Asymmetric Information, Public Goods and Central Control: A Critique of the West Review's Education Policy

By Clarke, Harry | Australian Journal of Education, April 2000 | Go to article overview

Asymmetric Information, Public Goods and Central Control: A Critique of the West Review's Education Policy


Clarke, Harry, Australian Journal of Education


The `West Review' argues that the determination of tertiary sector education program offerings should be decentralised by basing funding on student preferences. Research activities should be centrally prioritised with access to training being also dependent on such preferences. These views are questionable. Informational asymmetries imply that student sovereignty is a poor basis for designing programs and allocating research funds. Central prioritising cannot provide the benefits achievable in liberal structures which promote diversity. The Review's endorsement of centralised university management will realise measured cost savings but at the expense of quality.

Introduction

The `West Review' (Review of Higher Education Financing and Policy, 1998) develops a policy framework for tertiary education to meet Australia's needs over the next 20 years. In dealing with this, the emphasis is on education as a means of driving the economy. The Review accepts as immutable the unification of tertiary education across universities and vocational institutions but argues that the distinctive identities and missions of these two sub-sectors should be retained. At the same time, the Review endorses a more vocational orientation in university teaching and research which blurs the distinction.

Of central importance to the Review is the need for more orientation towards students. Partly this requires increased emphasis on teaching. More importantly, student numbers, funding and fees should be determined not, as at present, by an agreement between the Department of Employment, Training and Youth Affairs (DEETYA) and institutions, but by student demands. Fees and admission numbers should be set by institutions, with competition for students forcing compliance with student preferences. It is suggested this would stimulate course innovations and cost cutting, and induce sensible trade-offs between costs and numbers of students serviced.

According to the Review, public funding is required to reflect social spillovers. To achieve this, all school leavers (and suitable mature age students) would receive a voucher--a lifelong educational entitlement. This is a government subsidy usable in public, approved private and international institutions. Given this subsidy, institutions could then set fees freely. Equity issues confronting poorer students would be remedied by providing access to student loans while enhanced competition, with reduced entry barriers and `survival of the fittest', would drive efficiency. This move is consistent with national competition policy.

This paper questions the implicit deregulatory theory used to support the Review's position. Objections arise from the presence of asymmetric information and from the complex externalities that arise in education markets. There are also quality and `cream-skimming' concerns under a more market-oriented regime.

Proposals for increasing the central direction of research funding are also questionable. Experiences over a decade suggest that the use of the Australian Research Council (ARC) to direct research funding has not been entirely successful. Also, the Review's assumptions about university management reform are contra-indicated--they are inconsistent with theory favouring decentralised control whenever peer review is an ingredient in ensuring quality. It is incorrect to suppose that an institution, with socially important, diverse and ambiguous objectives, should be centrally managed like a dog food manufacturer subject to the social constraint of servicing disadvantaged canines. As a package, the Review's proposals are acceptable reforms for improving tertiary education if they are modified so substantially as to lose their identity.

Student-centred programs and asymmetric information

Much attention has been devoted to the potential role of student vouchers (`entitlements') in education. As the Review recognises, this debate is not fundamental to the current Australian system which already resembles one based on vouchers with tertiary institutions and DEETYA bargaining over the allocation of subsidised places. …

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