Higher Education on a Rough Road

Summary

This submission first addresses the general issues associated with tertiary education funding. The balance of evidence is that the quality of education has deteriorated as Commonwealth support has been withdrawn. There is no case for further withdrawal of Commonwealth support. There are essential market failures in education which preclude the possibility of higher non-government contributions being made to education. The Commonwealth should study carefully the consequences of government cuts to tertiary education funding, with a view to restoring funding to a higher level than is provided at present.

In addition there are number of problems specific to engineering. Engineering is a long course with high HECS fees and with some extra pressures not necessarily shared by other university disciplines. The main case for public support for engineering, however, relates to the needs of an economy still emerging from dependence on extractive industries to take its place in a world where competition will be based on application of human capital.

June 2002

Contents

Introduction

1. Relationship to the Institution's work

2. A general response to the paper

An assumption of fiscal stringency

Quality

3. Issues specific to engineering

Differential HECS fees

Laboratory and equipment costs

Problems in supporting disciplines

The loss of cadetships

Other aspects of competition policy

Community attitudes to engineering

Australia's engineering deficit

Bibliography

Endnotes

Appemdix - Present value of HECS receipts and repayments

Tables

1. Commonwealth funding as a proportion of total university funding

2. Sources of university revenue before abnormal items

3. Funding per student (Constant 2000-01 prices)

4. Earnings of Graduates Relative to People with Upper Secondary Education

5. University operating expenses before abnormal items $'000

6. Percentage of HECS liable students paying up-front with discount

7. Number of graduates in engineering per million population

8. Average annual flows of engineers 1990-1998

Higher Education on a Rough Road

If you think education is expensive - try ignorance.

Derek Bok

Introduction

The Institution of Engineers welcomes the opportunity to comment on the discussion paper.

In enunciating general principles of the purposes and value of higher education, the paper is a welcome affirmation of public policy. The paper addresses many important questions relevant to the discipline of engineering, particularly those related to the sustainability of a large number of similar courses in different institutions and the associated lack of specialization; these issues have been of concern to the Institution for some time.

Where the Institution has difficulty with the paper, however, is in its failure to acknowledge the immediate and long-term financial stress faced by Australia's universities - a stress rightly described as a crisis in the 2001 Senate Report.⁽¹⁾ There has been a rapid withdrawal of Commonwealth funding. Twenty years ago Commonwealth funding accounted for 90 percent of university funding⁽²⁾; by 2000 this had fallen to 45 percent, and the paper contains a strong suggestion that the Commonwealth is seeking to shift more funding responsibility to non-government sources. There is little acknowledgement of the capacity, or rather the lack of capacity, of these other sources to fill the funding gap. Even where funds are available they often come at high cost; they can divert universities from their prime purpose of education and research.

Higher education is not a simple market commodity; this fact is in fact acknowledged in the paper where it stresses that many of the benefits extend beyond those accruing to the individual participants (Para 4.) And while there are individual benefits from higher education, these occur many years after the costs of higher education. While it is possible to demonstrate that higher education provides a reasonable rate of return to the individual, as any business person knows a positive return does not necessarily equate to a healthy cash flow, and one cannot borrow in private markets for investments in human capital. HECS goes only a limited way towards redressing that capital market failure, and the 1997 HECS fee increases, particularly those applying to engineering, have reduced the private return to higher education. The paper does not address adequately these and other market failures in higher education.

The paper understandably does not consider individual disciplines within higher education, but to the Institution the issues surrounding engineering education are of particular significance. While Australia has enjoyed strong economic growth over the last ten years, it is questionable whether this growth is sustainable in the longer term. Much of this growth has been financed by consumption rather than investment, and Australia still has a high deficit on current account. Australia's industrial structure, while modernizing, still has remnants of an "old" economy, dependent on extractive industries. Australia's economic health in a world subject to global competition will depend on our capacity to invest in knowledge-intensive industries. While Australians have been quick to take up new technologies as users or customers, particularly information technologies, we seem to have lost our edge in developing and retaining the benefits of innovations. In addition there are accumulating deficits in Australia's infrastructure, identified in the Institution's Report Card surveys of infrastructure.⁽³⁾ As we face the challenges of modernizing our industries, replacing our dilapidated transport infrastructure, and restoring to sustainability our environmental resources, we will need engineers.

This submission is in three parts. The first part outlines some of the Institution's recent and current involvement in higher education - an involvement covering some of the same ground as the Government's paper. The second part is a general critique of the paper; in short it suggests that the paper is not adequately supported by research, and tends to gloss over some of the serious problems facing Australia's higher education sector. The third part is devoted to issues specific to engineering.

1. Relationship to the Institution's work

The quality, relevance and accessibility of university education have always been core interests of the Institution. Over 1995 and 1996 the Institution, in association with the Academy of Technological Sciences and Engineering and the Australian Council of Engineering Deans, undertook a major review of engineering education in Australia.

Many of the findings of that review are reflected in the Government's discussion paper. There was concern about there being 36 engineering schools covering much the same range of activities. Approaches such as amalgamation, specialization, collaboration and attraction of critical masses through overseas students were canvassed. There was concern about the representation of minorities, particularly women, in engineering schools. There was concern about dropout rates in early years. And there was concern about the need for engineering education to cover professional skills such as leadership, social awareness, and communication.

But an overriding concern was with funding:

The Review is concerned that progressive cuts over recent years in funding are having a serious effect on the viability of engineering schools and their capacity to innovate and that the close relationship between student load and funding may adversely affect standards.⁽⁴⁾

In spite of the continued fiscal stringency faced by universities, engineering schools have addressed many of the issues identified in the 1996 reports. Courses have been re-designed, more women are studying and graduating from engineering courses, there is more cooperation between universities, and engineering is one of the most popular courses for overseas students. But the funding problems remain.

Issues specific to engineering are covered in the third part of this document, but, in view of the general nature of the discussion paper, we commence with a consideration of issues shared by all university disciplines.

2. A general response to the paper

An assumption of fiscal stringency

The paper's authors have made the basic assumption that there will be no significant increase in public funding for universities. This re-iterates the statement in the 2001 Senate Report Universities in Crisis, which stated that "the policy of the current Government is to refuse to contemplate any increase in the public funding for higher education."⁽⁵⁾

The present discussion paper is less explicit, but it contains statements such as:

Some commentators argue that the nation's capacity for increasing expenditure on higher education will depend in large measure on widening the range of funding options and increasing the flexibility of institutions to pursue those sources. (Para 69)

There is no identification of those commentators, nor is there any explanation of the arguments or evidence upon which that assertion is based.

A few paragraphs further on is the statement:

In all likelihood, public funding of higher education will continue to face higher fiscal constraints. (Para 72)

And:

There has been an increasing recognition that publicly funded higher education institutions need to diversify their funding sources. (Para 77)

The passive voice construction of this statement begs two questions - to whom is it attributed, and what is its basis in evidence or argument? Does it refer to some underlying verity in public finance, or is it simply a statement of the frustration faced by universities in seeking a restoration of public funding?

These statements seem to be designed to condition respondents to base their comments around the assumption that there is to be no restoration of Commonwealth funding for higher education. Furthermore, they overlook the considerable diversification that has already occurred in funding sources. Commonwealth funding for universities has fallen sharply over the last twenty years, as shown in Table 1. Few industries have been subject to such a sharp financial adjustment as the tertiary education sector.

Table 2 below expands on this data. It is drawn from the discussion paper, but it re-frames the data in that paper to show HECS funding under "fees and charges" (a loan is not a grant⁽⁶⁾), and it brings the data to constant prices, thus removing the inflationary illusion from the table in the discussion paper. Between 1991 and 2000 Commonwealth funding has risen, but only by 7 percent in real (inflation adjusted) terms.

While Commonwealth funding has risen by 7 percent, there has been a 30 percent increase in the number of students. This means Commonwealth funding per student has fallen by 18 percent over the last ten years. Because much of the growth has come from overseas students, it is more reasonable to present Commonwealth funding per domestic student. This has fallen by 10 percent, as shown in Table 3.

While the paper does canvass some variants around the funding status quo (e.g. higher and targeted HECS, mission-based funding, tendering, vouchers), there is no discussion of the relative merits of public versus private funding. The 1997 Productivity Commission Report, for example, acknowledged three grounds for public funding of higher education - two on market failure and one on equity. To quote from that report:

The main justifications for government involvement include:

• supporting the generation of 'external' or 'spillover' benefits arising from the activities of the sector;
• addressing weaknesses in the capital market, which impair the capacity of some students to finance their higher education; and
• improving access and equality of opportunity, particularly for disadvantaged students.⁽⁷⁾

In pure economic theory, to the extent that benefits are not captured by the individual participants in higher education, there is a case for public funding. But the Commission, like other researchers, has found it difficult to quantify these effects. Certainly some of the benefits of higher education do accrue to the individuals, a point taken up further on, but to the extent that some of these are recovered by progressive income tax, there is already a partial "beneficiary pays" system, even before HECS is considered. Provided we retain a progressive income tax system, even full public funding has some "beneficiary-pays" characteristics, a point not acknowledged in the Government paper.

Furthermore, all developed countries provide substantial government support for tertiary education. Australia was around mid-league in terms of government funding for tertiary education (as a percentage of GDP) in 1993, before the cuts of the 1990s⁽⁸⁾. By 1998 Australia's percentage of private funding of higher education was one of the highest in the OECD - 0.51 percent of GDP compared with an OECD mean of 0.67 percent.⁽⁹⁾ While overseas practices do not provide a rigorous benchmark of optimality, it is unwise to depart from such a benchmark without sound reason or evidence. The Government's paper, however, does not even consider restoration of public funding; its emphasis is on alternative sources of funds.

Besides higher HECS contributions and more use of full fees, the paper also mentions other options for such as philanthropy (Para 150). What all these suggestions overlook is the fact that Australian graduates do not enjoy the income premium experienced by graduates in other countries. Of the 17 OECD countries providing graduate data, only Norway has a lower income premium than Australia. The USA is often championed as a model of graduate philanthropy, but in USA graduates enjoy an 80 percent income premium over non-graduates, compared with a 36 percent premium in Australia. This divergence is shown in Table 4.

There is sound evidence that tertiary education brings economy-wide benefits.⁽¹⁰⁾ What is less clear is the extent to which these benefits are retained by the individuals who participate in education. If, as evidence suggests, Australian graduates retain less of these benefits than their counterparts in other countries, then there is an arguable case that public support should be higher in Australia than it is in other countries. A full "beneficiary-pays" system may be far more justified in a country like the USA where graduates enjoy a very high income premium than they do in Australia.⁽¹¹⁾

Having rushed headlong into a substantial shift in university funding, the Government is assuming that the mix of public and private funding is right - even too much tipped towards public funding - without any consideration of the consequences of the shifts which have taken place to date.

Quality

The paper states that there is "no hard evidence to suggest that the quality of teaching in public universities has declined". (Para 91) It goes on to state that student satisfaction, as measured by the Course Experience Questionnaire, has actually risen in recent years. There is no time series data to support this allegation; the paper gives data on "overall graduate satisfaction" by institution, which ranges from 85 percent to 94 percent in 2000, but there is no overall national average. (Table d4) These figures are at variance with data from the AVCC, who report graduates' overall satisfaction at only 69 percent and that their satisfaction with teaching at only 43 percent in 2000.⁽¹²⁾

A similar dispute in interpretation arose in the 2001 Senate Inquiry. The issues were raised before the Senate by Professor Ian Chubb, at that stage appearing on behalf of the AVCC. According to the Senate Report:

Professor Chubb also provided some clarification of the claims that the satisfaction of graduates with their courses is at a record levels [sic], demonstrating that the overall satisfaction rating is 67 percent rather than 91 percent.⁽¹³⁾

The present paper does not mention this serious disagreement. It is so basic to the question of quality, however, that it should be addressed before any sensible debate on policies proceeds.

In support of the proposition that quality has decreased, Professor Chubb pointed to a body of evidence, including:

... increases in student-staff ratios of almost 30 percent since 1995; difficulties in recruiting staff; 'alarming and recent' declines in the number of academic staff in key areas such as chemistry, physics and mathematics; erosion of basic infrastructure; poorer library holdings, a decline in the purchasing power of grants since 1996; increasing casualisation of the workforce with profound implications for the quality of the educational environment; and a worsening position in terms of international comparators. The response [Professor Chubb's] also refuted claims that Australia's combined public and private investment in tertiary education is higher than the OECD average, by demonstrating that Australia's expenditure is below the OECD average and that Australia has the fourth highest proportion of private investment in higher education among OECD countries.⁽¹⁴⁾

The Government paper acknowledges the change in the staff:student ratio from 15:1 to19:1 between 1993 and 2000 (Para 163), but does not go into any level of analysis of the effects of this deterioration, apart from hinting that further uptake of information technology may help offset this decline by improving the productivity of university staff. This contention glosses over the fact that universities in 1993 already were heavy users of information technology, so would have already achieved its early and easy productivity gains. Also, as the paper partially accepts (Para 56), there are training and learning costs associated with information technology intensification. Furthermore a simple mathematical calculation reveals that, in order for productivity gains to offset such a change in student:staff ratios, the average annual productivity gain would have to be in the order of 3.4 percent. That's an extraordinarily high figure in light of national labour productivity gains in the order of no more than 1.0 - 2.3 percent a year.⁽¹⁵⁾

In engineering the change has been even more severe, from 10.9:1 in 1990 to 17.0:1 in 2000⁽¹⁶⁾ - a change which would require an average annual productivity gain of 4.5 percent.⁽¹⁷⁾

Universities, of course, have not collapsed. They have struggled on, but the sustainability of the struggle is open to question. Any organization, through depleting its capital (particularly its intangible capital), can survive a cutback in the short term. Staff can defer leave, work longer hours, cut back on teaching-related research, and dispense with updating or re-designing courses and units. Such measures can sustain quality only for a few years; the effects of the funding cutbacks may not be any more than partially manifest as yet.

One alarming indicator in the paper is that 37 percent of academic staff are aged more than 50 years; many of the newer universities have around half their staff in the 50 plus age bracket. By contrast only 5 percent of staff are aged less than 30 years. (Table d3) From 1988 to 2000 the proportion of university staff aged 45 or more has risen from 36 percent to 47 percent.⁽¹⁸⁾ Universities will have to recruit many new staff in the coming years, but will they be able to do so? Older staff can hang on; they are generally at the stage of life where they have lowering demands from children (other than HECS fees), and their prospects for alternative employment in a labour market which is biassed against older workers are not sound. But the opportunity cost for younger people of taking a university appointment is much higher than it is for older people, particularly when there is the attraction of work in countries with much higher academic pay.

The paper itself acknowledges that universities are labour-intensive, although, like most knowledge-intensive industries, they have become more capital-intensive in recent years. Labour costs have fallen from about 68 percent to 60 percent of all expenses since 1991, as can be seen in Table 5 below. The Government has used this labour intensity to squeeze the universities, for, since 1996, it has indexed 75 percent of its grants to universities by the "safety net" adjustment paid to low income workers rather than more representative indices of overall labour costs. The AVCC has calculated that had average weekly earnings been used as an index, universities would now be half a billion dollars better off a year.⁽¹⁹⁾ And even that method would be conservative, for universities employ highly qualified staff, both in academic and administrative positions, whose pay elsewhere in the economy has risen faster than average weekly earnings.

A revealing figure from Table 5 is that costs associated with non-academic staff have risen much faster than those associated with academic staff. This is in spite of a slightly higher increase in the number of academic staff compared with non academic staff (Table a12). Such a phenomenon could result from universities having to pay market rates for administrative staff, or from extra administrative workloads imposed on universities, requiring a higher level of non-academic staff. The paper gives some support to the latter explanation (which does not necessarily contradict the former). It acknowledges the growth of managerial overheads associated with a "corporate management approach" (Para 36) and the costs imposed by increasing bureaucratic load of red tape, much of which has been imposed by the Commonwealth (Paras 193-196), but it has no suggestions for means of reducing these compliance costs. In fact, one of the options canvassed in the paper, is to link HECS funding to even more to quality reporting requirements (Para 170). There may be sound reasons for more quality monitoring; indeed the dispute in the Senate Inquiry reveals a deficit of sound data, but it must be realized that quality measurement is costly, and that universities already have heavy reporting burdens.

Another indicator of quality is revealed by outside employment by students. In 1984, about 5 in 10 undergraduates were employed during the semester; by 2000 this had risen to 7 in 10. According to the Australian Vice Chancellors' Committee "many students identified the financial imperative to undertake employment as a problem for their studies", and "nearly 2 in every 10 students in paid employment say that the work adversely affects their study 'a great deal'".⁽²⁰⁾

While the paper and the Institution's earlier work both acknowledge the problems associated with the lack of specialization in Australian universities, the Government has failed to link this issue to the problem of student expenses. Australia, unlike many other countries, has a tradition of students studying in their home cities. This makes sense in terms of private living costs; indeed, within large cities, it makes good sense for students to choose a university within their urban region - western Sydney or south-east Melbourne. But perhaps amalgamation and specialization would be easier if students found it less costly to shift away from home to study. More generous student living allowances, de-linked from parents' means, may make it easier for universities to specialize and amalgamate courses.

Another quality-related issue is grade-inflation, or "soft marking", which continues to be a concern to academic staff. Evidence is sporadic and anecdotal, and the Senate Inquiry was inconclusive. Under present systems soft marking is hard to detect, and there are personal costs on any academic who might admit to the practice of soft marking. Academics bear a heavy cost when they fail students with the possibility of appeals and re-examinations. There are ways to detect and protect against soft marking, involving moderation and cross-institutional assessment, but these are expensive. Practical on-the-ground quality control measures are difficult to implement when staff are already overworked and when resources have to be devoted to generation of centralized performance information.

In all, on quality issues there is mixed evidence. There is certainly too little for any organization or interest group to make a categorical statement on this process. The weight of evidence, however, suggests quality is declining, and may decline further. It being only six years since the Commonwealth introduced new funding arrangements, and five years since HECS fees were raised significantly, it is premature to make any stronger statement about the effect of these measures on university quality, particularly in view of the incremental nature of the Commonwealth finding cuts, the capacity of the university sector to sustain quality in the short term, and the lead time between student entry and graduation.

If the Commonwealth is seeking high standards of proof of declining quality, then that burden should not fall on the university sector or its advocates. It should be incumbent on the Commonwealth to show that quality has not fallen as a result of the unprecedented financial stress it has imposed on universities. The Commonwealth should undertake a thorough assessment, resolving the issues raised in the Senate Report, before proceeding any further down the track of reducing its own funding responsibility. In this process it should keep an open mind on the case for restoring Commonwealth funding for universities.

3. Issues specific to engineering

One feature of the paper is that it has very little comment on specific disciplines. Engineering has some particular difficulties in the present policy environment. Among these are:

• differential HECS fees;
• laboratory and equipment costs;
• problems in supporting disciplines;
• the loss of cadetship positions;
• other aspects of competition policy;
• community valuation of engineering.

From a public policy perspective, however, the most important issue is whether Australia is producing enough engineers to cope with the needs of an economy which can no longer rely on extractive industries, and which must invest heavily in environmental restoration and infrastructure upgrading in coming years.

These issues are dealt with in turn below.

Differential HECS fees

Until 1997, there was a flat rate of HECS contribution. Engineering is now classified into Band 2, with fees of $5 125 per annum. For a four year engineering course this amounts to $20 500, compared with $10 794 for a three year course in humanities. Increasingly engineering students are doing five year courses and double degrees, extending their HECS liability, and incurring an opportunity cost of around $33 000 for each extra year spent at university. In this regard the suggestions (Paras 108 and 170) that HECS may be time-limited are of particular concern to the Institution.

Engineering bachelor degree enrolments have risen over the 1990s - from 8 900 commencements in 1990 to 10 900 in 1999 - a rise of 23 percent. Some of this however, reflects a growing proportion of overseas students, rising from 10 percent in 1990 to 14 percent in 1999, suggesting a growth in Australian students in the order of 17 percent.⁽²¹⁾

This slow growth is in sharp contrast to the strong growth in other disciplines. Over the period 1991 to 2000 there was a rise in engineering and surveying student numbers of 26 percent, compared with 40 percent for arts, humanities and social sciences and 60 percent for business administration and economics (Table a9).

Masters degree enrolments in engineering peaked in 1994, before the 1996 Commonwealth cutbacks in funding for postgraduate courses - masters degree enrolments have fallen from 1276 in 1994 to 1018 in 1999. Possibly the Postgraduate Education Loans Scheme (PELS), which commenced this year, will help reverse this trend, but those who commence work after six or seven years of undergraduate and postgraduate study will do so with a heavy burden of debt.

Further evidence of financial stress associated with fees is provided by the decline in the proportion of students who pay HECS fees up front. This proportion rose up to 1996, and has fallen since, as is shown in Table 6 below.

While there is insufficient data to conclude that differential HECS fees and postgraduate fees are responsible for this divergence of enrolments and the fall in the number of masters enrolments in engineering, it is reasonable to expect there to be some rigorous research on the effects of the 1997 rises in HECS fees, particularly as they relate to expensive and long courses, before there is any move to increase student fees more.

Furthermore, in line with sound accounting practice, the Commonwealth should show only the interest subsidy component of HECS as student assistance. For a four year engineering course this subsidy comes to around $3 800, or only 18 percent of total HECS cash support. (See Appendix 1 for the derivation of this figure. This Appendix shows that an engineering graduate will typically be paying around $3 000 of HECS debt for 7 years, a significant burden on a young family.) Unless Commonwealth accounting shows HECS outlays offset by the asset of the student's repayment obligation, in accordance with accrual accounting standards, the Commonwealth will be distracted by the temptation to make short-term budgetary savings through cutting or limiting HECS. For engineering graduates there is little risk that they will fail to meet the income threshhold for HECS repayment; the Commonwealth's asset of a HECS repayment from an engineering student is a very secure one.

A recent study of the fiscal benefits to government of investment in higher education shows a high net present value of budgetary benefits at a wide range of discount rates; the benefit from investment in engineering is particularly high - of a $9.6 billion budgetary benefit from investment in higher education so far, $1.5 billion accrues from investment in engineering. This study is concerned with budgetary outlays and receipts only. It is conservative in that it takes a financial rather than an economic approach; it does not consider external "spillover" benefits at all.⁽²²⁾

Laboratory and equipment costs

The study of engineering is equipment-intensive. Courses such as law, economics and accounting have been able to take advantage of the falling prices of information technology. Engineering has enjoyed some of these same benefits, but engineering still requires expensive physical equipment, such as stress measuring machines, electrical instruments, wind tunnels, acoustic and chemical laboratories, and physical models. New fields of engineering, such as environmental engineering, impose new demands.

Such machinery also requires employment of technicians, whose salaries must be paid in a competitive market.

Problems in supporting disciplines

The specialized study of engineering commences with study of mathematics, and, for most engineering specialities, physics and chemistry. The quality of these supporting disciplines was an important issue in the 2001 Senate Inquiry. To quote at length from the section of the Senate's report dealing with declining standards:

Some of the evidence is alarming. The Committee heard persuasive evidence from Professor Anthony Thomas, of Adelaide University, about the declining standards in physics. An independent review, it was told, would show that there has been an enormous decline in standards in many institutions. To reveal to physicists at MIT or Berkeley the content of an Australian undergraduate physics course would be to invite derision.

Professor Thomas told the Committee that there is now little physics taught to engineers now. He referred to a letter written last August by Professor Tony Klein, who is the Australian Institute of Physics representative to National Association of Testing Authorities (NATA). It states:

I regret to inform the NATA Council that it would not be safe to assume that today's graduates in engineering from most of Australia's universities will have been exposed to even the most rudimentary practical training in physics. It is therefore up to individual member laboratories to ensure that adequate training is given to new staff in the use of scientific measuring instruments, the practical techniques of measurement, the estimation of errors, and other such basic matters which could have been taken for granted in the past.

Chemistry standards are also in decline, according to a submission from an academic at Monash University who claims his department is one of Australia's leaders in this discipline. It was explained that funding for the School of Chemistry relied mainly on its ability to attract students into second, third and honours years, and for that reason it was necessary to reduce the level of difficulty in the subject. Third year students now use a textbook written for first year undergraduates in Britain; important fundamentals such as kinetics and thermodynamics are dealt with only briefly, while quantum mechanics and statistical mechanics have been omitted as being beyond the capacity of undergraduate students. The content of some series of lectures has been cut by as much as one third over the past five years and the number of lectures overall cut by between 20 and 25 per cent. This material includes a proportion of special interest descriptive subjects.

Engineers had a similar story to tell the Committee about quality standards. The Australian Council of Engineering Deans stated that maintenance of quality teaching was now largely dependent on senior academic staff, and they were only barely holding the line, in the absence of adequate funding and the failure to retain good staff. As to quality teaching indicators, the Committee heard:

In first year maths now for engineering we do not have tutorials. We had a review of the department of maths and statistics last year and in the transition year from school to university, when things are pretty tough for students, we cannot afford to provide first year tutorials in mathematics. It is a disaster.

I would say that laboratory work is being cut back in all schools. How you can produce an engineering graduate who has not had hands-on experience in laboratory work is beyond me. It is getting to the point where it is not possible to maintain the facilities for the number of students and not update those facilities - in other words, not provide current equipment and current technology. The trend has to be to cut back. The lectures are still given and we still have the quality teaching but it is that practical component and, also, the support that the staff are able to give the students in the learning process that is suffering.⁽²³⁾

The problems outlined to the Senate in 2001 are aggravated by the problems in high school teaching of science and mathematics. If high school students are not adequately prepared in these disciplines they will be discouraged from studying engineering, and those who do enter engineering courses will need to provided with what amounts to remedial teaching.

The Institution's 1995 and 1996 work identified high dropout rates as a problem in engineering.⁽²⁴⁾ This remains a problem in universities. Because some people interrupt studies and move to other courses firm data is hard to come by, and the issue needs to be studied further. A high dropout rate may be the price to pay for giving a second chance to those whose high school scores would otherwise preclude them from studying engineering. With better and more uniform preparation in high schools engineering schools could raise their entry hurdles while being confident that potentially able students are not being discriminated against.

The loss of cadetships

The discipline of engineering was once heavily supported by publicly-owned utilities, such as the PMG, electricity authorities, public works departments and water utilities. These organizations provided cadetships to study engineering, with a contract of bonded employment for a certain number of years.

There are still some schemes with some of these characteristics, such as the cooperative scholarships funded by industry, but these are on a much smaller scale than the cadetships of earlier years.

There is no hard data on this trend of decreasing support from utilities. Commonwealth figures suggest there has been about a 30 percent fall in the number of engineers working in the public service between 1989 and 1999.⁽²⁵⁾ The number being recruited into the public service is probably much lower.

This is not to argue against competition policy or the other reforms which have led to the privatization and corporatization of these bodies. But it is relevant to note that a source of well-paid students, with the financial capacity to devote themselves fully to study, has dried up. It is also relevant to note that there was a time when large government business enterprises, particularly the PMG, employed staff under the Public Service Act, with mobility into agencies of bureaucratic power, such as Treasury and Prime Minister and Cabinet; many of Australia's senior public servants of earlier times were engineers. Engineering has lost some of its voice in Canberra's corridors of power.

Other aspects of competition policy

The paper suggests strongly that universities should diversify their sources of funding (without acknowledging the considerable diversification that has taken place so far). (Paras 145 - 151) Even if universities succeed in gaining more consultancy and tied research funding, it is doubtful whether this will be available to cross-subsidize teaching and general research activities. The market for consulting and applied research is intensely competitive. Universities may be able to diversify their funding sources; they have already demonstrated a capacity to do so. But, when that involves expanding into activities beyond those which can be provided at marginal cost, new funds come with new expenses. Growth occurs, but away from the universities' basic functions of research and education. The Institution's concern is not whether universities will grow or not; they may be able to grow by becoming commercial organizations with teaching and research as a secondary activity. The Institution is concerned to see the survival of universities as teaching and research organizations.

Nor is corporate philanthropy likely to play a role in funding engineering education. Certainly the corporate sector benefits from engineering education, but there is no incentive or reward for any company to fund universities. In a competitive economy there is too much free-rider incentive to expect any firm to jeopardize its competitive position by distributing its surplus to activities which benefit its competitors just as much as itself. Most business analysts believe that corporations are unlikely to see a return to the high levels of profitability corporations enjoyed in the 1990s; if there was little philanthropy then there will be even less capacity for philanthropy in the future.

Community attitudes to engineering

The Institution's 1995 and 1996 work revealed that the community has poor knowledge of engineering. In particular engineering is not identified as being connected with environmental issues; its image is still about bridges and dams. This may be a factor discouraging able students from studying engineering. Contrary to many popular views, some of which don't distinguish professional engineering from trade qualifications, engineering is a liberal discipline concerned with using natural resources sustainably for human purposes.

Certainly the massive growth in the paper economy, stimulated in part by government policies such as banking deregulation and additional complexity in tax regulations has attracted many numerically competent students into business, accounting and finance courses.

Australia's engineering deficit

In relation to Australia's age structure, the number of Australians with university education and the number entering university are around the OECD mean.⁽²⁶⁾ But in comparison with other countries Australia has a low rate of entry into and graduation from engineering. In 1999, while the OECD average for graduation from "engineering, manufacturing and construction" was 14 percent, as a percentage of all graduations, Australia's rate was only 8 percent.⁽²⁷⁾ The proportion of engineers in various countries' populations is given in Table 7 below.

It is tempting to believe that as manufacturing declines in importance, then so too does engineering, but this is to misunderstand both the nature of industry and of engineering - to be trapped into a classification and description system that is becoming meaningless in terms of describing the structure of industry. Manufacturing has, indeed, declined as a percentage of Australia's employment, from around 25 percent in the postwar years to 12 percent now.⁽²⁸⁾ But just as earlier public perceptions overestimated the economic concern of manufacturing, present views tend to overlook its vitality and growth, because its form is changing dramatically. We may have lost our mass production clothing, footwear, and metal manufacturing industries, but new manufacturing, specializing in innovation, design and high value-added products have arisen. Mass production may well have shifted to countries with low labour costs, but the engineering activities don't necessarily shift. Sometimes these activities stay in the developed countries, some other times they are exported to the low labour cost countries, but either way much of the income accrues to the developed countries.

Indeed, we need to re-consider the way we classify industries; otherwise we will assume that as manufacturing declines so too will engineering. While most of the countries in the higher league in Table 7 are major manufacturing nations, some, like Singapore, are past the mass-production manufacturing stage, and are now heavily concentrated in industries which are not strictly classified as manufacturing or service, but have characteristics of both. To borrow a term coined by former Harvard Professor and US Labor Secretary Robert Reich, these are the industries he describes as "symbolic analytic services", in contrast to "routine production services" and "in-person services".

Reich's classification provides a more meaningful way of understanding engineering and its importance to a modern economy than the traditional output-based classification of industries. Engineers are symbolic analysts. Reich describes the symbolic-analytic sector of the economy in terms which are familiar to those professionals who work with hard numbers:

...all the problem-solving, problem-identifying, and strategic-brokering activities.... Like routine production services (but unlike in-person services), symbolic-analytic services can be traded worldwide and thus must compete with foreign providers even in the American market. But they do not enter world commerce as standardized things. Traded instead are the manipulations of symbols - data, words, oral and visual representations.

Included in this category are the problem-solving, -identifying, and brokering of many people who call themselves research scientists, design engineers, software engineers, civil engineers, biotechnology engineers, sound engineers, public relations executives, investment bankers, lawyers, real estate developers, and even a few creative accountants. Also included is much of the work done by management consultants, financial consultants, tax consultants, energy consultants, agricultural consultants, armaments consultants, architectural consultants, management information specialists, organization development specialists, strategic planners, corporate headhunters, and systems analysts. Also: advertising executives and marketing strategists, art directors, architects, cinematographers, film editors, production designers, publishers, writers and editors, journalists, musicians, television and film producers, and even university professors.

Symbolic analysts solve, identify, and broker problems by manipulating symbols. They simplify reality into abstract images that can be rearranged, juggled, experimented with, communicated to other specialists, and then, eventually, transformed back into reality. The manipulations are done with analytic tools, sharpened by experience. The tools may be mathematical algorithms, legal arguments, financial gimmicks, scientific principles, psychological insights about how to persuade or to amuse, systems of induction or deduction, or any other set of techniques for doing conceptual puzzles.⁽²⁹⁾

Leo Maglen of the Centre for the Economics of Education at Monash University has used Reich's classification to look at changes in Australia's employment composition over the period 1985 to 1995, and he finds, confirming Reich's work, that "the symbolic analysts ... stand to gain the most from the globalisation of labour markets, and it is upon their success that the future prosperity of countries will increasingly depend."⁽³⁰⁾

One of the characteristics of modern economies is dynamism. Products and processes have short life cycles. Opportunities to exploit new markets are short-lived. Industries which can operate by producing standard products year after year make little call on engineering; by contrast industries characterized by rapid changes in products and processes require a great deal of engineering input. There is a reasonably sound body of research showing that technological adaptability requires a well-educated workforce.⁽³¹⁾ Engineering is not the only discipline needed for such adaptability, but it is certainly one of the most important.

Some technologies can be imported, but even imported technologies require a technologically educated workforce if they are to be implemented. And home-grown technology is often superior; a 1991 Australian study by the Centre for Technology and Social Change found that technology diffusion and product cost savings are more likely to occur when the innovations are local in origin. ⁽³²⁾

Engineers are also needed in projects in construction, mining and, increasingly, environmental restoration. They are needed not only in new industries, but also in "old" industries. Mining, for example, has always been engineering-intensive, but it is becoming more so as easily-won ore bodies are depleted and as environmental standards rise.

Similarly for construction. Not only is there a high domestic need for infrastructure, but also there are opportunities for export of project expertise. Countries which develop engineering expertise at home are in a strong position to export.⁽³³⁾

Over the 1990s Australia has supplemented a low turnout of engineers from Australian universities with migrants - 36 percent of Australia's supply of engineers has been filled by migrants. (See Table 8.) It is questionable whether this trend is sustainable. There are periodic shortages of engineers in particular industries and disciplines. Graduating engineers enjoy high starting salaries and good job placement; while the Institution is pleased to see engineering skills rewarded it is concerned lest general and shortages develop, to the detriment of Australia's economic growth.

Not all shortages are manifest in high demand or identified shortages. They can result in opportunities foregone - investors may not give Australian location more than a second thought because of a known deficit in human capital. Australia still suffers the perception, and, to an extent, the reality, of an "old" extractive economy.

Engineering has a vital role in turning around that reality - the perception will then take care of itself.

Endnotes

1. Senate 2001.

2. Productivity Commission 1997, Table A 1.1

3. Report Card 2001.

4. Review of Engineering Education 1996 - Summary.

5. Senate Report 2001, para 1.11.

6. See Appendix 1 for a dissection of the subsidy value of HECS - less than 20 percent of the total for an engineering student.

7. Productivity Commission 1997 Page xv.

8. Productivity Commission 1997, Page 42.

9. AVCC Key Statistics 2001 Table A.12.

10. There are many studies showing the economic benefits of education in general and of tertiary education in particular. The most comprehensive Australian collection is in Maglen 1993. Two recent studies confirming this relationship are Barrow 2001, which showed economic growth is positively related to years of education "at the secondary and higher levels", and Jones 2002, which found that one third of US growth over the last 140 years is attributable to lengthening periods of education. Both studies have taken care to eliminate the "reverse causation" effect - i.e. that higher growth leads to more education. They show education to be a definite causal factor in contributing to growth.

11. This is not to argue categorically for public funding, for if user fees do not discourage education participation, there is not necessarily any economic loss involved - the external benefits are essentially a gift from the graduate to the community. The point is that Australia certainly has less of a case to go down the user fee path than other countries.

12. AVCC "Outcomes" spreadsheet Table B 29.

13. Senate Report 2001, Para 1.14.

14. Senate Report 2001, Para 1.14.

15. Parham, Productivity Commission 2002.

16. AVCC Outcomes Table B26.

17. These productivity gains calculated by taking the nth root (7 and 10 respectively) of the student:staff ratios. For all tertiary education this is 1.2667^(1/7) -1, and for engineering 1.5596^(1/10)-1

18. AVCC Outcomes Table B23.

19. AVCC Fact Sheets 2001.

20. AVCC Fact Sheets 2001.

21. Data from Tables 6.6 and Page 27 of IE/ACID.

22. Johnson and Wilkins 2002.

23. Senate Inquiry Paras 5.27 - 5.30.

24. Review of Engineering Education 1996.

25. IE/ACED Page 11.

26. AVCC Key Statistics 2001 Table B18.

27. AVCC Key Statistics 2001 Table B11.

28. These figures, based on ABS employment statistics, probably overstate the decline in manufacturing, because of the trend by firms to contract out support functions to firms classified in other industries.

29. Reich 1991 P. 177.

30. Maglen 1998, P. 19.

31. Dowrick 2002 and Maglen 1993 Page 28.

32. Centre for Technology and Social Change 1991, Chapter 4.

33. See, for example, Porter 1990.

Bibliography

Australian Vice-Chancellors' Committee Fact Sheets 2001 http://www.avcc.edu.au

Australian Vice-Chancellors' Committee Key Statistics on Higher Education September 2001

Australian Vice-Chancellors' Committee Key Statistics on Access to Australian Universities July 2000

Australian Vice-Chancellors' Committee Outcomes of Education (spreadsheets) available from http://www.avcc.edu.au

Robert J Barro "Human Capital and Growth" The American Economic Review May 2001.

Centre for Technology and Social Change The Value Added by Professional Engineers to the Economy A Study prepared for the Institution of Engineers and the Association of Professional Engineers, 1991.

Productivity Commission Submission to the Review of Higher Education Financing and Policy (Productivity Commission 1997).

Steve Dowrick "Investing in the Knowledge Economy: implications for Australian Economic Growth" Background Paper for the 2002 Economic and Social Outlook Conference.

Institution of Engineers Australia 2001 Australian Infrastructure Report Card.

David Johnson and Roger Wilkins "The Net Benefit to Government of Higher Education: A 'Balance Sheet' Approach" Melbourne Institute Working Paper No 5/02, May 2002. (Melbourne Institute of Applied Economic and Social Research, University of Melbourne).

Charles Jones "Sources of U.S. Economic Growth in a World of Ideas" The American Economic Review March 2002.

Robert Maglen The Role of Education and Training in the Economic Growth and Development Process (Paper prepared for Science, Mathematics and Technical Education for Development International Seminar, Universiti Brunei June-July 1998.

Leo Maglen "Assessing the Economic Value of Education Expansion: A Preliminary Review of the Issues and Evidence". (Economic Planning Advisory Council, Background Paper No. 27 Education Issues: Two papers prepared for the Office of EPAC June 1993).

Dean Parham "Productivity Growth in Australia: Are We Enjoying a Miracle?" (Productivity Commission Staff Paper 2002.)

Michael E Porter The Competitive Advantage of Nations (Free Press 1990).

Review of Engineering Education Changing the Culture: Engineering Education into the Future (Institution of Engineers 1996)

Robert B Reich The Work of Nations: Preparing Ourselves for 21^st Century Capitalism (Knopf 1991).

Senate Employment, Workplace Relations, Small Business and Education References Committee Universities in Crisis: Report into the capacity of public universities to meet Australia's higher education needs (Senate, 2001)

Athol Yates, John Agnew, Steven Kryger and Malcolm Palmer Deans The Engineering Profession: A Statistical Overview 2001 Institution of Engineers and Australian Council of Engineering (IE/ACED).

Appendix:  Model of present value of engineering HECS benefits and repayments

Explanation: Because the HECS debt is indexed to inflation, it is constant in real terms. The model shows the HECS repayment for an engineering graduate paying at 4.5 percent of a starting salary of $36 000 in line with the present HECS schedule. The real discount rate is assumed to be 3.8 percent, which is the long term bond rate of 6.3 percent in March 2002, less 2.5 percent which is the mid point of the Government's targeted inflation range.

Earning from Table 3.1 of December 2001 Professional Engineer Remuneration Survey Report. (IE/APESM) Median salaries against years of experience used.

Of the $20 500 total HECS outlay to an engineering student, about $3 800 or approximately 18% only, can be considered as a subsidy from the government.