Flat White

Meet the skinless chickens (AKA our university vice-chancellors)

18 December 2020

3:27 PM

18 December 2020

3:27 PM

Australia came to a fork in the road. The private sector went one way. The public sector the other, singing wee-wee-wee all the way to a comfortable home. 

As a community, we have designed a very bad and strange system. In the private sector, there has been a long term project to align the interests of employees with that of their organisations. This to ensure that employees have ‘skin in the game’ so as to share in the droughts and the bounties. No doubt the implementation of such alignment is far from perfect, but the general principle is that employees do well when their organisations do well and they do poorly when their organisations do poorly. There have even been moves, in some sectors, to claw back prior remuneration when adverse outcomes take a while to wash through. 

While expressed as ‘aligning interests’, this model is based on Hammurabian principles of reciprocity. For example, under Hammurabi’s code, a builder who builds a house poorly that results in the death of the owner would be (reciprocally) put to death. Consider this in the context of the Mascot Tower in Sydney

Reciprocity of outcomes tends to focus the mind. It forces the decision marker to understand the trade-offs associated with any decision or action or policy. For every benefit, there is a cost and the aim of the game is to ensure that the benefits are always net positive. 

In the public sector however, there has been a systematic effort to separate the outcomes for public sector employees from outcomes from their actions. This is not a fault but rather a design objective of the system. It is somehow seen as virtuous that public sector employees bear no cost or receive the benefit as a consequence of their actions and advice. Frank and fearless advice means that in a coin toss, heads the public servant wins and tails the public servant wins. 

This dichotomy has been well evidenced this year. Those public servants who advocate for the shut down of economies and the lockdown of citizens paid no price. The outcomes of their actions bore no alignment to the broader consequences. In fact, they were even rewarded through pay increases, increased job security and favourable ‘working’ from home arrangements. 

At a philosophical level, this public sector-private sector-outcome misalignment is much like the difference between capitalist and communist systems.  The behaviour, care and interest of those who have a stake in outcomes is much different from those who are a cog in the socialised means of production machine. 

As a community, we long tolerated this disconnect because the remuneration and benefits for public sector employees were lower to account for no ‘skin in the game’. Public sector employees chose to not accept the levels of risk associated with private sector employment. But this remuneration gap has long closed and in many cases, public sector employees earn more and have better benefits than their private sector equivalents all without the risk. For example, unlike their private sector peers, public sector employees get 15.4% superannuation contributions paid for by taxpayers with no threat to their income. Further, the proportion of public sector employees to the entire workforce has risen markedly. 

It has come to the point where our best and brightest would be better off in the public sector bureaucracy than in starting businesses, inventing new products and service or otherwise engaging in the activities that generate the wealth and create the employment necessary to feed and sustain the public sector leviathan. 

This is not a sustainable proposition. If Australia is to recover from Covid and achieve its social and economic potential, we need to change, and change fast. As the Chinese saying goes, if we don’t change our direction, we will end up where we are headed. We need to restructure the public sector and change the incentives. 

Take tertiary education and HECS/HELP debts. Writing this week in the Australian, Robert Gottleibsen lamented that “[A] significant proportion of university graduates are struggling to generate the necessary income to service the HECS debts they incurred in gaining their degrees”.  Gottleibsen’s solution – “it’s time for Australian universities and tertiary colleges to examine what is happening to their graduates after leaving the campus”. 

Sorry, Gotty. It’s not time for Australian universities to look at what’s happening to their graduates.  It’s time for Australian universities to look at what kind of graduates they are producing – in both lack of quality and ample quantity. 

As nice as this may sound, it is not in the financial interest of Australian universities to review what kind of graduates they are producing because they are not incentivised to produce quality graduates.  Universities, thanks to the Australian tax papers, are incentivized to produce quantity and not quality.  They need quantity to extract money from students to fund the offensive $1 million plus salaries of the vice-chancellors and the cost of the university administration industrial complex.  Things like the $100 million plus University of Sydney state of the art F23 building that was erected to house not academics or students, but rather administrators.  Not a lot of educational outcomes from $100 million administration buildings. 

If Australia wants a university sector that produces graduates that can support HECS/HELP debts, universities need to be held accountable for when their graduates don’t get the jobs or incomes that support HECS/HELP debts. No amount of central planning from Canberra will achieve this.  No amount of tinkering with course prices, also from Canberra, will achieve this.  No amount of price deregulation will achieve this. Make the universities get some skin in the game. 

And how to do this?  Start with making the universities liable and responsible for all HECS/HELP loans until their graduates start to service them. Like a normal business, let the universities borrow the money necessary to run their operations. Let them service the loans and only once graduates earn enough to pay their HECS/HELP loans would the Commonwealth take over the loans. 

Let the directors of the universities, the members of the university councils, be concerned for their personal balance sheets at the same time university balance sheets are accumulating the HECS/HELP loan liabilities. 

Once that happens, universities might be a bit more careful with the quality of their programs, the number of diversity officers they need and the number of their administrators. They might also implement some quality standards in their teaching and admissions processes. Skin in the game tends to focus the mind. 

Until this happens, Australia will keep pumping kids into courses that should not exist and that they should not be doing with the end result that Australia has a large cohort of bitter and angry baristas with university degrees and large debts who think that capitalism is the cause of their problems.

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