How Should Higher Education be Funded?

Abstract

During the 2001 election campaign support for extra higher education funding came not just from the predictable higher education interest groups, but also from Rupert Murdoch and the Business Council of Australia’s President, John Schubert. Including universities in their arguments about education spending, the two business leaders made similar points, with Mr Murdoch saying that ‘the brains, skills and entrepreneurial spirit of its citizens are a country’s most precious and powerful asset’ (Murdoch, 2001:2) and Dr Schubert that ‘the skills, ingenuity and know-how of our people will be the primary determinant of social, political and economic success’ (Schubert, 2001:5). Added educational investment is needed to ensure we achieve these human capital goals. While, as will be explained, a good case can be made for additional expenditure, both men missed several steps of the argument. In education as in other investments, more inputs do not lead inexorably to commensurately greater outputs. We need to consider questions of allocative efficiency. Even if more money became available, are we able to direct the right levels of investment, to the right people, at the right time and in the right place? The reasons why the answer to these questions is ‘no’ are outlined in this article. There is evidence that the current system both systematically underinvests in higher education and mis-invests too much of the capital it does possess. Replacing the current system of centralised control with improved market mechanisms would enhance Australia’s higher education performance. The Status Quo At present, we have a top-down approach to spending on higher education. The Commonwealth sets the total number of Australian undergraduate student places it will fund, and divides these places between the existing universities, except for Bond, which enrols only private full-fee paying undergraduate students. The main factor driving the total number of places is the Commonwealth’s budget situation, and the main factor driving the division of places between universities is history, though political factors, unmet demand, and tendering have also played a role over recent years. The Commonwealth lets universities enrol extra students above the number it sets, either as Higher Education Contribution Scheme (HECS) students or as full-fee paying students. However, this does not dramatically affect total student numbers, as the ‘over-enrolled’ HECS students are financed at only about Andrew Norton is a Research Fellow at The Centre for Independent Studies, and was Higher Education Adviser to Dr David Kemp when he was the federal Minister for Education.