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Ripped off

Image: Tim Dennell
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How do you hide mass unemployment at little cost to the state?  One way is to create a giant higher education system to keep millions of young people out of the jobs market; and fund it using student debt.

While this may not have been the intention of the architects of the contemporary university system, it is the unforeseen consequence of the insane belief that producing more graduates was all that was needed to conjure millions of graduate-level jobs out of thin air.  Predictably, the graduate jobs never materialised.  Instead, the influx of graduates merely eroded the value of degrees.  The forms of employment that would have been open to someone with a first class bachelor’s degree in the 1980s now require at least a master’s degree.  Meanwhile, Britain has some of the highest qualified baristas and burger flippers on the planet.

The winners in this Ponzi scheme were the senior managers of universities, who quickly awarded themselves bloated salaries in exchange for converting universities from institutes of learning into sub-standard commercial property operations.  Among the losers were the students themselves.  As late as 1989, students had their fees paid, received a grant to cover their living costs and benefits to cover their housing costs.  In 1990 the grants went and in 1998 students had to borrow to pay for their tuition.  And despite government promises that these fees would not increase, they trebled in fairly short order.

The other losers were the teaching staff; who became incidental to universities’ business models.  Instead of being judged on the performance of their students, teaching staff are valued according to the grant funding they are able to secure for their departments, together with the number of papers and citations secured in academic journals (which are a key part of the process of securing grant funding).  Less obviously, because many universities raided staff pension funds to make the transition into the student property market, there is no way in which retiring staff will receive the benefits they were promised when they signed up.

The Ponzi scheme was already faltering prior to SARS-CoV-2 putting in an appearance.  With the Millennials now in middle age, student numbers have begun to fall simply as a result of a smaller population.  On top of this though, many youngsters had begun to question whether taking on massive debts to secure an education that no longer provided a ticket to the top table was worth the bother.  For the most part, the same narrow group of courses in the same top-tier universities continue to account for most of the high-paying graduate jobs.  The rest – the majority – are no longer an automatic ticket to employment in the affluent salaried class.  And so, many youngsters have been exploring alternative routes to a decent paycheque such as more traditional skills like plumbing and carpentry.

Then along came the virus.  By 2020 most universities were hawking their courses around the Far East in the hope of attracting high fee-paying oversees students.  Indeed, one of the reasons why the UK government failed to close its borders early enough to slow the spread of the virus, was a determination to keep the universities open to this market.  According to the Institute for Fiscal Studies (IFS), the loss of income from oversees students is around £2.8bn; and could be as high as £4.3bn.

Nor is this the only loss of income.  Many universities depend upon renting conference facilities and student accommodation to corporate customers outside term time.  But with the economy on lockdown and with most businesses struggling to keep themselves afloat, this income has had to be written off in 2020.  Nor can it be relied upon to bounce back in 2021 if – as looks likely – the economy is plunged into a deep recession.

According to the IFS the total losses for the UK’s universities could be as high as £19bn:

“In general, institutions with a large share of international students and those with substantial pension obligations are most affected. These tend to be higher-ranking institutions as well as postgraduate and music & arts institutions. Some of the least selective universities, which rely largely on domestic fee income, will also be badly hit if higher-ranked universities admit more UK students to make up for the shortfall in their international enrolments…

“Universities are unlikely to be able to claw back a large portion of these losses through cost savings unless they make significant numbers of staff redundant…”

This was unfolding even before the UK government managed to do to A-levels what it has been doing to its track-and-trace system since March.  More student places have been created; and for financial reasons alone it became imperative to get students into their halls of residence before a second wave of Covid-19 arrived.  All too predictably though, the very process of thousands of students moving onto university campuses in September has generated the very increase in infections that government claims to have wanted to suppress.  Who would have thought that thousands of testosterone- and oestrogen-filled eighteen year olds would fail to maintain social distancing during their first week away from their parental homes?

It should come as no surprise to anyone (except, perhaps, our incompetent Secretary of State for Health) that the new round of “local lockdowns” are happening primarily in university districts.  And like lambs to the slaughter, having been fleeced of their rent, many students are being locked in their halls of residence and taught remotely via the internet; a situation which could continue through Christmas.

Nor is this the only hardship that this year’s intake of students faces.  Ordinarily, students work in order to cover some of their living costs.  And most of this employment is in retail and hospitality where, prior to 2020, there would have been plenty of temporary and part-time jobs.  This year though, many of those jobs have gone entirely; and those which remain will tend to be given to more experienced permanent staff.  And so students can add poverty to the woes of being locked in their cells for the duration.

It should have been obvious enough that a university system designed to pack students to the rafters in order to maximise income was never going to create the socially-distanced environment required to halt the spread of SARS-CoV-2.  Halls of residence, for example, are deliberately excluded from normal building standards precisely because they pack students in like sardines.  And so the sane thing to have done was to allow the students to stay at home and access courses online from the start.  After all, online teaching is where we have ended up anyway.

But for a university system which is teetering on the edge of bankruptcy, failing to secure that rental income would have been a disaster.  Meanwhile, the last thing a government which faces mass unemployment in the coming months needs is a collapse of the university sector and the addition of thousands of former students to the unemployment statistics.  And so both government and university managers have conspired to create the appalling circumstances that thousands of students now find themselves in.

The question is, will it be enough?  If the IFS are correct, the pandemic is only accelerating trends which were already unfolding:

“Whether COVID-related losses put a given institution at risk of insolvency largely depends on its profitability and its balance sheet position before the crisis, rather than on its predicted losses from COVID-19. The institutions with the highest predicted losses all have large financial buffers and are therefore at little risk of insolvency. The institutions at the greatest risk tend to have smaller predicted losses, but had already entered the crisis in poor financial shape.”

If universities fail in the coming months, this will only be the bringing forward of a restructuring which was going to happen anyway.  And it may not be such a bad thing.  If – and unfortunately it’s a big IF – government is prepared to grasp the nettle, we can be done with the myth that creating graduates is a means of generating graduate level employment.  It didn’t work in the years when Britain was awash with debt-based currency, and it certainly isn’t going to work in a depressed post-pandemic economy.

As you made it to the end…

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