This article was written early in 2012, as the Victorian TAFE system reeled under the ongoing impact of the reforms initiated under the Brumby Labor government.  This was written before the massive $300m May 1 budget cuts.  It is an astute and insightful critique of the market model imposed on Victorian TAFE, and currently being anticipated by a number of other state and territory governments.

John Stuart Mill once observed that under conditions of competition standards are set by the morally least reputable agent.  This is the dynamic currently working its way through the Victorian VET system.

After years of struggle the advocates for ‘user choice’ and ‘contestability’ have finally won the day.   The Victorian training entitlement system delivers no preference for public providers, theoretically puts ‘customers’ in the box seat and formally rewards innovative suppliers who respond to market demand.

But as T S Elliot noted in the ‘Hollow Men’

between the conception and the reality

falls the shadow

And in the case of Victoria it is very long and dark shadow between policy and practice.

The system is now industry led – low quality, private training provider industry led.  The shift in VET training dollars is not being determined by employers at enterprise level aggregating demand across production networks to nurture innovative models of workforce development.  Instead, entrepreneurs skilled in manipulating ‘market inspired’ (not market based) public sector funding model are flourishing.  Sure, levels of training have increased.  But this is price driven by entrepreneurs devising prima facie attractive value propositions for poorly informed ‘customers’ ie students.  At a time when sectors with major export growth and deepening skill requirements like engineering and dairy are struggling to find funding support for genuinely employer driven innovations in workforce development, the Victorian government has nurtured a system that is producing an oversupply of fitness instructors.

Of greatest concern is the unravelling of public VET provision.  It has been fashionable for two decades now to write off TAFE as cumbersome and unresponsive.  What has been overlooked by many TAFE critics, however, is that quality, innovative systems of skill formation need an ongoing institution base. Expertise takes times to develop.  The training packages were supposed to provide this base.  But they haven’t.  Instead, they have provided a framework for the development of plethora of qualifications that meet formal compliance requirements but have extraordinarily low levels of substantive recognition amongst employers.  What is an employer in the agricultural sector, for example, to think when his or her sector has over two hundred qualifications at Cert II, III and IV levels alone?  The Victorian system is now entrenching funding for the delivery of such qualifications. More importantly it is undermining, especially in regional areas, the one place many employers relied on for quality technical education.

Of course TAFE has had its problems.  What system doesn’t?  The recent Victorian changes however merely shift and deepen ‘producer’ capture from the public sector to a plethora of private providers dependent on the public purse.  The challenge is to devise reforms that nurture both quality workforce development and responsiveness to changing labour market and social needs.

So what should other State do to avoid capturing the Victorian disease?

Given that many jurisdictions are devising ‘entitlement’ based systems there is a need to ensure design principles are adopted that minimise the risk of the more extreme failures of the Victorian experiment.  First among these are having caps and incentives associated with access to entitlements so that limits are placed on the growth in courses where there is limited labour market demand.  In addition, extra support should be provided to students contemplating taking courses where there is pressing labour market demand.  South Australia’s ‘Skills for all’ system provides examples of how this can be done.

Second, there is a need to upgrade quality requirements amongst training providers.  It is well recognised that current quality control in the VET system is flawed.  The new VET Regulator will make a difference, but it takes years to overcome decades of entrenched tolerance for the ‘anything goes’ philosophy that has prevailed in official VET circles for decades now.  Again, South Australia is providing a lead here.  It is devising additional quality criteria that RTOs must comply with if they are to access ‘Skills for all’ funding.  Only those that comply will get access to student entitlement funds.

Third, there is a need to think carefully about how markets operate when devising such funding models.  The situation in some regions and some sectors is very different to those tacitly informing policy.  We do not live in world of perfect information or in a world where resources can be easily redeployed in response to price signals.  The problem of thin markets – especially in non-metro localities – requires active government intervention to ensure core workforce development and social infrastructure is established and maintained.  This is not an argument for ‘protecting TAFE from the market’ – it’s a matter of maintaining coherent systems of workforce development and social capital.

Finally, there is a need to policy makers to engage with reality.  The Victorian VET reforms constitute the latest instalment of the pursuit of a dream – the dream of creating a dynamic training market.  But to flourish, a market economy doesn’t need a ‘market in the production of qualifications’. It needs responsive institutional forms that engage with rapidly changing risks and opportunities.  There is more to life than choosing between ‘market’ or ‘state’ base solutions.  In the realm of workforce development – as in other domains like health and industrial renewal – the challenge is to nurture dynamic and innovative networks of producers, consumer and public officials.  Respecting market pressure does not mean we have to embrace ‘market models’ in every domain of life.  On the contrary – some of the most successful economies in the world today (eg Singapore, Denmark and Norway)  have promoted dynamic systems of economic and social innovation based on the network principle.  And in the domain of workforce development their guiding principle has been to deepen human capability of their populations – not to offer them ‘user choice’ and ‘contestability’ in a ‘training market.’

As Beveridge noted over century ago: the market is a good servant but a poor master.  It is vital the other states learns from Victoria’s deep VET troubles and reflect on the wisdom of Beveridge’s insight.

-Professor John Buchanan

Director, Workplace Research Centre, University of Sydney, Business School

Professor Buchanan is on the South Australian Training and Skills Commission and the People In Dairy Workforce Development Council.  The views expressed in this piece are his own and not necessarily those of his employer or either of these organisations.