Thursday 13 August 2020 6:23 am

Our university sector was broken long before Covid-19

​Dr Stephen Davies is head of education at the Institute of Economic Affairs

UK higher education has reached a dead end. 

In the short term, the Covid-19 pandemic has created a huge hole in the current income of institutions, amounting to several billion pounds.

In the longer term, Covid will probably result in a sustained decline in several sources of university income, above all fees from overseas students. It may also cause a dip in interest from UK students, certainly for next year when many courses are to be taught virtually, meaning disruption will continue for at least another 18 months. 

Read more: We should never have to choose between pubs and schools — but if we do, schools must come first

But let us not forget that many universities were already in a financially fragile state going into this. The pandemic has accelerated rather than caused a crisis in HE, exposing a structural weakness that goes back to the late 1980s.

Since then, HE policy has had two main components. The first is that institutions should be run as competing businesses. The second is that the number of young people in HE should be expanded to a point where around 50 per cent of all 18 year olds attend university.

The belief was that it would create a more skilled and productive workforce, leading to GDP growth and higher incomes for the graduates, and more social mobility. 

Now that this target has been reached, it is clear that none of this has happened. Social mobility has declined, the UK’s productivity performance has been dismal, and employers complain of a shortage of skilled workers more than ever. About a third of graduates now do non-degree level jobs and the income premium is declining. And while more and more jobs require a degree, they haven’t become more technical or demanding of higher skill levels.

All this stems from a mistaken idea of what a university education does. Apart from special cases like engineering or medicine, a degree does not impart human capital or automatically make people more productive. 

Since the 1970s, the main value of a degree has been the signal that it sends to employers about the kind of person who has it: reliable, hardworking, compliant, and able to work to deadlines. Successive governments’ policy has increased the number of people with this signal, and universities have competed to capture people willing to pay for it.

It is therefore fatal for universities to have a higher failure or drop-out rate than their competitors. What matters to students is not the content of their degree but simply getting one. 

Furthermore, it is counterintuitive for an institution to slash the price of a degree or to offer a different mode of study or attendance. This would imply to students that the degree is worth less — and indeed it is, because employers initially find it hard to compare the signal with that from the standard model.

Ultimately, this means that there is no real competitive market in the HE sector. There is no competition on price, price differentiation, or variation in the kind of product — all the things you would get in a normal market. 

Yes, there is competition on facilities, status, and levels of passes or grades. But this just leads to sustained grade inflation and a decline in the difficulty of courses and assessments (so that not too many fail). 

This is self-defeating: it reduces the quality of the signal and causes qualification inflation. Jobs that previously required a first degree, for instance, are now asking for a postgraduate qualification. 

The way universities have responded to the incentives of the market, competing for people purchasing a standard product, means that they have invested money they do not have in things like buildings and facilities, while degrading the educational experience for both faculty and students.

Overextension and excessive investment left many institutions (including famous ones) susceptible to any kind of shock. Now that shock has come, they face a massive cash flow crisis. 

But there is little point in bailing out the sector so that things can return to the way they were. We should not look to either put Humpty-Dumpty back together or slim him down and have a smaller sector but one still run on the same lines. Instead, we should seize the opportunity for a radical rethink of the purpose of HE, and move to a system that is far more varied, with proper competition. 

Covid-19 did not break the university sector, but perhaps it can be the incentive we need to fix it. 

The Institute of Economic Affairs’ new report “To a Radical Degree: Reshaping the UK’s Higher Education for the Post-Pandemic World” can be read here.

Main image credit: Getty

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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