Competition in the university sector

My good friend Senator James Paterson (Liberal, Victoria) is a really smart guy. But … he is also a graduate of the University of Melbourne, and so we have to temper our expectations somewhat.

Today he is quoted in the Weekend Australian:

Liberal senator James Paterson said he was “pretty sceptical about the value to taxpayers of government-funded, not-for-profit universities spending up big on marketing to attract students’’.

He said this was “particularly so when many of those marketing activities were not about the ­substance of what the universities ­offered but resembled gimmicks and irrelevant sponsorships’’.

Given his miseducation at the hands of neoclassical economists I’m not surprised that he makes this elementary error. The notion that advertising and marketing is wasteful expenditure is obvious when you assume away information costs and transactions costs.  (I could also quibble about the government funded and not-for-profit aspects of his statement but let’s just focus on the bigger picture.)

W. Duncan Reekie (a former colleague of mine) has written an excellent explanation of non-price competition.

Non-price competition includes rivalry between firms based upon advertising, product differentiation and product and process innovation. 

Given the existence of price controls universities cannot really compete on price. Given excessive regulation and TEQSA Australian universities cannot really compete on product differentiation, or product and process innovation. That leaves advertising and marketing.

I would have thought that competition between universities would be a “good thing”.  Given the nature and structure of government regulation that competition and rivalry needs to be communicated to the market in some or other fashion. In the absence of price signals, universities engage in non-price rivalry.  The absence of advertising and marketing would result in Soviet style customer service.  Is that really what the federal government would like to see? I suspect not.

If in the meantime the government would like to see the university sector generate even more than the current $22 billion in service exports it should relax price controls and abolish TEQSA.

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38 Responses to Competition in the university sector

  1. Lem

    I would have thought that competition between universities would be a “good thing”.

    Mmm. Yes. Surely that should be on the basis of what they produce. Not on the basis of airy-fairy adverts on teevee which have the hopeful young gazing into computer screens and being told how fab they will be if the come to “University” xyz.

    What “universities” are producing now are by and large debt slaves lucky to have a post grad job in retail at Myers.

  2. Tel

    The notion that advertising and marketing is wasteful expenditure is obvious when you assume away information costs and transactions costs.

    If the Internet has not greatly reduced both information costs and transaction costs, then WTF is it supposed to be doing?

    http://discoverpraxis.com/

    There’s some competition for you… have fun with that. Also, Oracle University, they don’t sit there advertising because in the industry they already have a rock solid brand to work off.

  3. Lem

    Good point Tel.

    And while we’re discussing the mega (taxpayer and student) dollars being wastefully spent on “university” advertising, how about we talk about “truth in advertising”? (LOL).

    “Universities” in Australia, in their advertising, as far as I have seen, make no mention of any proven employability of those they hope to fleece for multi thousands of dollars.

    They have simply taken on the advertising strategies of private secondary schools, excepting that they aim the guilt at the student, not the parent.

    The bullshit fed to young people by those hoping to make a living from them despite no tangible benefit likely to accrue is evil. It all started with Keating and his drive to get young people off the dole queue and into “educashun”, it was lapped up by those in “educashun” who could see a secure employment path to the future for themselves, and what has it given us? Hundred’s of thousands of pissed off unemployed “lawyers”, a bunch of “environmentalists” who’ve built their own scam, half a dozen vaginal knitters (refer to the Gillard era) and a serious deficit of people who can actually do stuff (the trades dare I say).

    My point is made. I have little sympathy for the sad protestations of the minimally affected tenured class.

  4. So just that we’re all crystal clear that university degrees are now simply products and not a method to further educate the nation’s brightest and highest achievers, why then does the taxpayer have to fund this at all?

    Simply remove all funding and all government controls. Who cares if we don’t have our future doctors. All they’re good for now is to label us as racists for not being pro-gay marriage.

  5. miltonf

    University and Higher Ed is another example where Canberra has muscled in over the last 60 years and wrecked it. Another example- electricity.

  6. Tony

    I feel for the highly qualified teaching staff who are also the researchers (publish or perish) restrained in place, I’d like to use the word “bullied”, by the ever expanding bureaucracy on ever expanding salaries as they build their ‘no value’ empires, together with the grossly over-compensated PVCs, VCs and Chancellors. Drain that Swamp !

  7. miltonf

    It’s also another pretend market like the job network (or whatever it’s called now) and electricity.

  8. alexnoaholdmate

    Given his miseducation at the hands of neoclassical economists I’m not surprised that he makes this elementary error

    Do you mind if I ask, Doomlord –

    – What school of economics would you say you belong to?

  9. Ray

    Is it not a little ironic that we can criticize Patterson for a “miseducation at the hands of neoclassical economists” and then provide a neoclassical argument for why he is wrong

  10. Tel

    Is it not a little ironic that we can criticize Patterson for a “miseducation at the hands of neoclassical economists” and then provide a neoclassical argument for why he is wrong

    It would appear that Patterson was miseducated at an uncompetitive government-subsidized university.

  11. max

    what does Australian constitution say about government education.
    what about government-funded and not-for-profit universities

  12. Sinclair Davidson

    What school of economics would you say you belong to?

    Probably some combination of new institutional and Austrian and public choice. So generally heterodox. I would claim Austrian except that I disagree with the notion that empirical work is totally useless that so many Austrians now claim (usually because they are rubbish at maths and stats).

  13. bankrupt

    Who said university education was about educating. In the economics and finance area it is about subject content. I am reminded here of Dorothy Sayer’s distinction between the trivium and quadrivium, but modern education does not teach students how to think, but what to think, though finance is more practical and market-orientated in that it is applied economics.

    As for economics, certain of the fundamental principles of neoclassical microeconomics are reasonable; macro is just statecraft – designed to train the fodder to think in terms of state management of the economy. Steve Kates’ course at RMIT in classical economics is better. At least he dispenses with the pointless mathematics and geometry of neoclassical economics.

    Adam’s point is pertinent – why should the state fund this at all. Imagine if some of these courses had to stand the test of the market; they would go bankrupt in seconds. Abolish state funding. Abolish state ownership. Abolish TEQSA. Privatise the lot.

  14. Irreversible

    As you are waving a red rag Sinclair I have to let you see the bull.
    Paterson is absolutely right in is fundamental assumption. Universities are not competitive. If they were, we would have very clear evidence of teaching outcomes and the best teachers would be best paid. Similarly we have no performance discipline around research spend (and much evidence of quota-driven “research” publishing). Finally of course we have the hugely inflated salaries of VCs and other bureaucrats.
    University advertising, like much of the “competitive” activity, is purely aligned with the illusion of competition that justifies so much of the growth in costs.
    When consumers are empowered in tertiray education choice and we see differentiation then I’d begin to believe in competition. Today is a protection racket.

  15. Art Vandelay

    Abolish state funding. Abolish state ownership. Abolish TEQSA. Privatise the lot.

    Spot on. Let the market decide.

  16. A friend of mine is retiring from the academy after a career which ended in the sociology of language. I was really surprised when he told me that his students were studying for an employment qualification. He was surprised and offended when I told him I would not employ any of his students for anything except making the morning tea. The professor doesn’t seem to know that the problem with graduates is that they learn a lot of junk information at Uni, and they have to be retrained when given a responsible job. The employer wants them for their ability to apply analytical method, not for advice.

    It takes such a long time to de-educate Arts grads its hard to ever make them productive.

  17. Blind Freddie

    Its probably Karma. The institutions which are happiest to express their bias like universities, broadcasting outlets, and Hollywood, are beginning to find that displaying contempt for a significant part of their audience is a turn off. I doubt if calling a significant number of people racist, misogynistic, homophobic, transphobic or islamaphobic is o turn on.

    Catering for transvestites is a bit of a narrow audience, but dont believe me believe the numbers.

    Maybe, we have reach peak name calling, but may a reduction of money in the pockets is a best and only way for people to see.sense.

  18. Perpetually motionless

    Universities don’t export services, they export Australian residency. If foreign students were sent home after their degree, the $22b would look more like $5m. No-one seriously believes that Australian Universities are worth a pinch of shit, they are simply a means of facilitating marxist indoctrination, keeping the youth unemployment rates down and providing a sly way of selling permanent residence.
    At least the Professor didn’t try on his usual bullshit that Australian universities aren’t really government funded.

  19. Sinclair Davidson

    As you are waving a red rag Sinclair I have to let you see the bull.

    … and a fine load of bull it is too.

  20. Mr Black

    I’d like to see the international education services on offer be all but stopped. Vast floods of immigrants drive up rental prices, property prices and just about every other cost of living price while driving down the quality of education so that barely literate Chinese and Indians can ‘pass’ their course and keep those fat fees rolling in. Then these unqualified people are given a free pass to residency based on passing these watered down courses. I work with many of them and you would not want to drive over a bridge designed by what passes for an Indian engineer.

  21. Pyrmonter

    Waiting for the next Sinclair post titled:

    We don’t have enough University Administrators, and we don’t pay them enough

  22. Irreversible

    Sinc: spoken like a committed public servant

  23. max

    Rothbard and Mises did not build mathematical theoretical models because they believed it was inappropriate for economic analysis, not because they lacked mathematical competence.

    What is the problem, then, of using math for economics, and why are Austrians opposed to such a methodology? In a word, math is not an appropriate tool to describe human action. As Mises and Rothbard often pointed out, one cannot quantify human action. This does not mean that people do not engage in activity in which mathematics is not important, but rather that we cannot accurately use math to describe how humans behave.

    https://mises.org/library/mathematics-and-economic-analysis

  24. max

    John Maynard Keynes is universally regarded as the most influential economist of the twentieth century. This assessment is correct.

    Professors do not go out of their way to point out to their students that Keynes did not earn a degree in economics. He earned a B.A. in math.

    https://www.garynorth.com/public/11286.cfm

  25. max

    “If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.”

    Keynes, John Maynard. “Book III: The Propensity to Consume.” The General Theory of Employment, Interest and Money.

  26. Tim Neilson

    so that barely literate Chinese and Indians can ‘pass’ their course and keep those fat fees rolling in.
    A friend of mine works at a Dawkins university. He says that Pakistani students regard their course fees as solely a payment for automatic entitlement to residency, and have no interest in learning anything, but the Indians figure that they might as well learn something on their way through to getting the residency that is the real prize after they get their qualification.

  27. H B Bear

    This must be why ECU sponsor the West Coast Eagles football team. Uh huh?

  28. struth

    What a load of codswallop.

    Our universities are not private enterprise, so basically, they are owned by government.
    Even if they were, the level of government regulation and compliance would see them as they are now, as most Australian businesses are now, unable to compete and ever more dominated by the unelected bureaucratic deep state that is running this country into the ground.
    Seeing that universities take tax payer money, it is even worse.

    Universities, being staffed full of f…wit lefties and the generally insulated, find that as the insanity increases, so the percentage of f..wit lefties and the generally insulated increases, as the brightest, sanest, (and any with the slightest integrity and independence in their hearts), head for the hills.
    The question is what can be done about Australian universities.

    Maybe North Korea needs some target practice.

    The level of regulation and compliance means true competitive ability is lost and the cream doesn’t rise to the top of an organisation, the shit does.

    Our socialist country controls all business in Australia much the same way.
    They regulate until the only businesses left in the game are run by socialists or those that bow down to them.

    Sort of like the National Socialists of Germany without the swastika.
    Hitler controlled all business without owning them.
    The Australian government does also.

    If there was anyone left in Australian Universities with half a brain, this wouldn’t be hard to work out.
    If there was anyone left with integrity, they would fight it.
    The only reason lefties control our universities is due to the silence of self interested cowards.
    And there are many of those in Australia.
    All it takes for evil to flourish, is for good men to do nothing.

  29. DM OF WA

    This one gets it right:

    Perpetually motionless
    #2493270, posted on September 9, 2017 at 7:58 pm
    Universities don’t export services, they export Australian residency

  30. Philippa Martyr

    I have enjoyed this thread immensely.

    There’s so much wrong with the university sector that no one can expect the normal rules of anything to apply.

    It’s like those funny pockets of the universe where up is down, and you arrive before you leave.

    These are usually on the edge of black holes.

  31. True Aussie

    If universities are so desperate for money then end all non essential spending, including conferences and activism and fire all academic staff and then hire only those who will work the cheapest. No university ‘professor’ deserves more than 50k a year when their job has mostly been replaced by google and wikipedia already.

  32. James Hargrave

    Philippa.

    ‘Black holes’ reminds me of the ‘stellar’ appointments (thus, in their own self-advertising guff) that Krapville TAFE has made in history and classics (in the former, as usual, disproportionately of persons it has helped ‘educate’ itself. One with an interest in death ballads seems mainstream compared with another interested in the history of menstruation. The classicist, to complement this, has an interest in breast feeding in antiquity…

  33. H B Bear

    No university ‘professor’ deserves more than 50k a year when their job has mostly been replaced by google and wikipedia already.

    LOL. The peasants are revolting today.

  34. Philippa Martyr

    another interested in the history of menstruation.

    I am a historian myself, but this isn’t really my period.

  35. True Aussie

    LOL. The peasants are revolting today.

    If by peasants you mean someone who pays an exorbitant amount of taxes because he owns several productive businesses and is sick of supporting parasites in government and academia who produce nothing then ok

  36. True Aussie

    For every academic employed at a university today there are a dozen university graudates serving coffee and manning drive through windows who could do those academic jobs just as well. Why not let the free market decide. Whoever can do the job the cheapest should get it.

  37. PoliticoNT

    Patterson, as ever, is just another clueless politician. He can keep his grooming up to date, remind us all of his (largely pointless) time at the IPA, and roll his words in glitter – but it makes no difference. Patterson knows as much about the university sector as I know about astrophysics.

  38. PoliticoNT

    Sinclair – criticism of Patterson aside, I have done my bit for economics education this week. I was at a fund-raiser yesterday for my daughter’s scout group and met one of our Venturers who’s also in his last few months of Year 12. He’s planning on studying economics at uni. I recommended he look to you/RMIT. And make sure there are plenty of history units, and analytics. Fortunately his parents were there as well so I got in their ears at the same time. And directed them to Catallaxy Files. Apparently this is the best guidance they’ve received so far.

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