The Impossibility of Capitalist Markets in HE Marginson 2012

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The impossibility of capitalist marketsin higher educationSimon Marginson aa Centre for the Study of Higher Education, University ofMelbourne, Melbourne, AustraliaPublished online: 30 Nov 2012.

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The impossibility of capitalist markets in higher education

Simon Marginson*

Centre for the Study of Higher Education, University of Melbourne, Melbourne, Australia

(Received 21 March 2012; nal version received 1 November 2012)

For more than two decades, governments around the world, led by theEnglish-speaking polities, have moved higher education systems closer to theforms of textbook economic markets. Reforms include corporatisation, competi-tive funding, student charges, output formats and performance reporting. But, nocountry has established a bona de economic market in the rst-degree educa-tion of domestic students. No research university is driven by shareholders,prot, market share, allocative efciency or the commodity form. There iscommercial tuition only in parts of vocational training and international educa-tion. While intensied competition, entrepreneurship and consumer talk are per-vasive in higher education, capitalism is not very important. At the most, thereare regulated quasi-markets, as in post-Browne UK. This differs from the expe-rience of privatisation and commercialisation of transport, communications,broadcasting and health insurance in many nations. The article argues that bonade market reform in higher education is constrained by intrinsic limits specicto the sector (public goods, status competition), and political factors associatedwith those limits. This suggests that market reform is utopian, and the abstractideal is sustained for exogenous policy reasons (e.g. scal reduction, statecontrol, ordering of contents). But, if capitalist markets are clearly unachievable,a more authentic modernisation agenda is needed.

Keywords: higher education; competition; markets; market reform; academiccapitalism; public good

The Neo-liberal Market Model (NLMM)

Policy-making is typically informed by a leading family of ideas that frame,articulate and populate government. Policy-making is iterative and reproductive onthe basis of the dominant ideas which become institutionalised over time. Theseideas remain ascendant until displaced by another family of ideas, mostly during orfollowing a crisis (Hay 2001). Keynesian demand management lost policy tractionin the economic stagation of the mid 1970s. Since the 1980s, neo-liberal economicdiscourse has framed reform agendas in government and education.

The rst neo-liberal blueprint in education was a 1955 essay by Friedman onthe role of government in education, republished in Capitalism and Freedom(1962). Friedman argued that market competition would maximise efciency,responsiveness and innovation. His consumer vouchers popularised the idea of agovernment-fostered quasi-market as a half-way house on the path to the ultimateobjective of a capitalist market. There was little policy take-up until the election of

*Email: [email protected]

Journal of Education Policy, 2013Vol. 28, No. 3, 353370, http://dx.doi.org/10.1080/02680939.2012.747109

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a reforming Conservative government in the UK in May 1979. The rst marketreform in higher education, full fees for overseas students, was introduced soonafter Margaret Thatcher took ofce (Shattock 2012, 160). Over the next decade,business modelling and ideas about competitive markets took hold. By 1997, a spe-cial issue of Higher Education Policy noted that policy instruments based uponconcepts of competitive markets had assumed a central role in many countries(Dill 1997, 167). Fifteen years later, market thinking has had an extended trial inhigher education. We can now summarise its potentials. The UK reforms have beenmuch discussed (e.g. Williams 1997; Naidoo 2008; Brown 2011; Thompson andBekhradnia 2011). This article provides a more generic analysis.

Gulson (2007, 179) reects on the organising qualities of neo-liberal discourse:Neoliberalism is a meta-narrative a conceptual marker, an indicator of processesand practices and a description of outcomes. Neo-liberal discourse models theworld in terms of functioning capitalist markets. Its policy objective is to reforminstitutions, systems, subjects and behaviours to render them instrumental for capitalaccumulation (Harvey 2005). Erstwhile public functions have been reconceivedusing nancial rationales and business templates, pushing some functions into themarket economy while refashioning government as the market-state (Ainley 2004)and the global competition state (Cerny 2007). Neo-liberal discourse alsofunctions as a social imaginary in the sense of Taylor (2002), constituting what isseen as possible and inevitable (Rizvi and Lingard 2010). It has become difcult toconceive places and spaces that are not neo-liberal (Clarke 2007, 239).

Across the world, much of public aviation, communications and broadcasting,and some health services, have been privatised and commercialised. On the otherhand, the police, law courts and national defence are mostly still in public hands,though some prisons are provided on a for-prot basis. Neo-liberal discourse doesnot constitute a universal body of practice. It might be better to treat neo-liberalismas a project seeking to make the world in its image rather than an achieved condition(Clarke 2007, 240). Nor is economic market reform the only policy agenda in highereducation. Most governments support the expansion of social participation and are atleast nominally concerned about socio-economic and gender equity; and there isgrowing emphasis on the community-building engagement of institutions (Organisa-tion for Economic Cooperation and Development [OECD] 2008). Policies on interna-tional links and the global attributes of graduates also extend beyond a capitalistimaginary. Nevertheless, market reform is the main policy game. The question abouthigher education is, how far has it been remade? and how far can it be remade?

Neo-liberal discourse has been taken into policy and regulation at two levels.The rst level is often called the New Public Management (NPM). The second levelembodies full economic commercialisation. It can be called the Neo-liberal MarketModel (NLMM).

The NPM is a hybrid set of organisational practices. It is not a simple functionof neo-liberalism and has multiple roots. It combines neo-liberal business modelsand market templates, with on one hand bureaucratic control systems that emphasiseaudit and accountability, and on the other hand ideas of transparency and individua-tion that owe as much to the 1960s New Left as the 1970s New Right. Neverthe-less, the NPM is consistent with the neo-liberal social imaginary except where itstrengthens state control as an end in itself. In higher education, the competitivemechanisms favoured by the NPM lock onto the long-standing contestation betweenuniversities for good students, research scholars and ultimately for prestige. Status

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competition in higher education is not capitalist (the difference is signicant, asdiscussed below) but is comfortable with a neo-liberal view of the world.

NPM reform has become normal practice across public institutions, non-govern-ment organisations and the non-prot sector. Applying it to higher education is seen ingovernment as a matter of common sense. In higher education, the NPM is associatedwith reforms that render institutions as quasi-business rms (corporatisation), includ-ing CEO-style executive leadership; goal-driven production, output measurement andperformance management; cost unbundling, shadow pricing and simulated bottomlines in non revenue areas; customer focus and continuous self-evaluation. In govern-ment-administered NPM systems, higher education institutions and their units aresteered from a distance using a mix of competitive incentives, contracts, planning, out-put measures and audit (de Boer, Enders, and Jongbloed 2009; Mok 2009). Nationalhigher education systems vary in the extent and intensity of NPM reform but it isubiquitous. For example, since 2000 in East and Southeast Asia, leading universitieshave been corporatised in China, Hong Kong SAR, South Korea, Japan, Singapore,Malaysia and Indonesia, and to some extent in Vietnam (Mok 2009; Marginson 2011).

With the NLMM, the policy agenda moves from reforms that render highereducation more market-like to reforms that make higher education into a bona decapitalist market higher education produced as commodities subject to buyerseller relations, in markets with free entry, by competing institutions/rms nancedby shareholder equity, and committed to prot making and expansion of marketshare, with no government interference. The full NLMM does not exist in highereducation anywhere. Nor does any government have a holistic programmatic com-mitment to it. But, the idea of the full capitalist market, which drives deregulationand privatisation in sectors such as utilities or aviation, is instantly recognisable alsoin higher education circles, especially in the Westminster countries.

Here, the NPM and the NLMM have a symbiotic relationship within theneo-liberal imaginary. The idea of the NLMM, the full market model, providesideological backbone for NPM reforms. Up to a point, governments can retain theirneo-liberal credentials by adopting NPM reforms that fall short of the NLMM,though they are always under pressure to go further. At the same time, the NPMprovides favourable real-world conditions for advancing more hard-edged marketi-sation reforms that push towards the NLMM. The process of continuous reform isdriven by a particular kind of critical reexivity, one that rests on an ambiguitybetween is (higher education is an already existing market) and ought (highereducation should be made into a market). The NLMM functions as both goal to beachieved and a (alleged) description of actually existing higher education. Forexample, American higher education has little in common with a textbook eco-nomic market: federal research funding shapes the sector; tuition is heavily subsi-dised; and elite competition is closed to newcomers. But, it is customarily describedas a market, normalising that concept. The same designation is often applied tohigher education in the UK, Australia and New Zealand. At the same time, the dif-ference between NLMM ideal and less than full market reality is functional for thecause of market reform. Where higher education has failed to achieve the NLMM,this suggests the need for reforms to close the gap. In this manner, the NLMM tem-plate continually drags policy and practice towards itself.

After two decades of this, higher education is more business-like and competitive,more productive in volume terms and almost certainly more nancially efcient,though there is no evidence that teaching is better or the rate of fundamental discovery

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has quickened (Murphy 2012). Yet paradoxically the full capitalist economic marketremains fairly distant. In some respects, universities are incompatible with the neo-lib-eral imaginary, and the state looms as large as ever. The next section of this articlewill list the constituent elements of a capitalist market in higher education, and thesection that follows will summarise the extent to which these elements are realised inactual existing higher education systems. The article then asks why reform has failedto install the NLMM, though business language and competitive strategy permeatehigher education. Is the NLMM an impossible goal or is it merely the victim of weakimplementation? Can a capitalist university market ever be achieved?

Constituents of capitalist markets

Economic markets are social constructions in which both individual and institutionalactors compete on an unequal basis under conditions of shifting rules, including thepolicies, laws, regulations and economic transfers of governments. As Podolny(1993, 830) remarks: That there exists a distinction between an actor and an actorsposition in the social structure and that rewards are largely a function of position isone of the fundamental insights of the sociological perspective. Social actors bringunequal capacities and resources to market competition, and experience differentialoutcomes partly shaped by their own efforts. A capitalist market is a specic formof market. Its essential components are as follows.

First, there is an identiable eld of production within boundaries in whichcompetition takes place. The market may be dened geographically as national,regional, city-based or global; or specied by sector of education, institutions,products or clients. Stable protocols govern entry/exit of producers and facilitatenew producers. The market must be contestable.

Second, there is open competition between autonomous producers for revenuesand market share. Government does not create competition, its goals or its parties.The role of government is to provide legal conditions for economic competition,transactions and capital accumulation. Ideally, the market is comprised by privatefor-prot producers free of direct intervention.

Third, production is focused on scarce and individualized commodities that aremanifest in output formats and possessed by single buyers. Such goods constituteprivate goods in the economic sense in that they are rivalrous and/or excludable(Samuelson 1954).

Fourth, markets are ultimately regulated not by social needs, buyer wants or pol-icy goals but by abstract values. Production and distribution are determined byprice-based exchange between buyers and sellers. Producers want to generate prots revenues surplus to costs. They want to maximise the price they obtain and mini-mise the material value embodied in each product.

Fifth, markets need human behaviour consistent with competition, commodityproduction and prot. They need entrepreneurs who imagine opportunities and takerisks; institutions (rms) that expand market share, constantly reduce unit costs, andare exible in the products they sell and markets they enter; and consumers whoengage in price-based shopping.

To what extent has the NLMM been achieved in higher education?

In most public sector activities that have been privatised or commercialised in thelast three decades, the NLMM is incomplete. Commercial competition is often

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limited by regulated monopoly, constraints on entry or continued government policyinterventions. But, the gap between the NLMM and practice is greater in highereducation than in most sectors. Given space limitations, this section takes a birds-eye view of the extent of marketization, grounded in the comparative internationaldata (OECD 2011; UNESCO 2012). A fuller analysis would explore regionalcul-tural and national differences in the role of, for example, private higher education,household nancing and entrepreneurial behaviour within institutions (e.g. thenational cases in Teixeira et al. 2004; Santiago et al. 2006; Brown 2011; For EastAsia see Marginson 2011). However, the overall nding would remain unchanged no country has introduced a bona de capitalist market in higher education or hascome close to doing so.

Boundaries of the market

In mature higher education systems, sector boundaries and institutional gradationsare normalised in both custom and law. The USA and China use systems forclassifying institutions according to mission and resources. U-Map is doing this inEurope. Market entry is usually regulated by formal accreditation protocols, whichare often subject to political processes in which existing players can exerciseinuence, for example in the USA.

These mechanisms more often inhibit or retard market contestability thanfacilitate the entry of new institutions. It is especially difcult to become a newresearch-intensive university. In most nations, lists of ofcially designated universi-ties change only very slowly. Mergers normally require government consent. It canbe easier to start a commercial training college, but, in most nations, foreigncommercial providers face extra barriers (OECD 2008).

Competition and government intervention

As noted, competition plays a central role in higher education competition forstatus and resources in research and scholarship; competition between institutions toattract students; competition between students to gain the most sought-after placesin institutions; competition in international student markets and for corporate-nanced consultancy work; and the often compelling contest between institutionalbrands for ranking and prestige. Nevertheless, most of this competition is notorthodox economic competition. For example, competition for public research fund-ing is a bidding game rather than an economic market. Much competition is notdriven by economic bottom lines, though success in that competition might bringeconomic rewards, such as the competition for esteem between Ivy League universi-ties in the USA. And much competition in higher education is dened, fostered andregulated by government.

It is common for universities to perform consultancy and applied research forindustry, and provide short-course training on a fee-charging basis. In somesystems, institutions charge international student fees at prot-making levels. Someinstitutions hire out facilities in the community or run ancillary businesses. Theseactivities can provide signicant supplementary revenues, but except for interna-tional education in some countries (see below), are non-core in relation to rstdegrees and graduate education for domestic students (Breneman, Pusser, andTurner 2006). Even in the USA, where the biomedical industry fosters a strongcommercial ethos (Bok 2003), business funds less than 10% of research (OECD


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2008). Comparative OECD data conrm that non-tuition private income has amodest role. Private income from sources other than households exceeds 15% inonly six countries and in most countries much of non-household private income isused to pay for student tuition (OECD 2011, 244).

In the mainstream education of local citizen students in universities, competitionfor market share and economic revenues is constrained or non-existent. In somecountries, such as Malaysia, students are assigned to institutions by government. Inmost countries, institutions compete for the best students but not in buyer/sellereconomic markets. Regardless of the vast variation in tuition charging arrange-ments, from no fees to high fees, tuition levels in public institutions and in someprivate institutions are normally set or limited by government rather than price-setby institutions operating in the manner of business rms. The number of places inelite institutions is restricted: they do not expand to meet demand in the manner ofthe makers of prestige manufactured goods, or they would cease to be elite. Eliteinstitutions focus on research building rather than building student volume as it isresearch that drives their prestige, brand power and ultimately their resource accu-mulation. Their students are primarily selected on merit not buying power, thoughin some countries students of merit are excluded by high tuition costs. In the minor-ity of countries where relatively high tuition is the norm and/or the private sectorplays a role in high-demand provision, tuition is nevertheless largely non-commer-cial and often heavily subsidised by governments or philanthropy. The forms takenby higher education diverge from those of the NLMM.

In the last two decades, the proportion of enrolments in private sectors hasincreased. In the OECD countries in 2009, 29% of degree level students and 38% ofsub-degree students were in private institutions. The degree student share exceeded30% in Korea and Japan (each 75.4%), Chile (47.8%), Mexico (34.1%) and Poland(33.4%). In the USA, it was 28.5% (OECD 2011, 307). However, many private insti-tutions are non-prot and many are government-dependent (OECD 2011). Wherethere are large commercial sectors Japan, Korea, The Philippines, Brazil and India fully prot-driven institutions are concentrated at the low value end of the tertiaryeducation hierarchy. There are very few exceptions to these generalisations. Nomi-nally, commercial elite research universities, such as Keio and Waseda in Japan, Pos-tech, Yonsei and Korea University in Korea, their equivalents in Latin America andthe IITs in India, behave in the same non capitalist manner as non-prot elite privateinstitutions. They are exclusive and subsidise the tuition of many students. Further,except in the USA, Korea and Chile, and the Philippines where research output islow, all leading research universities are in the public sector (ignoring the nominaldesignation of UK universities as private). In Japan, 75% of all students are in theprivate sector, but nine national universities are ranked higher than Keio Universityin research outputs (OECD 2011, 307; Academic Ranking of World Universities[ARWU] 2012). Private institutions cannot sustain high cost science that does notpay for itself. In short, the non-prot model enjoys a worldwide hegemony in univer-sity education; and outside four countries, the public sector non-prot universitiesare hegemonic in the research mission.

Private goods and the commodity form

Whether commercial revenues are the intention or not, all higher education pro-duces private goods in the economic sense. Samuelson (1954) denes private goods

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as rivalrous and/or excludable. Goods are excludable when the benets can be con-ned to individual buyers. Goods are rivalrous when consumption by one personblocks the possibility of consumption by another. Some individual benets fromhigher education are excludable such as the extra income accruing to graduates, bet-ter health outcomes and the psychic satisfactions of knowledge (McMahon 2009).A complicating factor is that student places are also associated with public goods(below). But, in theory, all private goods expressed in product formats attached tostudent places especially in high value elite institutions could be produced asmarket commodities. It is all the more striking that commodity production is largelyabsent from rst-degree education. However, commodity production is not just atechnical process, it is a social relation. In the absence of commercial pricing andthe prot motive, it cannot happen.

Higher education systems use product formats to dene outcomes, includingstudent places, graduate numbers and satisfaction ratings; and research papers,citation impact and collaboration. Re-engineered as performance measures with sha-dow prices, these formats are tools for a regime of simulated product optimisation(quality) and quasi-efciency. In most locations, this is as close as higher educationcomes to individualisable commodities.

Prices, prots and allocative efciency

Where tuition charges are xed by government, they do not vary by supply/demand/cost/prot but by institutional type, eld and level of study, and type ofstudent. As noted, most rst degrees are subsidised by government and/or philan-thropy. The number of government-subsidised places is normally xed (Australia,with its demand-driven system whereby government funds all qualied studentswho enter, is a current exception). While from time to time regulated institutionshave incentives to grow in order to increase revenues, this is a function of thepolicy settings, not the dynamics of capital accumulation.

Comparative OECD data reveal a worldwide though not universal trend tohigher tuition. However, there is a marked variation between countries in studentpayments and in subsidies for tuition loans and student support (OECD 2011, 256269). In 20082009, only four European Union countries charged more than USD$1200 per full-time student per year. In the ve Nordic countries, Ireland, the CzechRepublic and Mexico, public students paid no fees. Among OECD nations, tuitionexceeded USD $3000 per year only in the ve English-speaking nations USA, UK,Australia, Canada and New Zealand, and Korea and Japan. This variation under-lines the fact that such arrangements are determined by political and educationalcultures, not market forces. Given global convergence and policy borrowing inhigher education (Rizvi and Lingard 2010), market forces, if determining, wouldtend to atten inter-country differences as in other industries. As noted, in Japanand Korea, full fee commercial education is concentrated below the research univer-sities; and the UK and Australia run government controlled quasi markets in whichprice does not determine supply and demand. In the UK, price and volume arexed. Top-end competition for high scoring students and bottom-end competitionfor students at 6500 are artefacts of government. In Australia, price is xed thoughvolume is not. There is competition for market share but only in the lower reachesof higher education, because the xed funding rate is below the average cost. InAustralia, government-subsidised local students pay on average 40% of costs,


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though this varies from 83.6% in law and business to 18.8% in science (Lomax-Smith 2011, 6 and 55). Government payments to institutions its subsidies plus themonies in lieu of student contributions are absorbed as lump sums into institu-tional budgets. There is no mechanism to ensure this funding is used for teachingcosts; some goes to research. There is no market mechanism that triggers consumerdecisions and aligns price, quality, demand and supply. In both Australia and theUK, students are protected from the negative effects of investment in low earningdegrees by the income-contingent system of the repayment of tuition loans.

In the USA, federal student loans function as vouchers that facilitate studentmobility and frame a national competition between institutions. Nevertheless, anddespite recent tuition hikes, tuition subsidies mean that few public or privatestudents pay the full sticker price for rst-degree education. From 1996 to 2006,sticker prices rose 51% after adjusting for ination, compared to just 29% for nettuition fees (Vedder 2007, 5). The average student pays less than half the cost oftuition (Winston 2003). There is no market for washing machines or nancialsecurities where the average consumer pays half the real cost.

Quasi-markets, coupled with scarcity of government funding, secure efciencies(Dill 1997, 168). But, such efciency is driven by administered competition, notmarket forces. Because the critical signalling role of prot is absent from highereducation (Vedder 2007, 9) there is no direct link between specic costs, specicrevenues and efciency. Allocative efciency is impossible. Cost reductions may fallon cost effective not on ineffective activities, especially if the cost ineffective activitygenerates institutional prestige (Porter 2008, 41). The fact that few institutions arenanced by private equity is a major constraint on capitalist development. On thelegal basis, there are profound difculties in making public universities accumulatecapital and produce surplus value. They cannot function like private rms that col-lect capital and prot to their owners (Hayrinen-Alestalo and Peltola 2006, 276).

Entrepreneurs and consumers

In the 1990s, in the Westminster countries, the emphases on business models,competition and broad-based fund raising generated a layer of quasi-entrepreneursand a culture of institutional enterprise (Clark 1998). The USA had this already (Brint2002). In lieu of competition for prot and market share, university leaders competefor prestige, in research, in emerging areas of activity and for non-core commercialrevenues. They respond to a more complex set of goals and constituencies than ortho-dox business leaders (Marginson and Considine 2000). Outside the English-speakingworld, some leaders are CEO-like but entrepreneurialism is less universal.

Evidence for consumer behaviour is less clear. User charges position student aspaid customers but the absence of buyerseller relations and comparative data onteaching, and the dominance of status goals (below), inhibits the evolution of a full-scale consumer culture.

Islands of commercial production

The exceptions to the argument are the bona de capitalist institutions and sub-sec-tors. For-prot activity is common to many countries and has economic weight.Nevertheless, the core of higher education remains the non-prot rst-degreeeducation of local university students. This sets the nature of the product anddenes the economics of higher education.

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There are three modes of for-prot institution. The rst is commercial universitiesand colleges in Korea, Japan and elsewhere. The second mode is commercialvoca-tional training in many countries. The equity-nanced University of Phoenix is thelargest private university in the United States. It works a niche market in face-to-faceand online programmes in business studies and professional training for working cli-ents who previously dropped out of education before completing college. It has builta new market at the margin and mostly does not compete with non-prot providers(Breneman, Pusser, and Turner 2006). The Phoenix business model has now collidedwith the limits of its niche. Completion rates are much lower than in non-prot insti-tutions, with just 33% of degree level students graduating within eight years (Univer-sity of Phoenix 2012). Many of Phoenixs consumer-investors are doomed to fail ordefault on their tuition, like low-income homebuyers in the mortgage market.

The third mode is for-prot international education in the UK, Australia, NewZealand, Malaysia and Singapore, and in selected programs in Western Europe,China and elsewhere (Bashir 2007; Verbik and Lasanowski 2007). In 14 out of 25OECD systems, international students pay higher fees than locals for the sameprogrammes (OECD 2011, 256). About 40% of all students who cross borders entercommercial programmes, mostly provided in non-prot institutions. Some featuresof the NLMM are present while others are not. On one hand, regulation in Australiaand New Zealand denes international students as consumers, unlike local students(Lewis 2005; Abbott 2006); and rst degree international students in business stud-ies in Australia pay tuition at up to three times the regulated domestic student fund-ing rate (Beaton-Wells and Thompson 2011). On the other hand, prots are nottaken as shareholder dividends. Some revenue is ploughed back into the businessbut the rest is used to cross-subsidise non-prot teaching and research. Price affectsdemand and supply but production is not consumer driven. Where numbers of inter-national students are large, they affect the developmental priorities, such as thebuildings and services provided. In 2010, international students comprised 22.3% ofonshore higher education enrolments in Australia (Department of Education,Employment and Workplace Relations [DEEWR] 2011). However, for-prot inter-national students studied alongside non-prot local students in common non-protprograms, with little variation in pedagogy. Local non-prot education shaped theproduct consumed by the prot-generating international students.

Why has the NLMM failed?

Why is the NLMM unrealized in higher education? The model is inhibited in highereducation because of two sets of factors. The rst set of factors is intrinsic: thenature of knowledge and the nature of status competition. The second is political.

Intrinsic limitations

Knowledge as a public good

In economic terms, knowledge, and the knowledge contents of learning, arepublic goods subject to market failure. Public goods are non-rivalrous and/ornon-excludable (Samuelson 1954). It is not protable to produce goods obtainablefree of charge that confer no private benets. Stiglitz (1999) notes that knowledgeis close to a pure public good and a global public good. The mathematical theoremis useful throughout the world no one can be excluded from using it and use


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by one does not impair the opportunities of another. Knowledge is naturally exclud-able only at the moment of creation. Once circulated, its market value is zero.Those outcomes of research that take the form of new knowledge or know-how canbe distinguished from particular manifestations of that knowledge in the form ofintellectual property, such as patents and copyright. Once circulated, the former out-comes of research are non-excludable as well as non-rivalrous, like classic publicgoods. It would be impossible to turn discovery research in universities into a capi-talist market without radically reducing that research. All over the world, discoveryresearch is subsidised by governments or philanthropy. However, journal pay-wallsand other devices can be used to articially prolong the excludability of texts orartefacts that embody particular knowledge or know-how. Those who seek freeaccess to university research in the form of journal papers are struggling to assertthe natural form of knowledge. Arguably, as stated by the OECD (2008), the poten-tial for creativity in research and its applications and especially for collaborativecreativity is maximised when knowledge ows as freely and quickly as possible.

Because knowledge is intrinsically public in form, the contents of student learn-ing in higher education are also public goods. Teaching in higher education cannotbe wholly marketised without thinning the knowledge component, which is subjectto market failure. Graduates are not rewarded in labour markets for knowledge butfor private goods: vocationally specic skills and the brand on the degree certicate.MIT acknowledged the public good nature of knowledge when it launched OpenCourseware. This did not impair the rivalrous and excludable private goods thatMIT provides to its fee-paying students: access to elite networks and an Ivy Leaguebrand (Hansmann 1999). Likewise, Mass Online Open Courseware (MOOC)programmes produced at Stanford and Harvard/MIT (Ed-X) are distributed free ofcharge via the Internet. They draw large populations of users attracted to both pro-gramme contents and the status value of the university brands, and do so withoutundermining the exchange value of the on-campus Ivy League degrees. The socialrole and economic value of private goods in education is maximised in elite univer-sities. In non-selective education, the public good component is more dominant. Yeteven in elite institutions, saleable skills and brand status rest on the knowledge-con-ferring role of education. The private goods depend on public goods nested in theinstitutional settings where value is created. The knowledge-oriented component,often described as general education, must be subsidised by non-market sourcessuch as government, philanthropy or non-prot institutional provision, or the privatevalue of student places will be weakened.

General education and research provide downstream public goods manycollective in character that are conditions of economic and social activity. Highereducation augments common language, literacy and communications: these are foun-dational to stable government, economic production, consumption and cross-borderrelations. It provides a structure of equitable social opportunity. It augments techno-logical adaptation, entrepreneurial creativity and innovation. Graduates create pro-ductivity spillovers to non-graduates in the workplace. All these benets are difcultto measure, being mediated by factors like work organisation, the deployment ofgraduate labour, business capacity to use research, the macro-economy, globaldevelopments, social stratication and cultural identity. This underlines the difcultyof creating a market that includes all goods in higher education. How can the effectsof higher education be distinguished from those of the workplace, government andcommunications? Where does the product begin and end? Who should pay? How

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can institutions compete in, say, enhancing the adaptability of the population totechnological innovation? Economic norms of scarcity, excludability, rivalry andallocative efciency do not apply here.

Is the intrinsic nature of knowledge always a barrier? Might a market in knowl-edge, and the associated public goods in teaching, become possible under the rightcircumstances (political, economic, social and cultural)? Knowledge in the intrinsicform, created by discovery and original know-how, could function as a continuingcommodity only if excludability was rmly maintained. Such a regime wouldundermine the norms of creative collaboration and innovation, reducing theknowledge produced. The failure of a universal commodity market in knowledge isfurther emphasised by the always-partial reach of copyright controls, more so in adigital age. As long as it is technically possible to reproduce copyrights, they willbe so reproduced. For example, most social exchanges in music and lm/televisionmaterials occur on the basis of free transfers. Nevertheless, these limitations aremore conjunctural than absolute. The more fundamental problem is that it is impos-sible to maintain full excludability while using created knowledge in a relationalsetting, whether in a teaching/learning site or in knowledge-intensive production ofgoods and services. The possibility of reverse engineering always exists; andknowledge in the form of intellectual property is vulnerable to the making of alter-nate texts or artefacts embodying the same discovery in one or another guise.

Status competition

Universities are cultural as well as economic institutions, remarks Brint. Theyconsequently compete with each other on symbolic (or status) as well as economicgrounds (Brint 2002, 3). This points to the second intrinsic limitation of theNLMM.

Status is a relative or positional concept: the perceived quality of thatproducers products in relation to the perceived quality of that producers competi-tors products (Podolny 1993, 830). Positional competition (Hirsch 1976) is shapedby the structure of positions. A producers position in the market affects therelative opportunities open to that producer in comparison to those available to itscompetitors (Bourdieu 1993; Podolny 1993, 830). Hence, the most important fac-tors are the identity of the actors and their status rank order, not the standard oftheir outputs (Aspers 2009). The status or brand power of a university is primarilydetermined by research performance (Dill 1997; Horta 2009) and by selectivity instudent entry, which is partly sourced in the reputational effects of research. Thedetermining role of research in status again points to the way public knowledgegoods are foundational to the value of private goods in higher education and to thecapacity of institutions to compete.

Status competition has four special features. First, status markets are constitutedby both producer competition and competition between students for places in topinstitutions: Two rank orders are generated, and not only one, as is the case if theconsumers are an anonymous mass (Aspers 2009, 117). High quality students bringstatus to elite institutions and have their own status conrmed and augmented inreturn: The actors, and what is traded in the market, are co-constituted (116).Second, as noted, elite institutions do not expand to realise all possible demand.This would devalue the brand. Third, rank-ordered positional goods like higher edu-cation are not just scarce like all economic resources but scarce in absolute terms.


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Only one institution can occupy each rank. These are winner-take-all markets, likecelebrity markets in lm or music (Frank and Cook 1995). There is only one ElvisPresley and only one Harvard University. Only 100 universities can be in the top100, and so on. Unlike textbook markets where there is no intrinsic barrier toproducer pluralisation, in status competition in higher education the number of topproducers is largely xed. Fourth, elite status competition is largely closed to newentrants. The list of leading American universities has little changed since the FirstWorld War, inconceivable in markets for cars, household goods or banking. Univer-sity status is reproduced by the social standing of students and graduates, by studentselection (high excess demand forces up entry scores, signifying high value andstrengthening student demand further) and by the superior research outputsgenerated by status and resources. Non-elite institutions cannot entice elite custom-ers by dropping price for the same service as in other sectors (Hansmann 1999, 2).Leading institutions nd it easy to block outsiders.

Elite universities are partly beyond economics. They need resources, butresources are the means to more fundamental ends: the education of future leaders,research, institutional social position and historical power. They do not invest so asto maximise returns, or shareholder value, or market share or revenue. They arelargely exempt from boom and bust cycles though their investments sometimes takea hit. They embody some of the NLMM but contradict it at other points. There is adened eld of production, with tight boundaries, open competition for prestige andelite students and production in output formats (student places). There can beprices. Yet, the market is not contestable. Prices do not mediate supply and demand.Producers do not maximise volume, market share or the rate of prot. Ivy Leagueinstitutions, charge their customers, on average, no more than the cost of providingthe service (Hansmann 1999, 1). They do not maximise allocative efciency: theycompete with each other in building prestige facilities. Patterns of consumerdemand do not alter their time-honoured products.

Studies of student choice nd that most students prefer a high status institution toa lesser one with better teaching (Hansmann 1999). Prestige is gained by denyingstudents access the supply is perfectly inelastic (Vedder 2007, 6). This blocks thepotential for NLMM-type consumers. Though elite institutions focus on teachingand student services, a necessary gesture to elite students, consumer pressure is sec-ond order. Consumer culture is supply-driven not demand-driven (Brint 2002, 4). Itis unrealistic to talk of higher education as a competition based on institutional qual-ity or student satisfaction, unless quality means the market power of brands. Pres-tige ought to reect quality, but far more is involved (Geiger 2004, 169). Ratherthan quality determining status, the relation is vice versa (Brown 2011).

The publication of comparative indicators on graduation rates, studentstaffratios, library facilities, and survey-based ratings by students and graduates, doesnot change the dynamics of status competition. The comparison that matters isleague tables. Rank ordering settles all questions of value. By having a stablesocial structure of identities with positions xed in relation to each other, whichmake up a status hierarchy, the market overcomes the problem of asymmetry(Aspers 2009, 116). League tables of research output matter more than league tablesof student satisfaction. Research is integral to brand value not to student satisfac-tion. Genuine price signals and consumer behaviours come into play in capitalistmarket terms only in lower echelon commercial institutions where brand value isnegligible.

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The two sets of intrinsic factors combine to lock out the NLMM. If mass highereducation was equity nanced and entailed commercial tuition, this would force asole focus on private goods, generating market failure in the general education com-ponent of learning. This would reduce the market value of vocational education,which rests partly on general education. Elite higher education cannot sustain acommercial regime: while some of its clients could nance public good knowledgeas a spillover from status formation (elite liberal arts secure prestige), the commer-cial dynamic is thwarted by enrolment goods, oligopoly, exclusivity and non-eco-nomic objectives. Applied to high status university education, the commercial logicof an equity-nanced business entailing open-ended growth, potential mergersand strategic mobility between different markets and business lines could not befullled without destroying the business itself. Status needs to be stable, reproduc-tive and long-term.

Nothing is impervious to change in the long run. But for commercial educationto become dominant in the tertiary education sector, the status goods produced byelite institutions would have to lose potency. Bourdieu famously argued that highereducation systems are driven between two contrasting poles: the elite sector, whichgenerates scarce social goods on the basis of autonomous cultural standards; andthe mass tending to commercial sector, which is driven by quantity objectives andis partly heteronomous in relation to government and markets (Bourdieu 1993;Marginson 2006, 2008). The culturally dened goods produced in the elite sector,which monopolizes research funding, cast a long shadow over the universitieslocated between the two poles. The elite sector is not inclusive but its practices arehegemonic. Not withstanding the trend of the decline of government funding of uni-versities in the English-speaking world and Europe, the growing heteronomy of themass sector (Naidoo 2004) and the potentially transformative effects of MOOCtechnologies in the economics of mass teaching, there is no sign that Bourdieussystem model has been disrupted. The strongest global research universities appearstronger than ever. They remain repositories of public research funding, which isintegral to their claim to brand value; and their status-producing capacity isenhanced by MOOCs and global ranking. If some leading national universities havelost ground, it is not because educational status has itself been deconstructed. It isbecause provincial status generation has been partly transferred to the global lead-ers. If elites in business, government and the professions are not valorised throughthe leading universities, there would be substitute means. Hypothetically, it is possi-ble for status competition to decouple from the university sector. There is no signof this happening yet.

Political limitations

In addition to the intrinsic limitations on the NLMMs, there are political constraints.First, it is difcult for governments to tinker with status competition without foster-ing powerful opponents. Second, governments regulate mass higher education tosustain and modify public goods, such as general education, social equity andresearch. Third, governments have their own political interests; and intervention inhigher education is widely accepted and expected.

Notionally, regulation could level the playing eld for NLMM commercialcompetition by attening status differences and breaking open the elite institutions.Government could build research capacity in lower status institutions, level down


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the peaks and/or create new research universities. It could override merit (and henceelite closure) in student selection by opening or expanding enrolments in elite insti-tutions and then step back to watch the market work. But, this would underminenot only the logic of status competition but also high status producers and consum-ers themselves. This is politically risky for states. Anyway, a levelled commercialcompetition would not repress status for long. Competition would re-stratify thesystem by magnifying small differences in research and social participation overtime. Narrow status differentials are sustained only in systems where highereducation is governed largely as a non-competitive public good and is provided atuniformly high quality levels, as in the Nordic countries. It is possible to have lowstatus differentials or market competition, but not both.

Government cannot abstain on public goods, though it quibbles over fundingthem. It needs productivity spillovers, scientic and cultural literacy, technologicalcapacity and industry innovation; and social equity policy is politically essential.The distribution of opportunities for post-secondary instruction is a ubiquitous con-cern in modern societies, and hence invites a large degree of central coordination(Geiger 2004, 162) and funding. Nations vary in how their political cultures deneequity in higher education for example in post-Confucian societies, with theirdeep family commitment to self-cultivation and social positioning through learning,social equity is compatible with high household investment but all such systemsare headed by public research universities, including South Korea.

Governments also use higher education policy to build their own politicalcapital, by making the gift of educational opportunity more visible or by fosteringscience to brighten their modernist image. To secure these political benets,governments must be able to intervene in the system settings and ne-tune strategicoutputs: Markets by design are more amenable to these political agendas thanmarkets of spontaneous interaction (Niklasson 1996, 8). Genuine NLMM deregu-lation would mean setting these political options aside. It does not happen.

In other words, governments investing in the neo-liberal imaginary also haveother ends. NLMM visions in higher education slide back to an NPM controland allocation regime, articulated through quasi-markets (Niklasson 1996; Dill1997 and others) in which the policy and organisational cultures are market-friendly but the system drivers remain regulated. As Naidoo (2008, 3) sees it,market mechanisms are applied selectively, to further the states agenda forchange the state can actively mobilise market mechanisms to attain politicalgoals. For example, governments deploy competition to expose weak institutionsand drive mergers, while evading responsibility for potentially unpopular out-comes. User charges and devolution to institutional entrepreneurs enable scalallocations to be cut. Output formats and targets bring with them direct controlover products and local priorities. Competition for funding secures predictableoutcomes, without the state being seen to service its favourites. Regulated quasi-markets also enable one-way accountability to governments at system centre andmanagers at the institution centre (Porter 2008) more closely than to consumers.Devolved systems that are premised on self-managing agents generate less resis-tance than command. Governments employ competition as divide and rule,enhancing their residual authority.

All of this suggests that the intended outcomes are political rather thaneconomic. To build a genuine NLMM in higher education would be to block theow of these political benets.

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WTOGATS

The political factors together explain why the multilateral and bi-lateral negotia-tions, fostered by the World Trade Organisation under its General Agreement onTrade in Services (WTOGATS), have failed to achieve the WTOs objectives.WTOGATS set out to create a unied global market in education in which in eachnation, foreign producers are equivalent to local producers (OECD 2004). Themechanism is for each nation to establish with each other nation liberal protocols infour designated areas cross-border supply, consumption abroad, commercial pres-ence and movement of natural persons in each education sector. However, nationscan exempt all or part of systems (national treatment), for example to maintainselective subsidies of local institutions. Some developing countries have beenpersuaded to ease the entry of foreign companies, but in the outcome, national treat-ment has been the dominant norm. Enhanced free trade and commercialisation havebeen the exceptions. Governments have mostly opted to maintain control oversocial selection and public goods in higher education, and to protect the nationalinstitutions that are direct instruments of policy.

Conclusions

The focus of this article has been on markets in student places. The argument appliesalso to NLMM-oriented policy in research. In most national systems, reform usheredin intensied competition for research funding, quasi-economic output measures,incentives to conduct industry research and a partial shift from basic research tocommercialisable projects. After two decades of quasi-markets, there has been onlya modest increase in industrys share of university research costs, and the NLMMhas not taken root. The OECD now argues that the NLMM and also aspects of theNPM in research were wrong-headed policy. It states that the main role of universityresearch lies in public good open science rather than the production of directlymarketable knowledge (OECD 2008, Vol. 2, 102120). It is also concerned thatshort-term product formats in research may inhibit intellectual creativity (114).

This article has been a critique of market reform in higher education. It differsfrom other critiques because it is concerned with the is not the ought. Instead offocusing on normative issues such as whether business values are agreeable; orthe alleged negative effects of market reform for educational quality, academic free-dom, social justice or the humanities the article explores the profound failure ofpolicy implementation. There is something very odd about contemporary highereducation systems. On one hand, they are simulacra of competing rms as if theyare retailers or banks. On the other hand, they are quite different. They managemoney, produce products and compete. But, they are not and cannot be capitalist.

Why is the experience of NLMM reform in higher education different to that inother sectors? Aviation and telecommunications can turned into capitalist marketson the basis of shareholder ownership, though natural monopoly is a difculty.Though there might be political reasons for continuing government interference, theintrinsic factors are different to those operating in higher education. The same barri-ers to full commercialisation created by the public good nature of knowledge, andthe forms of status competition, do not exist.

These inhibiting factors in higher education cannot be wished away. Rather thanbeing the road to continuous improvement in higher education, the NLMM is a cul desac. Its impossibility has been apparent for at least a decade. So, why do governments


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persist with it? Why is it so hard for them to forgo? The most common explanationsgiven for the failure of NLMM reform, sourced largely from within the neo-liberalcanon, are insufcient political will in implementation, and/or the capture of govern-ment agendas by universities and interest groups like university teachers or publiclyfunded scientists (following Buchanan and Tullock 1965), and/or the control impulsesof governments unable to leave higher education alone. These arguments have merit,especially the last, but do not go to the heart of the matter. They all claim the triumphof political interest over policy without explaining why and they leave the NLMMitself unexamined. It is still assumed that the market model is feasible. But given thelong dominance of the NLMM, it just does not seem plausible that everywhere gov-ernments have experienced the same collapse of integrity and paralysis of will justwhen the implementation of the NLMM was within reach. The plain fact is that themodel cannot work.

Policy needs to develop a normative model more nuanced and more sectorspecic than is the NLMM, attuned to the character of higher education and knowl-edge that would establish a dynamic of reexive continuous improvement acrossthe full range of activity in the sector.

Notes on contributorSimon Marginson is a professor of Higher Education at the University of Melbourne inAustralia and joint editor-in-chief of the journal Higher Education. He works onglobalisation and international higher education; markets, competition and public goods inhigher education; and education and research in East Asia. He is rst named co-author ofThe Enterprise University (2000), International Student Security (2010), Global Creation(2010) and Ideas for Intercultural Education (2011); and joint editor of Higher Education inthe Asia-Pacic (2011) and Handbook of Globalization and Higher Education (2011).

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Documents

The Impossibility of Capitalist Markets in HE Marginson 2012