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Privatisation and education (re-repost)

August 9th, 2012

In the light of the latest news of large-scale fraud in the for-profit vocational education sector, I thought I would repost this from CT (in turn a repost of an article in Campus Review, that’s no longer on the website).

I also found a response by Andrew Norton

To the extent that there was any coherence to the higher education policies of the Howard government, it was derived from the idea that universities should become more like ordinary commercial businesses. Managerialism and market liberalism are at one in their rejection of notions of professionalism and the idea of autonomous academic disciplines. Both managerialists and market liberals reject as special pleading the idea that there is any fundamental difference between higher education and say, the manufacturing and marketing of soft drinks. In both cases, it is claimed the optimal policy is to design organisations that respond directly to consumer demand, and to operate such institutions using the generic management techniques applicable to corporations of all kind. They should compete on the basis of price (fees) as well as quality, and tailor their offerings to market (student) demand. The laws of economics would then ensure an efficient outcome.

This theory seemed beautiful to the ideologists of market reform, but it failed to account for an ugly fact. For-profit education has been a consistent failure in all times and places. The limited exceptions relate to areas of vocational training with little or no general educational components.

The market euphoria of the 1990s produced a large number of for-profit educational ventures, most of which quickly failed. Rather than conduct a post-mortem on the departed, it is instructive to look at some of the survivors.

Edison Schools was founded in 1992 and was widely viewed as representing the future of school education. Its plans were drawn up by a committee headed by John Chubb, the co-author of the most influential single critique of public sector education in the United States (Chubb and Moe 1990).

The period since then has been one of decline. Edison has lost numerous contracts, along with its stockmarket listing and has largely abandoned new bids to operate schools, focusing instead on a variety of peripheral educational services, such as testing and the provision of course materials. Even operating in a highly favorable political and financial climate, Edison was unable to deliver on its promise of transforming the school sector, and seems unlikely to survive as a school operator in the long run.

The University of Phoenix, founded in 1976, has been widely represented in Australia as a successful challenger to traditional universities. Such claims are exaggerated to say the least. Although the University does compete with traditional providers of undergraduate university education, its record in this area is exceptionally poor, with a graduation rate of 16 per cent (“the percentage of first-time undergraduates who obtain a degree within six years”). The performance of online programs (6 per cent) is even worse.

Alarmingly in the context of discussions of FEE-Help, the University of Phoenix has been subject to persistent accusations of rorting the government-subsidised student loan system. It was fined $10 million for illegal recruitment practices in 2004. A shareholder lawsuit based on the same issue recently led to a jury award of $280 million against the University’s parent company, Apollo Group, and further litigation under the False Claims Act is continuing.

The most prominent Australian venture into for-profit higher education is U21Global, a joint venture of the Universitas21 alliance of universities, of which the most prominent driver has been the University of Melbourne. Launched in 2001, it projected enrolments of 60 000 students, and annual revenue of $500 million by 2010. As of 2008, U21Global claims 1600 students, many undertaking short courses aimed at professionals. No financial reports appear to be publicly available, but it seems unlikely that the $US50 million invested in the venture will be recovered.

The failure of for-profit education reflects fundamental characteristics of education that make models based on competition and consumer sovereignty inappropriate as a basis for policy. Because the benefits of education are hard to assess in advance, and only realised over a number of years, short-term market incentives are ineffective or perverse. Only a long-term commitment to academic standards and professionalism can maintain the quality of education, and such a commitment cannot be driven by managerial skill or direct incentives.

  1. Freelander
    August 15th, 2012 at 10:29 | #1

    Wasn’t aware that outfits like McDonald etc pay a premium for a degree in menial level jobs. Learn all the time!

  2. conrad
    August 15th, 2012 at 11:16 | #2

    “Wasn’t aware that outfits like McDonald etc pay a premium for a degree in menial level jobs.”

    You are confusing issues. One is whether graduates take jobs that don’t require a degree (no doubt McDonalds doesn’t consider it for burger flipping). The second is whether some jobs are unnecessarily blocked for people without degrees and hence are willing to pay a premium for people with degrees.

  3. Freelander
    August 15th, 2012 at 11:56 | #3

    The “and hence” doesn’t follow. You don’t get the job where they require a degree, without one, simply by saying you will work for less. And faced with many applicant hamburger flippers you may choose to use having a degree as a filter.

  4. Freelander
    August 15th, 2012 at 12:02 | #4

    My preference is to have my burgers flipped by someone who at least possesses a masters!

  5. conrad
    August 15th, 2012 at 12:14 | #5

    “You don’t get the job where they require a degree, without one, simply by saying you will work for less. ”

    Back to my original point, if this was true, then what you are really say is that all of the employers of Australia conspire to keep non-graduates out of jobs for no other reason appart from credentialism, even though they could save a whole pile of money (and under cut their competitors) by doing otherwise.

  6. Katz
    August 15th, 2012 at 12:25 | #6

    @conrad

    I have nothing against NESB students. I question whether an outfit like Navitas which is hired to teach them English can be categorized as a university, whether “reasonable” or not.

  7. Freelander
    August 15th, 2012 at 13:04 | #7

    There is no need for “what I am really saying” because there is nothing hidden. Not sure why an unemployed non degree holder will necessarily be willing to work for less than a degree holder is willing too in the same menial job. Degree holding job snobs simply find themselves unemployed. Degree holders know that when it comes to menial jobs, they are not going to get a premium over non degree holders, but that they may be more likely to get the job. Never heard of a situation where applicants for menial jobs stand around offering to do the job for less than the other guy. If it did occur we might have it on nine instead of big brother.

  8. Tom
    August 15th, 2012 at 14:06 | #8

    @conrad

    “Back to my original point, if this was true, then what you are really say is that all of the employers of Australia conspire to keep non-graduates out of jobs for no other reason appart from credentialism, even though they could save a whole pile of money (and under cut their competitors) by doing otherwise.”

    That was not the point of my comment. I think it would be easier for me to separate my thoughts to several points:

    1. Malthusista commented on the change in job requirements and the willingness of the employers to provide training. In which my thoughts are explained in #43 of page 1.

    2. On that basis, some job positions which employers previously (talking about post 2-3 decades ago) employed post high school students and were willing to provide on job training (that is, actually teaching you the basics) are now looking for higher requirements such as tertiary degree, minimum work experience period and the willingness to provide training had decreased significantly. Examples of such a change is very noticeable in the accounting industry, especially certain accounting area such as payable, receiveable clerk and accounts assistants etc. In the case higher level accounting roles the increase in job requirement is much more justified than these clerk level positions because the job roles of higher level accountants had became more complicated such as the improvements in accounting information systems and changes in financial reporting etc. As a matter of fact, I’ve known a few CEOs and CFOs in their 50-60s who have only graduated from higher school and TAFE (how you figure they entered the corporate world?).

    3. The non-graduates aren’t being blocked from jobs, however in certain industries such as the above, employers have the luxury to look for better equiped jobseekers so it became more difficult for them to look for certain jobs (which used to receive the majority of job applications from non-graduates).

    4. In the course of employment in the recent corporate practice, a lot of firms hire employees considers personality heavily, so to reduce the chance of fraud and other actions which might results in damages to the firm when decisions such as wage reduction, wage freeze or lay off is made. Also firms have higher probability to hire workers with high productivity. In this context, a university degree usually considered a good screening tool because of the effort and the self-discipline needed to complete a degree.

    5. Firms understand the chance of employees staying with the firm is higher if they at least pay the market average wage, the point is how to maximise this return (thus non-graduate does not have an advantage because paying less doesn’t mean being more competitive). In Australia (at least the current situation), although firms are startings to put tertiary education is a requirement, the advantage from worker they value the most is still work experience. It is more costly to rehire workers every 2 years rather than keeping them because you need to provide them training, productivity of new employee is usually lower than experience employees, and the cost associated with the employment process. Like you have said some small businesses do pay less and employ non-graduates, but they usually less competitive than their larger competitors.

  9. Freelander
    August 15th, 2012 at 14:31 | #9

    You will not give a person a job simply because they say they ate willing to work for less anymore than you would simply give the person the loan who says they are willing to pay the highest interest rate.

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