Incremental Change or System Overhaul? An Update on Higher Ed Reform in NZ with Roger Smyth

Alex Usher: Hi everyone. I'm Alex Usher, and this is the World of Higher Education Podcast.
In some countries, higher education policy just seems to sit still for decades. In others, hyperactivity is a more normal state. Today we're looking at the 2020s poster child for higher education hyperactivity. It's not the usual suspects, the UK or Australia, it's little New Zealand where we're making our fourth stop on this podcast in just over two and a half years.
When last we were in Wellington, we talked to Chris Whelan from Universities New Zealand about university underfunding the consequences of losing international students, and something called the University Advisory Group, which was supposed to set the national system on a new course along with a research advisory group who weirdly was made up of exactly the same people only following a different mandate.
Since then, while these groups were noodling on how best to steer the system, the government made two big table flipping moves. One musing about creating a new type of institution, which was neither a university nor a college, and nobody knew what they were talking about, and the other simply deciding it wasn't going to fund any more research in the social sciences and humanities through its research granting system. Fun times.
Anyways, with all this excitement, we figured it was worth going back to the Tasman Sea to check in with one of our regular correspondents, Roger Smyth. He's a former senior New Zealand public servant and now a consultant based in Canterbury. He's got all the skinny for us. And so, over to Roger.
Roger, the last time we did a show about New Zealand, we had Chris Whelan from Universities New Zealand on, and we talked a lot about the University Advisory Group process. How far along is this work and what are the people saying about it you know, in the sector? What's, what's the view at this stage? Is there still interest and momentum behind this process, or has it stalled out a little bit?
Roger Smyth: Okay, so the advisory group submitted an interim report late last year, and it was, it's scheduled to submit its final report this month. Now I understand that that report has been submitted but nothing's been published yet. Now, neither the interim report, nor the final report, nor any of the dozens of submissions that have been made in response to the questions that the UAG put out there. So in these sorts of cases, the normally the report will only be published once the government has had the chance to make its initial decisions on some of the high level questions. And that might be a little way away. So, of course, as you implied, Alex, there are rumors and some and in some of the face-to-face consultations, the, the UAG have given a bit of a steer as to where it was heading. For instance, it's pretty clear that in their interim report they were proposing a machinery of government change. That's a reorganization of some of the government agencies in higher education, such as the Tertiary Education Commission, Ministry of Education, and the policy unit responsible for research and innovation. But we won't know that for sure until the report comes out.
So one, one of the big challenges that the advisory group will have faced is that the government is committed to returning to financial surplus in the year 2027-28. That's quite a challenge. So, and there are major demands on the budget. So the advisory group would have been given as part of their writing instructions that they should try to make their proposals fiscally neutral. So that's a big constraint on the on the group. My, my main view, I guess on this whole thing is that it was never really that clear what problem the University Advisory Group was set, set, set up to deal with, you know, apart from, you know, a general instruction to look for improvement and to make the system work better. So one of the most distinctive features of the New Zealand system is its homogeneity. and that has a lot of positives. It means essentially that wherever you go, you are getting a you'll guaranteed a reasonable level of quality. And but it also has the downside that there isn't actually any really outstanding world leading university.
Alex Usher: Alongside the University's Advisory Group, they've also had a, a commission on uh, research, right? Research and science uh, a review going on at the same time. Why did that happen in parallel rather than together?
Roger Smyth: Yeah, I think that's an important point. The first thing is that the the two advisory groups were chaired by the same person, Peter Gluckman, who's a distinguished medical scientist and academic, and they began operating at roughly the same time. And, you know, you can see that there's a a wish, if you like, to think about what are the knowledge transfer opportunities in the universities and what contribution it can make to the the broader economy into the, to the broader science system.
So the Science Advisory Group has is now completed its report. It submitted the report, the government's published its initial decisions. It, this is a place where the, the review proposed a very substantial overhaul of machinery of government arrangements. They proposed a, creating a super ministry for higher education, science, technology, and innovation. Now, the government did not accept that proposal. The, most governments are, are a bit wary of machinery of government reshuffles, unless there is a, a really strong rationale. Because, you know, there's usually a settling in period during those sorts of things where the system tends to lose its way a bit as people jockey for positions, and it becomes a distraction from what's the overall goal that the system is trying to achieve. So they they propose merging the seven, the non university research sector, seven institutes, into a single public research organization. And the government went for a partial reorganization, going for three, public research organizations, bio economy, earth sciences, health and forensic. And then they're creating a new additional organization to cover advanced technology fields like AI, synthetic biology, aerospace, quantum tech, that sort of thing. And you know, so, you know, that's probably a reasonable basis for, for the science system to advance.
Alex Usher: But of course, before they got to that point, even before the, the you know, the, the advisor group had reported the government unilaterally took a, undertook a change to what's called the Marsden Fund, which is, you know, it's, it's sort of like our a combination of our social sciences and humanities and natural science councils. And it effectively nuked the, the humanities and social sciences is my understanding. They basically said, look, we're, we're not gonna fund humanities and social sciences anymore. Why did the government do that? Like why undercut your own report before it comes out?
Roger Smyth: Yeah. Yeah. This is definitely a a, a decision that caused a lot of pushback, consternation, and ill feeling in the universities and in the community, because after all most of the government's research funds are directed towards sort of major national strategic priorities and so that they tend to be focused on areas like health or the hard sciences, engineering agriculture, that sort of thing. So, so this is one of the very few areas where humanities researchers can gain external funding. You know, that is funding out apart from the university's own internal funds. So the first thing is I think that it could be seen in as being a indicating a focus the governments wish to have a greater focus on the hard sciences.
There has been a if you look at the Marsden Fund trends, looking at the trends between panels, the social sciences humanities panel has been getting a slightly increase in share, which has had to come at the expense of the of the hard sciences. So, so there were, this was to some extent a declaration that there is a need to, from the government's point of view to, to push those hard sciences, which have potential greater economic impact. So I would say that, the main driver of it was to send a, a message but in doing so, it had it sent a, a very negative message to the, if you like, the humanities community in the
Alex Usher: Right.
Roger Smyth: and even, even supporters from the even the research community that's focused on the areas that are now favoured were very concerned about the loss of, of this source of funding, particularly you know, as people pointed out, you know, the, the social sciences side has, the potential to produce huge social value in the research it produces.
Alex Usher: Right. And of course this, this, this sort of tension between favored stem subjects and, and unfavored social sciences, humanities, business, those kinds of things, that's also played out in discussions about the government's funding model, my understanding is. Because you have a situation where, you know, in effect, the New Zealand funding model funds places, right? So they allocate places to each institutions. We're now projecting that there will be more enrollments than there will be funded places, and the government would like to give them a little bit money for STEM subjects, but not for other subjects. We're really familiar with this in Canada. We're going through exactly this in Ontario right now, and I'm curious, how do you think that'll play out in New Zealand?
Roger Smyth: Okay. Well, the first thing, just a bit of context about the financial situation of the universities. Obviously, like most anglophone countries with a high dependence on the international student market, COVID cost the universities very dearly. In 2021, this was offset by a surge in domestic enrollments because the labor market was at a very low ebb as a result of the pandemic, that cushioned the blow. Universities did okay financially. Then in 2022 when in response to, a lot of government stimulus post pandemic, there was a the labor market was much more healthy, so domestic enrollments fell sharply, international market was still down, so that was the worst year ever financially for the university. Six of the eight universities were in deficit. One was breakeven. So during 2023 when finances were really tight, there was a lot of concern about the viability of universities. The government did give a short term funding rate boost, not a number of places, a funding rate boost. Pending a
Alex Usher: That is dollars. Dollars per place. Got it. Got it.
Roger Smyth: Yeah. Yeah. But and then there was a, a a small increase in funding again last year. But of course, that big funding review never occurred because it, the government changed and it got all superseded by by the UAG process that we discussed earlier. And that UAG process, as we said, was likely to, to steer away from anything that was going to cause too much damage to the bottom line or the government's bottom line. So the universities have faced a difficult situation, but it's international market has now begun to recover. It's been slower in New Zealand than it has, was in, in the other countries that we compete within that market. But in EFTS terms, equivalent full-time student terms, 2024 saw an 11% increase in international enrollments. Still below 2019, but the trend is is increasing and that matters a lot because each international student generates around about 60% more revenue than the domestic student. So, it's now we're in the middle of the reporting season. Five of the universities have reported for 2024. One reported a small deficit on its one of those five on its core business, but that was a much lower deficit than they had been budgeting for. And it was offset by a surplus on their wider trading. So, it's still tough. It's a bit marginal. It's not quite the gloom we saw a couple of years back.
I would say that that even though there might be, there is still pressure and, you know, enrollments might well be drifting towards more expensive fields, financially, the worst is over and the, the system has begun to, to grow. One of the other points though, about, the question of, the difference between STEM and other fields is that this is a system driven by student choice. There's no, there's, the, the government has very little influence on where students want to go. And so in the end, the whatever the government however the government push um, uh, would like things to go, in the end they can't actually in the current environment really determine that. So,
Alex Usher: Ah. Okay.
Roger Smyth: I, what, what I would say is, is that the universities are managing through this.
Alex Usher: Got it. We're gonna take a short break. We'll be right back.
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Alex Usher: And we're back, Roger so I want to get, there was a fascinating article that I read where the government, or at least the minister was musing about the idea of creating a new type of tertiary institution something that wasn't quite university or wasn't quite polytechnic. Before I ask you about that though I think I need to give, I think we need to give our, our listeners a, a bit of a background on polytechnics in, in New Zealand. So, you know, you, your system merged, just before Covid, merged all the polytechnics into one big national institution called Te Pūkenga. Why do that? What, what was the point of one national, I mean, that's a big, composed of two islands you know, 15 campuses. I mean, it's a lot to put in one institution. What was the thinking behind?
Roger Smyth: so these reforms in be had two separate sources. The first, there was actually a, we talked about the finances in the universities earlier, but there was a, a real financial crisis in the polytechnics. They had been growing for years. They have high fixed costs. Serving reasonably small student numbers, multiple campuses. And between 2019 2012 and 2019, domestic enrollments dropped about 25%.
So by 2019, nearly all the polytechnics were in deficit and the collective sector deficit was quite substantial. So something had to be done.
The government looked at this and decided, well, they did some big mergers in Australia, the, in New South Wales. They merged all the TAFE institutions into a single statewide TAFE, and it worked all right in Queens Queensland. And so what they did was they they decided to merge all the institutions. That's the 16 of them and all of the work-based training into a single institution. So, so that, that was the rationale for the merger,
Alex Usher: What about the uner? So like, what was that? Because the, so, so, so a few years later you get a new government, you get the national government, they're gonna undo this whole thing. Was that because you know, as you say, it was a, you know, you talked about the issues with machinery of government. I mean, was it a machinery of education problem or was it, or did it reflect a, a, a shift in how government saw vocational education.
Roger Smyth: I think there's both. So let's, let's look at both. So the first thing is that the merger didn't go well. So, there were some very good features of those reforms. For instance the, they set up six workforce development councils to set the standards for training to take a forward view of the labor market in, in particular fields. And how could they you know, that sort of thing. That was, that was a, a positive. The reintegration, the idea of reintegrating polytechnic and work-based training into a, a single kind of coherent trades training system was was a good idea, but the merger was very poorly executed. Cost throws after three year they still haven't fixed an operating model. There was almost zero progress on that reintegration of work-based and polytechnic based training. The initial chief executive was kind of, didn't work out and had to go. And so, so there, that was one rationale for de merging, you know, for thinking about it differently. But the second, second thing was, was political.
The incoming minister in 2023 was the former success former chief executive of one of the polytechnics that had been merged into this the Te Pūkenga, the, the national institution. And she was, she was actually one of the most successful chief executives of a polytechnic. And she, she was very much committed to unpicking this merger and to restoring, if you like, decision-making to to the regions, to local communities. So, but, so the government came in with a policy to do this. She got the ministry and so it was all go, but the only, the thing is that life is just not that simple. We didn't want to go back to a, a system that was we, everybody recognized.
Alex Usher: Right,
Roger Smyth: Had failings.
Alex Usher: right.
Roger Smyth: how, how can we, how can we reconcile these two things? So, after two years of back and forth, we are kind of getting close to, to the new model. For a start, they have those six workforce development councils. The great success of the previous system, they're being disbanded, replaced by organizations with a much smaller, brief focused largely on seating standards. The polytechnics have been they, they were still in, in their divisions within the larger organization, they've all been going through these ruthless efficiency reviews. Trying to see what can, what can be dropped, what can be changed to make them viable. And we haven't seen the results of those yet. But there, there are, there will, there will be some that will become, that will be viable and they will be split off into standalone autonomous polytechnics, focused partly on trade training, of course, but also they do foundation education and they also do some degree education. So that will be split off as au autonomous, but those that can't be made to be have long-term viability after those efficiency reviews will be obliged to join a federation, which will be anchored by the online open polytechnic. And the idea is that the, the polytechnics that can't go alone access some of their expertise through that wider network using online to complement some face-to-face delivery.
Alex Usher: So I don't want to ask you what's gonna happen, but I do want to ask you when it's going to happen because you, there, there's a whole bunch of issues here, and you have an election in four months, five months. It it, oh, sorry. It's 18 months. Okay. So is there enough time for for the government to get rid of all this before an election?
'Cause I know, obviously, I mean, across the street, you know, the university's accord re reported a long time before the, the election, and they still couldn't get everything done before voting day. So what's, what's the pace of decision making here?
Roger Smyth: The, the first thing I think. So if we look at the university advisory group, we will see the results of that I would say, you know, before too long, maybe a couple of months, maybe before that. It might come out piecemeal or it might come out as did in the science area with high level initial decisions.
My sense of the, of the brief given to the UAG is that there won't be the sort of really transformational change proposed such as we had in the, the three big reviews, 1961, 1989-90, 2000 and and two, three. So, I would see it as being likely to produce more incremental change rather than a huge transformation. So I suspect that that will settle down before an election.
The de-merging of Te Pūkenga and the reforms and vocational education will take longer. So And then with the, the new arrangements for work-based training, there is going to be greater integration of workplace and work-based and institutional training. Polytechnics and private providers will be permitted to become arrangers and supervisors of, of work-based training.
So, so there, there is that integration, but there will be a two year transition period to get to that from the beginning of 2026, which is the election year. So that, that, that de merging will be only partly finished at the time when the next election comes. So I would say that that that's one that will, will play out slowly over time and hopefully will produce something that's good. I think that the sector will go ahead and, and, create reasonable operating models despite the fact that they will have lived through a six year period of turbulence, change, unchanged, uncertainty.
Alex Usher: May you live in interesting times. Roger, thanks so much for joining us today.
Roger Smyth: Thank you very much, Alex.
Alex Usher: And it just remains for me to thank our excellent producers, Tiffany MacLennan and Sam Pufek, and you, our viewers, listeners, and readers for joining us. If you have any questions or comments about today's episodes or suggestions for future ones, please don't hesitate to get in contact with us at podcast@higheredstrategy.com. Run, don't walk to our YouTube page and subscribe, that way you'll never miss an episode of the World of Higher Education.
Join us next week when our guest will be David Lloyd. He has the remarkable ability to be both the Vice Chancellor of the University of South Australia and the co-Vice Chancellor of the University of Adelaide. How does he manage it? Because those two institutions are about to merge in probably the biggest institutional shakeup in Australia since the Dawkins reforms of 1988. He'll be coming to talk to us about the merger, how it happened, and what the future is. Till then, bye for now.