The great demand-driven funding system debate: why Australian universities are less special than they think

Wednesday 2 April 2014

The east side of the Advanced Manufacturing and Design Centre building captured during a sunset.

Australian universities think they’re special in having their funding tied to student demand, but they’re mistaken, says Andrew Dempster, Swinburne’s Head of Corporate and Government Affairs, writing in The Australian today.

Since 2011, Australian universities have been free to offer as many undergraduate places as there is student demand – a once-in-a-generation policy shift in higher education.

The Commonwealth Government no longer decides how many undergraduate places each university can offer and in which subjects they must be offered.

While Australian universities have been capably navigating demand-driven markets for international education and full-fee postgraduate study for some time, they are now subject to market pressures for domestic undergraduate study as well.

Countries with whom Australia competes in the global race for talent are now looking to our lead. Late last year, the United Kingdom announced that it will be abolishing its own cap on undergraduate student numbers from 2015.

In signalling this major change in direction, Treasurer Joe Hockey’s counterpart in the United Kingdom, Chancellor of the Exchequer George Osborne, said that Britain’s cap on student numbers made no sense when that country “had a far lower proportion of people going to university than the United States, let alone countries like South Korea”.

The same sentiment applies in spades here in Australia as we look to our own region and see an increasing number of countries investing heavily in their higher education systems and a rising Asian middle class with an insatiable demand for quality education.

Right now, the British development is of particular significance for us as the UK’s conservative government led by David Cameron has been aggressive in pursuing policies of austerity, with the imposition of significant cuts in public spending since the former Labour government was voted out in 2010.

Sound familiar, anyone?

Britain’s decision to lift the cap on student numbers is an explicit recognition that its future will increasingly require a more educated workforce and an economy which is geared to the creation of economic value through the application of knowledge and innovation.

While Britain has outlined a clear direction, locally we’re in a bit of limbo while the nation awaits the findings of the cumbersomely-titled Review of the Demand-Driven Funding System.

In the meantime, we could usefully advance the debate about Australian higher education by reconsidering how language shapes the very content of that debate.

It’s common for us to speak in shorthand about “the demand-driven funding system” – almost as if the university sector is special, even unique, in having funding tied to actual student demand.

The truth of it is that we’re not that special.

It only takes a cursory look around the Australian policy landscape to see demand-driven systems everywhere.

Medicare, the private health insurance rebate, paid parental leave, unemployment benefits, the aged pension, the child care rebate – all of these systems are demand driven.

It’s actually pretty simple. The contribution that the Australian Government contributes makes to each of these schemes is determined by the actual level of demand for each service from year to year.

It’s true that debates inevitably arise about the sustainability of some of these other demand-driven programs. The current debate about Medicare is a case in point, with the government considering the introduction of a $6 co-payment for visiting a GP.

While people may agree or disagree with the merits of that proposal, there’s no question that’s an appropriate debate to be having. It’s centred on what proportion of the service should be funded by taxpayers and what proportion should be contributed by the patient.

However, at its core, Medicare funding will continue to be demand-driven. Successive governments have decided that it’s the fairest, simplest, least bureaucratic and most efficient way of doing things.

The parallel in higher education is obvious.

Students, of course, make a contribution to their education through the Higher Education Loan Program, popularly known as HECS.

Rather than revisit the fundamental competitive architecture of the system which is causing universities to lift their game, the government may well wish to look at whether the current cost-sharing arrangements strike the right balance between taxpayers and students.

This is where Australian governments have typically exerted most influence, sometimes increasing student contributions where students can contribute more to the cost of their education and sometimes reducing them to create financial incentives for students to study particular courses.

So it’s time for us to rethink the language that we use in this now-familiar debate.

No-one ever calls Medicare the demand-driven Medicare system. Nor do we talk about the demand-driven paid parental leave system, the demand-driven child care rebate system, or any other demand-driven system for that matter – except, apparently, the one that applies to universities.

Why do we persist? It’s typical of a sector which is often criticised for being self-absorbed and inward-looking.

Unfortunately, our obsession with using the words “demand-driven” to describe university funding is unduly focussing public debate on that very aspect of the system which is its greatest strength, creating fairness and efficiency in the allocation of public resources.

It’s time that we ended this strange obsession with stating the obvious and, instead, celebrate those elements of the Australian higher education system which other countries are now looking to emulate.