The financialisation of Higher Education and the USS dispute
From one perspective, the USS pensions dispute revolves around the question of the objectivity or otherwise of the USS ‘deficit’. But underlying this issue is the fundamentally political question of the level of financial risk that universities are prepared to bear in relation to pensions commitments. This issue is internally related to the financing of ambitious capital investment programmes. It is assumed that pensions liabilities are financial risks to universities in need of curtailment, while ambitious capital investment programmes are not. This is because pensions, as compared to other staff costs, show up as capitalised liabilities in university finance models. Capital investment programmes incur costs and risks that do not show up on balance sheets: depending as they do upon the assetisation of future student recruitment, they help to reconfigure how ‘the student’ is imagined, and how the public benefits of higher education are conceived.
What’s the context?
There is an integral link between the pensions dispute and the financialisation of higher education funding. Universities are involved in a search for new sources of revenue, in a context of declining direct funding from government; uncertainty over the reliability of student fee income, the real value of which is declining year on year; and, since 2010, a government determined to make higher education conform to idealised models of perfect market competition (see USSbriefs3). But universities are not simply passive actors in a process of higher education transformation, buffeted by the edicts of government. The idea that senior university leadership teams are pursuing internal organisational changes because they are trying their best to protect their institutions, and the people who study and work in them, from even worse outcomes favoured by government is a shibboleth of UK higher education discourse that seems no longer plausible. University leaderships are able to exercise considerable agency in shaping the field in which they operate. The pensions strike has been the occasion in which the responsibility of university leaderships for driving the transformation of higher education has been publicly exposed. As a shadowy world of consultancy (see USSbriefs5), leadership training, and cartel-building (see USSbriefs9) has been brought to light, so too a whole model of individual university governance and collective university representation has been shown to be in need of urgent reassessment (see USSbriefs15).
Are buildings more important than people?
It has been widely repeated during this dispute that university leaderships are more concerned with securing the financing for extravagant capital investment programmes than they are in looking after the pay and conditions of their staff. There is a widely held view amongst universities and Universities UK (UUK) that is strongly averse to increases in the risk associated with funding the USS system. And it is certainly often asserted that steps towards increased pensions funding by universities would come at the cost of budget cuts and/or reducing capital investment programmes. But it is important to acknowledge that the relationship between pensions costs and capital investment programmes is not presented as a zero-sum trade off, as the response by the University of Exeter to the September 2017 UUK survey makes clear. Rather, increased pension costs are presented as threatening the capital investment programmes that are themselves, so the argument goes, quite central to sustaining universities’ future commitments to the USS pension system itself. And this argument — both of the risks presented by pension liabilities and the role of capital investment programmes in securing the future of pension systems — depends on that fact that in the ruling paradigm of university financing in the UK, pension costs are quite distinct from other staff costs. Pensions commitments are treated as capitalised liabilities to be offset against capital assets. They therefore impinge directly on the financing of capital investment programmes in ways that other staffing costs do not.
Where does money come from?
The dynamic of the financialisation of higher education is driven by a concern to secure future student recruitment under conditions of artificially-induced, non-price based ‘competition’. And buildings are seen as crucial to recruiting students. It’s not that research is not important in this process. But research activities and the teaching & learning activities of a British university involve very different kinds of money. Universities cannot assetise research activity in quite the same way that they can assetise future student recruitment (because of peer review processes, and the unpredictability of government research funding).
The orientation of university strategies towards capital investment in the infrastructures of teaching and learning and research means that universities have to search for long-term financing of all those ambitious building projects. There is no single model of how to do so, but rather, a variety of different possibilities open to HEIs (higher education institutes).
- Universities can and do borrow money from banks, just like everyone else. When financial balance sheets become enveloped in a wider process of actuarial de-riskification, then pensions liabilities appear as significant risks; specifically, they begin to interfere with the ability of universities to borrow money at affordable interest rates.
- But ‘traditional lenders’ — banks — are less able and willing to extend loans with the same duration (e.g. 20 years) and prices as in the past. Therefore, in a process that attracted perhaps the most attention, some universities have taken to issuing their own bonds (IOUs) on the debt capital markets to raise funds.
- A third aspect of debt-financed expansion is the turn to ‘lease based structures’ by universities to access capital with long maturities ‘indirectly’ (the borrowed money is therefore kept off balance sheets). For example, University Partnerships Programme (UPP) provides universities with ‘special purpose vehicles’ to raise the capital to build and run student accommodation, ownership of which only passes on to universities when the original debt is paid back.
Who cares about rankings?
These logics of debt-financed capital investment help to make sense of the imposition of increasingly toxic top-down, vicious, paternalist, patronising management systems that has come to characterise university life. All university staff are now badly micro-managed in terms of a myriad of metrics and league tables and targets and indicators. To understand why, it helps to recognise that university rankings, the unsurpassable horizon of the imagination of university senior management in the UK, play two related roles in the financialisation of HE funding. First, they meet the demand of student-consumers. Second, they reassure investors that future recruitment can be guaranteed by universities looking for credit. And these same rankings are just one part of the ‘avalanche of numbers’ that are wielded to manage universities internally so that they can act in certain ways externally, not least to establish and maintain institutional credit worthiness. There is, then, an integral relationship between the adoption of debt-financed models of university expansion and the consolidation of systems of centralised and hierarchical management.
Why do students matter?
Tracing the logics which connect the focus upon capital investment programmes to the creation of an artificial futures ‘market’ in student recruitment requires a more fine-grained analysis of just how students are conceived in higher education. It reveals that it is being in debt, not being a consumer in a perfect market, which is meant to generate the virtues of customer oversight amongst students.
A particular vision of students lies at the heart of the rapidly consolidating system of higher education funding. This vision positions students in four ways:
- As future recruits, to be assetised through league tables and rankings, they serve as security against which universities can secure loans;
- As superficial airheads, who are easily dazzled by ‘shiny buildings’ when making life-changing decisions;
- As utility maximisers, who are expected to be motivated by the promise of future earnings in their choices and expectations and satisfactions;
- As reliable rent payers, given the debt-leveraged nature of all this building work going on around university campuses.
The disaggregation of ‘The Student’ into this dispersed range of abstractions facilitates the monitoring and representation by senior university managers of ‘student voice’ and ‘student experience’. These are figures wielded by university managers to force poorly thought-through changes to curriculum, teaching practices and timetables upon professional educators who are systematically disempowered as experts despite being the primary interface through which the learning experiences of students is mediated. These thin models of ‘student voice’ and ‘student experience’ are, additionally, at some remove from what students actually want or hope for from a university education.
Where’s the risk?
The search for larger amounts of long-term financing on the capital markets by universities has gone hand in hand with the growth of certain fields of private investment in higher education, mediated by private consultants such as KPMG, PwC and Barclays. These companies mediate between HE (higher education) and private investment sectors (see USSbriefs5). Traditionally, investing in university capital projects has been considered attractive because it appeared to be relatively safe. Universities remain very heavily dependent on government funding in all sorts of ways, primarily in terms of credit extended to fund student fees as well as direct grants and research funding. Until very recently, universities were therefore able to raise capital on favourable terms because of an implicit assumption that they were in the last resort guaranteed against failure by government. However, the UK government now not only seeks to facilitate new entrants into higher education but says it will not automatically prop up a financially failing university. This perhaps makes all this debt-financed investment look a little more risky than it would have done previously. And this policy change might therefore help to account for the determination of at least some universities to use the 2017 USS pension valuation review to crash USS out of the Defined Benefit pension model. It presented itself as an opportunity to settle a ‘crisis’ in the USS system the preconditions for which had been laid in place for some significant time in advance (see USSbriefs1).
Who benefits from all this?
It should be said, amidst all of this, that universities in the UK remain obliged to demonstrate that their activities deliver ‘public benefit’ to all sorts of constituencies. Conceptually, there is nothing about the process of financialisation discussed already that necessarily runs counter to such an obligation. The way in which higher education can be used as the means of achieving public ends has certainly been transformed in the UK over the last three decades. The impacts of higher education are now routinely, almost naturally, presented as accruing to individuals (the future salaries of students) or private entities (‘industry’), and it is assumed that it is through these mediums that wider public benefits are generated. Financialised capital investment programmes are therefore justified as helping universities to do everything: they deliver social mobility; help drive national economic growth and technological innovation and revive productivity; generate cultural diversity and creativity; anchor local and regional dynamism, and various other functions too. An important question remains: Are the practices of financialised risk which are now the favoured means of achieving those hoped for benefits counterproductive to a healthy and vibrant public life?
Putting together the processes described in this brief makes it possible to understand how the current pensions dispute is part of a much larger series of changes in UK higher education:
- The financialisation of higher education is bringing about a sea-change in how the public purpose of higher education — and the role of students, teaching and research within it — are conceived.
- The dispute over pensions discloses the integral relationship between the adoption of particular models of university financing and the consolidation of unaccountable systems of centralised and hierarchical management.
- The central theme that connects the pensions dispute, capital investment programmes, and routine experiences of mismanagement in universities is risk: how it is conceptualised; how it should be measured and forecast; and whether and how it should be shared.
- It is important to differentiate between the argument that higher education is currently an imperfectly functioning market that could be made more perfect, and the argument that it might not be a good idea to imagine it either should or could be in the first place.
This paper represents the views of the author only. The author believes all information to be reliable and accurate; if any errors are found please contact us so that we can correct them. We welcome discussion of the points raised and suggest that discussants use Twitter with the hashtag #USSbriefs16; the author will try to respond as appropriate. This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.