The market is dead: long live the market

There is no evidence that greater competition between higher education providers will improve the quality of provision.

This is the conclusion of the Public Accounts Committee’s (PAC) recent report into the higher education market.

But, rather than question whether the government is right to keep pursuing a strongly market-based policy agenda in higher education, the committee appears to ignore the possibility that the market simply doesn’t work in HE.

The ghost of economics past

The economist J.K. Galbraith once suggested that when people are “faced with the choice between changing one’s mind and proving that there is no need to do so, almost everyone gets busy on the proof”. It appears that when the PAC, or the Government its supposed to hold to account, are faced with strong evidence of market failure, they choose to fall back on the standard excuses garnered from old public choice textbooks as to why this is, rather than start questioning the assumptions that even mainstream economics is having a tough time with these days.   

Galbraith also understood the limits of the market. He argued that where it was not practical to use a market, where it didn’t work or provide net benefits, it was better to use a different mechanism. He also understood right back in the 1950s that “the market” had become as much an ideological commitment as it had an economic concept and that the market “conventional wisdom” lagged behind the reality of markets in practice.

Joseph Stiglitz recently gave this point some thought. He suggests that one of the problems for policy is that many of our policymakers are graduates of economics and political science from a time when simplistic, rational models of market behaviour were the norm. Many adopted these models with a dogmatic, fundamentalist belief that they successfully achieve desirable and achievable political solutions to problems in the delivery of public goods. Stiglitz sees this as a “triumph of ideology over science”, and that economics has now moved on with an understanding that reality is more complex, people do not behave as rationally or as self-interested as assumed, and that information is never perfect or uniformly distributed.

Market reality, not rationality

The reality is that, whether well-intentioned or not, marketisation has failed to live up to the expectations of its supporters. It hasn’t had a positive impact on quality, it hasn’t led to healthy price competition, it hasn’t incentivised or supported institutions to develop more innovative and flexible provision, it hasn’t created a level playing field where students from any background have the same choices, and it hasn’t increased the choice and diversity of provision on offer.

Around the world, quasi-markets have been set up to deliver education at different levels, and the evidence is that these reforms have had very little success. The Organisation for Economic Co-operation and Development (OECD) conducted a review of educational quasi-markets back in 2009 and concluded that the reforms were based on an “over simplistic and optimistic view of market mechanisms”, and this had led to standardisation, emulation and obsession with marketing, not improvements in the quality and diversity of teaching and learning. Another decade has only led to greater evidence of the validity of these conclusions.

Blame the game, not the players

The real danger is that if we continue to ignore the failure of the market and the limits to what the government can do to correct it, we will never solve things like the collapse in part-time student numbers, or the continued decline in the provision of language degrees, or the continued inequalities in access and participation.

It seems unfair to blame institutions for not responding well enough to market conditions. Providers are responding to the perverse incentives and uncertainties that are produced by market competition, and yet their behaviour is characterised as anti-market. Moreover, the responses to policies, regulation, incentives and uncertainties are messy and occur at the micro-political level, the result of competing personalities, different governance processes, and bureaucratic standard operating procedures – as much as anything else.

For years I ran a role-playing exercise with dozens of students’ union officers where they took on governance roles in different made-up universities and tried to respond to policy scenarios in a simulated marketplace. The results were always interesting. Despite some universities having almost identical profiles, they almost always ended up in different positions by the end of the exercise. Equally clever and informed people interpret policy discourses in myriad ways and this produces varied responses, even, it seems, in a simulation with very limited choices.

Trying to control and standardise these behaviours is in an insurmountable task and would surely require much greater intervention from the state on the autonomy of institutions, more than anyone would want to advocate. And there lies another paradox in market ideology: the more you try and produce the conditions of an idealised market, the more government intervention and centralised planning you require.

Both Government and the PAC look to the Office for Students (OfS) to make institutions (and students) behave as rational actors. OfS, whether it likes it or not, is now the very visible hand of the market. It’s now going to publish the salaries of vice chancellors and try to curb the excess, ignoring the fact that VC pay is the product of market forces and the encroachment of a corporate mindset on sector governance. This echoes the response to the financial crisis where the failures of unfettered capitalism were personified in individual bankers while the underlying contradictions of the free market were largely ignored.

Time for a new paradigm

We need to move away from this. The problems highlighted by the PAC report are problems that cannot be solved by government continually attempting to correct market failure. Market failure is inherent. Students will never be given perfect information and their choices are complex, not merely based on a transactional relationship in which one can determine the full costs and benefits of the transaction.

We need to begin challenging this orthodoxy. And we can start by focusing more on the collaborative efforts of the sector to generate a wide and diverse set of opportunities and experiences for people to learn and develop their knowledge and skills. This doesn’t mean we reject healthy choice and competition for old-fashioned central planning and uniformity. There is growing choice at the postgraduate research level, and there remains competition for brightest new research talent, but there is strong collaboration between institutions and the intrinsic, longer-term and wider benefits of a healthy doctoral research community are not lost in the battle over league-table positions and tuition fee income. University Alliance appears to have made progress recently in building doctoral training alliances between its institutions.

While there are limits to what can be done collectively at the undergraduate level, the pooling of wider resources and ideas, and linking up sector-wide long-term thinking about success and sustainability, is not impossible. The policy discourse in the Welsh higher education strategy, for instance, is trying to move beyond short-term market logic and bring stakeholders together into longer-term thinking, built much more around partnership, and giving greater parity between the economic and social goals of learning. The Welsh Government’s latest proposals call for a “planned and coherent higher education sector that operates strategically and is sustainable for the future rather than the more market-driven approach that has been pursued elsewhere.”

Civic engagement is an important part of this, getting institutions into a mindset that looks beyond their short-term market interests and towards the fundamental interests of the sector and its symbiotic relationship with local communities and wider society. The public is losing faith in institutions, including our universities. There is much more the sector needs to do to communicate the purpose and benefits of higher education to students, parents, and the wider public – especially in the climate of higher fees and market competition.

The four national academies (British Academy, Royal Society, Royal Academy of Engineering, and Academy of Medical Sciences) and other learned societies can play a big role in facilitating such collaboration and civic engagement, looking beyond institutional (and disciplinary) lines, to celebrate the work of the varied disciplines they represent, in both teaching and research. Much of this is about facilitating the sharing of knowledge and ideas, providing platforms for the wide role and value of academia to society. There are many ways in which the true value of a thriving higher education sector, rather than just its “value for money” in narrow terms, can be highlighted.

Market reform in higher education is a utopian dream, not a pragmatic solution. The reality is that competition is disrupting and distorting the very policy aims the government hopes it will help achieve. We won’t develop better quality provision or better choice for students or increased social mobility unless we start following a different underpinning set of logic.