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Stop the uni cost disease

By Steven Schwartz - posted Thursday, 22 January 2015

Modern technology can be found all around universities, but has had little influence on teaching and learning. Lectures remain ubiquitous. Every university has a multitude of lecture theatres, and much administrative effort goes into deciding who gets to use each one, and when. Except for Friday afternoons (universities enjoy a Thank God its Thursday culture), lecture theatres are heavily booked, and lecturers are always demanding more be built.

Although today's lecture theatres are more comfortable than those of the past, what goes on inside them has not changed for centuries. It takes the same amount of time to deliver a one-hour lecture as it did in the 19th century. Apart from stuffing a few more students in, there has been no productivity gain since the Middle Ages.

In contrast, productivity has surged in most other parts of the economy, driving pay packets ever higher. To keep lecturers from quitting to pursue other ­careers, their wages have risen in line with those in the general economy. Because salaries usually rise faster than inflation, without compensating productivity gains, universities require more money in real terms each year to do the same things.


This phenomenon is known as Baumol's "cost disease", named after the economist who first wrote about it. The cost disease also affects the performing arts (it takes the same number of actors the same amount of time to perform Hamlet today as in Shakespeare's day).

Increasing costs drive uni­versities to find other sources of ­income - enrolling internat­ional students, investments, ­licences, patents and donations. If funds are still not sufficient, universities pressure the government to raise tuition fees. Every government eventually agrees.

Since the 1980s, tuition fees have increased almost three times faster than inflation. Private and public higher education spending now exceeds $22 billion per year, but is still not enough. Many institutions barely break even; some run at a loss. The government's solution is to allow universities to again raise tuition fees - not to a limit, but to whatever level the market will bear.

Raising prices helps universities in the short-term (which is why they support the government), but only targets the symptom, leaving the cost disease untreated. Without productivity improvements, their expenditures continue to increase faster than inflation and they have to keep raising fees. Because the new money props up the old system, students derive little benefit from the extra money they spend. A recent report published by the peak body for UK universities found that tripling tuition fees in UK universities did not lead to any changes in teaching. We can expect the same in Australia.

The government has called its higher education proposals ­"reforms" but they are really a way of maintaining the status quo. Genuine reform requires a curing of the cost disease. Higher education needs to be transformed from a craft industry in which academics produce ­bespoke courses, to a modern ­enterprise, which combines the best course materials with online delivery. In the past, academics saw online teaching as inferior to traditional methods. But new evidence is changing perceptions. A recent audit of teacher preparation courses, conducted by the NSW Board of Studies, found students who studied online for teaching degrees perform as well as those in on-campus courses.

Although learning outcomes for the two groups is similar, there is a significant difference in cost. Even after taking into account development costs, online courses cost less to deliver than traditional courses. If we add on the cost of constructing, lighting and air-conditioning lecture theatres, the online cost advantage becomes overwhelming.


Moving more classes online would decrease costs without ­affecting learning; students would also be happier. Graduates rank the Open University, an online UK institution, among the highest in the country. Online education also increases equity by making it easier for students in remote locations, students with disabilities, and students with family responsibilities to access higher education.

Online learning will never replace all teaching but by adopting it where appropriate, universities can free up resources to fund other teaching such as small group learning and study abroad.

By focusing on the symptom, the government's "reforms" ensure university costs keep rising forever. It is time to treat the cost disease and the sooner we start the better.

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This article was first published in The Australian.

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About the Author

Emeritus Professor Steven Schwartz AM is the former vice-chancellor of Macquarie University (Sydney), Murdoch University (Perth), and Brunel University (London).

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