Home > Economic policy > Waist deep in the Big Muddy

Waist deep in the Big Muddy

February 10th, 2016

The sudden collapse of four for-profit vocational education enterprises including Aspire college is the latest in a string of scandals, failures and license revocations in the sector.

Meanwhile, in the US, the Apollo Education Group, owner of the “University” of Phoenix, has been taken private for $1 billion, a fraction of its peak market value. UoP pioneered the model of providing a bogus education to publicly funded students, ripping off both the students and the public purse. As the US has cleaned up the worst abuses, UoP and others have seen their profits shrink, to the point of bankruptcy in some cases.

The provision of public funds to for-profit operators has been a predictable, and predicted disaster. Of all the disasters perpetrated under the banner of microeconomic reform, education reform has probably been the worst.

In these circumstances, it would make sense for the national government, which has borne much of the cost, to take over the vocational education sector, properly fund the public TAFE system, and close down the for-profit sector, as was recently done in Chile.

The idea of a national takeover is, indeed, on the cards. But far from closing down the for-profit sector, it appears the Turnbull government plans to push the reform agenda even further.

Waist deep in the Big Muddy, and the big fool said, Carry On.

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  1. GrueBleen
    February 11th, 2016 at 00:07 | #1

    And after they’ve finished with education, they can get on with “privatizing” Medicare because, as everybody knows, the worst of private enterprise is way better than the best of government enterprise.

  2. EconoMan
    February 11th, 2016 at 08:12 | #2

    Completely agree Prof. Q.

    One thing that does annoy me about this debate is how this is presented as a failure that is outside the understanding of economics – notwithstanding JQ’s and other economists’ predictions of failure.

    Government might be – and probably usually is – less productively efficient than private providers. However, absent corruption or outright stupidity, at least Government providers are trying to provide the right thing – i.e they are allocatively more efficient. Private, profit-driven providers don’t care about this allocative efficiency.

    The task of designing contracts, markets, regulation, etc. – e.g. ‘getting the incentives right’ so that the private providers’ profit motive is aligned to the social objective – is incredibly difficult.

    Why is it that free-marketeers who believe government failure is rife are somehow convinced that Government as market designer is perfect? Perhaps they don’t care if it shrinks the State and advances corporate interests…

  3. Ernestine Gross
    February 11th, 2016 at 09:39 | #3

    I agree with JQ and EconoMan.

    “Why is it that free-marketeers who believe government failure is rife are somehow convinced that Government as market designer is perfect?”

    I suppose because they don’t have to pass an examination on incentive compatible mechanisms.

  4. Peter T
    February 11th, 2016 at 12:42 | #4

    Can we at least stop calling this stupidity “reform”?

  5. John Quiggin
    February 11th, 2016 at 14:15 | #5

    @Peter T

    That’s what “reform” means in Australia. I use it deliberately, without scare quotes, to describe policies that change things for the worse.

  6. Ikonoclast
    February 11th, 2016 at 14:57 | #6

    The original post illustrates, yet again I think, that neoliberalism is still on the march. It is still attempting to roll back, on as many fronts as it can, social democracy. Neoliberalism has some set-backs from time to time. Yet, overall it continues to advance. As evidence of neoliberalism’s continued advance I would mention everything from the still declining income share and rights of labour to the recent signing of in-principle agreement to the TPP. Other pieces of evidence are the increasing financialisation of the economy, the failure to re-regulate after the GFC and the increasing use of ISDS (Investor State Dispute Settlement) against democratically motivated regulation in the EU and North America.

    At some stage it might seem sensible to suspect that social democracy, as bourgeois democracy plus capitalist mixed economy, has a fatal susceptibility to Zombie Flu, otherwise known as Neoliberal Corporatism. Just sayin’.

  7. James Wimberley
    February 11th, 2016 at 20:09 | #7

    A couple of us pointed out in the precious post that for-profit vocational training can work as long as the customers are not individuals but employers, as in France. They will probably have a short-term approach, narrowly focussed on job skills not personal and career development; but an HR department hiring somebody to teach Excel or Chinese or plumbing with PVC will be a reasonably competent repeat customer, and hard to rip off.

    An enjoyable example of successful vocational training is the French language course for recruits to the French Foreign Legion, taught in-house. The vocabulary isn’t “la plume de ma tante”, and the students and for that matter the teachers are not men you would want to meet on a dark night in an alley behind a bar, but the pass rate is very high. If you don’t pass, you can’t stay in the Legion.

  8. Ernestine Gross
    February 11th, 2016 at 21:25 | #8

    ” … but an HR department hiring somebody to teach Excel or Chinese or plumbing with PVC will be a reasonably competent repeat customer, and hard to rip off.”

    If the HR department has staff proficient in Excel or Chinese or plumbing with PVC …

    I love the example in paragraph 2. The method works successfully in an ‘industry’ no outsider wants to be associated with.

  9. paul walter
    February 12th, 2016 at 11:28 | #9

    This all sounds reminiscint of the decade long debacle here involving so called accreditation colleges for increasing numbers of paying offshore students seeking to get into Australian universities, then the inability of these to adequately train people who often can barely speak English.

    Now, that was a robust”reform”, wasn’t it?

  10. David Allen
    February 12th, 2016 at 17:06 | #10

    The LNP is reforming Australia up it’s anal orifice. It’s what they always do. They never build, they only wreck.

  11. GrueBleen
    February 12th, 2016 at 17:26 | #11

    @John Quiggin

    Couldn’t we just replace the leading ‘r’ with a much more accurate ‘d’ ?

  12. GrueBleen
    February 12th, 2016 at 17:33 | #12

    @EconoMan

    “Government might be – and probably usually is – less productively efficient than private providers.”

    That’s an interesting assertion, Economan. Do you have any empirical evidence for it ? Or even just a statement of what you mean by “productive efficiency” in both government and private enterprises ?

    I have worked for both private and government over my lifetime and I never noticed anything that I would particularly call “productive efficiency” in private organizations.

  13. February 12th, 2016 at 18:18 | #13

    So there is a certain class of person who thinks:

    I don’t want to pay tax, and will lobby hard for that. Our latest ploy was to use a GST increase to cut tax for high income earners. Shame it didn’t get up.

    But if you are stupid enough to pay tax, I will run a business that effectively steals that tax, courtesy of a stupid ideology pervading government thinking right now.

  14. James Wimberley
    February 13th, 2016 at 00:03 | #14

    @Ernestine Gross
    “If the HR department has staff proficient in Excel or Chinese or plumbing with PVC … ”
    I picked these examples as they are readily verifiable skills; verifiable without expert knowledge yourself, as long as you can find a real expert in the phone book. BTW, I thought I made it clear that I am on the side of vocational education and not just vocational training. But there is such a thing as training, and given the right structure it can often be provided commercially.

    In an earlier life I was involved in technical assistance to post-Communist countries in Eastern Europe, mainly HE but vocational but vocational came into it sometimes. The hosts were fascinated by the German apprenticeship system, which works fine – but depends on a non-reproducible complex of social factors (small patriarchal firms, Stammtisch socialisation, peer pressure against free-riders). If you wanted a system that had a chance of working under the red-in-tooth-and-claw capitalism they actually had, the French model of coercion by tax had a much better chance. They didn’t listen of course.

  15. Ikonclast
    February 13th, 2016 at 09:50 | #15

    It seems to me that a TAFE system / Vocational Education and Training system possesses some characteristics of what one would term a “regional natural monopoly”. Within an urban or regional catchment there are reasonable distances for commuting. That’s really part of the definition of a catchment of that kind. I question to what extent students would move to another region to attend another “more competitive” TAFE. For domestic students it’s usually cheapest, though not the most fun, to keep living with parents. Given the current and very likely ongoing shortage of youth employment and part time jobs this has to be a significant factor.

  16. hc
    February 13th, 2016 at 10:25 | #16

    Privatizing higher education doesn’t work because of “lemons” issues – that students are in a poor position to assess quality (by definition, they ARE students) and private operators have incentives to sacrifice quality and quality-reducing cost reductions are hard to limit. You need really active accreditation programs to get decent sorts of outputs – so active that the economic advantages from private provision disappear.

    But much the same issues are arising in public higher educational institutions (and research institutions such as CSIRO) where VCs are often business managers with a corporate rather than an academic orientation.

    Moreover, I don’t see simple resolutions in an age of mass higher education. Tutorials cut from 4 or 5 students in my day to 25 plus today or being abolished altogether. In some cases face-to-face lectures being abolished so that students can study online in their own time. And essay-type written work being largely scared because it is impossible to mark in groups of 400+ students. Don’t have any simple solutions given anti-elitism constraints.

  17. Donald Oats
    February 13th, 2016 at 18:18 | #17

    Mass higher education has arrived at a time in history where technology disrupts jobs as fast as courses can be organised; by the time a student graduates from many of these courses, the job they thought they would get has become something far less than it was, if it is in existence at all. I would imagine that quite a few journalists, sub-editors, etc, have experienced this first hand. Scientists are another group who are experiencing serious job disruption, and technology is part of the cause of that, because it changes the economics of the service provision. Coupling those disruptive forces with tooth-and-claw raw and bloody capitalism, and we have the current situation. The pretenders can game the system and be away with the candy long before an overwrought regulator can do something about it; we’ve seen that situation time and again now.

    The universities, meanwhile, also offering a walk through the hall of mirrors and smoke screens. Massively online courses suck the oxygen out of the physical universities, really making them expensive real estate in the midst of cities bursting at the seams. It seems magical that we can access so much information online, but the hidden cost and the peril of doing so is that we destroy a whole culture of education and scholarship along the way. I think the print newspaper and the physical university have much in common: they won’t become extinct, but their ecosystems are severely degraded (de-funded). Even as overseas admissions keep the physical universities alive and kicking, the question as to what job a debt-laden graduate will acquire is a vexed one.

    Higher education degrees that sit at the apex of knowledge are the most expensive of all in the current education landscape, for by definition very few people possess the entry-level knowledge to undertake such study, and that means few students per staff member providing the courses/supervision. It’s difficult to see where such rarified scholarship and research sits in the rapidly (d-)evolving post-secondary education sector.

    If I knew someone who wished to do a STEM degree, I would strongly encourage them to either do an engineering degree, or to stay clear of STEM entirely. Everywhere you turn, jobs are getting gutted and gone. Learning how to sell real estate is probably a better proposition for future employment. When even the best in the world are losing their jobs, you know something is up.

  18. Ikonoclast
    February 13th, 2016 at 20:10 | #18

    Donald Oats,

    Really interesting thoughts there. I didn’t agree with all of them but they all made me think.

    “Mass higher education has arrived at a time in history where technology disrupts jobs as fast as courses can be organised.”

    A lot of truth in that one. What happens if humans develop self-replicating machines and self-programming computers? This hardly seems a sci-fi possibility anymore. On the other hand, if climate change and rising sea levels burn our lands and drown our cities then the whole ballgame changes again. Generalists, scroungers and gun-toting fundamentalists will rule.

    But I wouldn’t give up on all of STEM so easily. We need more philosophy and history too. What accounts for the narrow stupidity of most business economists? They don’t learn anywhere near enough philosophy, history or science. They learn one ideology coupled with finance and business techniques. That’s a recipe for the blind stupidity we are seeing now.

    http://www.thenation.com/article/one-rich-guy-who-owns-everything/

  19. February 14th, 2016 at 18:25 | #19

    @hc
    Yes, universities are not immune. Hence perhaps the lowering of the required ATAR to get into various universities, and the doing away with pre-requisites. I’ve heard that Open University is pretty much a scam of the TAFE level.

    Interestingly enough, the self interest of doctors keeps standards high, as the last thing they want is an oversupply. Although this could change if the owners of medical practises gain more power than doctors, and would benefit from an oversupply of bargain basement doctors.

  20. Ikonoclast
    February 15th, 2016 at 07:38 | #20

    @John Brookes

    Yes, the idea that professional workers can’t self-manage takes a hit from the reality of medical practices and law practices. In those instances, professional workers (doctors and lawyers) self-manage, usually as senior partners. I would think in like manner senior academics could manage universities. I assume this is what happened in the “old days”? Of course, there would need to be administrative staff and business staff but they should be managed by a board of senior academics making the big decisions.

    Eventually, under true socialism, workplaces would have to be fully worker managed in a democratic fashion.

  21. J-D
    February 15th, 2016 at 10:03 | #21

    @Ikonoclast
    ‘I would think in like manner senior academics could manage universities. I assume this is what happened in the “old days”?’

    Perhaps it depends on what you mean by the ‘old days’. The first university in Australia was the University of Sydney, and when it was established, control was assigned to a Senate of sixteen Fellows. The first sixteen Fellows were appointed by the government; after that the Senate had the power to fill any vacancies in its own membership until there were a hundred higher-degree graduates, after which time those higher-degree graduates were to elect new Fellows to fill any vacancies.

    I don’t know how many of those Fellows in the early days were senior academics, but I’d bet they were never a majority; a moment’s thought suggests that among the first sixteen Fellows there can have been no senior academics, since there couldn’t be anybody holding senior academic positions until after the Senate had already met and appointed people to senior academic positions.

    But perhaps the ‘old days’ you are talking about are older than those.

  22. Ikonoclast
    February 15th, 2016 at 10:30 | #22

    @J-D

    No, the “old days” were younger than the actual inception of a sandstone university in Australia but older than contemporary days. Those persons with a standard ability to infer meaning from idiom and context would have understood what I meant.

  23. J-D
    February 15th, 2016 at 14:27 | #23

    @Ikonoclast

    In that case, I am reasonably confident that no Australian university has ever been run by a board of senior academics. I haven’t checked the detail of every university at every period in its history, the way I could do for a single example, but I’ve had reason in the past to look into the structure of many Australian universities and their history, and the recurrent pattern is that the top body is made up of a mixture of people but never exclusively of senior academics — or even with a majority of senior academics.

  24. February 16th, 2016 at 21:42 | #24

    The problem with education is that it is one of the few policy areas where you want to encourage ‘consumer’ moral hazard -> socially it is beneficial to encourage venturesome rather than prudent investment in education because the less well-off are likely to under-invest. But to do this, mutualization needs to occur at the societal level to overcome adverse selection dynamics – therefore public provision of education.

    The flip-side is that these very conditions lead to outright opportunism if you have private provision of education. Creating a very costly mess – which is what we see in VET.

    So there are really only two policy choices (excluding the option of making a mess):

    1) Private provision of education and individuals (mostly the less well off) under-invest in education, or
    2) Public provision of education and individuals (esp. the less well off) don’t under-invest in education.

    (medicare and health provision have similar policy characteristics)

  25. February 16th, 2016 at 21:46 | #25

    This short video mash-up is quite good. If you replace the example of ‘housing’ with ‘university’ there is a lesson for VCs and university administrators..

    “The Greatest Economics Lesson” by @jkm_pdx

  26. BilB
    February 17th, 2016 at 04:14 | #26

    Spot on, SeanL.

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