The race to the bottom in the VET market: What decimating TAFE really means

In an astonishingly frank article, Robin Ryan (2008: 11) who was involved in the development of marketisation policies in VET, argues that these policies were developed on the basis of little evidence.

We need strong TAFE institutes that are able to support communities, industry and society more broadly. They are key institutions that are needed to anticipate, articulate, develop, codify, implement and institutionalise knowledge and skills for work for the future, and to develop strong relationships with disadvantaged communities to support their access to education. In undermining TAFE, all Australian governments are complicit in undermining a key institution that contributes to social cohesion and inclusion, and to economic prosperity.

Submission to the New South Wales Independent Pricing and Regulatory Tribunal Pricing VET under Smart and Skilled Review, Leesa Wheelahan, LH Martin Institute for Tertiary Education Leadership and Management, and the Melbourne Graduate School of Education, University of Melbourne


TAFE is being decimated by State and Commonwealth government policies to encourage markets in vocational education and training and by funding cuts. Australia’s future prosperity and social cohesion are threatened by the attacks on TAFE.

This submission makes two key points.

First, the structure of markets in VET in Australia will inexorably undermine TAFE.

Second, TAFE plays a key role in articulating, developing and institutionalising notions of the social good and the knowledge and skills that are needed to support innovation and Australia’s future prosperity.

TAFE’s future is at stake.

I am sure it will survive in some form, but current indications are that government policies will reduce it to a residual institution that teaches programs that private providers don’t, won’t or can’t undertake because it is too expensive or needs too sophisticated expertise or facilities.

The restructuring of vocational education and training in general and TAFE in particular, combined with funding cuts, mean that TAFE’s social capital and infrastructure are being undermined to such an extent that it may be difficult for it to recover. This is why so many people characterise government policies in vocational education and training as wanton acts of economic and social vandalism.

The first section of this submission outlines the different market settings in higher education and VET and the impact it has had on public universities and TAFE’s share of publicly funded students in their respective sectors. The second section explains why TAFE cannot win in this market, and why the market settings are such that it is a race to the bottom. The third section outlines TAFE’s role in supporting disadvantaged students and in anticipating, articulating, developing, codifying and institutionalising the knowledge and skills needed to support the workforce in the future, and not just the present.

The different market settings in higher education and VET

Governments are seeking to construct markets in higher education and vocational education and training, but the settings in each are quite different and this leads to different outcomes for public universities in higher education and for TAFE in vocational education and training.

There were about 1.2 million students in higher education in 2011, and 1.8 million students in VET (DIIRSTE 2012a; NCVER 2012a). However, more students study part-time in VET, so the sectors look quite different if equivalent full-time students are counted. In 2011, there were almost 880,000 equivalent full-time students in higher education, and 711,700 in VET. Students from disadvantaged backgrounds are under-represented in higher education and over-represented in VET.

Nonetheless, disadvantaged students are over-represented in lower level VET qualifications and under-represented in higher level VET qualifications (NCVER 2012b). Australia’s equity challenge is to increase the proportion of students from disadvantaged backgrounds in higher education, but also in higher level VET qualifications as these lead to better labour market outcomes and are used as transition qualifications to higher education (Wheelahan 2010).

There are 40 universities in Australia, which includes three small private universities and 37 public universities. In addition, there are approximately another 133 institutions registered to operate as higher education institutions. Some 27% of students in higher education in 2011 were full fee paying international students. About 93% of all students study in public universities, with the remaining 7% studying in private higher education institutions including TAFE institutes which are mostly treated as private providers of higher education (DIIRSTE 2012a).

There are currently about 5,300 VET institutions. This includes 59 technical and further education institutes (TAFEs) which are the public providers of VET, and about 4300 private providers. The remainder are a combination of schools, universities and community education providers and they are mostly very small. About 66% of students in VET in 2011 studied in TAFE and other government providers. However, this includes fee for service students who study in TAFE, and if only publicly funded students are counted, then 59.6% studied in TAFE in 2011, 33% in private providers and 7.4% in adult and community education providers (NCVER 2012a: Table 11).

The biggest 100 providers (or 1.9% of all providers) in VET delivered 81% of teaching in 2011. Australia has had to construct a VET system and associated regulatory and quality assurance frameworks to police 98% of providers that deliver less than 20% of all teaching because it believes in the primacy of the market. Higher education Public funding for higher education is available only for under-graduate programs in publicly funded universities, although there are a small number of minor exceptions. Some public funding is available for course-work post-graduate qualifications, although this is limited and students normally have to pay full fees for these qualifications.

Most domestic students on research higher degree programs are publicly funded, although government funded places are rationed and allocated to universities by a formula of which half is contributed by share of research higher degree completions and the balance by shares of research grants and research publications. Government supported income contingent loans are available to students to pay fees in publicly funded under-graduate degrees, and also for full fee places in post-graduate degrees in public universities and full fee places in under-graduate and post-graduate degrees in private higher education institutions.

The amount that students must repay in fees for publicly funded places varies by field of education. This is based on the proposition that students who study qualifications that lead to high incomes have a higher rate of return on their qualification and therefore can afford to pay more. Students repay their fees once their incomes reach a threshold, and there is no real rate of interest on the debt. The Commonwealth government made income contingent loans available to students at private higher education institutions in 2005, and equivalent full-time student enrolments in private providers grew by 225% from 2006 – 2010 (derived from DEEWR 2008; & DIIRSTE 2012a).

In 2012, the Commonwealth government took competition in higher education further by lifting caps on undergraduate student enrolments in public universities. Students have a funding entitlement that they can use in any university, provided they meet the university’s entry requirements. Universities compete for students and they are able to enrol as many students as they decide they can teach given their priorities, staffing, resources and infrastructure. Competition for students is intensifying, particularly among the universities that must compete with each other for students, while there is less pressure on the elite universities where students compete with each other for places. Overall, applications by all students for places in universities rose by 2.7%, while applications by school leavers increased by 4% (DIISRTE 2012b: 6). However, this growth follows high growth in preceding years as universities prepared themselves for the demand driven system with growth in some universities exceeding 30%. Overall, while applications by students have increased, offers of places by universities for places have increased further and supply is increasing faster than demand for places (ACER 2012).

While student enrolments in private higher education institutions have grown as a result of the provision of government supported loans to students, they are under pressure as a result of uncapping of under-graduate places in public universities in 2012. In the year after student loans were made available to students in private higher education institutions, equivalent full-time under-graduate student commencements increased by 109% (derived from DEEWR 2008). In 2011 in contrast, equivalent full-time student commencements in under-graduate degrees in private higher education institutions declined by almost 6% (derived from DIIRSTE 2012a) as a consequence of the partial implementation of the demand driven system. This is likely to be exacerbated in 2012 with the full introduction of the demand driven system in public under-graduate degrees.

The Commonwealth government’s intention in the long term is to introduce a fully contestable market so that students can expend their entitlement in any registered higher education institution (Bradley 2008). However, as a consequence of scandals and rorts in the more marketised VET system which first came to light in 2009, and consequent damage to Brand Australia in the international student market (Evans 2011), the government is proceeding slowly and is implementing comprehensive quality assurance frameworks and standards before opening access to public funding for all higher education institutions.

Vocational education and training

Funding for VET is much more complex, not just because it varies by state, but also because there are multiple sources of government funding for different types of students and programs. However, most normal or recurrent funding for VET is through the state governments with the Commonwealth government contributing about 29% (NCVER 2011: derived from Table 1). The states and territories differ in the amount of funding they provide for VET, and they have different rules about eligibility for concessions. Overall, students contribute much less to VET funding than do higher education students, and this is one reason why governments are introducing policies to marketise VET and shift costs to students. Qualifications in VET are at a lower level than those in higher education, and the return in the labour market is also lower (Karmel and Fieger 2012).

Policies for marketisation are much more extensive in VET than they are in higher education. The states differ in the extent to which private providers have access to public funding, although all are progressively moving towards unfettered access by private providers to public funding even though the pace of change varies in different states. This is because the Commonwealth and state and territory governments have signed a National Agreement for Skills and Workforce Development which commits all state governments to introduce a national entitlement (or voucher) up to a certificate III (the skilled worker level) that can be used at any provider, public or private. As part of this agreement, the states also agreed to provide income-contingent loans for students undertaking diplomas and higher level VET qualifications.

The result is substantial increases in fees for qualifications at this level in most states. The Victorian government has gone the furthest in introducing a market in vocational education by introducing an entitlement subject to complex restrictions at all qualification levels (and not just up to certificate III). The purpose of the Victorian changes was to expand the numbers in VET and to shift the cost to students as they progress to higher level qualifications. Victoria’s VET enrolments have risen dramatically, and this has almost all been in private providers. Government funded enrolments in Victoria grew overall by 29% from 2010 to 2011, and by 44% from 2008 to 2011.

However, enrolments in private providers grew by 122% from 2010 to 2011, and by 310% from 2008 to 2011 (Skills Victoria 2012: Table 5.1). TAFE taught 66.1% of all publicly funded students in Victoria in 2007; this had declined to 44.8% in 2011 (NCVER 2012a: derived from Table 15). The Victorian State Government published a report on the outcomes of the training market in 2012, and this shows that at the end of 2012 TAFE had only 42% of publicly funded enrolments, private providers have 46% and the adult and community education sector has 12% (DEECD 2013: derived 1.21, p.7). Private providers now have the lion’s share in some industries where programs can be run cheaply and in high volume.

For example, private providers now have 92% of publicly funded enrolments in financial services (DEECD 2013: 109). This is the way in which TAFE is being rendered residual. The open-ended commitment by the Victorian state government to fund unlimited growth in VET was clearly untenable and the Victorian Government initiated widespread cutbacks to TAFE in May 2012 even though growth had overwhelmingly been in private providers. This includes cutting all full service provider funding. This funding is used by TAFEs to fund libraries, student support services and academic support services, and to pay teaching staff public sector wages. In addition, the government changed the funding model so that funding rates could rise or fall depending on demand for programs. It cut funding rates by over 80% in some areas such as hospitality, tourism and some areas of business studies.

These cutbacks are leading to widespread retrenchments of staff in TAFE and to closure of facilities and campuses. High quality private providers are also experiencing cuts to their funding rates and as with TAFE, will not fund a range of programs because the funding rate is not viable. The long-term logic of these reforms is to privatise TAFE (and indeed, one government inquiry could see no reason why TAFE should not be privatised in the long run, see Essential Services Commission 2011), and to force TAFE to become low-cost providers that use similar business models as private providers.

While marketisation policies have had the most impact on TAFE in Victoria, TAFE’s share of students is declining nationally, and this will accelerate as the other states catch up to Victoria and implement similar policies. For example, in 2007, TAFE taught 75% of all publicly funded students; this had declined to 59.6% in 2011 (NCVER 2012a: derived from Table 15).

Why markets in VET are a race to the bottom

The dynamic underpinning the market in higher education and VET is fundamentally different. In higher education the competition is for positional goods, or for high status social positions (Hirsch 1976) and it is this that distinguishes markets in higher education from markets in products (Marginson 2009). Students compete with each other for access to elite programs in elite universities that lead to elite professions (Marginson 1997). Price is less important.

In 2005, the then conservative Australian government permitted universities to charge variable fees up to a cap for public under-graduate places, which would then be repaid through income-contingent loans (Moodie 2006: 4). They hoped that this would encourage more competition between universities and that some universities would lower their fees. In a relatively short space of time, all universities were charging the maximum fees up to the cap, because they perceived that students would perceive lower fees as associated with lower quality.

Government changes to higher education in the late 1980s were designed to encourage institutional differentiation in mission and provision (Dawkins 1988), but this has not occurred (Maling and Keepes 1998). Universities can be differentiated between those that compete with each other for students (the recruiting universities) and the smaller group of universities where students compete with each other for places (selecting universities) (Maclennan et al. 2000). But rather than differentiation, the consequence is that the trajectory is towards isomorphism because, as Labaree (2006: 6) explains, It pays to imitate your betters. So even though in theory, universities could differentiate their products (qualifications), and they do try to do so to some extent, they all seek to introduce high status programs for the elite professions, and this has contributed to the growth of elite programs such as medicine, dentistry and law beyond the elite universities.

The cost of entry to the higher education market is quite high. There are about 173 higher education providers (which includes the universities) in Australia, and they must meet rigorous and onerous quality assurance requirements to be registered as a higher education provider and non-university higher education institutions find it difficult to meet these requirements (Wheelahan et al. 2012). They also must have the delivery of higher education as their principal purpose.

Universities also train the social elites and are embedded in them (Labaree 2006). They have a lot of influence, even if they bicker with government from time to time. It is unlikely that governments would introduce policies that resulted in precipitous declines in student numbers in universities and their share of students in higher education as has happened to TAFE in VET. Universities are still protected to the extent that public under-graduate places are restricted to public universities and while this will change in the long run, arguably it will be on the basis of system rules that will not disadvantage universities overall, although it is quite possible some of the lower status universities will suffer considerably.

The VET market is altogether different. Institutions do not have to have the delivery of VET as their principal purpose. This was designed to encourage enterprises to deliver their own accredited training (such as in McDonalds or a car company), but there are only about 350 such providers. However, it opens the way for other providers that do not have the delivery of VET as their principal purpose. VET also does not have powerful friends and is not embedded in the social elites so VET institutions (including TAFE as the public institution) do not have the same sort of influence in government as do universities and powerful stakeholders in the senior secondary school systems (Keating 2006). This leaves VET open to be acted upon by government.

The VET market is not a competition for positional goods. VET produces graduates for technical, paraprofessional and trade qualifications and while these can be relatively high skilled, they are not as high status as jobs requiring degrees. VET also produces graduates for entry level occupations in the labour market. Students do not enter into fierce competitions between each other for entry to childcare or business studies courses. There is no competition over product. All VET providers must offer the same national qualification for each occupation.

For example, the same childcare qualification is offered throughout Australia. There is also no real competition over quality. While new regulatory arrangements have been introduced, the fact that there are over 5,000 registered VET institutions shows that the cost of entry is low.

VET has been wracked by scandals and crises over the quality of provision particularly in the open marketin Victoria (Evans 2011), and a clear lesson is that when the creation of a market becomes an end in itself and profit becomes the driver rather than the provision of education, rent-seeking behaviour is going to occur at the expense of the public provider and quality of provision.

For example, one provider in Victoria increased the amount of publicly funded teaching it did by over 6,000% in one year, and a conservative estimate is that it increased its public subsidy from government from about $106,600 in 2010, to about $6,674,000 in 2011 (Wheelahan 2012). Given that there is no competition in vocational education over positional goods, over product or over quality, the only thing left is price.

The Victorian government allowed institutions to compete over price by removing the lower and upper limits they could charge as fees on top of the public subsidy. There were many instances of private providers that charged students no fees and only claimed the public subsidy, and moreover, reports of cash bribes for students to enrol in courses and providers delivering programs in a fraction of the time which it should take (Tomazin 2012). In other words, there were massive profits to be made, and the trajectory of the market design in VET is a race to the bottom.

However, while VET is shaped by the trajectory of its market design, it is also affected by the higher education market. The sectoral divide between VET and higher education is blurring as a consequence of changes to the labour market and society, where graduates from higher level VET qualifications are competing with degree graduates for the same jobs (Karmel 2010). Pathways from VET to higher education are a key priority of government and we are seeing the emergence of a single tertiary education sector as increasing numbers of institutions (about 90 in all) offer qualifications from both sectors.

Many of the new entrants to higher education are public TAFE institutes, while most are private providers with many of these originally coming from VET. Our research shows that while one tertiary education sector is emerging, it is more hierarchical and stratified than previously. This is exemplified by the fact that we found that TAFE institutes and private providers that offered higher education wished to change their sectoral designation to be able to include the title university in their name (as a university college or polytechnic university), but we came across no university that offered VET that wished to change its sectoral designation and relinquish its university status (Wheelahan et al. 2012).

This is a market in which these institutions cannot effectively compete because they cannot win in the market for positional goods (Wheelahan et al. 2012). Under the current market arrangements in tertiary education, TAFE cannot win in the VET market and it cannot win in the higher education market.

It is blamed for not being sufficiently entrepreneurial when the problems are due to the design of the market.

TAFE’s role in articulating the social good in supporting Australia’s economy

Despite the sustained implementation of marketisation policies over at least 20 years, there is little evidence that they have succeeded and, in particular, it is difficult to find any research that demonstrates that fully contestable markets in education have achieved the outcomes sought by government anywhere in the world (Wheelahan 2009).

The evidence is, in contrast, that the pursuit of markets is driven by an ideological belief in their fitness for purpose for all areas of social life.

In an astonishingly frank article, Robin Ryan (2008: 11) who was involved in the development of marketisation policies in VET, argues that these policies were developed on the basis of little evidence.

He says the fundamental point of the desirability of market forces in VET has almost always been resolved simply by assertion, often with reference back to a report which had previously made the same act of faith. Anytime there is an unintended outcome from marketisation policies, governments (particularly the Victorian State Government) assert that the problem is that the settings aren’t right, and they just need to be tweaked.

It seems there are no circumstances under which governments (again, particularly the Victorian State Government) are willing to concede that markets cause problems, and that non-market mechanisms are needed to ensure we have a strong and viable VET system with strong public providers that are able to support a strong society and economy. The question that market proselytisers are not able to address is: how are the social and public good purposes of VET to be articulated, implemented and advanced?

They seem to believe that these purposes will be met through 5,300 providers all responding to market signals. It is based on a belief that because VET provision is a product like any other product (for example, widgets), then all that is needed is for customers to articulate their demands and entrepreneurial providers will respond. However, rather than consolidation this will (and is) leading to fragmentation. The key difference between education and a market in widgets is that educational institutions have a key role to play in responding to society’s needs, in articulating what those needs are and developing appropriate responses which are further developed and changed as society changes.

Universities do this through research, the creation of knowledge, serving as society’s conscious and critic and education for the professions. Schools do this by ensuring that young people have the foundational knowledge they need for their lives as citizens and as workers. This changes as society changes.

TAFE does this through its support for disadvantaged students and in developing the knowledge and skills that are needed for an innovative, competitive workforce. It anticipates, develops, codifies and institutionalises knowledge and skills needed the workforce now, but also in the future. It is not just a matter of responding to existing demand and to work as it is currently. TAFE’s role in workforce development is not limited to relationships with employers; its role in supporting workforce development is much wider. It has a role in supporting industries and the workforce more broadly.

Reducing all relationships to market signals is to reduce them to transactions and there is no role for the developmental purposes as I have outlined them here. For example, all TAFE directors and senior staff are on local regional economic development committees and they play a role in supporting and developing the economic and social infrastructure in their communities and in workplaces.

TAFE teachers are engaged in their industries, in workplaces and with their communities. This is the invisible work that TAFE undertakes, yet this is at stake in current marketisation policies and funding cutbacks. A transactional basis for the provision of VET narrows the role that institutions are able to play in supporting students from disadvantaged backgrounds.

Markets in VET will result in institutions (including TAFEs) pursuing activities that result in a profit, and this will become the most important criterion in deciding what provision should be offered. Governments may be prepared to fund specific activities when there is market failure or thin markets and they perceive that this is having negative consequences for equity or for regions.

However, this moves working with disadvantaged communities from being an intrinsic part of what TAFEs do, to being extra, requiring additional funding, and TAFEs won’t be able to do this work without additional funding. It isn’t just a matter of government providing specific funding to run a program at a loss for a disadvantaged group to try to address these problems; rather current policies removes working with disadvantaged students as a key defining purpose of TAFE and all that it does.


The settings of the market are such that TAFE cannot win, despite the stated intention in the National Partnership Agreement on Skills Reform (Council of Australian Governments 2012: 7) which is that reforms will result in the: development and implementation of strategies which enable public providers to operate effectively in an environment of greater competition, recognising their important function in servicing the training needs of industry, regions and local communities, and their role that spans high level training and workforce development for industries and improved skill and job outcomes for disadvantaged learners and communities.

This is plainly disingenuous because basing the design of the system on markets (rather than just aspects of it on markets) inevitably and inexorably undermines TAFE because the purpose of provision is to make profits.

Non-market mechanisms (and funding) are needed to ensure that TAFE can continue to perform the roles spelt out in the COAG agreement, in the same way that schools and universities are supported through non-market mechanisms to implement their mission and purposes.

We need strong TAFE institutes that are able to support communities, industry and society more broadly. They are key institutions that are needed to anticipate, articulate, develop, codify, implement and institutionalise knowledge and skills for work for the future, and to develop strong relationships with disadvantaged communities to support their access to education.

In undermining TAFE, all Australian governments are complicit in undermining a key institution that contributes to social cohesion and inclusion, and to economic prosperity.


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