Unis must ramp up what they earn from industry collaboration.

Australian Financial Review
27 September 2021

Describing higher education as an industry and operating on a business-like basis is controversial in Australia. But the analytic approach and method of developing an industrial strategy can offer a way forward in thinking about the future of higher education in Australia.

In 2019 higher education was an industry with annual revenues of $36.5 billion and net assets of $61.5 billion. It had a long term borrowing commitment of $6.8 billion and a debt to equity ratio of 12.3%.

Like other industries, higher education has a workforce consisting of a mix of permanent full time and part-time employees, casual appointees, contractors engaged through labour-hire firms, pro bono research and teaching adjuncts, and short term fee-for-service consultants.

In 2020 higher education providers experienced a reduction in revenue of $1.8 billion (4.9 per cent), due in some part to the COVID-19 induced reduction in income from international students. The largest component of the drop was a fall in investment revenues of $1.2 billion (59 per cent).

The reduction in revenues cannot be said to amount to a crisis. Universities are in a very strong financial position, as Minister Tudge has pointed out. Some are, in fact, very wealthy.

The university lobbies and the unions have overstated the extent of the shortfall and presented it as a crisis that demands government bail-out. This has achieved little in terms of a policy response.

From a strategic perspective, higher education has to set new directions in the light of changes in market conditions and emerging environmental challenges – and an emerging clarity in what the Minister and the government wants.

This will require change and revised strategies at the organisational and sector levels. We are seeing it play out at the organisational level as universities restructure faculties and staffing profiles and commit to new areas of research.

Demanding more money and subsidies without a commitment to change will not cut it with government, industry and the broader community. Other industries have encountered this situation and have had to adjust – like manufacturing with the removal of protection in the 1990s. Lobbying for more subsidies was a flawed strategy. The industry only got smaller.

With the withdrawal of the global motor vehicle manufacturers from the Australian market, there is now emerging a new level of partnership and trust between government and the manufacturing sector as it embraces innovation and change in “the new manufacturing” framework. Australian manufacturing is now going through a major resurgence.

With the expected continuing decline in public funding for higher education, the once-clear demarcation of roles between universities, industry and government can no longer apply. The distinctive functions of basic research (conducted in universities), applied research and product development (conducted in industry), and separate careers in universities, industry and government are becoming even more blurred.

Knowledge creation and its application turns out to be a multifaceted process with no particular sector specifically responsible for one or the other. Collaboration, not conflict, is the way forward.

Acknowledging this reality means building and strengthening institutions for engagement between sectors. In addition to casual and informal interactions, new frameworks that build cooperation and collaboration are required.

Creating institutions for engagement requires a new level of partnership and trust between universities, industry, and government in the manner of a triple helix of relationships. It refers to a situation where sectors with fundamentally different institutional drivers are in partnership to achieve economic and social outcomes with none dominating the other.

It is a collaborative concept that receives attention all over the world but has never really developed traction in Australia.

Developing effective institutions of engagement requires organisational innovations, such as the Cooperative Research Centres framework set up in 1992, and models for university-industry research centres, such as the successful NSW Centre for Sustainable Materials Research and Technology (SMaRT@UNSW).

Building engagement will also require innovations in the legal instruments that establish the foundations for negotiating and managing successful university-industry collaborations and partnerships. A start has been made with developing the Higher education research commercialisation framework outlined in the consultation paper released by Minister Tudge on 21 September.

Good progress in generating income from this source is being made. In 2020 universities generated $1.6 billion in revenue from research consulting and contracting, accounting for 4.6 per cent of overall revenue. In several universities, the proportion exceeds eight per cent. It is also way in excess of revenue generated from royalties, trademarks and licences of $0.1 billion.

Revenue from contract research and consulting is 13 per cent more than the $1.4 billion reported in 2017 and more than double the $0.7 billion recorded in 2002 (inflation-adjusted). This source of revenue can only increase with a greater commitment to collaboration and partnership between universities, industry and government.