A bankrupt university is a serious warning

The financial problems at Dundee University should worry us all. Not only do they point to a worrying future for higher education, they point to a worrying future for public services.

Amongst the seemingly endless bad news about the state of Scotland's public realm, one story should stand out for you, not because it is most important but because it is most alarming. It's the fact that Dundee University appears to be on the threshold of bankruptcy. Why has this happened? Why is it important? And what does it tell us as a wider cautionary tale?

Just as a quick reminder, I have a deep commitment to universities. Not only was my time there truly transformative (in lots of ways), I spent 12 years as head of political strategy for all of Scotland's higher education sector. Universities are amazing places that lift us up. They need to be protected.

I have made a couple of inquiries to see if I can find out anything about the specific Dundee case. I don't have details so I'm going to comment generally on the trends that led us here rather than the individual case of Dundee – but it does certainly paint a picture of what is wrong.

In fact it is a fairly acute example of what is wrong right across the public services. What is it that takes something that was working fine ten years ago and breaks it within a decade? Funding for public services has been squeezed but it hasn't fallen off a cliff. We've not gone from well-funded universities to bankruptcy because of cuts in public funding alone.

Nor is this happening because of massive rises in the cost base. You can make an argument for that being a key contributing factor to say troubles in the health sector where both more complex cases and more expensive treatments are genuinely a feature of modern medicine (though doesn't go even come close to explaining the state of the NHS).

There will be some slight cost increases in universities in subject areas for the same reason as in the health service (both more students with mental health issues and some science subjects where equipment may be a bit more expensive). But these really can't be of a scale that is causing this degree of financial duress.

Which is to say there is very little to suggest that a well-run university should have any reason to reach this point purely based on either falling funding or rising costs. It gets a recurring grant to sustain staff and premises and frankly a university isn't really much more than its staff, its premises and its reputation.

So let's look back; what has changed over the devolution years? The answer to this is found in the combination of what happened across the public sector and, specifically, what happened to universities in England where tuition fees turbo-charged commercialisation of the university sector. We can see the path set in the 2000s.

There was genuinely a major change in public sector mindset over that decade. You can trace it back further to Thatcher. There was a revolution in the public sector known as New Public Management which was predicated on the idea that the private sector was just more efficient than the public sector and it was because of management practice. That was the theory anyway.

The result was that the management of the public sector was forced to mimic management approaches from the private sector, whether it made sense or not. The prime example is the 'internal market' in the NHS. There is no internal market in the NHS, you have to invent it purely so you can manage it like it is a real business in a real market. It isn't.

I go on about this a lot; many of the features of the modern public sector which we take to have 'always been like that' were not always like that at all. Basically Thatcher beat the lot of us. We all absorbed it. Managers should be dispassionate number crunchers, not experts themselves. Staff should be 'Taylorised' (deskilled with tasks broken down and distributed to reduce the extent to which frontline staff can shape the service).

To enable non-expert managers to control a fragmented workforce doing things the managers don't understand, everything needs to be quantified – even things that were qualitative or couldn't be quantified. Politicians were then expected to withdraw and restrict themselves to setting targets for the system to self manage. Otherwise it is frowned upon for politicians to interfere so everything was insulated away in various complex models of arms-length governance.

That this isn't how the public sector works in practice is neither here nor there. A while ago I went through this with a small community charity I was on the board of. Others were business people and kept saying things like 'we have to take chances and invest to grow'. But our funding wasn't based on growth either way; growing wouldn't have raised more income. We were just spending more than we had.

“Unless something changes in how we run public services, this is all going to keep getting worse”

Financial models based on profit can't be adapted to non-profit organisations. I read a fascinating final report on a project which had put fast-track rising talent in the private sector on programmes in the public sector (this was 25 years ago so no link). The idea was vaguely that their experience would influence public sector delivery.

What actually happened was different. The private sector people reported surprise that they couldn't manage the public sector. In their business it was simple; sell more, reduce costs, stay ahead of competitors. In the NHS it's 'hell, this person has cancer and this one has an aneurism and both will die without treatment and we're short of funding and we lost two specialists and...'.

The private sector is a simple machine; public services are the definition of managing complexity. But sadly those near the top of public sector management had much to like about this system. For one, it enabled the pocket-stuffing high-salary-and-bonus culture because if that is what the private sector needs to get good performance (it isn't), then how can the public sector 'compete' (it doesn't)?

For two is the non-interference element. Put simply, not only did this new ethos justify significant financial gain for those at the top, it insulated them from scrutiny and accountability. As always, go and look at who is on quangos and ask yourself 'who are these people, how did they get so much power and why do they never need to answer for themselves?'.

The universities got this early and bad. It is exacerbated in universities by the fact that they are not public bodies but basically big non-profits which deliver a key public goal using mainly public funding. But the fact that 30 or 40 per cent of that funding originated from student fees or commercial research income, they thought they were different.

No, not just thought, said. Over and over and over the universities would tell anyone who was listening that they were a 'global business' (they weren't). They all actively wanted to reduce the proportion of their funding from the public sector because that would also reduce scrutiny and strengthen their hand to push back on accountability.

They did. They basically dedemocratised universities. You can find a lot more in this Common Weal paper but universities used to be run by the University Court which was mainly made up of academics electing academics with a few lay members coopted. The management simply reversed this and made a majority coopted – people they appointed.

Basically what Trump is doing to America the management of universities did two decades ago. They went all in on raising any source of funding other than public funding. The two biggies were overseas fee-paying students and research grants.

The outcome wasn't great in any terms other than financially. Let me give you two colour stories, but I've heard this over and over again from many people. A number of academics have told me they're 'teaching' overseas students with an insufficient grasp of English, who clearly lack the intellectual capability – or both. Standards drop rapidly when there is money to be made.

Another academic told me about his project. He could sell a training packages to a client group and so the university was all-in. He had a sum for administration built in and thought he could hire an admin assistant. The university said no, they'd top-slice the money and provide the service instead. Then they top-sliced the grant further because academics effectively have to 'rent' their own facilities when there is a commercial contract.
Then there's a flat-rate overhead cut to cover general university management. And so he counted it all up and basically they'd 'top'-sliced 90 per cent of the funding. The team couldn't deliver it for no money at all. The whole project was canned.

But for a million reasons the international student market was always going to shrink again (China was building new universities like they were going out of fashion and others wanted to keep more of their own population studying locally) and if you treat staff like this then you're going to get an unhappy, demotivated workforce.

And if you have bet everything on a permanently growing market and that market contracts, you're in trouble. They did bet everything. Have a look at the world of shining new high-specification buildings on Scotland's university campuses. They didn't build those to attract domestic students.

I don't know for sure but I'd put money on it that this set of circumstances and this attitude is what has taken Dundee University to the place it is in. It is taking the rest of the public sector with it and as it does there is next to no way to hold any of those responsible to account.

In the private sector they call this 'moral hazard'. In the private sector businesses go bust all the time. In the private sector everyone would be fired. In the public sector you can be certain that all the people responsible will be promoted. Unless something changes in how we run public services, this is all going to keep getting worse.