Quality matters and quality costs. Stuart McCutcheon, vice-chancellor of the University of Auckland, asks what kind of university system does New Zealand want?

The observation by Sir Peter Gluckman, chief science adviser to the Prime Minister, that increasing numbers of very able New Zealand students are passing over our universities to study abroad is not a surprise for those of us in the university sector.

Today's young people are highly mobile, and understand the significance of a quality education in the global employment marketplace. They recognise the importance of the standing of the institution they choose, and know that the New Zealand university system is struggling to keep up with our international competitors in global rankings.

Our universities exist to serve New Zealand, and make a significant contribution to the economic, social, environmental and cultural wellbeing of the country.


They benefit directly the individuals who study there and make a far wider contribution to the community indirectly.

Yet although we pride ourselves on the quality of our universities, all of them are falling in world rankings. For example, in one ranking system the University of Auckland has fallen from 46th to 82nd since 2006, Otago from 79th to 130th and Massey from 213rd to 329th. The other New Zealand universities have followed the same trend. Yet this is the ranking system that is most generous to our universities. In other systems we rank in the 200-500 band or below.

There will be serious consequences if we fail to address this issue. International students rely heavily on rankings to determine the quality of a country's university system, or of a particular university in that country at which they might study. The decline in rankings of the New Zealand universities therefore jeopardises our $2.3 billion a year export education sector, now the fifth largest export industry in the country.

Local students - also increasingly aware of rankings - are looking to study in Melbourne, Canberra or Sydney and beyond, where the universities rank consistently among the best in the world. Reduced rankings also reduce the likelihood of alumni and donors being confident in investing in our universities, and of international organisations such as leading foreign universities or research funding agencies partnering with us.

It is often argued that a small country such as New Zealand cannot expect to have great universities. Not so. Denmark, Singapore, Switzerland, Ireland, Belgium and Hong Kong, all countries with populations not vastly different to those of New Zealand, each have at least one, and typically several, universities ranked higher than the highest of the New Zealand universities. So we need to look carefully at how our system is structured, how we invest in it, and how we can ensure that we continue to have universities that rank among the best in the world.

The single biggest challenge facing New Zealand universities is that we operate with the lowest expenditure per student of any system in the developed world. For example, at the University of Auckland we have an annual budget of about $950 million for 40,000 students (32,000 full-time equivalents) while the universities of New South Wales and Queensland - with only slightly higher student numbers - have budgets of around A$1.6 billion ($2 billion) a year.

In terms of quality/rankings relative to cost, we have probably the most efficient university system in the world and we are doing well when compared with the level of investment. But others are investing far more and are consequently doing better. Are we as a nation prepared to accept this, or do we want to have a strategy that will allow us to compete globally for the best and brightest?

There are a number of options available to us, and some difficult choices to be made. We could, for example, maintain the level of public investment in universities but reduce student numbers, thereby increasing investment per student at no added cost to the taxpayer. From 1983 to 2008, the number of students at the University of Auckland rose from 13,000 to 39,000, but our investment per student and rankings declined.

Or we could require greater private investment in the university system through higher student tuition fees. Another alternative could be to change the student loan system to ensure the investment we make through this system is optimised. New Zealand has one of the most generous student support systems in the world and the taxpayer now pays 45c of every dollar borrowed as a consequence of the interest-free loans policy.

Or we could create a greater degree of differentiation across the tertiary sector, recognising that any country can have only a limited number of universities that are in the top rank globally, and that choices need to be made about where to invest in different parts of the sector.

These are difficult choices and they need to be debated. But any such debate has to accept that New Zealand cannot have, at the same time, the present large numbers of students attending university, heavily constrained levels of government funding, low tuition fees, a uniform tertiary system and high quality.

This is not a choice the universities can make: it is one for the people of New Zealand.