Coronavirus: don’t bail out ‘reckless’ campuses, Australia told

Universities did not prepare adequately for a ‘foreseeable’ downturn predicted to slash at least A$2.8 billion (£1.45 billion) from education exports, claims sociologist

February 18, 2020
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A “day of reckoning” has arrived for Australian universities that shrugged off the risks of over-reliance on Chinese student revenue, and the country’s government should avoid rewarding “irresponsible behaviour” by covering their losses from the coronavirus crisis, an academic says.

A new analysis has found that while Sars-CoV-2 will slash earnings for many Australian industries, universities are the only sector at “systemic risk” from the epidemic. The study, by University of Sydney sociologist Salvatore Babones, says universities are the most China-dependent of the “high-risk, high-exposure” sectors.

In a paper published by the Centre for Independent Studies, Dr Babones estimates that, even if the epidemic ends by the middle of the year, it will slice at least A$2.81 billion (£1.45 billion) off Australia’s education exports.

This compares with minimum losses of A$2.58 billion for the minerals industry, and A$1.51 billion from tourism.

The paper says the coronavirus is likely to reduce demand for minerals by just 6 to 9 per cent, compared with a 60 to 80 per cent hit to education exports. The epidemic has struck university enrolments at the “worst possible time”, just before the start of the academic year, with continuing students at risk of missing an entire semester and many commencing students possibly never coming at all.

Moreover, Australia’s miners have “well-developed tools” for managing risk including forward contracts, commodities futures and credit insurance. Universities, by contrast, have not maintained “robust financial reserves” or followed the University of Illinois at Urbana-Champaign’s lead in insuring themselves against declines in Chinese fee revenue, the report says.

“Australia’s mining companies keep enormous reserves against the potential for market disruption,” Dr Babones told Times Higher Education. “Whether the iron crisis doubles or [halves], they can still pay their bills and [avoid] drastic action.

“Universities are scrambling to take drastic action in response to a crisis they didn’t prepare for. If they were prepared they would have online offerings already in place and sufficient liquid reserves to ride out the reduction in revenue.”

Dr Babones said that if universities had intended to self-insure, they should have set up “ring-fenced” funds for the purpose. “It is irresponsible accounting practice to self-insure without putting money in your insurance account,” he said. While he predicted that universities would “weather the crisis”, it would be a “painful” experience.

Universities had been “thoroughly” forewarned about the danger of plummeting Chinese enrolments, he added, saying a paper he published last August had merely “put numbers to the warnings that other people had been voicing for two or three years”.

Dr Babones said he expected universities to “lobby strongly for some form of financial bailout”, but they should turn to financial markets to make up any shortfall. Government assistance should be restricted to “short-term loans” at “penalty rates of interest”, he argued.

Universities Australia chief executive Catriona Jackson said it was too early to know the full financial impact of the coronavirus, with much depending on the duration of the travel restrictions and the “mitigating effect” of flexible study options. But the inevitable financial repercussions were “a matter of ongoing analysis and discussion with government”, she said.

She said Australia’s universities approached risk “prudently”, with strong risk management systems and “a constant weather eye” on diversification. “Our best insurance policy is always the compelling quality of what we offer,” she added.

Australia’s rankings aspiration ‘monomaniacal’

Australian universities cannot blame tight-fisted governments for forcing them into an over-reliance on international students’ fees, says University of Sydney sociologist Salvatore Babones.

Rather, their “pathological” charge up the global university league tables is evidence of a “misplaced overemphasis” that requires “extraordinary levels of money” to achieve an “unsustainable goal”.

Increasing revenue from international enrolments in Australia has corresponded with declines in government funding. The New South Wales auditor-general found that the proportion of funding that the state’s 10 universities obtained from overseas students’ fees had risen by six percentage points in just four years, with the commonwealth contribution falling by the same margin.

But Dr Babones said it was wrong to blame multibillion-dollar increases in international revenue – now at risk from the coronavirus-induced travel ban – on “stable or modestly declining” government funding.

“We’re talking efficiency dividend declines of 2 per cent per year,” he said. “International student enrolments and revenues have skyrocketed. They’re incommensurate.

“If universities had simply admitted as many international students as necessary to make up for the declining government revenue, we would be nowhere near the numbers we’re at right now.”

Dr Babones said Australia had seven universities in the top 100 of the Academic Ranking of World Universities, up from three in 2010 and just one institution behind the UK – a country with almost triple Australia’s population and vastly longer higher education traditions.

He said Australia was “well ahead” of Germany, Japan, France, China and Canada on a metric based “entirely” on high-prestige research. “I really want to impress on Australians that being the third most successful country in the world in research rankings suggests something wrong to a country as small as Australia, instead of suggesting something right,” Dr Babones told Times Higher Education.

“To be third in the world in top 100 universities on one hand might be viewed as impressive, but on the other hand might be viewed as monomaniacal. It just can’t be achieved through natural good management. It can only be done by chequebook research.

“Imagine Australia had the number three military in the world. Everybody would agree it was spending way too much on the military.”

He said no one believed that Australian universities could “hit number three in the world” on the strength of their own resources and management skills. “It’s only possible because of extraordinary levels of money in the system, and the extraordinary levels of money come from international students – particularly Chinese students.”

University leaders portray international education as key to a “virtuous cycle” in which rankings success drives international enrolments, which provide the cash to boost research performance and perpetuate rankings success.

They also insist that rankings success is not a goal in itself. “Rankings are an outcome of everything else, not something I am trying to optimise in and of themselves,” an Australian vice-chancellor told a 2018 THE survey.

But Dr Babones said Australia’s standing in university league tables was different from its accomplishments in sport, for example. “Australian sport success is almost entirely homegrown.

“In education, it arises from buying in foreign researchers. It would be as if the Australian Olympics success were due to a big-money donor paying athletes to take on Australian citizenship. That’s not happening in the Olympics, but it is happening in education.”


Print headline: Don’t bail out ‘reckless’ campuses, Australia told

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Reader's comments (1)

Whilst this article focuses on the situation in Australia, part of the UK system also have similar storm clouds on the horizon and it is compounded here by the ongoing dispute with staff...