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Education and Employment References Committee
02/02/2018
Vocational education and training in South Australia

BUCHANAN, Professor John, Chair, Business Analytics, University of Sydney Business School

[15:50]

CHAIR: Welcome. I understand that we have now received a submission from you. We haven't had it for very long, so if senators aren't particularly familiar with it you'll understand that maybe not every senator's had an opportunity to even peruse it at this point in time. I know you've appeared before Senate inquiries before, so you're au fait with the rules around evidence. Is there anything you wish to add about the capacity in which you appear?

Prof. Buchanan : It's hard to tick the right box on your form, because Sydney Uni has a policy that we can speak on behalf of our expertise, but what I say is not official University of Sydney policy. So, I speak as an academic expert, not as just a private citizen—if you get that kind of distinction. I also apologise for the typos in my submission. I re-read it this morning. I only got late notice of this, and I've been on holidays until Monday this week.

What I thought I'd do is make it quite clear that I'm not an expert on all the full details of the current situation in South Australia. I have read numerous press clippings and I've read the ASQA reports, but I don't hold myself out as an expert on that. As you'll see from my submission, I'm seeing this as a critical incident within a system that I think has fundamental flaws. Given the complexity of this—and you can read my submission later—I thought I'd keep my presentation quite short so that we can then interact, instead of me giving you a lecture. I thought I'd take you through what I regard as the key facts that people should keep in mind. I've presented those in my submission as a PowerPoint presentation, but for the panel I've brought fully referenced tables so that people can see that I haven't just picked the numbers out of the sky. I thought I'd talk about the facts and talk about where next, and then throw it to discussion.

CHAIR: Thank you.

Prof. Buchanan : First of all, key facts. As I mentioned, what I think's happening in South Australia is symptomatic of deeper problems. What are those deeper problems? If you've got the supplementary submission in front of you, you'll see in table 1 that we've got fundamentally a highly fragmented system. There are 66 training packages, 1,400 separate qualifications and 70,000 separate competencies. Fact No. 2 is that there are very poor connections between the labour market and qualifications. What I've outlined there on table 2 is the growth in VET qualifications and the growth in university qualifications, and you'll see that university qualifications have grown at a far faster rate than VET qualifications have.

But the most important thing to note is that this growth in qualifications has not been associated with COAG hitting its targets. If you look at table 3, I think this, from a parliamentary point of view, is the most important one. COAG ministers sat down and said, 'We want to know whether the system's working or not.' Table 3 shows that on its own terms the system is failing. This isn't John Buchanan and John Quiggin and Phil Toner going away and cooking up some numbers. These are COAG numbers, and on COAG's own numbers it's not on track, not on track, going negative. I would have thought that if COAG's getting those kinds of numbers it shouldn't be just saying 'fine tuning' or 'The system's sound.' This is serious. They've put in big money, and they're not getting the outcome. Most importantly, if you turn to table 4 you start to get an insight into what's going on in the current system.

I've done a lot of work with the dairy industry. I do a lot of work with the agricultural sector, and these are numbers on what has been going on in agriculture. This kind of information is hard to get, and I think it's better to just focus on one sector to get a really good insight, but you can probably replicate this across the board. This shows what happened over the back half of the last decade. Over that period—that's 2005 to 2011—in ag there were around 323,000 to 350,000 people working. Annually, there were 85,000 people enrolled in VET quals, and over that period 160,000 VET quals were issued. Now look at the killer statistics in the last three columns: no change in the incidence of qualified people in agriculture. So you had the equivalent of half the workforce getting qualifications and no change in the incidence of people actually having qualifications. That's telling you that the vocational education system is completely disconnected from what is actually going on in the labour market.

Just as a killer point: if you turn over to the flow diagram on page 5—this is drawn from longitudinal data—the federal government has spent about $90 million collecting a Rolls-Royce dataset which has tracked 15,000 households over 15 years. We've got this data; it's called the HILDA data—Household, Income and Labour Dynamics in Australia. You might know the Seven Up! studies, where they go back and visit the same people every year and see how they have evolved. This is essentially a Seven Up! study done by households every year. You can actually ask: of the people who worked in agriculture, what have they done over a 10-year period? Believe me—and it's all explained in the diagrams there—it shows that all that training hasn't led to people moving up the career path or elsewhere; they're just churning. So have a look at that flow diagram there. I don't want to bore you with the details, but that's killer evidence that, basically, it's not leading to promotions.

Finally, I've just got the basic data there on the shift to the private expenditure in this sector. Table 6 on page 7 is the most important one to look at. These are the rates of return in VET. And this goes to John Quiggin's point: how could anyone have possibly thought that private companies with rates of return of between 35 and 50 per cent were doing anything that was sustainable? Anyone who knows anything about market economics knows that anyone who identifies that kind of growth rate is quickly wiped out by others moving into the sector. There was something wrong. And that went on year after year after year. The capital markets picked this up before the system itself picked it up. It was the capital markets that ultimately disciplined the system. So when it's the capital markets that are disciplining the system, you know there's something wrong with the system itself because it has no capacity for self-reflection. They're the facts. We've those key facts: the system is failing on its own terms with COAG; we've got a very weak or virtually no connection between VET and the labour market; and then we've got the major problems with the VET FEE-HELP scandal.

Where do we go next? In my paper I outline four options. I won't dwell on them in too much length here, but it is worth noting that the first option is that we could muddle through. Basically, VET has been muddling through for about the last 30 years. The second option is what I call the Swedish option, which is basically that you don't have VET; you have schools, you have higher education and you have labour market policy. If VET continues the way it is, that's where we will end up, because it will be a totally discredited space. That is a serious prospect. Australia used to be known for its quality tradespeople. It is conceivable that in 10 to 15 years time it just won't exist anymore because it has no credibility. The third option is that you can have dual sector arrangements where vocational education providers are nested within higher ed providers to have an integrated tertiary offer. And then the fourth option is a quality system with an effective anchor for quality control creating a vocational system that is worth having. I, personally, am sympathetic to options 3 and 4, and we can talk about that later.

So what do you do? You will see in my submission I've outlined four things. The first is: stabilise the decline in TAFE. TAFE has been attacked in policy since the eighties. What you're seeing in South Australia is the ultimate endpoint. Where you attack TAFE for three decades, it will crack. It has cracked, clearly, in South Australia, and it's manifest for all to see. That has got to be stopped. TAFE is a rare asset. Australia's vocational education system used to be the envy of the English-speaking world. We've done a very good job of trashing a great asset. The second thing is: let's look at qualifications rationalisation. I outlined at the outset that we've got over 1,500 separate quals. In agriculture alone there are 130 qualifications below cert IV. Think about that. For a sector that employs three per cent of the workforce, there are over 130 separate quals in agriculture. What does that mean? It's better to have fewer qualifications of high standing. The third recommendation is that we need a review. There was the Kangan inquiry. That set up TAFE, and it worked very well. But we've got to move on now, I think, to look at the legacy of the Gonski reforms as a good basis of building consensus.

Finally, there's the question of institutional design. I'm sad our Western Australian senator is leaving, because I'm actually a big supporter of federalism and power sharing. Australia has actually developed really good models of how you can do this with the Skills Australia Institute. So, when we're thinking of institutional design, we shouldn't be looking at one big unitary system coming in and playing God to the world. I disagree with John Quiggin; I have no faith in the Commonwealth government in this space. Most of the damage to the vocational education system has originated from the Commonwealth and the dynamic relationship between the vocational system in Victoria and the Commonwealth. If any coherence remains in the system, it's because the states have held out for quality control. It's been the ideologues in Canberra who've run really hard with the training market. Then, when we're talking about lessons from institutional design, I think we've got to look at lessons from the health sector. We've had crises in complex spaces before. We've had the AIDS crisis, and Australia pioneered a way of getting out of the mess in a way that the world envied. It was clear bipartisan leadership with deep community support. That's what we've got to look to here in the vocational education sector.

I will just conclude by saying that I think this committee provides a great opportunity for a new bipartisan approach. Vocational education in Australia is in a mess because there has been a bipartisan commitment to the policies that currently prevail. It's only a bipartisan approach that will get us out of the situation we're in.

CHAIR: Thank you. Professor Buchanan, I wish we were able to have more time with you this afternoon, but we're going to have to conclude with you at 4.15. I can indicate that it is only Senator Cameron and Senator Patrick who have questions.

Senator CAMERON: Thanks for your submission and your attendance here today, Professor Buchanan. I've been raising an issue; I'm not sure if you're aware of it. There was an OECD overview of the skills that are required to seize the benefits of global value chains. There is a scoreboard on table 1.1 on page 21 of that report, the OECD Skills Outlook 2017: Skills and Global Value Chainsreport, that shows that Australia, at the moment, has got a limited share of low-skilled people. But it also shows that we are at the bottom 25 per cent in developing skills to face the challenges of global value chains. We are ordinary—in the middle—on skills to specialise in tech advanced industries. We are at the bottom 25 per cent in specialising in tech advanced industries, and we are at the bottom 25 per cent in increasing specialisation in tech advanced industries. Given that South Australia are talking about building submarines and warships and a new approach there, how can we do that with this system that we've got now that even the OECD is saying is failing?

Prof. Buchanan : You've got to remember that the current system is built around a very simple principle. It's called student demand. The whole idea of user choice was to move to a point where students could choose what to do. That's a fiction. Most students have got no idea how to make an informed decision. What happens is that training providers market aggressively and aggregate demand. What's good for training providers—that was my point—is that you've basically got a VET system that's built around people who can manipulate a funding model. There is very little capacity to actually link the priorities of what you've got in mind for economic development with what's going on in your vocational education system at the moment. Under current policy settings, it would be very hard to change that.

Senator CAMERON: Can I come back to this issue of the regulator, who basically dismissed the contribution from you and other experts in this area by saying that you are just individuals. You do have long experience in this area and have been dealing with this for many years, haven't you?

Prof. Buchanan : Absolutely, for about 25 years.

Senator CAMERON: In this inquiry, focusing on some failures in the TAFE system in South Australia, I think the evidence we got is that there are going to be 130-odd students affected but, when other, private providers have gone down, thousands of students have been affected. Is it really just a race to the bottom that we're seeing at the moment?

Prof. Buchanan : I think there's no discipline on the system to really preserve quality. I suppose I'm disappointed to hear that account from ASQA because people like John Quiggin are well-respected international economists who publish in all the leading journals and have high standing. I've been working with the ILO in the Asia-Pacific area. I've been invited in by the South African government to advise on this stuff. I'm not just writing a letter to the editor. People like John and Phil and me have spent years getting deep understanding of these issues and we have been saying for quite some time that, with its current design structure, it will be a situation where—to use John Stuart Mill's great quote—'under conditions of competition, standards are set by the morally least reputable agent'. So, basically, the whole system's designed to empower the least reputable agent. That's what we've seen play out.

Senator CAMERON: The context of this inquiry is basically a political attack on the South Australian government and using the TAFE system to attack the South Australian government. Governments of both persuasions have been wrong about where the system is heading, so there's no point in continuing the political attacks. We do need that fundamental review of the system to make sure that we can create jobs for the future and skill the workforce for the future, and we should get over this nonsense and deal with the fundamental issues that are facing Australia, as the OECD has indicated. We can't build ships in South Australia and we can't build submarines in South Australia if we don't have the skills, can we?

Prof. Buchanan : Absolutely. But I think your point's a good one. That's the way I finished my submission. This isn't a matter of Labor getting it wrong and the Liberals now having a free kick to go after the South Australian government. The Liberal governments have made mistakes too. There's a bipartisan failure of policy here and I would hope that this is a cross-party committee. Call me Pollyanna; call me naive, but I think we've got to put out this idea that the vocational education system should not be regarded as a political football. Ewart Keep, a leading professor in this area in Britain, has said that the problem with vocational education in Britain is that it was regarded as the world's biggest train set. It was something you could pull apart and reassemble and pull apart again. You cannot do that with a domain that is trying to give people skills that have credibility and are respected over a long period of time. It's not a train set; it's something that's very important to many people's lives. I'm not being party political. People know that I've been supportive of collective bargaining and the like. The people who've been strongest in support of the arguments I've been putting forward are the New South Wales government and the dairy farmers of Victoria. So I'm not speaking as a partisan for the Labor Party or the Greens or whatever. People look at it and they say there's a problem and they like our analysis because it's deeply empirical and sensitive to realities. And I think we should be looking for a bipartisanship take on this.

Senator CAMERON: My last proposition to you is that all the evidence we have before us, except from the regulator, is that there are systemic problems in this system that require a fundamental review to deal with them; and, if we don't do that, the race to the bottom will continue and, in your view, the VET system will die completely. Is that right?

Pro. Buchanan : That would be my view. It would become so discredited that people would just give up on it and they'll move to labour market policy.

CHAIR: This committee visited China a number of years ago to look at what was happening in education there. The Chinese government have in fact picked up the Australian VET system as the model for their vocational education and training. They were building on it and pumping in enormous amounts of money and resources, because fundamentally our system was seen, as they said—this is what they do in China: they go and look at the world and pick the best from it and replicate that. They saw ours as the best. It does seem tragic that we've let a system that is considered by the Chinese, who know, a world-class system really run down to the level it has. That is probably more of a statement than anything.

Pro. Buchanan : In my work with the ILO I have given presentations very much like I gave you. They have all been shocked, because they have all embraced competency standards. They have all embraced market competition, and they're now starting to see the downside. If you want to see the dark reality of this system, go to South Africa. They applied this system to school education, not just VET, and they now have millions of people who cannot read and write.

Senator PATRICK: You presented some solutions here in some sense. You've said 'stabilise' as the first step. In some sense you've described a system that is so broken that it wouldn't be good judgement to put more money into it. Or is more money required to do the stabilisation?

Prof. Buchanan : Yes. My first training is in history and my first love of life is history. The real beauty of studying the vocational education system in Australia is that you see traces of earlier orders. Australia used to have an apprenticeship system that was the envy of the English-speaking world. Evidence of that system still exists. There are still trade teachers who were trained in that system. There are still employers who are supportive of that system. Evidence of that system survives, just, in the TAFE system. I reckon we have five or 10 years before that's all gone. You don't see much of that, and in the for-profits you see none of it. You see some of it in the best of the not-for-profits. When I say stabilise, there is an infrastructure and a memory and some practices in TAFE that it is crucial that we preserve. That's what I mean by stabilising. I'm not saying stabilise the failed and policy-bankrupt training market system. There are still people in TAFE who think about curriculum. There are still people in TAFE who think about pedagogy. These are terms that were sneered at and have been consciously targeted as irrelevant. But within TAFE, more than any other institution of the vocational education system, there is a recognition that if you want to have a quality education system you have to have curriculum and pedagogy. That's not a defining principle within the training market. So when I say stabilise, I mean help elevate those parts that have survived from the past.

Senator PATRICK: It may actually take some money to do that.

Prof. Buchanan : It would take a lot of money. Without wanting to sound too desperate, you want to get these people before they go. Once you've lost this capacity to build up people who can do curriculum and who know about pedagogy, that takes a generation.

Senator PATRICK: I'm a tradesman, so maybe there's a chance for me after I leave the Senate. So the next stage—I guess you put these two together—is the qualification rationalisation and a review at the same time. I guess that can happen in parallel to stabilisation, can't it?

Prof. Buchanan : That's already happening. Among senior officers who run the vocational education system there is agreement that it's administratively inelegant to have so many qualifications. As I mentioned in my submission, it's being rationalised for administrative reasons. I think we need to take a step back and say, what are the underlying notions of skills that we should be bundling? That's work I'm doing with the New South Wales government. We have a vocational education reform research collaboration. The New South Wales government recognises that it's going to take three years. We're trying to figure out what those categories are. For instance, we're thinking about things like care work, logistics and customer service—big categories which you can get an underlying capability in and then deploy. In care you could possibly move between aged care and drug and alcohol support, or between drug and alcohol support and other individualised care. Some people in the care sector are starting to think that way, but that's not a design principle of the current system. That's coming out of the care industry; it's not coming out of the vocational system. I think we've got to move beyond an administrative view of rationalisation to a labour market view.

Senator PATRICK: Then you'd finally end up, in your view, with a structure where you had a hybrid university-TAFE, or going back to the very strong TAFE arrangement that we had in the past?

Prof. Buchanan : I'd like to have a long talk with John Quiggin. I'd be very careful about what the BCA is arguing, because I could see the VET cancer getting into higher ed. I'd be very wary about what the BCA has in mind there. You'll notice the Mitchell Institute stuff is all about cuts to VET. They don't talk about what's been going on within VET. I would say if you just had all of that funding in there, they would have just squandered hundreds of millions of dollars more. It's not a matter of cutbacks; it's where the money is and what the money's being used for.

Senator PATRICK: You've mapped out what you think needs to happen. I'm still worried about the disconnect that you described between the people entering into these courses and the market. Is there any way that we can quickly resolve that problem, or are you going to remove choice at the start?

Prof. Buchanan : There is no simple solution here. This is where I'm becoming an academic, but I have studied this stuff. I worked in the Department of Employment in Canberra before I became an academic, so I know about the nuts and bolts of developing policy. This is why I think we have got to have a notion of bipartisanship to build up a vision of what it means to have care work, to have engineering work and to have logistics. We've got to get people in a room, and people's heads have got to be knocked together.

In agriculture you'll get some very specialised qualifications for horticulture, and you'll get a very specialised qualification for wheat farming. If you step back, though, often what they need is somebody who's very good at what we call rural operations. We've mapped this out: you've got some basic maintenance work, you've got some basic animal and land husbandry and some basic sustainable farming practices. That's a debate to be had. We've worked this out as researchers and we have tested it out with some people in Ag, but to get that connection between qualifications and the labour market you've got to have communities of trust, and you cannot legislate a community of trust, you've got to create the space for it to flourish.

Senator PATRICK: I think there is bipartisanship in finding the solution. I think the partisanship is associated with blame about where we are now.

Prof. Buchanan : Yes, absolutely.

Senator CAMERON: Maybe you can take this on notice. I'm with you on the BCA. I just think the issue the BCA are arguing is that there should still be a cost shift from employers back to the individual and back to government. I've been trying to find out exactly what business invests in training. They see it as a cost. They are not like the Germans who see it as an approach to build their business. Do you have any of those figures and, if so, could you take that on notice?

Prof. Buchanan : I'll have to take it on notice. The government cut the training expenditure survey because it constantly showed businesses cutting back their expenditure on training. I'll try, but it might be hard.

CHAIR: Thank you, Professor Buchanan. I am sorry we didn't have more time to spend with you, but thank you for your time submission.