Privatise business schools

The UK’s centrally-planned universities could do with a real shake-up, and we need to create new institutional forms if they are to be effective in the future. One way to do this is to begin the effective privatisation of higher education in those areas most suitable for it. One of these areas is business education.

Higher education has many purposes, but one of the most important is the preparation of young people to enter the world of work, either employment in managerial and professional roles or starting their own businesses. This purpose should clearly be pursued most determinedly in business schools. The UK has 100-plus university-based business schools, teaching around 15% of all higher education students. When the first were set up in the 1960s there was a real debate about whether these schools should be free-standing, or lodged in traditional universities.

This debate should be revisited. My contention is that business schools should be encouraged to break away from universities to encourage a greater emphasis on preparation for employment, more effective and focused learning, and cost savings to government and students.

Of course at one level, university-based schools appear to be a success: they bring in substantial income from UK-based foreign students and from overseas partnerships and franchises. But this is not enough. Schools are too detached from business, arguably overly concerned with theory rather than practice. Staff have inadequate private sector experience and are often rather keener on personal research projects aimed at the costly and unnecessary ‘Research Excellence Framework’ than on working with businesses.

Many students have little or no contact with those currently employed in business, particularly since placements and internships have gone into decline, partly as a result of employment regulation. Schools teach too little and students don’t rate their teaching highly. Pedagogical innovation is rarer than it ought to be in our connected world and there are few sanctions for persistently poor or ineffective teachers.

Short academic years and undemanding assessment requirements can’t prepare students for the pressures of business life, and it is no wonder that employers continue to report dissatisfaction with many of the business students they interview. This may also be related to low admission requirements, as vice-chancellors demand that business schools expand recruitment to cross-subsidise other subjects.

Indeed, the over-charging of business students to keep arts and humanities departments open is a hidden national scandal. Business lectures are often overcrowded and students can get too little personal attention and support. In the case of overseas students, who sometimes get a very raw deal indeed, there is often a perverse income transfer from very poor individuals, who have borrowed from friends and family, to far richer people.

It’s time to change things. Business schools’ location within a university culture of excessive regulation, backward-looking trade unions, anachronistic contracts and a medieval calendar does nothing to promote excellence. As direct public funding for teaching business undergraduates disappears – such funding for postgraduates has never featured significantly –  and the cost of their education falls increasingly on students themselves, there is less and less reason to stay in the sector. Let universities sell their business schools off.

To whom? It could be to not-for-profit corporations, management buy-outs, charities, local chambers of commerce. But such institutions lack capital and are unlikely to be able to run large schools effectively. In the longer term the development of more for-profit schools on the model of the successful BPP Business School, which can award its own degrees (taken in an intensive two-year programme) to a high standard at half the cost of conventional university schools, seems a more promising prospect.

The government does not own universities and cannot compel them to sell off their business schools. But it can emphasise that this is the way it wants the sector to develop, and can make it clear that there will be no more public funding for business teaching. It can allow universities to keep the proceeds of the sale of their schools, a one-off gain at a difficult time. The rest of the higher education sector will profit from the example of the innovation which will be unleashed, and it may be that other parts of universities could seek to follow in due course – law schools are promising candidates.

And let’s shed some of the regulatory baggage. We need more reliance on quality assessments (such as AACSB, EQUIS and the various professional bodies) which exist independently of state regulation, rather than the dead hand of the Quality Assurance Agency.

I would also look to reductions in the huge burden of student loans, both on individuals and the taxpayer. Business schools should create a new private student loan system in conjunction with the financial sector. The MBA/career development loans model could be much more widely extended for business students, whose long-term career prospects are stronger than those of the average undergraduate whose loans they effectively subsidise. Direct links between business schools and banks could also reduce the moral hazard inherent in the present undergraduate loan system – where universities are insufficiently penalised for recruiting weak students and producing unemployable graduates. Schools should explicitly share the financial risk involved in recruiting students who may not be fully committed. This would be a strong inducement to improve selection and support of students.

After a promising start, the government seems to have run out of ideas on higher education. It should return to first principles and think again about what needs to be done in our traditional university system, and what can better be done by the private sector. Business schools are the place to begin.

Len Shackleton is a contributor to The Profit Motive in Education: Continuing the Revolution.

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.