By Roger Brown
Roger Brown is a leading expert on higher education policy in the UK, and an active member of CDBU. His work commands attention because he habitually writes as a scholar rather than a polemicist, and eschews ideology in favour of a determination to let evidence guide his conclusions. The paper below, which we publish as an opinion piece (rather than a statement of CDBU policy), is Professor Brown’s submission to the Office of Fair Trading, written in response to the OFT’s recent ‘Call for Information on the Higher Education sector (undergraduate) in England’. His analysis of competition and choice in higher education is both scrupulous and spirited, and we commend it to our members as an important contribution to the debate in which we are now engaged.
The design of public services is highly complex. Increased choice and competition can often be effective, but it needs to be designed carefully and used alongside a range of other tools and policies. (OFT, 2010, p.64).
Participants noted that competition may not necessarily deliver good outcomes in all public markets. The prospects for competition will depend greatly on the service area. Bigger delivery risks are likely to arise when market failures are present, there are strong public policy objectives which don’t align with providers’ objectives, or if the service is not easily understood by consumers who (in turn) struggle to make effective choices. (OFT, 2013, p.4).
Our research found very little of the calculative, individualistic consumer rationalism that predominates in official texts. (Reay et al., 2005, p.58).
The perfectly informed consumer of economic theory is nowhere to be seen. (Winston, 1997, quoted in Newman et al., 2004, p. 91).
Unfortunately, the question of whether the market in undergraduate education is working for students (and if it isn’t, what should be done about it) is far from straightforward. A key issue is whether and how far it is possible for students as consumers to assess the service they receive and thus exercise informed choices between different programmes, subjects and institutions. But even if that were possible, there would still be limits to the application of market theory to undergraduate education because of the risks to the wider benefits. The central issue therefore is how greater competition and choice can be combined with non-market coordination.
The undergraduate ‘market’ is one of considerable complexity. Whilst it falls well short of a classical economic market, it does exhibit a number of market features and a good deal of market behaviour. This is the result of a number of market-based reforms by successive governments since the early 80s. Careful assessment of these changes points to clear gains in efficiency and responsiveness, but also growing stratification and a reduction in diversity; the impact on quality has been mixed. This suggests that we should be very cautious before introducing any further competition, for instance by removing the remaining controls on funded student numbers. However the greatest weakness in present arrangements is the absence of any means of determining and controlling the balance between private and public interests in higher education.
It is clear that the provision of undergraduate education in the UK falls well short of a classical market where suppliers compete vigorously for the custom of well-informed consumers, and where unsuccessful suppliers leave the market to be replaced by new ones or expand into new markets. Both prices (fees) and, at least until 2015, places for Home/EU students are limited, as is entry to the market for new providers seeking public funding for themselves or their students.
A second preliminary point is that in so far as the focus of the discussion is providing institutions – universities and colleges – these are nearly all multi-product undertakings. Indeed the range of services and activities in which HE institutions engage must be amongst the widest in the public (or private) sector. In addition to undergraduate programmes, most universities and colleges offer postgraduate programmes (both taught and research, and at different levels), conduct research and scholarship, offer ‘third stream’ services (applied research and consultancy, technology transfer, training, etc) to business and the public and voluntary sectors, contribute to economic and community development, provide cultural and recreational facilities, etc (the University of Southampton even runs a well used City bus service).
Whilst these various activities may be organised separately, the associated resources are not necessarily distinguished, or distinguishable. Indeed, the value added from combining the various activities (for example, the potential benefits to the curriculum from having teaching staff engaged in research and/or professional practice) is one of the greatest strengths of the system. It should also be noted that in most of these ‘markets’ there is fierce competition between institutions, as there is also in the procurement of the necessary resource inputs: academic and professional staff, non-formula based capital and revenue grants from government or public authorities, donations from benefactors and foundations, etc. Moreover, this competition is increasingly international, competition that is growing by the day as developed systems become more market-focused and developing systems become more self-sufficient.
A third preliminary point is that even in undergraduate education there is no single, monolithic market. Not only are there the various levels (Certificate, Diploma, Degree, Extended Degree) of provision, modes (full-time, part-time, etc), and course lengths, but there is a huge range of subjects and disciplines, which themselves divide into many sub-disciplines and areas of study (even a conventional academic subject like history has many different types of course, as well as over a hundred course providers). In effect, undergraduate education in the UK consists of a whole series of micromarkets or quasi-markets (Le Grand and Bartlett, 1993). Moreover, these micromarkets are continually changing in response to changes and expansion in the academic knowledge base, developments in the wider economy, changing student preferences, periodic attention in the media (including social networks), etc, not to mention changing government policies to support or promote particular subjects (science, engineering, modern languages) or themes e.g., ‘employability’.
Finally, there is also enormous diversity on the demand side, as would be expected with participation rates nudging 50 per cent: young and mature, male and female, White and ethnic minority, differing socioeconomic status, etc. Entrants now come through a multiplicity of routes with a huge variety of entry qualifications, educational experiences and learning dispositions. Another element is geography. Whilst more undergraduates study away from home than in most other systems, many do not or are not able to (an important consideration when student choice is being considered). In short, it is hard to overstate the complexity of the market in undergraduate education or the dangers of a broad, ‘one size fits all’ policy approach.
With these points in mind, we now consider how far the provision of undergraduate education in the UK already approximates to a classical economic market.
Even though it does not (yet) meet the basic requirements of an economist’s market, UK, and especially English, undergraduate education, still has more market features than most other comparable systems: there is some price competition; the fee is intended to cover the cost of teaching most subjects (so that students are effectively receiving vouchers, long advocated by free market theorists such as Milton Friedman); controls have been lifted on a quarter of funded places, and will be lifted on the remainder from 2015-16; and there has been some liberalisation in the market entry rules. There have also been attempts to strengthen the position of students as consumers, something we shall come back to. In any case, as the economist William Baumol pointed out many years ago (1982), it is not necessary to have full market conditions to have market-like behaviour on the part of suppliers. In parallel with these reforms, the proportion of higher education expenditure that is met from private sources has increased to such an extent that the UK now has the highest percentage of such expenditure of any OECD country other than Chile (OECD, 2013, Chart B3.2 and B3.3). Higher education, and especially student education, is increasingly seen as a tradeable private good rather than a necessary public service.
The recently introduced policy changes that have in part stimulated this Call for Information come on top of a series of market-based reforms going back to the early 1980s and described in my recent book with Helen Carasso (Brown with Carasso, 2013). These changes may be classified under four main headings:
- Increased competition for research funding, the significance of which will shortly be apparent.
- Increased sharing of the costs of undergraduate education, both teaching and maintenance, between the state and the student/graduate.
- An enormous expansion of the supply side, with large numbers of new universities in 1992, 2004-7 and most recently (including private ‘for profit’ providers, for the first time), due to the liberalisation of the rules for degree awarding powers and university title.
- A growing emphasis on the student as consumer and greater efforts to create a real measure of consumer sovereignty.
Chapters 7 and 8 of the book under reference offer a detailed and considered assessment of the impact of these changes that also takes account of international, and especially US, experience (see also, Brown, 2011). In summary, UK higher education has become much more efficient, much more entrepreneurial, and much more responsive to users. On efficiency, the clearest evidence comes from changes in student-staff ratios and in the overall unit of expenditure per student; on enterprise, from increases in third stream income and services to business; on responsiveness, from student satisfaction rates which remain at levels of which any other public (or private service) would be proud. But there has also been a downside.
There has been an increase in stratification (both of the institutions and of the constituencies they serve, with unhelpful implications for equity and social mobility) and a reduction in diversity. The continuation and intensification of research selectivity, together with the partial deregulation of places through the AAB/ABB device, have strengthened the market position of the more research intensive institutions at the expense of the rest, a process reflected and reinforced by the various institutional rankings or league tables, and to the disadvantage of the great majority of students. The large, prestigious, multi-campus, research-focussed university has become the default model to which other institutions aspire. This in turn has damaged diversity, as has the progressive absorption of smaller, specialist providers (the colleges of education, the London medical schools, the art and design colleges) into larger, multicampus universities (this has been the main form of market exit). In effect, reputational hierarchy has replaced functional diversity. Finally, the increased emphasis on competition may have damaged collaboration when it is strongly arguable that the best means of satisfying student demand and protecting diversity, as well as making the best use of resources, is through some sort of managed ‘division of labour’ between institutions (this point is developed further below).
There is very little clear evidence about the impact of these changes on the quality of student education (something that in itself is worthy of note). There have certainly been improvements in the level of service students receive from institutions. But it is also possible to identify a number of developments that threaten the quality of the student experience and academic achievement. These include reduced study time; increased term-time employment; pressure on pass rates and grade inflation; students less prepared for university-level study; increasing levels of plagiarism and other forms of cheating; declining levels of trust between students and lecturers; students adopting a more ‘instrumental’ approach to their studies; and a growing tendency for higher education to be valued for its ‘exchange’ value, especially in the labour market, at the expense of its ‘use’ value to the student (‘commodification’). The book also reports on a number of cases where institutional managements have overruled academic decisions in the interests of revenue and/or reputation: we do not know if these are isolated cases or the tip of an iceberg (almost certainly, somewhere in between).
Finally the book notes a tendency, already evident in US higher education but growing here, towards ‘dysfunctional’ expenditure. This is investment in things that have little or no educational merit but which are believed to attract students: residences, cafeteria, shopping malls, etc., what one American commentator called ‘gilding the palaces of exclusivity’. Merit-based scholarships, common in the US and growing here, are another form of expenditure that is wasteful, both economically and socially. Whilst some of these phenomena are also a reflection of long term pressures on resources, most are or can be connected to increased market competition at either higher or secondary education level, or both.
The limits of competition and choice in higher education
All this suggests that we need to be quite cautious in making the assumption that competition and choice can make the same contribution to achieving effectiveness and efficiency in higher education as they do in private markets in goods and services, and even in some public markets. The discussion turns on the nature of higher education, and especially student education, as a service.
It is usual to refer to externalities and information asymmetry as being the main constraints on the adoption of a market approach to the provision of public services (OFT, 2010). Externalities are certainly present and important in higher education (McMahon, 2009). In themselves indeed they significantly limit the role of consumer choice because students are by no means the only beneficiaries of higher education (Walford, 2006). The scope for competition and choice is further constrained by the difficulty of producing information about something of which the consumer is also the joint producer, and where timely, observable and robust indicators of quality are likely to be elusive, complex, of limited value and/or difficult to access. Of course, this is not a problem confined to higher education, but higher education may be a limiting case. Again, the detailed argument is set out elsewhere (Brown, 2007, 2012) and is just summarised here.
If the theory of consumer information were to be applied to the provision of student education, each of the following conditions would need to be fulfilled:
- There would have to be valid and reliable information about the quality of the programme of study on which the student may be embarking.
- This information would have to be accessible and comprehensible, i.e., usable.
- It would actually have to be used by the student.
- Institutions would have to react to the decisions made on the basis of the information.
By definition, if it is to be useful, consumer information has to be available before purchase. But student education is an ‘experience’, and indeed a ‘post-experience’, good (Weimer and Vining, 1992), the quality of which can only be appreciated by the user after, often long after, the educational programme concerned. Moreover, the consumer is also a joint producer – in many respects, the main producer – of that experience. There are many other variables that need to be taken into account: the curriculum, the learning environment and facilities, the organisation of the course, the skill and dedication of the staff, the contribution of the other students, etc. Moreover, these are rarely apparent or relevant at institutional level, universities being, famously, ‘loosely coupled’ organisations (Pascarella and Terenzini, 2005). Still a further difficulty is the fact that the opportunity to learn from repeat purchases is limited, as is the ability to switch programme, subject and/or institution. In short, the problem with information is not information asymmetry but the fact that no one has the necessary information about quality, or ever could have. This has not of course stopped people from trying to devise quality indicators, but such measures as have been devised – retention rates, degree classes, First Destinations, etc. – are at best crude proxies, made even cruder by making no allowance for input factors such as prior qualifications, social background, etc (a point made very clearly in the first evaluation of the National Student Survey but since ignored). There are further corollaries that we will consider in a moment.
The other requirements of the theory of consumer information can be dealt with more briefly.
Even if valid and reliable information about quality could be obtained, it is difficult to see how the necessary information about what everyone agrees to be a highly complex process could be made accessible and comprehensible to users and potential users. By definition, it would need to be heavily customised, which would be both complicated and expensive. In any case, we know from much research both in higher education and in consumer markets more generally that even where reasonable product information is available, from suppliers or intermediaries, a significant proportion of customers will not use it.1 Even if this difficulty could be got round, there remains a serious question as to whether, given the complexity of the learning process and the number of variables involved, institutions can react by adjusting their provision.2 Finally, collecting, analysing and publishing information is not a cost-free exercise, yet no proper study of the costs and benefits of the National Student Survey or the Key Information Set has ever been done.
The information problem, together with wider changes in the economy and society as a result of globalisation, technological change and growing inequality, which place an even greater premium on high value qualifications, explains why in higher education the introduction of competition between institutions increases stratification and reduces diversity, as well as posing problems for quality and equity. The argument is set out most fully in Chapter 3 of my 2011 book and is just summarised here.
Like consumers in any other market, students and other users naturally seek information to enable them to compare and choose between different programmes, subjects and universities. When observable measures are scarce, they turn to substitutes. In higher education, it is institutional standing and prestige that serve. Instead of the competition for customers and revenue that characterises conventional consumer markets, what we see in student education, at least for conventional mainstream programmes, is competition for status. Student education is a positional market, not an economic one, where value is judged by price (Hirsch, 1976; Marginson, 2004). Moreover, this status competition is not only between universities and colleges and their staff: we also see it on the part of students, graduate employers and even Government Ministers (given the current administration’s penchant for the Russell Group). For students, institutional status is the key to getting a high value job; for employers, it is the key to getting more acceptable graduate recruits; for universities, it is the key to attracting students, income and donors. All wish to be associated with high status institutions which – inevitably, given the problem with performance indicators for student learning – generally corresponds with performance in academic research. These institutions in turn concentrate their resources on activities that are conducive to further raising their status.3
American higher education illustrates this process very well (Brown, 2011; see also, Dill, 2003, 2007). There are no price controls on the fees charged by the leading private universities. These institutions charge what the market will bear, levying fees that even after allowing for discounts and student aid are still well in excess of what is needed to provide an acceptable standard of education (Vandevelde, 2013). This in turn creates a ‘price umbrella’ which means that the US spends a relatively large share of GDP on higher education, yet offers very poor value for money, with about half of all students failing to graduate in less than six years (there are obvious parallels with American health care).
So while some measure of supply side competition and consumer choice in the undergraduate market may help with effectiveness and efficiency, it needs to be carefully balanced with non-market (Wolf, 1993) coordination if the associated detriments are not to outweigh the benefits. The remainder of this submission outlines what form this coordination might take.
Competition and wider benefits
To begin with, the argument presented above should not be read as an argument against giving students and other users information about what is available from institutions. It is more a plea that we do not make information, competition and choice bear more weight than they can or should, given the characteristics of the ‘service’ and also the fact that many of the necessary decisions are having to be made by people who are still very young. Even more than helping them to make reasonable decisions, therefore, we should be trying to protect all students from the consequences of making the wrong choice by doing our best to ensure that there is a wide range of provision of adequate quality. This in turn suggests several lines of action.
First, we need a greater degree of transparency in the uses that universities and colleges are making of the income they receive from student fees (and HEFCE teaching grants, as long as they exist). This is certainly not an argument against cross-subsidy. But it is saying that if student fees are to be used to support academic research, as is the case in most institutions, then the institution should be able to explain and justify this by reference to the demonstrable benefits to student learning (and vice versa). Institutions should also publish figures showing what proportion of expenditure is devoted to teaching and learning, with a breakdown between under- and postgraduate programmes (both taught and research). We also need to keep a watch on the increasing amounts of resources that universities and colleges are committing to marketing and branding, where there are already signs that we are following the American pattern where such expenditure expands exponentially as competition increases (Matthews, 2012).4
Second, we must make it easier for students to switch between programmes, subjects and institutions. This means taking a much more serious look at credit-based learning than we have so far managed. Whilst it is easy to see the problems with a genuinely credit-based system – reductions in institutional autonomy, more ‘bureaucracy’, greater fragmentation of the curriculum – it is also possible that a system-wide move to credit recognition and transfer could increase both student satisfaction and the efficiency with which resources are deployed (see also, Watson, 2013). Local or sub-regional collaboration between universities and other providers (see below) is probably essential for this.
Third, we need to pay serious attention to the risk that even the present amount of competition may be damaging the self- and peer regulation that is even more the key to improved performance in higher education than it is in other sectors (Smith and Reeves, 2006). This will, paradoxically, require stronger external regulation of a kind that a market cannot provide, and which, again paradoxically, is actually needed to enable competition to function effectively (Brown and Bekhradnia, 2013). The aim should be to promote and support academic integrity and cooperation, rather than to allow it to be undermined by increased market competition or institutions’ responses to it.5
Fourth, we need to revisit institutional diversity. In principle, a wide range of institutions is needed to meet the wider set of student learning needs in what is effectively a mass system. However, as already indicated, there are good grounds for supposing that as participation and competition have increased, real diversity of provision has reduced, recent market entrants notwithstanding. It may be that the best way of re-creating such diversity would be through locally or sub-regionally organised ‘divisions of labour’ along the lines of some of the US state systems, with clear demarcation of institutional missions, more efficient provision of support services, and much closer articulation with other forms of post-secondary education and training including employers. This would of course require a greater degree of collaboration and sharing of interests than we have seen hitherto, or that seems likely as market competition increases (there is of course no necessary contradiction between collaboration on some aspects of provision and competition on others, and we are beginning to see more formal collaboration in research although this is still quite limited in England).
This in turn suggests a final and overriding requirement. It seems clear from any proper analysis that what economists are pleased to call ‘market failure’ is heavily prevalent in student, and especially undergraduate, education. If we are not to experience the disadvantages of marketisation without the advantages, and especially if we wish to preserve the wider benefits of higher education, then we need the information, the understanding, the powers, and the resources to be able to monitor the impact of increased competition and choice, and to be able to intervene when those wider benefits are placed at risk, as some of them already are. Regrettably, however, at the same time as we have increased market or quasi-market competition, we have scaled back our capability for identifying and remedying the detriments. If the Office’s Call for Information does nothing else, it is very much to be hoped that it will shine a clear spotlight on this absolutely fundamental issue for the future health of English higher education.6
1 There is also the question of equity of treatment towards other consumers who may not even be aware of it. This is a particular problem in higher education where, in spite of some recent progress, there remains a wide differential in participation depending on socioeconomic status, and it is students from more favoured backgrounds that are most likely to use what information there is about quality of provision.
2 There is also the question of whether institutions should adjust their provision, given the earlier point about students not being the only consumers of higher education. Not the least problematic aspect of the voucher-based funding system that the Government has introduced is that it quite deliberately gives student demand the dominant role in determining what is offered when the previous mixed grant and fee system provided for a plurality of choosers and ‘voices’: not only student demand but also employers, professional bodies, subject associations, etc, as well as the institutions themselves. This is incidentally a good example of the way in which a poorly conceived policy can threaten the wider benefits that are fostered in the public sector.
3 Propper et al., 2008, refer to a similar tendency of health care providers to focus on measurable and observable indicators at the expense of unmeasurable and unobservable ones.Hansmann (1999) argued that much in higher education can be explained by the notion of student education as an ‘associative good’, one where a major consideration for purchasers is/are the personal characteristics of the other customers. What a university or college is selling is therefore, in large part, the ‘quality’ of its students. This is still another consequence of the difficulty of obtaining direct information about product quality. Competition is dampened, partly because of larger gaps between the market segments and partly because of the high degree of inertia in the student body, over centuries in many cases.
4 According to Samuels (2009), only 3.5 per cent of the University of California, Los Angeles, budget in 2007-08 was spent on undergraduate instruction.
5 A case in point is the enormous resources that institutions are devoting to the National Student Survey. This is a device of questionable quality but institutions put a lot of effort into it. At least some of these resources could be better deployed in more directly improving quality through staff development, educational research and benchmarking.
6 The immediate trigger for current discussions about the future regulatory framework is the reduced funding role of HEFCE following the recent reforms. But it needs to be borne in mind that, like its immediate predecessor (the Universities Funding Council), HEFCE has a much narrower remit than the old University Grants Committee (or the National Advisory Body, which covered the polytechnics), which acted as a planning and coordinating body that went well beyond funding. It is not clear whether in future any organisation will have a responsibility for considering quality and sufficiency of provision across the sector, or for dealing with market failure where it occurs (once again, parallels with the health service suggest themselves).
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