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Meanings of private and privatisation

September 10, 2011

In the context of higher education, the use of ‘private’ and ‘privatisation’ can indicate distinct though mostly complementary aspects of finance and corporate form:

  1. Private benefit or public good.  Higher education is presented in the government’s white paper as primarily a human capital investment that benefits the private individual insofar as it enables that individual to boost future earnings.  Universities are then judged by how well they provide training that increases graduate earnings profiles.  There is no discussion of the public benefits of higher education.  Even Milton Friedman, whose ‘The Role of Government in Education’ provides the conceptual framework for the loan scheme, saw the need for direct funding of higher education that promoted citizenship and leadership.
  2. The constitution of universities.  English universities display a complicated and confusing history of legal structures.  They are legally independent corporate institutions with charitable status (the majority are ‘exempt charities’).  The pre-92 universities are chartered corporations, but the newer universities are statutory corporations often formed by separating them off from local education authority control under the terms of the 1988 Education Reform Act.
    The ‘higher education corporations’ are quasi-public in that they do not have the full rights of ownership associated with independent companies.  For instance, they are unable to dissolve themselves – only the relevant Secretary of State can make this decision.
    This distinguishes them from the ‘companies limited by guarantee’ such as LSE, Greenwich and London Metropolitan (formed by the merger of two such companies – University of North London and London Guildhall).
    By definition, a higher education corporation that, with the government’s approval, becomes a company limited by guarantee (the only alternative form available to it) is adopting a more private legal form. See the recent case of Leeds College of Music.
    Companies limited by guarantee are also able to change to companies limited by share – though this would entail ditching their charitable status.
    The white paper’s consultation on making changing legal status easier thrusts this further move into play.  Paragraph 4.36 discusses the need to protect a university’s assets in changes of legal form, but given that the assets of a higher education corporation must always be reserved for charitable and educational purposes, the real sense of this proposal is to facilitate the buy-out or bail-out of a traditional university by a for-profit enterprise.
    The magazine Third Sector told me on Friday that BIS had confirmed that this possibility was on the table as part of the consultation.
  3. Income streams.  Public money through research and teaching grants is one source of universities income.  Private sources include tuition fees (home & overseas), industrial sponsorship, commercial operations etc.  The reduction and removal of teaching grants and their replacement with higher tuition fees alters the balance between public and private money in favour of the latter.  Under the terms of EU Public Procurement laws, many more UK universities will now be considered private companies as their income streams will in future cross the 50% barrier determining that categorisation.
    For arts, humanities and social science undergraduate degrees all income will be private income from 2012.
  4. Marketisation.  References to privatisation can indicate to the new forms of competition between universities as they compete to recruit applicants and commit more resources accordingly.
  5. Independence.  Often private is used simply to indicate independence from the regulatory framework of publicly supported higher education.  The University of Buckingham is private in this sense – it did not receive public money in grants – but it is constituted as a charity.  A number of reports about universities ‘going private’ refer to stepping out of regulatory burden associated with access to publicly supported loans and grants, rather than becoming potentially profit-making enterprises.
    With the new regulatory framework proposed by the government, these distinctions between independent, private and for-profit become more nuanced.
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