New probe has wide brief to ask the big questions about tertiary education.

Employers are among the stakeholders the Productivity Commission wants to hear from as it sets about a wide-ranging inquiry into tertiary education.

"We want to hear from them about what they are looking for, what sort of relationship they want with tertiary institutions and what they expect to be doing themselves in terms of the development of their personnel," says commission chairman Murray Sherwin.

The terms of reference the Government has set for this inquiry are very broad and so, accordingly, is the range of questions the commission poses in the issues paper it released last week.

It is relevant not only to academics and students, but to taxpayers. Vote Tertiary Education commanded $3 billion in the last Budget, not to mention the substantial subsidies in the student loan system.


But the issues paper says New Zealand's comparatively high level of tertiary attainment among the working age population has not translated into high levels of productivity.

Or incomes. OECD research published in 2013 found that for both the student and the taxpayer, money spent on a tertiary education paid dividends. But much smaller ones than in other developed countries.

It compared the incomes of people with an upper secondary education and those with a tertiary education. In New Zealand's case, the difference was the smallest among 34 OECD countries.

And when it looked at the return on the state's investment in tertiary education, measured through the higher tax take and lower transfer payments associated with those (somewhat) higher earnings, it was positive - but a fraction of OECD norms.

Officials tried to explain this away. New Zealand defines tertiary education more widely than many other countries, they said, and if expatriate graduates had been included, the return on the student's investment would look higher.

Sherwin says there are a lot of reasons for the discrepancy between relatively high expenditure on tertiary education and relatively low economic returns. "Better understanding that would help identify which levers you need to pull to turn that around." Much of the discrepancy may reflect the size, structure and performance of the overall economy, rather than shortcomings in the performance of tertiary institutions.

In any case, there is no agreement, the paper points out, on how their performance should be measured.

That may reflect a more fundamental lack of consensus about what tertiary education is for, and whom it is for.


Is it just a service industry selling students the foundations of a more financially rewarding career and providing employers with the skilled labour they need?

Or does that way of framing the issue risk crowding out the idea of universities as centres of learning, of intellectual inquiry for its own sake?

You can't appraise value for money without deciding what to value.

The sector is wider than the universities, which in fact account for only about half of all tertiary students on an equivalent full-time student basis, but they receive the lion's share of the tertiary education budget.

Their business model has high fixed costs, in bricks and mortar especially, which make it an economies of scale game - the polite term for bums on seats.

But the demographics are challenging them in the near term as the baby blip subsides.

The universities' strategic plans collectively assume more students than there are likely to be, Sherwin says. Everyone expects to increase market share, a mathematical impossibility.

International students obviously help. But competition for those students is increasing, including from improving institutions in their own countries.

International competition is also keen for academic staff of high calibre, which in turn requires universities to offer opportunities for them to pursue research.

The issues paper raises a couple of concerns about this. One is whether there is effectively a cross subsidy from teaching to research which requires ever growing student numbers to sustain it.

Another concern is whether the focus on research and the requirements of the Performance-based Research Fund has come at the expense of the core business of teaching and the entirely different skill set that requires.

"There is an argument that the incentives have swung so heavily towards the PBRF system that we have taken the eye off the ball in terms of teaching quality," Sherwin says. "We will want to have a dig around in that territory as well."

The inquiry's terms of reference ask the commission to "Explore the options for changes to education funding and pricing mechanisms that may be required to facilitate new models of tertiary education."

That might engender suspicions that the Government's agenda here is reining in a fiscal risk, saving the taxpayer money, but Sherwin does not see that as part of the commission's brief.

It is more about the need to respond to changes in the demand side of the labour market, which are likely to mean more adult students and a greater requirement for distance learning.

At the same time, advances in information and communication technology create new options for teaching online.

In a borderless cyberspace, the potential for streaming lectures from great and famous scholars anywhere in the world is exciting.

It might result in a business model where there is free access to courses but students need to pay for certification that they have in fact learned from that open access.

The Government detects inertia and risk aversion on the part of New Zealand institutions, which makes them reluctant to move away from traditional models.

The commission is tasked with reviewing international experience of innovation in the delivery of tertiary education and identifying barriers to innovation that could be addressed.

At this early stage in the inquiry, which has another year to run, Sherwin stresses the commission's mind is entirely open.

"I don't know quite where this one is going to go. We will see what we can pull out of the evidence, the data and the opinion about what we can do to lift the performance of the system as a whole - assuming we can get a clearer handle on what higher performance would look like."

Big issues

• The tertiary education sector includes:
• 418,000 students
• Over $3b a year in government funding
• 8 universities, 18 institutes of technology & polytechs, 3 wananga, more than 270 government-funded private training institutes
Source: The Productivity Commission.
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