Compound Interest, False Laws and Shiny Taps

(I return with a very long rant about funding cuts in higher education. Rather political so feel free to not read if you’re after my edu research and praxis stuff.)

Like most governments, the Australian Federal Government is making spending cuts at the moment. Unlike most countries, Australia is actually doing pretty well but, unfortunately, we have a federal election coming up this year and we are losing the ability to do mathematics in a sea of politics. One initiative that has just been announced is increased funding to schools in line with the Gonski review – hooray! The only problem is that they are cutting University funding to do this – wait, what? (Four different links from different news organisations, for your delectation.) School funding will go up $14.5bn over six years and, for my sector, “$2.8 billion in cuts to universities, discounts for families paying upfront HECS fees, self education tax deduction changes and converting a student scholarship scheme into a loans scheme” (from the last link). The University cuts include a $900M “University funding efficiency dividend“.

Efficiency dividend? 

For those who, like me, have just seen the Australian University sector be scheduled for a 2% efficiency dividend you may have wondered “What does this actually mean?” You can read about this concept at this web site, but let me summarise it here. The efficiency dividend is defined as an ‘annual reduction in funding for the overall running costs of an agency’ so, if you were looking for a different way to say this, you might say ‘annual scheduled operational budget cut’. This is tied together with the concept of efficiency and is based on the assumption that a (public service) department will become steadily more productive over time and thus we can cut resources and still get the same level of output. Money saved here can then be used for other high priority projects. What this means to me is that we, as Universities, will get less money and must cut our resourcing but have to maintain our quality of outputs because of a staggering belief that there is some sort of dependable Moore’s Law productivity gain for public sector and quasi-government agencies – and this includes Universities. (Moore’s Law is “the observation that over the history of computing hardware, the number of transistors on integrated circuits doubles approximately every two years” – Wikipedia – and is often reinterpreted as “computers double in speed every 18 months”. Moore’s Law is actually an observation and people who use it as a reliable prediction of the future are missing the point. I note that the semiconductor industry is starting to think that the doubling rate is dropping to ever three years, which makes this even less of a “Law”.)

Let me clear up something straight away. Yes, the schools need more funds, teachers need more pay and this is essential to our future and stability as a nation. And, yes, I know the money has to come from somewhere, but if we are going to trim under the illusion of doing it along productivity maintenance lines then let us clear up some fundamental misconceptions so that we know whether we are surgically trimming or whole carcass butchering.

It’s worth reading the whole document because it contains gems such as “The efficiency dividend also recognises that the public sector does not face the same incentives as the private sector to pass on gains from increased productivity in the form of lower prices.” Well, this is true, the public service is not in competition and the same is, to a reasonable extent, still true of schools. Most students will go to a mainstream public school funded by government and determined by where they live. Some will go to private schools that still get a sizeable chunk of change from the government. It is, however, unlikely that the majority of students will migrate to a different state to attend school and, conversely, setting up competing schools is a highly regulated activity (as one would actually hope)  so competition is kept at bay.

What gets cut, usually? Let me quote from the document:

The efficiency dividend is primarily applied to departmental appropriations including ‘funding for depreciation/amortisation, Departmental and Administered Capital Budgets and Collection Development Acquisition Budgets’. [21] The dividend is also applied to ‘appropriations for other expenses of a departmental outputs type nature’ and ‘funding for all new policy initiatives following the year in which the new measures are introduced into those appropriations’.[22]

Capital budgets, acquisition budgets, expenses incurred for outputs and new policy initiatives. At a time when the Federal Government is, at the same time, trying to increase the number of Australians in tertiary education and all of us a trying to work out if MOOC is some kind of long con or useful technology, a 2% cut in our ability to buy things, innovate and improve our teaching and research (our outputs) seems… odd.

It’s worth remembering that the Higher education sector is actually in a highly competitive market – at the national and international level. We face competition from other states and countries and if you think that the Group of 8 (the notional top 8 Universities in Australia) and the “almost 8s”, who are eyeing “weak” members in the group, aren’t already storing their powder and trimming sails to politely engage each other in a rather genteel multi-way replay of the battle for dominance of the trade routes, then you haven’t been paying much attention. On top of that, investment targeted at increasing international standing in the various lists is already redirecting funds. Putting on an ‘upwards trajectory’ Professor with lots of citations? Not only is that almost a no-brainer but many places will have special funds to target this. Where does that money come from? Existing staffing not being refilled, contracts not being renewed, outsourcing to a partial position at corporate rates to reduce overhead. I’m lucky in that we are not yet in the full grip of this – but take away 2% of our resource growth and development funding annually and it will be rampant soon enough. You know all of the travel I do? Almost all of the money for that comes from months or years of prior work, hard-fought competitive grants with travel components and the Uni pays for very little of it – 10 years ago they would have funded several of my trips. I’m lucky in that I got a start when the money was flowing because, right now, we’re beyond lean and mean and heading towards emaciated and angry. Yet, I come from a relatively well-off Uni with a fairly good market position. We’re only grumpy but I have colleagues at other places who are struggling to keep enough people to produce any outputs, let alone the high quality ones magically predicted by the efficiency dividend document.

And, please, let’s not forget that the vast majority of educators are already working well over allotted time, using their own resources, haven’t had real pay raises in many places for years and, in some cases, supporting their own students in order to keep  education going. This is already unsustainable, for both productivity and quality of product, in the long term – making it harder isn’t sensible or in anyone’s long term interests. I’m sick of going to conferences to hear how many people have been made redundant in the past year – but it’s a deep pit of the stomach sickness because I know it’s not going to stop.

But let’s step sideways to look at a strange mechanism – the notion of fungible product. Something is fungible if units of it can be substituted. Crude oil is the common example used here – a barrel of crude is a barrel of crude. Can we make all of our products mutually substitutable, because that is one of the obvious ways that we somehow maintain the same output despite cutting back our production. If we designate the annual productivity of a government department as P, then this total productivity is made up of sub-tasks, p1…pn, which have some notional ‘benefit’. There are two ways we can increase the productivity – we can add more ‘p’s in later years, so we have pn+1 and so on, or we can increase the benefit of these sub-tasks. The productivity trade-off of the efficiency dividend assumes that, if it takes R resources to produce the ‘p’s, we can cut R by some value and somehow generate a subset of the ‘p’s that is still considered productive. However, if we had actually increased our productivity by increasing benefit (and let us assume that this maps to quality) then what we are now saying is that the cut in R means the removal of an existing service – not the removal of an added service. Now, yes, the obvious onus of this is on administrative efficiency and we can denote the administrative sub-services as ‘a’s. So P is now composed of the maximum number of ‘p’s and the minimum number of ‘a’s. Ultimately, we reduce down to one ‘a’ administrative service and we have the most efficient government department in the land – all but one of our efforts is directed at productivity. Hooray! The system works!

But this is wrong for two reasons. Firstly, the product of almost all of these areas is most certainly not fungible and we  do not have a uniform value for quality, nor do we exist in a vacuum. Has it honestly been so long since “Yes Minister” that we have forgotten how important employment and transport are in marginal electorates? We don’t even have clean value propositions for those services that we wish to keep as benefit is so hard to pin down in a world where public money, public opinion and high profile representation intersect. Why are Unis being cut for schools? My dark suspicion is that this is the natural intersection of an election year and rather cynical calculation that more people have kids at schools than at Uni, hence this will please more voters. To meme for a moment, desperate government is desperate.

The second reason that this is wrong is that establishing the productivity of any given area is a highly controversial measure and tying a cut to reported productivity increases ignores any number of human factors, as well as compound interest. How long does it take a 2% annual ‘efficiency dividend’ to severely reduce the real budget? Let’s look at 25 years. After 25 years, your budget will be at 60% of its original figure. Please, stick your hand up if you provide me with a sound, evidence-based solution that will allow us to maintain the quality of the Universities with 60% of the cash. 3% per year? We’re under 50% of budget in 25 years. Managers are under pressure to report improvements in productivity but, having driven people to work harder, having already streamlined operations to do so, the reward is that, next year, it gets harder. As my colleagues in the US can tell you, there is a point at which you stop cutting fat and you start cutting flesh. In some parts of the US, they are nearly out of flesh and are using the bone saws  to get at the marrow. That sound you hear from the disadvantaged states in the US is not the whistle of air escaping from the balloon, it is a straw sucking air from a hollow bone.

My friends, I am not the hardest working person I know, but I do know that I’m no longer shaking illnesses as quickly, my blood pressure is up, I don’t sleep as well and, given half a chance, I will spend the whole weekend working, only to discover that there is always six months more work ahead of me. I’m not sure I have 2% more to give – perhaps it is time I stepped aside for someone hungrier or better (or cheaper)? Will this give us the efficiency that is sought, when we remove me and my 20-odd years of educational experience, 7 at the higher ed level?

An interesting subsection of the document I’ve referred to is that exemptions are granted – either recurring or annually. Nine agencies continue to be exempt from efficiency dividends for a variety of reasons. Three are fully exempt: ABC, SBS (both broadcasters who are exempt because of election promises), Safe Work Australia (co-funded State/Fed). Six are partially exempt: CSIRO and Aust Inst of Marine Science, Australian Council of the Arts, Customs and Border Protection, ANSTO and DoD – all of whom can pretty much keep their cuts away from major operational areas because of FEAR to a large extent. (It’s always sad when xenophobia becomes one of the facets you depend upon for continued funding.)

In 2008-09, the following got a one year reprieve: Australian Trade Commission; Australian Fair Pay Commission Secretariat; Workplace Authority; Australian Prudential Regulation Authority; Australian Sports Commission

In 2012-13, another set with one year reprieves: Family Court of Australia; Federal Court of Australia; High Court of Australia; Federal Magistrates Court; Administrative Appeals Tribunal; Social Security Appeals Tribunal; National Native Title Tribunal; Migration Review Tribunal—Refugee Review Tribunal; Australian National Maritime Museum; National Gallery of Australia; National Museum of Australia; National Library of Australia; Australia Council for the Arts; Australian Film Television and Radio School; Australian Sports Commission; National Film and Sound Archive; National Archives of Australia; Old Parliament House (Museum of Australian Democracy); Screen Australia; Australian Institute of Aboriginal and Torres Strait Islander Studies; Australian War Memorial; Torres Strait Regional Authority; Aboriginal Hostels Limited; Indigenous Business Australia; Indigenous Land Corporation; Australian Communications and Media Authority.

Confusingly, if you look at that list, the entire Australian higher education sector is ranked slightly lower in priority than a vast number of bodies who depend upon our scholarship and educational infrastructure and our increasingly (and overdue) embracing of more inclusiveness and outreach into non-traditional pathways. Yes, schools need money and, yes, money has to come from somewhere, but why are we interfering with one of the receiving points of the system we’re trying to fix!

This is, frankly, silly. When you have a water crisis, you have to find the water, make it drinkable and get it to people who need it. The pipeline is a great way to do this because it centralises your maintenance expenses and works as a distribution mechanism with much lower cost than container transport – lower waste footprint as well! But building giant shiny new taps in the city does not mean that the water will just magically appear with no intervening pipeline or treatment. Neither does building an intake in the ocean automatically mean that a disconnected sink in Wagga will suddenly yield clean water. Education is a pipeline from which we can only lose students. We start with a number at the start of primary school and we’ve lost a lot (over 80%) by the time we get to University. Transitioning students into higher ed is non-trivial, retention is not guaranteed and sometimes it’s hard enough to be 17 without throwing our stuff on top. Reducing our ability to innovate is making a hard situation harder. Reducing our ability to invest for the future doesn’t just hurt us now, it hurts us for decades to come.

Education costs money and we are already well beyond the salad days fondly remembered by politicians who were last in our system 20-30 years ago. Every professor we lose takes 20-25 years of knowledge with her or him. Every teaching assistant we don’t replace increases the student-teacher ratio and this, in turn, will have an effect in the future. Every time our educational system shrinks, we reduce the outputs in terms of graduates, therefore in terms of professionals and academics, which gives us a generational problem because, on this trend, that 25 year timeframe doesn’t just give us 60% of our budget, it gives us much fewer potential staff and this just keeps happening.

Education is the core of civilisation. Education should not be a tool of class warfare, a cheap grab at votes or overseen by people who wilfully refuse to think in anything other than 3-4 year terms – and I paint all sides of politics with this brush. Get some generational focus issues going – 25 year projects with no political currency or opportunism. Yes, let’s fix up the schools, but let’s not do so in order to funnel students into work training schemes to produce cheap labour with no hope of anything beyond that. Let’s look at education as what it is – a lifelong endeavour made up of schools, communities, Universities, businesses and government working together.

Goodness knows, we’re all working hard enough already. Maybe working together might give us enough total effort to do something about this.

2 Comments on “Compound Interest, False Laws and Shiny Taps”

  1. Pete Evans says:

    What I found from your link to Nicholas Horne’s background notes was that the efficiency dividiend has been the lay/law of the land for 2.5 decades now. I didn’t know that. I guess I wrongly read into your first paragraph that this was something new.


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