughest questions of all. How can we achieve per student funding that enables us to deliver world-class education? What should be the mix of contribution between government and students? And how do we avoid slow decline when governments will not provide sufficient funding for universities, yet fear the political backlash of raising undergraduate fees?”

By asking the tough questions, by starting a difficult conversation, Davis said UA could help Australians think about the world to follow the demand-driven system, “a world beyond any of our experience”.

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