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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 9th, 2012 at 10:49 | #1

    That for-profit schools offer less than good value ought not to be a surprise. The market for learning is one in which asymmetric information is rife. If the potential student was capable of assessing the quality of what was on offer they would not need to purchase what was being offered.

  2. djm
    August 9th, 2012 at 12:13 | #2

    Private education isn’t a complete failure: there are quite a few private universities in the USA that are excellent, such as Stanford. I expect that being seeded with a large endowment that removes the need for short-term profit maximisation helps.

  3. Vegetarian
    August 9th, 2012 at 12:32 | #3

    I worked as a teacher in a small private college catering exclusively to international students. One anecdote tells all about the managerial attitude of the owners:
    We had to photocopy our own teaching materials, on the one photocopier for the use of all students and teaching staff. A colleague arrived half an hour before class one morning to prepare. A member of the administration was opening up, but wouldn’t let him in the building: “Administraion only before 8.30.”

  4. John Quiggin
    August 9th, 2012 at 12:38 | #4

    @djm – the crucial distinction is between for-profit and non-profit, not public v private.

  5. BilB
    August 9th, 2012 at 13:51 | #5

    I think that the problem here is to do with…..how much profit is enough. People who go into “profitable” ventures generally expect a very significant return on their investment. No blue blooded investor is going to put up all of their capital just so that they can earn a wage and make it easy for others to earn as much without risk (break even profit scenario).

    “For profit” does work, but generally only in a philosophical sense. It is the students who are the profit takers.

  6. Freelander
    August 9th, 2012 at 15:03 | #6

    @djm
    I see JQ made the distinction between private and for -pro fit. The US has a very large number of not-for-profit universities providing excellent education.

  7. BilB
    August 9th, 2012 at 16:52 | #7

    And now, it seems that Australia has its own education scam that has left trades apprentices with worthless qualifications. I did not here all of the details.

    This highlights the difference between regualr market products and education. Education is time from peoples lives. Usually irreplaceable time if the product of that expended time ultimately proves to be worthless. Lost money does represent earning time from peoples lives, but money can be reimbursed through court action. learning time cannot.

  8. conrad
    August 9th, 2012 at 16:56 | #8

    “the crucial distinction is between for-profit and non-profit, not public v private.”

    It’s not clear to me that this is the correct distinction. It’s hard to see how differently many non-profit and for-profits places are operating apart from a slightly greater margin the for-profits need to make. Most Aus universities, for example, seem to be driven by one factor, and this can be seen in many domains, such as non-profitable courses being shut down, no matter how much community need there is for them (the Melborne model comes to mind here), and crappy exploitative courses being started simply to make money.

    An alternative way of thinking about this would be to consider what the difference would be if the universities here were for-profit. If the difference is “I can’t really see how many things would change in any particularly great way”, then the distinction between for-profit and not-for-profit is obviously not the correct one to make.

  9. Katz
    August 9th, 2012 at 17:25 | #9

    Not for profit educational institutions are usually guided by some overriding principle — religious, secularist, one or another philosophical, spiritual or educational principle. The schooling of individual students is subsumed under that overriding aim. The educational institution maintains its esprit de corps and sense of common purpose if it can convince itself and the world that it is more or less true to its overriding purpose.

    Maximising return on capital is not a sustainable educational mission. Educational institutions that are expected to generate a dividend are in peril of either cost cutting in a race to the bottom, or to collapse into a corrosive cynicism with regard to their customers, who in turn expect to get from their schooling what they want rather than what they need.

    And as all hawkers know, the customer is always right.

  10. TerjeP
    August 9th, 2012 at 17:39 | #10

    As I understand it private schools in Australia that accept government funding (ie the vast majority) are not allowed to operate on a for profit basis. If that rule was lifted I’m sure many private schools would continue to be not for profit. However some for profit schools would exist. Is it asserted that the later would ultimately fail or is it asserted that the existence of the later would undermine the entire system?

    In Sweden I understand that the number of private for profit schools is increasing and that they perform well compared to the alternative. The rule in Sweden is that schools that get government funding can make a profit but can’t charge anything over and above what the government gives them. This is apparently working but does I suspect leave such businesses very vulnerable to changes in government funding formulas.

    http://www.cato.org/publications/commentary/how-sweden-profits-profit-schools

    Opposite my kids public primary school there is a large number of private tuition businesses catering primarily but not exclusively to the Asian community. They seem to be doing very well and I suspect they are quite profitable. I’m not sure how you would classify these.

  11. John Quiggin
  12. Freelander
    August 9th, 2012 at 18:50 | #12

    It is sadly true that some not-for-profits can be corrupted by administrators adopting a for-profit mentality. That has even happened with public universities. Let’s hope that passes.

  13. August 9th, 2012 at 19:49 | #13

    Well, education has many characteristics that make it unlikely that private markets would deliver socially optimal outcomes – the credence good nature of education, the externalities, promotion of social norms, integration of social networks between groups and social classes… the list goes on.

    Of course, there is always going to be scope for some private for-provit provision of specialist areas of education that don’t share such features, and they shouldn’t be stifled.

    I alway wonder when discussion of private education comes up that we never discuss the compulsory nature of school (grades 1-10). How about make no schooling compulsory, and let the market work? I you don’t think that will deliver an optimal outcome, then you are already discussing the best public/private/compulsory mix of education funding and provision.

  14. Freelander
    August 9th, 2012 at 20:26 | #14

    The problem with non-compulsory schooling not working in a free market is due, in theory, to there being no free market in the ownership of children. Presumably if that constraint were removed the free market would solve all.

  15. BilB
    August 9th, 2012 at 20:28 | #15

    I think that they have non compulsory education in some African states. It does not work very well at all.

  16. TerjeP
    August 9th, 2012 at 21:38 | #16

    John – if I wanted to be cynical I’d say you just jumped on google and shared the first negative article about the Swedish “free schools” that you found. Should I be cynical?

    According to Wikipedia there is now 900 of these “free schools” in Sweden where there was none in 1992. That’s quite an achievement in just 20 years in a country with 9.5 million. They may have critics but they also clearly have bums on seats.

  17. conrad
    August 9th, 2012 at 22:31 | #17

    “Not for profit educational institutions are usually guided by some overriding principle”.

    Katz, I think that anyone that believes this of Australian universities is delusional, unless they think the overriding principle is making money or furthering the careers of upper management (which, in Australia, means they are making and spending a lot of money, preferably on things like buildings and other easily quantifiable achievements). The “goals”, which of course change season by season according to who thinks they need to show they are doing something when they get a new position are usually so crazy they are funny. Feel free to read the ones my university uses (immortalized here: http://clubtroppo.com.au/files/2012/04/Swinburne.png) and then come back and tell me what the overriding principle is.

  18. Katz
    August 9th, 2012 at 23:40 | #18

    Always ≠ usually

  19. Freelander
    August 10th, 2012 at 00:12 | #19

    @TerjeP
    Foolish would be the word rather than cynical. You cannot use Cato as a source and expect to come out ahead. Cato as a research institution and as an educator is in that category even worse than the for-profit, that is the for-profit not-for-profit.
    Cato a for-profit that picks the taxpayers’ pocket at the same time.

  20. John Quiggin
    August 10th, 2012 at 06:17 | #20

    @TerjeP Sweden came up last time around (this is a repost), so I knew that it wasn’t as rosy as claimed in your link. I was actually looking for a report about statements made by the (conservative) education minister there, but Google pointed me to this report instead. Is there a problem with that?

    Regardless of location method, a negative finding about privatisation by a Swedish business group seems to me to carry a lot of weight. A positive by Cato is a bit, well, MRD.

  21. John Quiggin
    August 10th, 2012 at 06:23 | #21

    @conrad The universities are guided by mud the same goals as ever, and do a reasonably good job of pursuing them, but they are not guided by VCs or mission statements. Senior managements, strategic plans and so on come and go, with very little effect – these days I think even the senior managers recognise that.

  22. conrad
    August 10th, 2012 at 09:37 | #22

    “The universities are guided by much the same goals as ever..”

    Perhaps that’s true but (a) most never had any well specified goals (which once may have been a good thing) compared to the US universities, many of which really do know what they are doing and why; (b) I’ve never worked anywhere where the bottom line has been less important than Australian universities (try asking you overseas colleagues that now work in Aus — perhaps universities in Aus differ on this an UQ is better than most); (c) things certainly have changed in terms of courses-for-money. This is why, as you’ve noted before, every university tries to offer the same money making courses, no doubt some of which are of dubious quality; and (d) things like the Melbourne model pretty much prove that even the good and rich universities are willing to sacrifice quality for money — the Liberal Arts courses and people at Melbourne were really excellent, but that didn’t stop them destroying that due to money concerns.

  23. Katz
    August 10th, 2012 at 10:23 | #23

    Academics teaching in Australian universities are in an invidious situation. The funding model imposed on them demands that many academics are compelled to teach students who are incapable of satisfying minimal expectations.

    Course provision far exceeds effective demand. But the survival of programs requires a constant flow of bums on seats. Teachers are therefore required by their administrators to certify students against their professional judgment. These teachers are torn between security of employment and professional integrity. The survivors betray their integrity replacing it with cynicism.

    In this environment there exists very little scope for pursuing sound educational objectives. Thus, ironically, the current higher education funding model has replicated the outcomes of the for profit sector without actually generating a profit or a surplus.

  24. BilB
    August 11th, 2012 at 18:46 | #24

    As we consider “for profit” education we should think about how this would likely play out in the Australian context. Tertiary education is expensive. Even AusGov Corp which runs the current programme has difficulty balancing the budget. So you have to wonder who the investors capable of bringing to site the huge amount of funding to pull this off might be.

    There are some obvious front runners which would have a mixture of output appeal. Any politician with a Coles U Commerce degree, for instance, who rises to be treasurer is guaranteed to pull the Libertarian vote, because they know that he would work tirelessly to keep taxes Down,…Down, Down. And legislation drafted by bureaucrats and pollies with Woolies U Law degrees are likely to be well received for their economy use of only short low cost budget words, although such legislation might have to be replaced more frequently.

    A Murdoch Institute Journalism qualification is less likely for the risk that recordings of campus conversations could emerge years late to embarrass or restrict divergent careers. More popular would be the McArts degree servicing the advertising industry, although a “sameness” could set in quite quickly. Telstra Tech is a safe bet despite that nagging sensation of paying ever more to get less each semester. Apart from the llifetime course fee repayment experience with regular calls from sub Asian call centres the GE IT is a likely feature of a “for Profit” future.

    A commercial purpose tertiary education system would certainly be more “colourful”, but would it serve the community, or would it be a passing phase of some zombic ideology? I suspect the latter.

  25. Jim Rose
    August 11th, 2012 at 19:00 | #25

    Many businesses run on a not-for-profit, worker ownership or consumers’ co-operative because they are the forms of organisation that survive in market competition.

    Life insurance (AMP?) was often run on mutually owned, not-for-profit basis especially in earlier times when it was easier for managers to disappear into the night with the funds. Dividends to private owners would be a device to deplete capital before life insurance payouts are due.

    Worker owned firms are in many of the professions. Much of their capital is human capital and mutual monitoring was required to prevent shirking. Alchian and Demsetz pointed this out in 1972 as did Ed Lazear.

    When it is difficult to specify quality in a contract, such as with education, innovative forms of organisation are required to overcome shirking and dilution of quality.

    Andrei Shleifer’s argued in “State versus Private Ownership” that we want state ownership in the following cases:
    1. opportunities for cost reductions that lead to non-contractible deterioration of quality are significant;
    2. innovation is relatively unimportant;
    3. competition is weak and consumer choice is ineffective; and,
    4. reputational mechanisms are also weak.

    He applied his criteria to prisons and schools.
    • Although in some respects prison contracts are very detailed, they are still seriously incomplete. There are significant opportunities for cost reduction that do not violate the contracts, but that can substantially reduce quality.

    • For schools, the damage to quality from cost cutting may be large, but innovation is probably important, and the incentives of publicly employed teachers are weak.

    • under vouchers, school choice would force private schools to compete by providing higher quality, since schools cannot compete in price if students pay with vouchers.

    See also http://www.economics.harvard.edu/faculty/shleifer/files/proper_scope.pdf

    The application to universities is less clear because universities do compete on both price and quality. About 20 percent of American college students attend private colleges. Some of the most prestigious universities in the U.S. are private, non-for-profit universities.

    Developers can gain from setting up a high quality, not-for-profit private university and service the surrounding community. These developers have a long-term interest in the not-for-profit private university staying high quality as the anchor of their business.

    How do private language schools operate?

  26. Ikonoclast
    August 11th, 2012 at 19:04 | #26

    “Private Enterprise Rorts Govt Subsidies!”

    Gee that headline is a surprise. NOT!!!

    What stands out once again is the inherent, asocial opportunism and even downright dishonesty of private enterprise when it is not properly controlled and regulated. Such behaviour always goes against the general public interest and is one of the key reasons why laissez-faire market policies fail dismally.

  27. conrad
    August 11th, 2012 at 19:32 | #27

    “Thus, ironically, the current higher education funding model has replicated the outcomes of the for profit sector without actually generating a profit or a surplus.”

    Since there are also decent for profit universities and not so good non-profit ones, a more neutral way to say this is there are simply good and bad providers (although I’ll admit that the for profit providers in Australia have been, overall, more explotative than the non-profit ones and have basically wrecked the vocational training sector in some places). I basically agree with a lot of the rest of your comment, in that the main thing that keeps keeps courses good is the individuals who actually run the courses. I also think there is very little you can actually do about this, no matter how many rules one imposes.

  28. Katz
    August 12th, 2012 at 06:05 | #28

    Since there are also decent for profit universities …

    Name them.

  29. Freelander
    August 12th, 2012 at 08:37 | #29

    One of the most amusing obsessions that Milton Friedman had was his wish that government deliver services using a voucher mechanism. In most cases unless the voucher system is backed by a prohibitorily costly army of bureaucrats ensuring compliance with the voucher systems intentions, a highly costly problem of rotting is likely to ensue.

    The reason is because if you give someone a voucher worth say $500 for a particular purpose, the person would usually rather spend the same money on something else. It therefore becomes in the interest of a provider to provide that something else rather than whatever the voucher finder intended. In the case of education many uneducated cannot readily discern the relative quality of different providers. Putting a voucher in their hands is unlikely to magically make that discernment any better. And it is exactly that discernment, the discernment of ordinary punters, that voucher supporters argue provides vouchers with purported benefits.

  30. BilB
    August 12th, 2012 at 10:17 | #30

    I remember very specifically when Milton Friedman came to Australia espousing that exact notion, Freelander. It does not take much thought to see the huge holes in such a voucher system, and the most significant thing about that is that he could not. With that failure of understanding how could any other part of Friedman’s economic model be taken seriously.

    I can just see how that would be playing out these days with the influences of government promoted rampant gambling and strong Asian demand for cheaper educational access.

  31. TerjeP
    August 12th, 2012 at 15:36 | #31

    Freelander – the Australian funding model for primary and secondary schools and increasingly for preschools is quite voucher like. The government funds follows the students. Parents choose where the students attend. Parents can pay in extra if they wish. The fact that a voucher isn’t physically involved doesn’t materially change the system. Of course the funding formula in Australia isn’t purely based on student numbers so it isn’t a pure voucher style funding model but I’m not aware of any country that is closer to the voucher model.

  32. TerjeP
    August 12th, 2012 at 15:44 | #32

    John – as far as I can see the complaint regarding Sweden is that national standards have slipped relative to some international benchmarks. However it isn’t clear that the for profit schools have faired any worse than other Swedish schools. Without some clearer data the only measure that seems to be readily cited is that the for profit schools are growing in student numbers.

  33. BilB
    August 12th, 2012 at 16:40 | #33

    TerjeP,

    Friedman’s vouchers were tradeable. So hard up parents could trade their children’s education for other advantages. Some would argue that this would not be possible, that they would remain the undisposeable right of the child. If that were the case then there would be absolutely no reason for having such a token other than perhaps as an accounting device. The only exception being that parents of a deceased child might have the right to sell unuseable vouchers, but that in itself is a dangerous concept in times of hardship.

    On the Swedish system the point being made was not that for profit is not serviving, but that educational standards were eroding. The converse of that is in the recent reports of an educatioanl miracle in Aracoon (?) where a more direct and personal teaching method is improving school attendence and student outcomes. The message is clear, the higher the cost, the better the educational outcome. Exactly the opposite of a “for profit” commercial educational model.

  34. Freelander
    August 12th, 2012 at 16:57 | #34

    @TerjeP

    Doesn’t make it ‘voucher-like’. The Friedman voucher Nirvana is considerably looser than that. But I am not sure Milt”s heart was in it as I think he preferred giving cash or better yet nothing.

  35. TerjeP
    August 12th, 2012 at 21:47 | #35

    Friedman’s vouchers were tradeable.

    I’m not going to accept that assertion without a citation. Sorry.

  36. BilB
    August 12th, 2012 at 22:06 | #36

    You might like to read this interview, Terje. It was on this visit that Friedman spoke of his tradeable vouchers but they are not mentioned here. I’ll find a reference to it.

    http://economics.org.au/2011/09/1975-monday-conference-transcript-featuring-milton-friedman/

  37. BilB
    August 12th, 2012 at 23:00 | #37

    Here is a reference to tradable vouchers, but it is in the comments field.

    http://www.freerepublic.com/focus/f-news/1173402/posts

  38. conrad
    August 13th, 2012 at 08:19 | #38

    “Name them.”

    Of the 3 that Andrew Norton mentions (few operate in Aus at the university level as far as I’m aware), and the one know I something about, is Navitas — part of their strategy is to simply partner with other organisations (in Aus, this means our universities). In clinical psychology, the universities do the subject teaching and Navitas organizes the clinical placements. This is no different to Open Universities Australia who uses this model but doesn’t do hard stuff like find placements (and curiously calls themselves non-profit despite paying dividends to the universities that own it) except they are willing to find clinical placements. This is an all round winner, because the biggest thing limiting Aus universities in many clinical areas is getting work placements, which is extremely hard and expensive to do. There is a big group in HK that owns a number of number of hospitals that does same thing and if you want to find others, simply look for for-profit groups offering similar teaching where to get accredited they have to have both normal subjects and clinical placements (e.g., Masters in Clinical Psychology, Most medical and nursing courses). I can find these pretty easily in the US.

  39. Katz
    August 13th, 2012 at 12:46 | #39

    This may be a matter of semantics, but a university is traditionally a institution that provides a broad, general liberal education. Certainly, professional accreditation is one aspect of university education but it can be argued that professional accreditation is not a sufficient description of a university.

    Though it is entirely likely that a for-profit institution may provide that gatekeeper role more efficiently and even ruthlessly in the interests of their most important clients — the professional organisations that seek to restrict entry to those professions.

  40. conrad
    August 13th, 2012 at 13:53 | #40

    “but a university is traditionally a institution that provides a broad, general liberal education.”

    Universities have historically done all sorts of things. My main point was that it is possible for for-profit organizations to offer a reasonable education, and that in some cases that includes relatively broad areas (you could do your whole degree and postgraduate training with Navitas if you really wanted). As for the professional organisations, many of the requirements they impose are often reasonable, and we usually just hear about the unreasonable ones. A big benefit of them is that they stop disasters like that which happened to the vocational training, at the price of them sometimes creating their own little mafias (like the AMA).

  41. August 14th, 2012 at 14:32 | #41

    Creeping credentialism and career structure loss

    One facet of privatised education that has slipped from public attention is that up to around a generation ago, much training was provided on the job by both government and private employers. Also, many employers provided career structures, which enabled those with ability to gain promotion as their skills improved and experience increased over the years. In these days, after which our economy was been made so much more efficient thanks to the neo-liberal ‘reforms’ which commenced with Keating in 1983, it seems that employers are unwilling or unable to any longer provide the training or career structure they once did. So, instead, most wishing to advance their career have to, instead, study in their own time at their own expense.

    So, on top of excessive commuting times, many now have to spend their evenings and week-ends studying or attending classes, instead of with friends and family.

    Even initial employment by many employers is now restricted to those able to include, in their resumés, tertiary qualifications and often postgraduate qualifications, whereas, up to a generation ago, anyone who had completed year 12 and who could pass an entrance exam was at least guaranteed a job in the federal public service or one of the state public services.

  42. Freelander
    August 14th, 2012 at 14:42 | #42

    Seems nowadays, a degree is required even to ask “Would you like fries with that?”

  43. Tom
    August 14th, 2012 at 16:01 | #43

    @Malthusista

    Although I agree with the neoliberal reforms started by the Hawke-Keating government are the main cause of the problem, I would like to present a different viewpoint on this situation.

    My view on why the job market is facing such a problem are mainly due to the widening income inequality, and the significant loss in job security post the neoliberal reforms, rather than privatisation (although I oppose privatisation as well). The widening in the income inequality gap have made more people to weight the income from different sectors of the economy more heavily. In the recent history, the income gap between the STEM sector (which usually requires tertiary education) and other sectors such as the manufacturing sector, and the agricultural sector etc. have made people to obtain tertiary education. This increase in the STEM sector labour supply reduced the need for employers to offer positions to people who needs training. While the excess labour created by the market (when government refuse to employ them) will have to take on any job to survive, such includes what Freelander said: “Would you like fries with that?”.

    The significant loss in job security have also made people to have tendency to choose an industry with higher pay and more job demands (especially since manufacturing sector employment is declining in Australia from 21.2% in 1978 after the oil crisis to 12.6% in 2000). This loss in job security has also force the labour market to be more competitive, so most of them went on the gain a competitive advantage from education. Over time as the excess labour who holds tertiary education have to find other jobs to surivive, it created a situation where clerk level job (high school drop out is more than capable to perform such job duty if training are provided) are filled with university graduates. This inefficiency of distribution of resource and the time wasted for people to gain low-skill requirement position are not being translated to an issue tha requires policy attention somehow.

  44. August 14th, 2012 at 16:58 | #44

    Tom @ 43,

    Thanks for your considered and lengthy response, much of which I agree with. I have adapted it and re-posted it here. I trust you will approve. Further comments, there or here, are welcome. Unfortunately, I am unable to address at this moment all of the issues that you have raised.

  45. Ernestine Gross
    August 14th, 2012 at 20:51 | #45

    @conrad

    Navitas is a for profit orgnisation. Navitas is listed on the ASX. Its code is NVT. But what does it do?

    Is it providing education like a university? Is it true “you could do your whole degree and postgraduate training with Navitas if you really wanted”?

    Industry classifications are more often than not tricky in practice. The ASX’s GICS Industry Group is for Navitas is“Consumer Services”. The stated activities are “The provision of pre-university and university programs for domestic and international students”. The provision of a program is not the same as developing it and teaching it.

    Here are examples of how hard-nosed finance people see Navitas.

    http://www.investsmart.com.au/shares/asx/Navitas-NVT.asp

    http://www.theaustralian.com.au/business/opinion/navitass-education-lecture-falls-on-deaf-ears/story-e6frg9lo-1226439849493

    Navitas has recently obtained a government contract for the ‘provision’ of English language for migrant’ programs. These programs used to be offered directly by TAFE. A TAFE head teacher in this area with more than 10 years experience told me recently TAFE staff are underfunded and overworked not least because of the paper work required for accreditation of teaching programs. According to her, this paper work was introduced in the process of regulating private providers.

  46. conrad
    August 15th, 2012 at 07:43 | #46

    Freelander: “Seems nowadays, a degree is required even to ask “Would you like fries with that?””.

    The simple solution then is not to get one.

    Tom:”Over time as the excess labour who holds tertiary education have to find other jobs to surivive”

    One of the curious things about this and the previous belief is that it somehow assumes employers are stupid. If it was really the case that degrees wern’t worth anything, I don’t see why employers wouldn’t simply employ non-graduates who are cheaper — this would make them vastly more competitive than all of the companies that do.

  47. Freelander
    August 15th, 2012 at 08:04 | #47

    Non graduates are not cheaper, they are just more likely to be unemployed. Given the many available for even a menial job, the degree can be used as a screening device. Presumably possession of a degree suggests some minimum capability that most but not all non holders have. Thus the degree can be a very expensive signalling device.

  48. Tom
    August 15th, 2012 at 09:06 | #48

    @conrad

    Nobody said a degree is worth nothing, if you read my comment properly you should understand the reason for more and more university graduates getting jobs which a degree is not needed is because employers value education as an advantage and the people knows employers value it. Once this establishes, the only conclusion it can reach is stated in my comment, over time more and more people will take on tertiary education and there will be over supply.

  49. Katz
    August 15th, 2012 at 09:42 | #49

    I think Conrad will need to find a better exemplar of for-profit “university” education than Navitas, whose business model is described thus from EG’s link:

    NVT embeds itself into partner universities who welcome the additional direct revenues NVT delivers, as well as the expansion of supply of *high-margin foreign students* into the universities´ own degree and diploma courses.

    [my emphasis]

    NVT is little more than a crammer araldyting fee-paying NESB bums to lecture theatre seats. 

  50. conrad
    August 15th, 2012 at 10:13 | #50

    ” is because employers value education as an advantage and the people knows employers value it”

    One can only wonder why this is Tom. I don’t disagree this could lead to an oversupply incidentally.

    “Non graduates are not cheaper, they are just more likely to be unemployed”

    Says who? If I was an unemployed non-graduate that had the same skills as a graduate, I’d happily take a job less than the average graduate starting salary. Who wouldn’t?

    “NVT is little more than a crammer araldyting fee-paying NESB bums to lecture theatre seats. ”

    I don’t see any problems with NESB students — They’re better on average than locals in many areas, despite the hyperbole (e.g., in maths). They’re also subsidizing Australian students, so people really should thank them for coming. Some courses (e.g., electrical engineering) probably wouldn’t exist in some places without them. In addition, since Navitas is often *partnering* universities, the standard of the courses is set by the universities not Natvitas.

  51. Freelander
    August 15th, 2012 at 10:29 | #51

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

  52. conrad
    August 15th, 2012 at 11:16 | #52

    “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.

  53. Freelander
    August 15th, 2012 at 11:56 | #53

    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.

  54. Freelander
    August 15th, 2012 at 12:02 | #54

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

  55. conrad
    August 15th, 2012 at 12:14 | #55

    “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.

  56. Katz
    August 15th, 2012 at 12:25 | #56

    @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.

  57. Freelander
    August 15th, 2012 at 13:04 | #57

    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.

  58. Tom
    August 15th, 2012 at 14:06 | #58

    @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.

  59. Freelander
    August 15th, 2012 at 14:31 | #59

    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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