The Australian Financial Review Higher Education Summit


Thank you for the opportunity to outline the Business Council's involvement in higher education. I'm speaking today as the Chairman of the Business Council's education and training task force which I chair and I've also been fortunate to be invited to join Minister Nelson's review group and I've enjoyed participating in those discussions.

The Business Council represents the chief executives of the 100 largest companies in Australia and its overriding goal, which is a very ambitious objective for this country, is to make Australia the best place to live, work and to do business.

One of the issues that we're tackling at the moment, and there are some very weighty ones, focuses on the BCA's view about education. We have put education and training at the very top of our strategic agenda and we see education as likely to remain one of our leading priorities for quite some time which means that our agenda will keep developing and we'll keep working on new things in education.

We think that no other single factor is seen as so critical to determining Australia's economic and social future than the quality and relevance of our education and training system.

And related to that today, I'd like to look at why it is such an important priority and what reforms we've suggested in the areas of financing, governance and transparency of outcomes in the higher education sector.

Dealing with the importance of education, the starting point for Australia is that it is a small economy representing less than 2% of the global economy, it is a already a higher value-adding nation which is determined by the per capita income of its population so we're a higher earning, higher output per capita nation already even though we're - and we're only less than 2% of the world population.

This means that we necessarily don't have large domestic markets and the consequence of that is that we need abundant intellectual capital and knowledge-based services to be the mainstay of our economic growth in future and therefore education is the key resource input that we need to get the most from to achieve that.

In this priority for our economy the role of universities is critical if we are to add value to our people in this knowledge-based economy and the day-to-day things that universities do in education are critical to that outcome.

Australia is also characterised, differentiated by the percentage of research and development effort undertaken in universities as distinct from companies and 84% of that effort is carried out in Australia and, for that reason, we are critically dependent on the research and development of universities to commercialise intellectual property and to continue to move towards that higher value-adding economy.

And there's no doubt within the Business Council that research and development in universities is a natural extension of the intellectual development of their teaching faculties and the associated work of those teachers.

The current debate is about whether our higher education system is sufficiently dynamic and flexible and that's why we support the intent of the Nelson Review.

There are several issues in there.

  • There are governance issues, for example, the Commonwealth Government puts in most funding into universities yet their governance systems are dictated by state legislation, often, when the states actually put very, very little into higher education.
  • There are issues about the direction of resourcing in universities. For example, it is much easier, under the current system, it is much easier at the margin to apply resources to less capital intensive teaching outcomes, to add law students and commerce students, than it is to add science students and in the OECD surveys this comes out in a very interesting way.
  • In Australia we have, in engineering, manufacturing and construction areas of activity, a much less percentage of our people than in Japan and the UK and Korea. For example, Australia had 7.9% of its graduates in these areas whereas Korea had 27%, Japan 21% and the UK 12%.

So there are some distortions in the current system that are worth looking at. One important aspect from our perspective of this review is that it is the business and the private sector that does most value-adding through creativity and know-how in a higher value-added economy. And for that reason the manner of collaboration and mutual support between universities and the private sector are critical to this higher value-adding objective.

In terms of the reforms that we have looked at, I mentioned three main areas - financing, governance and measurements of outcomes - so let me deal with those. I think the point that we're trying to make is that in the private sector to add value, to be creative, to get the best outcomes, we need contestability and we must operate as a meritocracy not a democracy. And if we're to interact with universities to source talented people, and if universities are to be accountable to the democracy, then we need a merit-based approach in universities as well.

In terms of financing, governments are accountable to the taxpayer for allocation of resources and for the decisions they make in a social sense about how many people they want to fund into university.

We need to move from a central and highly regulated financial planning arrangement to a model less centralised, more flexible and more student directed where the balance of revenue sources reflects that higher education delivers both public and private benefits.

We need reliability and predictability about the base level of funding and we need to allow universities to attain some reward for generating their own revenue and to encourage them to differentiate.

In the Business Council submission to the Nelson review we proposed partial fee deregulation, increasing the wages threshold for repayment of HECS support at a normal starting range for graduates rather than below that and increased funds for access for disadvantaged groups.

We're also aimed at ensuring equality of access based on ability rather than ability to pay whilst expecting a student to make a fair contribution from the higher income that they achieve from tertiary education.

In terms of governance, it's clear that universities are quite sophisticated, complex institutions and need high quality governance arrangements. We believe, however, that more should be done to streamline and dismantle unnecessary, ambiguous or awkward decision-making structures which can constrain the flexibility and innovation of the universities.

Now, these are different in different states. By far the most onerous and awkward is the statutory-based system of governance in New South Wales and from a business perspective there is no doubt in our mind that these governance arrangements must slow down the universities in the achievement of many of their goals.

We think that the responsibilities of governing bodies should be articulated through a set of best practice guidelines and that universities should provide an assessment of those governance arrangements against the guidelines.

The size of governing bodies should be reduced while, at the same time, governing board members could potentially be remunerated to attract the highest level of expertise and to reflect the complexity of the role.

A lot of effort in our report went into transparency and measurements of outcomes. I said that universities must be accountable for the distribution of a public good. Most of the funding in Australia comes from the Commonwealth for delivering that public good and universities have to account for that.

They also need competition as a spur for quality and performance and we know that transparency of outcomes supports competition. The data on outcomes needs to be better to support that accountability and to support the competitive framework.

For example, in our report we pointed to some of the OECD outcomes which demonstrate that more data and more quality of data is necessary to make decisions about resource allocations.

In Australia, graduates earn on average about 36% more than those with secondary school qualifications. The OECD average is 60%. Now, the question arises, does that occur because employers value graduates less in Australian than in other countries or because the base wage levels in Australia are actually higher? We don't know the answer but we do know that in Canada, the UK, the US, the percentage is higher. This could lead us to the conclusion that employers value graduates less and that universities are not actually getting a high enough quality output.

But, I should hasten to add, the point is, we don't know and without better measurement and output-based measurement, we can't make the best decisions either in relationships between universities and business or in accounting back to the public purse for the public good distribution that universities undertake.

The importance of this to the economy is critically outlined in the OECD numbers, too, because of the unemployment [sic] rates achieved by most graduates versus other employees. So transparency and measurement of outcomes is important. It is true that in the OECD not a lot of countries do this very well. We've pointed out in our report that there are some universities who go to greater lengths in doing this but I think the point we're making is that this should be an area of differentiation in Australia, given the criticality of our education.

I guess this raises the question, what is our interest and role? It's easy to see that in this environment and in the economic imperative for Australia we need a much more highly skilled workforce, we need universities to prepare our employees with skills and understanding to raise their level of conceptual understanding or conceptual skill and to be able to adapt to the technologies yet to be invented and the work systems that will go with those technologies. So it's a very dynamic and flexible outcome that we need to add value in the business sector and therefore we need that dynamism and flexibility in our universities.

Overall then, we assess that there's more that can be done to build closer links with universities and in the BCA going forward we've a number of things which I'd like to conclude by pointing out some of our agenda.

First we want to be able to contribute to the debate in the environment post the Nelson review publication. We would like to work with universities on the development of models for commercialisation of intellectual property. Although this is not the major driver of funding of the universities we think we have to do better in Australia because universities in Australia area not very highly endowed compared with some other countries.

We want to build some support to address the education and training needs and deal with the issue of young people dropping out before completion of year 12 or equivalent at school, because of the cost of this to the community. We want to review issues in the vocational education and training sector, including its overlap with the higher education sector. Generally we see a difference in that we are looking for people from the higher education sector as having creativity and conceptual skills whereas from the vocational education and training sector we need basic skills that can be applied to the work processes of different businesses in different industries.

And lastly, we want to examine the role of the sector in working with an ageing workforce. That is, what are the consequences of an ageing workforce and how can both the business sector and the higher education sector do more to deal with that issue as the demographics unfold?

So this agenda that's just what we have on our plate today indicates the priority that we've placed on education generally and the higher education sector in particular and that the Business Council and its members place such a high priority on this and want to contribute significantly to the debate and the outcome. Thank you.