Partnership with government needed to rebuild universities’ business model
17 Jun 2020|

There’s a wrestle underway between Australia’s universities and the government over funding, priorities and the future. Right now it looks like a Mexican standoff, not a negotiation. There are grounds for a deal, although getting there will take a shift from both the sector and the government.

Universities are in a crisis brought about by the collapse in their revenues from the pandemic. Some 20% of university revenues and enrolments have come from overseas in recent years, the majority from Chinese students.

So, the immediate crisis is a revenue one. There’s a bigger crisis just behind this, however, and that’s the collapse of a business model that was based on two things: high overseas student numbers (from multiple countries) and an assured market in the form of large numbers of Chinese students. Neither pillar of the business model looks guaranteed into the future.

Overall international student enrolments may stay depressed owing to the changed economic and travel conditions the Covid-19 pandemic has brought. And Chinese student numbers may increasingly be hostage to coercive trade measures from Beijing.

The sector is highly motivated to respond. Peak bodies like Universities Australia and the Group of Eight are working with individual universities and with state, territory and federal governments on various plans to restart travel to Australia by international students. Universities are also beginning to conduct on-campus courses in ‘Covid-safe’ ways.

This is all understandable as an immediate crisis response, but it’s unlikely to rebuild the university sector in any sustainable way. Much of this response sounds like the government’s initial thinking for Australia’s broader economy as the pandemic took off—remember the idea of temporary support as the ‘bridge’ back to how we were before? The government has since recognised the bridge is to a different future economy, not the one we had pre-pandemic. Universities must make this same conceptual shift.

The magnitude of change that the sector faces requires a much deeper and broader set of changes and responses than we’ve seen to date. That seems to be the government’s view too. Prime Minister Scott Morrison and some of his key ministers have resisted calls to include universities in the JobKeeper program—probably in part because they want to see the sector engage in structural change and not just hold its breath and live on taxpayer-funded life support before picking up where it left off.

This ‘tough love’ doesn’t seem to be shifting the universities, though. Some are recycling old arguments, like the idea that the Coalition is ideologically opposed to chunks of universities’ programs in areas such as identity politics and is critical of how universities have managed freedom of speech on campus. And we’ve seen resurrected criticism of government funding, saying the lack of an increase in recent years, along with policies deregulating student numbers, is what drove universities towards their now failed business model. This is a dialogue of the deaf.

What might break the standoff? It could be an agenda with three big priorities: focusing on domestic students’ requirements, growing diversified international student markets, and building a world-class digital education model so universities can provide courses that don’t require attending a physical campus.

Education Minister Dan Tehan has been explicit about a return to prioritising domestic students’ needs with targeted, quality higher education that fits the requirements of our future economy. That’s a core purpose universities already have, so it’s one they could quite easily recommit to. It will require a change in focus, though—the criticism that courses and learning have been undercut by the abiding focus on overseas students seems to have some merit.

While their overall numbers may stay lower than in the recent boom times, there’s probably still a sensible business case for universities to bring international students to Australian campuses as the crisis phase of the pandemic abates. But simply rebuilding the old market would be a strategic business error in light of Beijing’s foreshadowing its willingness to use Chinese student enrolments as an economic weapon to pressure Australia over policies in areas completely unrelated to education. The sheer business risk for universities in building back a high business reliance on the Chinese student market means a different path where China is a lesser priority makes sense.

Australian higher education is a valuable international commodity. Growing markets in Southeast Asia (notably Indonesia) and expanding further into the Indian market makes business and strategic sense. The problem, of course, is that this requires work and is by no means an easy, short-term fix for the dependence on China—nor is there any single substitute for Chinese students in terms of numbers.

This is where a sector–government partnership might work, as ASPI’s Peter Jennings and Marcus Hellyer have written. It’s about structural reform. The government wants universities to move away from their reliance on the single revenue stream from China. Instead of waiting to see this shift come from financial and market pressures, a targeted university stimulus program could assist the sector to plan, fund and deliver the shift to this new model.

In parallel, it would be wise for our universities to look at what they’ve achieved with digital delivery of higher education before and during the pandemic, and invest further in a permanent, high-quality digital education model. The goal would be to allow students from anywhere in the world to study with our universities without needing to be here.

This shift will be an even bigger business, cultural and institutional change for the sector. And it needs to be done with care to protect the quality and integrity of the education provided. This digital model has the potential, though, to make our universities bigger players globally. It will also protect the sector against future shocks that affect travel, and can also help diversify markets and revenue streams.

All this will not magically happen if the government holds firm on providing limited assistance to the sector and if universities continue to try to resurrect their pre-pandemic business model.

Long-term, successful structural reform of this magnitude will require new funding in addition to the $18 billion the federal government already provides every year. A figure somewhere in the order of $2–4 billion per year may be required to support universities and university staff while they invest in and develop new or expanded regional markets and perhaps to subsidise students too.

Now is the time for a new discussion between the government and universities on the future of the sector. The shift that results can re-establish the centrality of our universities for Australia’s wellbeing, prosperity and security. An alignment between the government and the sector that looks difficult on the surface may actually be quite achievable.