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Privatising universities & finally killing them off

Non-academics Andrew Norton and David Kemp recommend privatisation of the university system with subsidies paid to private as well as government suppliers. Universities don’t only supply private goods so I am unclear of the motivation here though libertarian thrill seekers will get a jolt of blood through their arteries when they read this proposal. Of course the profit-motive may not drive good outcomes if students cannot easily assess the quality of a supplier and an asymmetric information externality (AEI) arises. That’s typically the case and indeed the rationale for education – people come to learn because they are otherwise ignorant. The AEI is built into the idea of an education – the idea that there are teachers and those taught with the teachers assessing a field and informing those interested in but otherwise ignorant of that field. That’s why academics not K-mart dog food salespeople (or ¬†propagandists from the Liberal Party) should manage university programs. If asymmetric information issues are ignored then “lemons” problems emerge and universities enjoy a competitive race to the bottom that will maximise profitable output at the expense of any semblance of quality.

On the other hand the mock entrepreneurs who dominate the current university system and who rattle on about KPIs and market-determined outcomes are so awful and incompetent that I doubt full privatisation would do much worse in terms of delivering bad outcomes. Maybe quality dog food salespeople will outperform the current pretenders who couldn’t organise a riot! The latter cretinous lot have already substantially damaged the Australian universities so, from here on in, further damage may add little to social costs. When the river is full of shit an extra defecation or two adds little to social cost.


9 comments to Privatising universities & finally killing them off

  • Of course Dr Kemp was a full professor before entering politics.

    I suggest readers interested in the arguments on this read the report and my response to some criticism of private providers

  • hc

    Your response to criticism of private provision is an empty space. You answer none of the issues I raise above including the core concern that students are in a situation of having less information than educational suppliers. This does not suggest improved teaching and improved research outputs will be a consequence of privatisation. The “lemons” problem is a standard academic concern – why not address it? The difficulty is that that you ignore all the reasonable criticisms that suggest quality outcomes will be poor.

    Yes Dr Kemp was an academic before entering politics.

  • Harry – Your argument seems to be that in the presence of information asymmetry we need particularly trustworthy institutions who will not exploit this situation, and that these institutions are public universities. My blog post argues that this latter assumption is wrong and that trust is in any case an inadequate response to the problem. While most full-time academics had content knowledge, the historic evidence suggest that they lacked teaching skills and generally gave the interests of students little weight. My argument is that a range of other institutions are needed to correct the information and power imbalance between students and universities, including information on the performance of universities and other HE institutions, government programs to improve teaching skills, regulation, and market competition.

  • hc

    We don’t need “trustworthy” institutions as much as institutions not motivated entirely by profit. Profit-maximisation does not serve the social interest when demanders are not in a position to assess quality. its a standard microeconomics argument that stems from work by Akerlof. As I said in my post I think public institutions are currently failing and the types of reforms you propose will worsen things. Its not a matter of trust either but of knowledge – of having professors who “profess” (and defend) a discipline. Teaching skills have been vastly improved in universities though the government-based reforms to do this have been an expensive failure. You assume the country-simple model of competition effects that free-market economists like Milton Friedman pushed in the 1950s. But times have changed and our understanding of market failures has improved.

    Its not ideology that drives my comments but the disastrous trends in the universities that set in after the Dawkins reforms. I interpret the proposed reforms you and David Kemp suggest as an attempt to finally put the knife in. And I am reasonably sure your ill-conceived proposals will win.

  • Andrew Norton

    We are not putting students in a position where they have to assess quality on their own. We have a regulator to do that, and often other forms of third party assessment (including your university). The for-profit higher education industry has operated for years in Australia with few of the problems you suggest. The only issue at stake in the review is whether or not their students should be eligible for the tuition subsidies received by students at public universities.

  • HC, how well do the private universities do in the USA?

    My memory of their model is the better ones are run as non-profits because this organisational form out-competes the others in assuring quality.

    Bond University followed the US model where it was established as a non-profit to increase the value of the surrounding land owned by the developer.

    Tyler Cowen co-wrote a nice paper on for-profit universities at

    Pinoy for-profit private universities are listed on the Manila stick exchange at one time.

  • Bob

    Harry, you may wish to ask Andrew Norton why universities are considered any different to schools considering Grattan Institute’s: The myth of markets in school education.

    “For 20 years some Australian school systems have been world leaders in giving schools more autonomy, and in trying to increase
    competition among them. Many countries are following suit, in the hope that policies to increase school competition will improve
    student performance. They will not.”

  • hc

    Good point. You can put this argument to Andrew yourself if you are on Facebook.

  • Bob

    The question needs to be asked why universities are considered any different to TAFEs when it comes to tertiary education? The free-market approach was applied to the TAFEs and what happened? A classic market in lemons outcome. Why do they think universities will be any different? It happened before with TAFEs, it will happen again with universities with only the Go8 winning with the rest doing a race to the bottom and going bust.

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