Role of universities in Sydney's economy

Greater Seattle International Study Mission
Sydney
11 March 1999

As a frequent visitor to the University of Washington I am delighted to have this opportunity to speak with your delegation. By now you must have reached information whiteout – so I will do things in the Seattle way, by bathing you in a constant light drizzle of facts.

Fact 1: Australians are often surprised that American universities, even private institutions, rely substantially on both federal and state funds. You may be more surprised to learn that until recently all Australian universities relied almost totally on public funds but the state government has essentially no funding role.

For example this University receives 60% of its income from the federal government in what is effectively a direct teaching contract, and, of the remainder, about 1.2% can be traced to the NSW State Government.

There is however a twist! The state government controls our act of establishment and appoints several members to our governing body. I should take the opportunity to attempt some translation of terms. My role as CEO is analogous to your university president but instead of a board of governors we have quite a large 22 member Senate with ministerial appointments, parliamentary representatives, elected students, staff and alumni representatives.

This is very much local government with no input from the national government. So the feds pay the bills and leave it to the state to run things. Do I hear hollow laughter? Given that the present federal government is from the right of politics and the state government is from the left, the interplay is interesting and it is my job to dance gracefully down the middle.

Let’s consider the dimensions:

Thus the 5 Sydney metropolitan universities account for roughly 20% of the national student load. There are also 5 regional universities in New South Wales accounting for about half of the Sydney total.

As I will show you, the five universities in Sydney have diverse characters but this does not greatly affect the crudest aspect of economic impact – employment and expenditure.

Numbers like these are very important because the straightforward economic impact of metropolitan universities is often under-valued. In a regional area, especially a small country town, the economic and social impact of a university is evident. Sometimes it is the biggest show in town. Consequently there is an active lobby to make special concessions and divert earmarked funds to regional universities. Metropolitan planning authorities and politicians should beware of this.

In 1993 the University of New South Wales did an intensive study of its economic impact on its local municipality, Randwick. Let me extrapolate from that study to estimate the impact of the 5 universities.

Figures in that survey suggest that the annual spending by students on the 5 campuses would be around $100m and by staff around $11m. We can add some $5m for casuals and visitors.Real estate prices attract a premium which is difficult to estimate because of the different kinds of location ñ but the UNSW study suggested that over the period 1986 to 1991 homeowners in Randwick achieved capitals gains of 300% in comparison to a suburban average of 219%. It was alsoestimated that local authority taxes were 30% lower in consequence of income from the University's presence.

Extrapolation of other material in the report suggests local off-campus spending generated by the 5 universities is of the order of $470m and this translates to direct employment generation of about 8,000 jobs. By now though my error margin is rather wide!

None of this takes account of the teaching hospitals associated with two of the universities, Sydney and UNSW. The hospital costs are borne by the State Government and it is difficultto know how much to attribute to university-related activity. But the location and viability of the hospitals is certainly fundamentally tied to the university presence. As a very crude rule of thumb we might add 50% to the expenditure and staffing figures for UNSW and Sydney to get some feel for this.

Having started to discuss issues which distinguish the different universities let me give a brief description of their differences

Sydney is Australia's first university, established in 1850 and is research intensive and discipline comprehensive. UNSW is 50 years old, is also research intensive and only slightly less comprehensive, with more bias towards technology and science. Macquarie was created as a new university in the 1960's with a mission to be research-based while also catering for mature-age cultural outreach. UTS grew from a technological institute but later amalgamated with a similar sized teachers' college. It is therefore less research-intensive than its name suggests but has a strong tradition of industry-linked teaching programs. UWS was formed in the last decade by the amalgamation of two teachers' colleges and an agricultural college. As its name suggests it is based in the Western Suburbs where there is considerable residential and industrial growth.

Before we speak more about research there is another important consideration. Your razor-sharp eyes will have noticed that the total amount of student load fell from my first table to my second table. This is because there are fee-paying students in addition to our agreed government load.

There are no significant restrictions on our recruitment of overseas students, most of whom come from Asia ñ although we are increasingly keen to attract students from the US, particularly for short stay Study Abroad opportunities. The main source of Australian fee-paying students is postgraduate coursework which, generally speaking, is no longer government supported. In addition we can now accept a certain number of fee-paying Australian undergraduates under tight regulations but currently the numbers are small.

The overseas numbers are obviously important to our economic analysis because they represent export earning as well as income to the State. A recent federal government commissioned report concludes that the average weekly expenditure by such students is $600, with approximately half being course fees. We can estimate therefore that the 5 metropolitan universities bring some $480m in overseas earnings, with half of that being spent on direct consumption in the local economy and half adding to the universities' income.

You will have observed that this is not an area in which my own University excels. Let me say that out trend lines are good. Despite Asian meltdown our commencing overseas student numbers have increased by 30% both last year and this year.

Local postgraduate coursework is important to the economy because that is where close links occur between business and industry and the education providers. At Macquarie there is a declared emphasis on professional development programs backed by a research base. A specific example at UNSW is the Graduate Diploma in Drug Development for scientists working in the pharmaceutical industry. UTS and Sydney have custom-designed training programs requested by large employers ñ in our case software technology for Bankers' Trust.

This is an appropriate moment to say more about the components which make up university income. This varies from institution to institution but a common feature is that about 60% comes from the agreed federal government student load (interestingly about 60% of expenditure is directly on salaries). In the case of the University of Sydney student fees account for $78m, some 13% and investment income is currently 9.5% Money sourced from the State government is only 1.2%, underlining a point which I made earlier, Donations and bequests amount to $15m which is high by Australian standards and vanishingly small by American standards.

That fact and my own institution's previous reluctance to embrace fees both flow from a long tradition of perceiving our universities as fully public responsibilities. Who donates to the public utility of their choice?

Let's turn to the research scene which is the source of most of the remaining income I have yet to account for. We lack the big private foundations from which you benefit but have federal analogues of NSF and NIH.



This table gives a general snapshot. Like all my tables it is taken from official government publications and the categories are not particularly my favourite indicators ñ but they are the suite of indicators chosen by experts in the area.

Allow me to comment on the second column. It gives me an opportunity to explain that our grant from government for our agreed student load does not take account of quality. It does weight disciplines e.g. dentistry is more expensive than law, but it takes no account of performance. However there is a component – just over 4% system wide – called the Research Quantum which rewards research performance. Universities like UNSW and Sydney receive significantly more than the average although the total amount is, in absolute terms, quite small.

This table shows competitive earning from the National Health and Medical Research Council. As Sydney and UNSW are the only members of the 5 with medical schools, it is no surprise that our earnings are much greater.

This shows competitive earnings in an important industry collaborative scheme. The industry partner puts up cash as does the government and the universities provide infrastructure ñ personnel and equipment.

The next table shows the trend in this scheme.

The final table shows the outcomes in the latest round of our NSF equivalent ñ the Australian Research Council. These are government figures collecting together the awards for the various components of the scheme and was collated by the Sydney Morning Herald. All universities in this State are shown together with all the significant performers from other parts of Australia.

Now let's consider research and the economy.

A scheme like Strategic Partnerships with Industry provides government support for relatively small individual projects with commercial potential. It is important that industry must also commit itself through cash and, of course, the bringing together of the partners has wider potential.

In addition there are larger scale schemes like the Cooperative Research Centre program where the federal government might provide support of the order of $14M spread over 7 years to a consortium of industry and university partners who must also invest in cash and in kind. This would support research and development of a major thematic enterprise headed for commercial outcomes.

There is a role also for state governments. You have visited the Australian Technology Park where the basic site was provided by the NSW government together with other forms of assistance. Most recently they have announced an investment of $12M in supercomputing there.

Most of these initiatives are relatively new but there have been successes and encouraging beginnings. For example we are partners in a Photonics CRC which has sold a spin-off company for $8.56M . We are partners in an internet biotechnology venture where we provided the intellectual property and venture capitalists provided the cash investment. In a unit trust structure with Japanese investors we are developing an ocean-drilling probe.

The American, Bob Joss, who has recently announced his retirement from being CEO of a major Australian bank said yesterday that he had to come to this country to discover that profit is a dirty word. There is certainly confusion in this regard when it comes to public education.

Potential business partners sometimes feel that I should prefer a warm inner glow to a commercial contract and, to be fair, academic researchers who are new to entrepreneurship often place an unrealistically high valuation on their intellectual property.

The University needs all the tax breaks it can get in the pre-development phase where so many projects do not go on to commercial viability but this can cause unease. Recently we produced a prototype underwater robot which was so good that we were persuaded to sell an early version. Questions were asked in Federal Parliament about unfair competition with commercial operators with an inferior product.

It is encouraging that we can now obtain government backing for the development stage of good projects and that we have much closer direct links with business and industry. A large part of my motivation is to generate income for the University because we desperately need to reduce our dependence on the 60% government student load operating grant in order to achieve international competitiveness in our core business. Nevertheless I will be very happy to experience the warm inner glow which comes from stoking the State economy.