Market Fail – UK attempts at marketisation bring a cascade of trouble

This post is about the ongoing attempts to reconfigure the higher education “sector” in England, using a quasi-market as the mechanism. This involved a significant increase to the tuition cap, as well as reductions to funding for teaching in some subject areas. To treat universities like other kinds of products in a market is to ignore some specific institutional and organizational differences that make universities (and students) “act” differently in this context. Here is the original post, from May 7, 2011: Market fail – UK attempts at marketisation bring a cascade of trouble.

Many articles over the past little while have been looking at the failure of government marketisation efforts in England. Following last year’s Browne Review (which recommended that university fee limits be lifted), the UK government dropped the policy bomb that universities had long feared—massive funding cuts (including 40% cuts to teaching), a drop from £7.1 billion to £4.2 billion, and a marketisation scheme to be implemented through raising the “cap” on tuition fees to £9,000 from £3,290. The idea was that universities would voluntarily differentiate their fee levels in order to capture different student demographics/groups, creating a quasi-market. However, when faced with the option of setting fees of “up to” £9,000, the majority of universities opted to charge the highest possible price. They did this in spite of the government’s threats to penalise them in various ways for inhibiting accessibility.

Why has the UK government’s marketisation scheme failed so dramatically with regards to fee levels? Surely the less well-known universities knew that in claiming the maximum possible tuition, they would now be charging the same fee as heavyweights such as Oxford and Cambridge. The government assumed that universities would naturally want to compete for various student “markets”, relying on institutions to create an appropriate distribution. However, such a tactic doesn’t ensure that a market will emerge. That outcome still depends on the behaviour of individual institutions. Since universities operate in competition for prestige at least as much as for revenue (the two are closely connected), their “behaviour” as actors in a market is unlikely to mirror that of (e.g.) a pet food company or an automotive corporation. So the relationship between price and prestige is undoubtedly one factor in the equation; no-one wants to be a “low-cost provider”.

In keeping with this logic, students do not behave like regular consumers when “shopping” for a university degree. They don’t necessarily seek out what’s affordable or reasonable in terms of cost; they are making an estimate on the future returns from their short-term investment, and education is not something that can be traded for a “better model” later on when one has more money to spend. Students are in a bind of their own, with those lacking present income being encouraged to take on debt in order to finance their future employability.

Lastly, it’s very difficult to create “economies of scale” in education (in my opinion it can’t be done, but that’s a whole other blog post). Thus universities cannot easily expand enrolment while also keeping tuition low, offering “discount education”–though this has happened to a certain extent with for-profit, online providers, mostly in the United States.

Another important aspect of the UK government’s plan was to remove funding from teaching, already an under-valued aspect of university work (international rankings are based on research); and from what I understand, this funding was taken only from the arts, social sciences, and humanities. But it seems that that the very universities that depend most on those enrollments will now have to raise tuition even more to make up for the significant loss of revenue–more so than, say, a university focussed heavily on the sciences. Is the UK government asking students to pay more for degrees that they (the government) have demonstrably judged to be less valuable-? (NB, I don’t personally believe that degrees outside STEM areas are less inherently valuable; but they are certainly less marketable according to the logic being employed.)

As it turns out, in most cases students will pay the same (increased) price for their degrees no matter where they choose to enroll; but clearly they won’t all be getting a better “product”. One reason is that the tuition money is replacing government funding that had been cut, rather than augmenting current income in order to increase “quality”. If the funding estimate of cost per student was considered insufficient to begin with, then it makes sense that universities would raise the level of tuition to the maximum possible (£9,000). So it seems there might be a fundamental disagreement between universities and government about the “cost” of educating a student in a certain discipline or area of study (not a surprise).

On a more theoretical level, I don’t believe it’s possible for students to “receive” a uniform education since every person brings something different to, and takes something unique from, their educational experience.

Overall I think this is a good example of some of the problems with trying to marketise education as a “product” with an inherent economic/monetary value. Universities in Britain are now stuck between the proverbial rock and hard place: if they charge higher fees (i.e. above £6,000), they are more likely to be penalised by the government for inhibiting accessibility. The necessity for this stop-gap measure demonstrates the failure of the initial policy to establish the desired equilibrium. Such radical policy change within a short period is likely to have deep effects on the British universities, including changes to student decision-making and to the faculty workforce.

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