We Must Set Our Universities Free

The universities are in crisis. Lord Mandelson, the minister responsible, has announced a £1 billion cut in the government’s £14 billion budget, and the universities have cried panic. Margins throughout the sector are already so tight, and so many universities are already in deficit, that the chairman and the director general of the Russell Group, the association of the 20 leading universities, have confirmed that “it will take just six months to bring Britain’s higher education system to its knees”. The president of Universities UK, which represents all 133 British universities, has admitted that “as many as 30 universities may not survive” and that “institutions face having to close hundreds of courses, with fewer academic staff and bigger classes.” More than 160,000 students face being turned away from degree courses in the autumn because demand is rising while the number of places falls.

Meanwhile, the University and College Union has predicted that up to 14,000 staff will be made redundant. Some leading universities, including Imperial College and King’s College London, have already announced redundancies, while Leeds (where up to 750 staff may have to go) is just one of the universities where staff have voted to strike. 

Yet this university crisis is unnecessary and has been caused by inappropriate government policies that crowd out private money.

The myth about universities is that they are public goods. The myth asserts that ordinary people would not, if left to their devices, invest sufficiently in their own and in their children’s university education. Yet history disproves the myth. The universities were created by the private sector and their misfortune is that they have been nationalised under conditions that have displaced the private money that would have sustained them in good health.  

The first European university was founded by students in Bologna around 1100, initially as a private law school to meet the burgeoning demands of the commercial courts. Soon universities were being created at Montpellier, Padua and other Mediterranean cities, as private student or professorial initiatives. By 1210, Oxford and Cambridge had also been set up as private foundations. But the medieval Church and state did not appreciate independent intellectual power bases, and soon, following the Church’s takeover of the University of Paris (1160), all the European universities had been brought under its control, which is why so many academic titles, such as chancellor, dean, doctor, professor and lecturer are ecclesiastical in origin.

The revival of the Western university can be attributed to the Dartmouth College case of 1819. Nine universities had been created in North America before the Revolution (starting with Harvard in  1636) and they were like most British universities today: legally private bodies that received government grants, in exchange for which they surrendered autonomy. 

But in 1815, the University of Dartmouth appointed a professor of Divinity whose theology was not acceptable to the state government of New Hampshire, which responded by nationalising the college outright, deposing the trustees and installing its own president. But in 1819 the Supreme Court ruled that, despite all the money the state had given the college, it remained an independent institution under charter and could retain its autonomy.

This case provoked all the US states eventually to withdraw their funding whenever a dispute arose with the local university. Everyone — including the universities themselves — supposed that the loss of government grants would bankrupt them. But instead it was the making of them, and thanks to alumni-giving, fee income and autonomy, the Ivy League universities have become the world’s best.

The history in continental Europe is the reverse. After centuries of absolutism the universities are generally owned by the state. In consequence they are dire, with vast class sizes and little personal tuition. The global university lesson is clear: the more independent a nation’s universities, the better they are.

But that does not preclude government funding if it is donated in ways that do not discourage private money. The Ivy League today receives lots of government money, especially for research, but the key to its success is that the money comes with few strings. In Britain, however, the government makes the universities sign a so-called Financial Memorandum. 

Under the terms of the Memorandum, a university loses its financial and logistic freedoms: it may not set its own fees, or accept more students than have been centrally allocated. Indeed, for every student a university accepts in excess of its government allocation, it is fined around £3,700. The Higher Education Funding Council for England is seeking to recoup some of the £36.5 million that London Metropolitan University illegitimately over-claimed from public funds. Vladimir Ilyich Lenin, you should be living now. 

The solution to the universities’ crisis is to construct a system of government support that helps them grow rather than one that fines them for being successful. The government should stop supporting universities and support only students. We should, indeed, copy America’s system of needs-blind admissions. 

In the leading independent universities in America, students are admitted solely on academic criteria. Only after they have been admitted are they asked if they can pay the fees, and if not they are supported out of the institutions’ endowments. These endowments are large: Harvard’s is currently around $20 billion, the other Ivy League universities around $10 billion each.

Our universities have no equivalent endowments, but the government is currently providing them with around £10 billion annually in support of teaching (the remaining £4 billion is for research). That £10 billion would make a nice needs-blind pot, so it should no longer go to the universities directly. Instead, the government should cut the universities free to set their own fees and to expand or contract at will (and as much as the market will bear). Meanwhile, the £10 billion in the needs-blind pot should be distributed to students in need on the US template. 

British universities were nationalised unintentionally. After the Industrial Revolution a market arose for educated folk, and seven new institutions were founded privately, ranging from London (1826/1836) to Sheffield in 1905. A typical foundation was Birmingham University, endowed by Josiah Mason, a local industrialist, who on laying the foundation stone in 1875 said: “I, who have never been blessed with children of my own, may yet, in these students, leave behind me an intelligent, earnest, industrious and truth-loving and truth-seeking progeny for generations to come.” 

The universities were independent, receiving only limited government support, which by 1913 amounted to £150,000 annually. 

But the Great War bankrupted them. Their fee income disappeared along with the young men on the Western front, and their endowment income also collapsed because of inflation. 

So in 1919, to save all the universities including Oxbridge from bankruptcy, the University Grants Committee (UGC), was instituted with an initial annual budget of £1 million. The funds were distributed under the “Haldane Principle” (named after the prominent Liberal politician), by which its independence from government was guaranteed. But the replacement in 1992 of the UGC by the Higher Education Funding Councils (HEFCs) subordinated the UK universities to the state. 

Today, the universities view the state and not the student as their client. The result has been a cosy corporatism that has empowered vice-chancellors but weakened academic autonomy. At the heart of a university there should be a democratic senate, which should be the power-base of the institution. In the past, when fees were significant, the academics called the shots at senate because they earned the fees. But today the academics are sidelined because it is the vice-chancellor who distributes the money downwards. When all the money comes from the top, it is easy for vice-chancellors to award themselves their huge pay packets (£200,000 or more is the going rate) while ordinary academics have received smaller pay rises. 

The immediate problem facing the universities is that of top-up fees. When they were introduced in 2004, the bien pensants were loud in their condemnation: applications to university would evaporate and Britain would be reduced to an uneducated Dark Age where only bankers’ children could afford to study after the age of 18. In the event, applications have soared. But, with the recently announced government budget cuts, the fees need to rise urgently.

Lord Browne has been asked to advise the government on the issue, and it is understood that both major political parties will accept his recommendations, thus avoiding the horror of 2003 when Tony Blair’s advocacy of top-up fees was countered by a Conservative party that maintained that markets were bad things which true Tories would always oppose. Browne will presumably advise raising the top-up fees to at least £5,000 a year, and yet again the bien pensants will cry panic. 

But the private return in terms of salary on a university education exceeds the cost of that education, just as the private return on a mortgage in terms of capital gain exceeds the cost of the mortgage, and people will need no incentive to buy their university education or their house.

Changes, though, will have to be made to the loan system. Rightly, no one needs to pay fees upfront, and students are loaned the costs of their fees, which they have to pay back only after they have started to earn more than £15,000 a year. 

But the current system, by which the government’s loans are made at rates of interest so low that it is paying a greater rate of interest to borrow the money in the first place, will have to be reformed: the government can no longer afford to subsidise students further.

British universities today should not complain about the cuts in government budgets but, rather, of the limitations the government imposes on their economic and administrative freedoms. It is the Ivy League, not the nationalised universities of continental Europe, that should be their lodestar. From medieval times the state has been the enemy of the universities-let the universities distance themselves from it.   

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