Moving Towards Market Driven Higher Education in Australia: Is it time to have a look at Economist Milton Friedman? Boston Conference 2015 Steven Holliday Ergun Gide CQUniversity, Australia Email : s.holliday@cqu.edu.au

Why look at Milton Friedman concepts in Australia? Introduction and overview of Australian context and Friedman concepts

Australian context Over the last 40 years, higher education has moved from the periphery of Australian life to the centre. As recently as the mid-1970s, only 3%of working-age Australians had a higher education qualification. By 2011, the proportion had increased to just under 25% quarter. If current policies are successful, by 2025 40% of young Australian adults will hold a bachelor degree or above. Grattan Institute 2012

Australian context The ‘knowledge economy’ makes higher education vital to Australia’s prosperity. Yet higher education only receives occasional public attention. ….. Grattan Institute 2012

Australia is not in crisis , but we there are signs we are not heading where we need to be… International students make up around 25% (US 3.4%, 2015) Increasing debt from Income contingent loans 25-30% write off Research is underfunded on per capital funding Distance Education is changing how teaching is done By Increasing participation levels = increased cost Increased casualization of teaching – is that what we want? Equity and access considerations re market approach Sameness in universities particularly at undergraduate level Confused model at present Educational outcomes, research and meeting the skill demands of the economy are influenced by how the money flows and cannot be considered in isolation. If the money flows are not addressed – the educational issues may not be either

The question of what is a common good and what is a private good in higher education is where clarity is needed? Public ? or a combination of both? Private ?

Why look at Milton Friedman concepts in Australia? We are looking towards market based solutions Economic clarity may help formulation of ideas Much of what we already see in the Australian model has echoes of Friedman thinking already (vouchers, ICL, markets) “the more things change, the more they remain the same”

The search for clarity “What forms of education have the greatest social advantage and how much of the community's limited resources should be spent on them are questions to be decided by the judgment of the community expressed through its accepted political channels. The role of an economist is not to decide these questions for the community but rather to clarify the issues to be judged by the community in making a choice, in particular, whether the choice is one that it is appropriate or necessary to make on a communal rather than individual basis.”   Milton Friedman (Friedman 1962, page 89)

Why look at Milton Friedman concepts in Australia? Neighborhood effects Vouchers and market based solutions Income contingent loans

Neighbourhood effects Government intervention is ok for neighbourhood effects that are agreed as important to the community “There are ‘neighbourhood effects’ in a positive sense when public policy provides something which brings great benefits to most people, and where it would be difficult in practice to charge individuals.” Barry Stocker on Friedman neighbourhood effects -2010 Example city parks, public libraries, sporting fields, public roads

Neighbourhood effects “A stable and democratic society is impossible without a minimum degree of literacy and knowledge on the part of it’s citizens and without some widespread acceptance of common values. Education contributes to both” Friedman , Capital and Freedom 1962 Note : All Australian Prime Ministers in the last 20 years have been higher education graduates, Rhodes Scholars and graduates of highly ranked universities

Vouchers Universal vouchers to provide choice and stimulate the school market –to drive efficiencies , innovation and effectiveness Vouchers are in the hands of the individual not the government as a bottom up approach rather than top-down approach to education 3. Voucher concept tied to positive neighborhood effects of and educated community with shared values Australia – double voucher system !

Income Contingent Loans Higher Education Contribution Scheme (HECS) Reducing barriers to entry Equity Increase participation levels Fairness – not pay until earning reasonable salary No estate charges Indexed by CPI – but no interest Pay as you earn Adopted by at least 5 other countries

Tuition Postponement Option University finances education $$$ Student University Students pay a % of earnings on collective debt Students continue to pay % of salary until entire cohort debt is extinguished Only pay as earn university forgoes fees but receives deferred payments

Original Friedman Human capital contract Investor finances education $$$ Student investor Students pay a % of $$$ salary over a set period of time. Students only paying a share of their income over time- which may cover more /less of actual Investors limit risk by spreading risk over a number of students

Friedman Human Capital Contract

Defining the public good Higher Education benefits Private benefit in increased income Positive external benefits to the community Government return on investment (SRR+ GRR) Public good component

Higher education : an increasing positive externality “...in the knowledge economy, a graduate degree will become the new bachelor’s degree, the minimum education credential that high-skills employers require.” Council of Graduate Schools and Educational testing service 2010 report

Friedman thoughts for the Australian proposals Defining the public good – Friedman concepts to guide clear policy options using a consistent policy approach Income contingent loans – new ideas from original Friedman theory ? Voucher Systems in higher education ? Public funding to create/preserve neighbourhood effects or do we just charge on user pays ?

Thank you for listening!