Universities should be encouraged to specialise in what they do best

INSIGHTS & RESOURCES

Universities should be encouraged to specialise in what they do best

The Australian
by KEITH HOUGHTON
30 August 2023

Key Takeaways:

  1. Interim Report Reshaping Education: The Universities Accord interim report promises to transform public university education with insightful observations.

  2. Diverse Research Funding: Universities rely on various funding sources, including government contributions, but a significant portion comes from internal funds, impacting education revenue.

  3. Sustainability Challenges: Escalating research costs pose challenges to sustaining growth, necessitating a more robust funding framework.

  4. Specialisation for Efficiency: Specialising in areas of comparative advantage could enhance cost efficiency and outcomes, potentially diversifying the university sector.

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For several weeks, those interested in higher education have been contemplating the interim report of the Universities Accord review.

The report makes many insightful and far-reaching observations. Undoubtedly it will be a turning point for important aspects of the educational offerings within our public universities.

There are, however, commentators who have raised questions about the clarity of direction of the interim report concerning the other key component of university activities, research.

Data for 2001 tells us that a little under 30,000 equivalent full-time academic staff members were employed in Australia’s public university sector. This number peaked at just more than 48,100 EFTAS in 2020 before falling to just under 46,000 in 2021, the most recent available data.

Research publications affiliated with Australian public universities were a little more than 29,800 in 2001, rising to 167,500 by 2021. They declined to around 158,000 last year.

How is this explosive growth in research activity being funded?

It is certainly not from one of Australia’s most important research grant programs, the Australian Research Council’s Discovery Project program; data for 2015 to 2023 shows DP proposals declining (except for the Covid effect in 2021 and last year). This year there were 2588 applications considered compared with 3689 in 2015.

What explains this 30 per cent drop? It is clearly not explained by changes in the scale of research publication activity.

By this year, research proposals recommended for funding had declined to less than 500 – also 30 per cent down on 2015. Even ignoring inflation, the total funds allocated for DP grants this year ($221.4m) were less than for 2015 ($250.0m).

So, where is the money coming from to support university research? The Australian Bureau of Statistics publishes data on higher education research and development expenditure, and this provides a clue.

The ABS data, calculated every two years, shows funding sources including commonwealth competitive grant programs, other commonwealth sources, state and territory governments, business, and donations and bequests.

The most recent published data for 2020 shows 14.7 per cent of funding coming from commonwealth competitive grants, 16.7 per cent from other commonwealth sources and 3.8 per cent from state and territory governments.

In total, governments provide 35.3 per cent of HERD. Business provides 4.75 per cent, which is sharply lower than many other OECD nations.

Of interest are state government contributions. They vary from a low of 1.15 per cent for the ACT to a healthy 9 per cent in Tasmania. The strong and synergistic relationship between the Tasmanian government and the single local university is apparent.

The ABS shows that it is universities themselves that do the heavy lifting. More than 53 per cent of all HERD expenditure is funded internally within universities. Given that universities have only two primary income streams, education and research, this ABS data must represent a transfer from revenues of education to support the expenditure needs of research.

And, if the ABS is correct, this amounts to more than $6bn in Covid-affected 2020.

This equals around $42,500 on average per research publication, down from $48,500 in 2018. While significant, this represents less than one-third of the estimated full cost of research per publication averaged across all fields of research.

Is the continuing growth in research costs fundable? Can internal transfers sustain continuing research growth? This issue will likely be the elephant in the room for many in the sector and an important issue for the Universities Accord review.

The question raised thus far is: If the growth of research continues, where will the money come from? Perhaps a better question is: Is there a funding framework that is more sustainable? If so, what are its key elements?

Consider the following: At individual field of education level, we recognise that some universities have a comparative advantage in teaching. This advantage results in quality and cost- efficient outcomes. Why can’t these universities be allowed – even encouraged – to “trade” more strongly to this comparative advantage? Does metropolitan Melbourne, for example, really need eight universities all teaching an accounting degree? Would there be superior outcomes if there were, say, four or five? Perhaps there could be greater cost efficiencies through economies of scale and better quality outcomes with stronger concentrations of academic talent.

Similarly, some universities, in certain fields of research, have a comparative advantage in that research – both in quality and cost efficiency.

Is it time universities with a comparative advantage in certain research fields or in education programs be allowed and enabled to pursue these comparative advantages?

The economics of specialisation and of comparative advantage is well understood.

One major wrinkle is that the costing data needed to measure cost efficiencies – a key component of comparative advantage – can be based on surveys, and these can have serious limitations. Does anyone really believe an academic who has spent hundreds of hours on an unfunded ARC application or rejected journal submission will report all that “wasted” time?

Surveys have a place, but not when dealing with the knotty problem of the joint and common costs of research and teaching. The likely outcome is an underestimate of research costs and an over-estimate of teaching costs.

Allowing universities to specialise in fields of research where they enjoy a comparative advantage, and allowing universities to specialise in fields of education in which they have a comparative advantage, may be a way to strengthen a sustainable funding future.

Enabling changes in the provider standards (which are set for higher education providers by the Tertiary Education Quality and Standards Agency) to permit playing strongly to specialisation and comparative advantage strengths may be needed. In the longer term, this will likely support greater diversity in the university sector.

Keith Houghton is chief academic strategist at the Higher Education and Research Group.

There is growing anticipation that the federal government’s response to the Universities Accord review’s final report will come soon. Given this and the fact that the budget is less than a month away, it is timely to review one of the final report’s key insights.

Recently released analysis finds that one large Group of Eight university outperformed other public universities in its research and education productivity outcomes during the pandemic.

The joint and common cost problem arises where there are two or more outputs that arise from costs that are shared in the production of these outputs. In many situations, the ability to assign costs to these two or more outputs is not complex. But there are instances where it is highly complex. In these situations, there is a need to use advanced analytics to provide a valid and reliable estimate of costs.

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