Liner Note 4. Budget Strategies of Enshittification

November 9, 2022, Hyde Park

This is my ISRF Director's Note for November. Higher education's main response to political adversity has been accommodation. My comments on this here are relevant to the U.S. as much as the U.K. situation, including the data on teaching and research losses.

The Democratic and Labour parties regularly hint around about breaking with neoliberal austerity to build an equitable economic order, and then they don't. There are lessons for rebuilding in 2025 as well.  

Let’s say you work for Disney, and you’re part of the group that CEO Bob Iger instructed to “fix streaming.” By “fix” he meant, keep it from losing money in every quarter for a total loss of $4 billion in 2022. Bob offered a public hint about how to do this: “Basically we invested too much.”

You come up with a simple plan:

1. You invest less in new content, avoid challenging and therefore risky content, and cheapen existing content. You fire some people.

2. You raise prices, a lot.

Source: The Honest Broker.

3. You plan how to cut 100% of the loss over 2 to 3 years.

4. You ignore critics who call this an Endgame strategy and post rude charts about paying more to get less while subsidizing your creative decline.

The result is that 1 + 2 = 3. You do enough enshittification of your product and workforce (1) while seriously jacking up prices (2) so that you achieve (3), the actual ending of all your loss-making. The culture gets worse (4), but you achieve your financial goal of revenues equal to or greater than expenditures—about break-even in just two years.

Source:  The Honest Broker.

How does this compare to higher education policy in England and Wales?  

1. You have already been investing less in new content, avoiding challenging and therefore risky content and cutting existing programmes of that type. You have been cheapening existing content with larger classes, narrower module choice, and the like. You have been firing people.

2. You tripled your prices in 2012, but accepted simultaneous cuts in public revenue and the benefits are gone. The Labour party has just granted you a 3.1% fee increase for home students, which will increase their 2025 fees by £285 to £9,535. This will increase your teaching revenues for these students by £390 million per year. (The only other change is a minor increase in the amount students are allowed to borrow for maintenance.)

3. Instead of making up 100% of your loses, you plan to shrink them somewhat.  You lost £1 billion teaching home students in 2021-22, so with the 3.1% increase you can cut that by £390 million, or about one-third? Sadly, no: that inflation adjustment just keeps you from losing an additional £390 million on this year’s teaching . You’re still losing £1 billion pounds a year (more since that 2021-22 figure, and National Insurance rises will take £372 million of that £390 million). Your plan, in effect, is to reduce your home teaching losses by 0 percent!

4. You ignore critics who say your 1 + 2 = 0 as a solution for the university and you don’t address their concerns. You stay caught between the media, which exclaims that the £285 rise after an eight-year freeze “is a further test of students’ faith”, and universities, as when Sussex VC Sasha Roseneil states the fact that “unfortunately neither students nor universities will find adequate solutions in these modest uplifts.” Domestic teaching revenue remains nearly one-fifth below what it was for someone starting university in 2012-13. And the public maintains their perception that higher ed is unable to manage its affairs.

In the Disney case, enshittification makes you solvent, meaning you can theoretically avoid the Endgame strategy. (Ted Gioia, the source of those charts, is pretty sure you won’t, and indeed the logic of shareholder capitalism cuts against mature companies reducing their returns on investment by investing in better product.)

In the British university case, enshittification leaves you in the same hole you were in before.

What would work better? Not turning universities into corporations like Disney, but the opposite.

They should state their actual financial needs as required by their essential public functions, and then set up a plan with government to fix 100% of the shortfall between what the functions cost and what they can raise without further harming their students.

Take this HEPI chart from one of my previous notes.

Figure reproduced from Higher Education Policy Institute.

Home university students need to be taught properly; universities need a further billion pounds a year to do that. Government should supply 100% of that loss with a central grant, booked as an expenditure like schools or NHS.

The Institute for Fiscal Studies reported that “in 2023/24, £1,034 million was allocated to fund the teaching of high-cost courses, including medicine, dentistry and other laboratory-based courses.” This amount needs to be more than doubled, to fund the shortfall on the rest.

Similarly, in 2020-21 research lost nearly £5 billion. Research is a public good and national priority for all political parties. The government should fully fund the indirect costs of research, fixing 100% of that £5 billion loss. The sector could construct a five-year plan to achieve this.

Another chart from the same note:

Figure reproduced from Higher Education Policy Institute.

These shortfalls between student need and student funds are ridiculous. They are not shortfalls in grants but in the right to borrow. Universities should press government relentlessly to fund full maintenance costs, including restored grants for lower-income students.

There’s always great agony about the public supporting students, since as graduates they are cast as an elite. This isn’t true of most graduate salaries, but more importantly it neglects the public benefits, pecuniary but especially non-pecuniary, that all of society reaps from ever-larger numbers of highly educated people.

The standard view also neglects the reality that students are subsidizing the public with their fees. Not yet published calculations by our research partner James Brackley show students paying about five-sixths of the (declining) funding for their instruction.

Figure used with permission from the author.

Government grants covering home student shortfall would go part of the way towards equitable sharing of the costs of benefits that are social as much as they are individual.

Full public funding would make sense to the public if higher education organizations, like Universities UK, tied it directly to better student learning, more and higher quality research results, and better public benefits.

When universities pitch graduate salaries, commercial spin-offs, and other private benefits while ignoring the need for much greater public contributions, it is an Endgame strategy. But it wouldn’t be hard to replace.