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You are here: Home > Current Topics > Mind your Business > 17 January 2005 |
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Image copyright: Jan Friml, stock.xchng The news that higher education is struggling in the face of a funding crisis is not new. The whole debate over tuition fees is central to the funding issues that universities will have to contend with. Staff who work in universities are paid less well than their counterparts in other branches of education, particularly in schools. The salary range for a qualified teacher on the main pay scale from September 2005 will range from £22,002 to £30,642 whereas the range for a lecturer can range from £23,643 to £29,479 with the requirements in terms of qualifications likely to include the necessity of a masters degree and possibly a doctorate. In the latter part of 2004, Exeter University hit the headlines when it announced a decision to close its chemistry and music departments. Exeter is not the only university to consider closure of some departments and it does seem that the natural sciences are at the forefront of the closure moves; Kent University and Queen Mary College, London have also closed their chemistry departments, Anglia Polytechnic University is planning to do so and Newcastle has closed its pure physics department. Departmental closures are affecting 22% of universities, whilst new courses are opening in 79% of universities. The newer courses tend to be those associated with a vocational aspect - sports science, interior design, media and communications studies whereas the closures seem to be focused on languages and natural sciences predominantly. The move at Exeter has been justified by the necessity to reduce a budget deficit of £4.5 million. The closure of the chemistry and music departments is expected to cause the loss of 130 jobs and to entail disruption for students, many of whom are only weeks into their first year. Exeter says that they will do everything possible to ensure that students can transfer to alternative courses or to carry on their studies elsewhere with a subsidy to contribute to the cost of the possible move. The vice-chancellor of Exeter, Professor Steve Smith, said that the university was responding to the market and attempting to reposition itself. He suggested that the university could not countenance the subsidisation of departments that did less well by other more successful departments. 
Image: Chemistry is seen as a vital subject area in national research - this image relates to work being done by chemists in the United States on a drug to treat the SARS virus and other severe lung and respiratory diseases. The funding formula for universities is reliant in part on the ranking given it by government through the research assessment exercise (RAE). The income per member of staff in chemistry and biology at Exeter is £20,900 per year compared to £46,200 in physics - the difference is largely due to the fact that chemistry was awarded a four star ranking in its RAE whereas physics got a 5 or 5* rank. The higher the rank, the higher the income stream flowing to the department. Opponents of the closure, including the Royal Society of Chemistry, are seeking ways of preventing Exeter from completing the closure. Professor Sir Harry Kroto, a Nobel Prize winner and former President of the Royal Society of Chemistry, has sent back his honorary degree from Exeter in protest at the closure. A group calling themselves Parents Against Closures at Exeter, are looking into the viability of mounting a legal challenge over the closures. Other bodies such as the British Medical Association (BMA) are raising concerns over the impact of the closures on the supply of doctors, teachers and researches in the field and the effect this can have on the important collaborative work that is carried out between university departments. There is a feeling that research and development is a vital part of the economic well being of any country and that natural sciences have to be at the forefront of such development if the economy is to continue to expand. |
The Vice Chancellor of Exeter used some interesting language when justifying the decision to close the two departments, language more commonly associated with marketing than education. This does, however, demonstrate how far education has changed in the past 30 years. In this case study, the issue revolves around whether the decision to close the departments was taken as a result of market forces - the supply and demand of students and lecturers involved in chemistry both nationally and at Exeter, or whether it is a case of market failure caused by government intervention in the market, ostensibly in an attempt to improve university provision, but having the effect of shifting resources in ways that might not have been envisaged or desired.
Market forces refer to the actions of supply and demand and the price mechanism as a means of allocating scarce resources. The basic economic problem implies that wants and needs are unlimited whereas the supply of scarce resources is limited. Choices have to be made, therefore, between different resources that can be used in competing ways.
Image: Demand for courses such as media studies may far exceed demand for chemistry. Many of the new courses have some direct link to a vocational activity which many propspective students may see as being a useful way of accessing employment. Copyright: Bartlomiej Stroinski, stock.xchng
The resources in a university department include the buildings, staff, equipment and so on. These could be allocated to the teaching of chemistry, physics, maths or media studies amongst others. The demand for these resources in the university can be said to outstrip the available supply of them - every department would like more room, more equipment, more staff and so on.
The demand for places at the university is dependent on a variety of factors - entry requirements, substitutes - other courses that are available including those at other universities, tastes and fashions and incomes - particularly in the light of the introduction of tuition fees. The number of students taking sciences at advanced level in schools and colleges has been falling. In 1992, the number of candidates taking A' level chemistry was 42,697; this had fallen to 38,702 by 2001. The total candidature meanwhile has risen during the same period from 731,240 to 770,995. Chemistry now represents 5% of candidate entry compared to 5.8% in 1992. (Source of data: Qualifications and Curriculum Authority [PDF, 12K]) (http://www.qca.org.uk/downloads/chemistry.pdf)
Given this fall in student numbers taking chemistry, it is likely that the number feeding through to university is also going to be down. Universities throughout the UK, therefore, are offering places for chemistry but the number of applicants is less - a surplus of places is the result.
In such circumstances, market forces would suggest that the 'price' of chemistry places would fall. However, the market for places in education is complicated by the fact that it is influenced by government policy and action. The analysis so far would suggest that universities like Exeter might, on purely economic grounds, have some justification for shifting resources to areas where demand is relatively high from an area like chemistry where demand might be lower.
The other issue relates to market failure or rather more specifically government failure. Market failure refers to a situation where the forces of demand and supply do not, for some reason, allocate resources efficiently. In this case we could look at the concept of allocative efficiency. This refers to a situation where individuals cannot be made better off through a reallocation of resources without making someone else worse off. In more simple terms, firms are producing goods and services that people want. Allocative inefficiency implies that resources could be reallocated to make individuals better off without making others worse off.
In the case of Exeter, it could be argued that the fall in the number of people wanting to do chemistry at A' level and university would suggest that resources should be moved from providing chemistry to something that students do want to do, for example, media studies.
Under normal circumstances, however, education could be regarded as being immune from market forces. It could be argued that chemistry, being a core subject is something that ought to be provided regardless of the demand for places; it could even be argued that there would be significant external benefits in so doing in terms of the benefits from research and development in university chemistry departments as well as providing well qualified chemists to increase the stock of quality human capital.
The government, however, have clearly stated that they believe education is important for the future development of the nation. They have been very keen to stress how much funding education has received as evidence of the commitment to education. But with this funding comes a clamour for 'value for money'. Putting money into a public service now comes under more intense scrutiny to ensure that taxpayers' money is being well spent. Spending money on a subject area that is falling in demand may not represent the best allocation of funds.
Image: Students outside the chemistry department of Imperial College, London - the department was awarded a 5* rating in the RAE.
Title: UK Students expected to face higher level of tuition fees. Copyright: Getty Images, available from Education Image Gallery
Along with its desire to improve the numbers attending higher education, the government are also saying that these people need to have a quality experience and that spending on their places must be justified. To achieve these twin objectives, government has instituted various measures to try to ensure that this is the case. One of these is the RAE.
The RAE is part of the funding mechanism for higher education (HE). HE has a twin purpose - firstly to educate students, and secondly to carry out research. The latter has to be quality research that, in some way, adds value. Good quality research attracts funds through the development of ideas and systems, etc. that have potential commercial value as well as improving the welfare of the nation.
HE institutions get their funding from two primary sources, the Higher Education Funding Council for England and Wales (HEFCE) grant and from tuition fees. The grant is calculated on the basis of anticipated student numbers and subject, student and institution related factors. The funding linked to research is dependent on the perceived quality of research carried out by the department which is measured by the Research Assessment Exercise (RAE). The RAE awards departments a star rating and is also linked by implication to the quality of the research staff in the departments. 5* is the highest of the ratings.
The aim of the RAE is to distribute the £5 billion in funds to those universities which demonstrate that they are conducting quality research. The system implies that if you are good you are rewarded and there is a clear incentive to improve the quality or research carried out. By implication also, if you are currently deemed not so good (for example, the University of Aberdeen only got a 3a rating for its chemistry department in the last round in 2001), then there is a strong incentive to pull the proverbial socks up to get more funding in the next round.
This line of thinking is related to basic market principles of incentive and improvement. However, the problem facing universities who do not do so well is that they find it very difficult to get the funds to improve what they are doing and so remain at a lower level. Universities such as Oxford and Cambridge, meanwhile, not only have the facilities and the staff but also get more money - it is a clear case of inequality that is reflected in other developmental issues such as the gap between the rich counties of the world and the poor.
Whilst the funding mechanism is meant to be fair, the chances are that it will distort resource allocation and in turn cause market failure. By intervening in the 'market', the government might have actually created more problems than it intended. This is what we mean by market failure and government failure.
