Leader: Should we allow universities to go bankrupt?

November 2, 2007

They do things differently in America. Two years ago, the 123-year- old Huron University in South Dakota lost the battle to stay afloat and was put up for sale. Almost everything went at auction - the gym mats and desks, the skeletons and the microscopes. The 5-acre football field went for the bargain price of £25,000.

Huron was a small private university, but credit agency Moody's warned last month that US public institutions are not immune from the vagaries of the market, with a small number teetering on the edge of a financial abyss. University bankruptcies, while rare in the US, are not unknown.

Could it happen here? It is not a scenario that David Eastwood, the chief executive of the Higher Education Funding Council for England, envisages. Allowing an institution to go under "would be a market discipline, but I think it would be the wrong one", he told the Association of University Administrators last week. Is Professor Eastwood right not to leave it to the market? If the Government and the funding councils have been reluctant to save imperilled science departments because they reason that to do so would be an infringement of university autonomy, why not let the axe fall on a whole institution?

Fortunately, few UK institutions - half a dozen at last count - seem to be in financial difficulties and none, as far as is known, is facing meltdown. But that does not mean that the higher education market will always be so benign, or that the sector hasn't started to contemplate what should happen when it turns. "The corollary of creating so many new universities is that you have to allow some to go to the wall. You can't save them all, and maybe some are not worth saving," was one vice- chancellor's bleak assessment of Whitehall thinking last year when the picture looked, temporarily, less rosy.

That sentiment is probably held only by a minority within the sector - and for good reason. The consequences of letting a university go to the wall would be catastrophic for many a local community and economy, as well as being politically disastrous for many a local - and national - politician. It would at least equal if not eclipse the outrage that usually accompanies the closure of a community hospital. The shock waves on the higher education scene nationally would be no less severe. The failure of a university would undoubtedly dent the confidence in the sector as a whole, as students, business and academics anxiously asked which institution could be next.

So Professor Eastwood's conclusions are probably correct, drawn as they are from the incontrovertible fact that, for all the market rigours that have been imposed or enlisted on and by universities, they exist to provide a public good. Questions of institutional survival should be addressed by answering that imperative, not the market's.

However, it would be equally foolish to think that this approach is cost- free. Is Hefce's brand of management oversight as stern and as effective as the market's would be, for instance? Does a more understanding regime encourage, however unwittingly, a more lax, less responsible management attitude simply because managers know there will always be a safety net? Moreover, how equitable is it to shell out public money on failing institutions when it could be given to those that do a better job?

As things stand, Hefce's careful and discreet monitoring of troubled universities has proved successful - and if it ain't broke, why ask the market to fix it? But should the alternatives one day prove unpalatable, should the cost of avoiding bankruptcy be drastic downsizing, ill-fitting mergers, or a takeover of choice faculties by private operators, then a South Dakota-style fire sale may not be so far-fetched a prospect.

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