By Peter Hodgkinson, London Metropolitan University, U.K.
One cannot help but be struck by the almost daily reminder that the worlds of finance and higher education are actually conjoined (‘Oxford University loses £100m in credit crunch’). Their fates appear to be inextricably linked, and never more so than in the current economic crisis. However, it is not just the suggestion that ex-hedge-fund managers and City market traders are supposedly vying for a place in the Senior Common Room that is currently sending a shiver up and down some academic spines, it is also the reported case of London Metropolitan University (LondonMet) being in debt to the tune of £50m and as a consequence having to lay off 400 staff. This has really concentrated the minds of even the most gilded HE employees. Indeed, it is this, the parlous state of my own institution LondonMet, that is probably the most stark illustration of what happens when the worlds of finance and higher education (HE) appear to run parallel. More significantly still, this case highlights the considerable differences that remain between these worlds in terms of how they are actually treated.
LondonMet, in common with most of the high street banks in 2009, is currently broke. And, as with the banks, no one is taking responsibility for the situation. Neither the senior management, the Regulators – the Higher Education Funding Council for England (HEFCE) or indeed the government appear to be willing to own up to the fact that the institution could soon be the first publicly financed university in the UK to go bust.
Yet, if we look to our counterparts in the financial sector, it becomes quite obvious why we are in the mess we are in. LondonMet is the HE equivalent of the Northern Rock Bank – the first domino in the recent UK banking collapse. In many respects these two institutions have led a parallel existence and their fates appeared, until recently, to eerily coalesce. However, unlike the government’s bail-out of Northern Rock, there appears to be a DNR (Do Not Revive) notice attached to LondonMet. It is therefore important that we turn over the bones and see why, at this point in time, these surrogate twins are being treated so differently.
Of course, with hindsight, we can now see that the business models of both Northern Rock and LondonMet were always destined to end in tears. Northern Rock was an upstart bank that had its origins in the rash of Building Society de-mutualisation (ownership by depositors) in the late 1980s and 1990s. In fact Northern Rock‘s de-mutualisation came about in the halcyon days of New Labour in 1997. In real terms de-mutualisation was little more than de-regulation, albeit dressed up as ‘freeing’ the institution to compete for funds in capital markets or not be ‘tied down’ to its traditional customer deposits. Every building society that de-mutualised after 1986 has now either been taken over by a conventional bank or, as in the case of Northern Rock, recently been part ‘nationalised’. Apart from the ‘carpetbaggers’ who made a quick killing on the stock market in the rush to de-mutualise, no-one appears to have gained by the deregulation of what were once proud and hugely respected civic institutions. Similarly, the formation of the post-1992 ‘new’ universities in the UK also marked the destruction of what were, in most cases, respected civic education institutions – the former Polytechnics. Their re-branding as autonomous universities i.e. independent of local accountability, was also hailed a ‘freeing up’ these institutions. LondonMet was duly constituted by the merger of the former polytechnics of North London and London Guildhall (later Universities) in 2002.
Northern Rock developed a business model that was predicated almost entirely on aggressive growth. Put simply, the bank borrowed money on the markets to fuel its lending. When the credit crunch came along Northern Rock found that it was not able to borrow money: it had a ‘liquidity’ crisis. For example, in the first half of 2007, Northern Rock raised just £1.7bn from depositors and lent £10.7bn. The difference between the income it received and the loans it was continuing to make was made up by borrowing from the capital markets. Therefore, when the credit crunch arrived, the bank couldn’t bridge this gap in its accounts and was unable to continue its business. The sub-prime mortgage scandal in the US had sent shivers through the capital markets and no one was willing to lend to huge borrowers, especially those such as Northern Rock, who were also sitting on the about-to-burst housing bubble.
Meanwhile, back in HE, the newly merged LondonMet was also adopting a ‘business model’ based on aggressive growth – only in student numbers. Fuelled by what appeared to be a government sponsored ‘happy-hour’ policy of extending HE provision to 50% of the eligible population, the ‘production’ of new courses and ‘customers’ was to continue apace. The management of the institution adopted an approach that was described at the time as ‘putting Stalin’s Five-Year Plans to shame’. The suggestion that the university invade Eastern Europe would not have gone amiss in the search for new ‘markets’ and students of every which ilk. However, much of the growth was in fact achieved largely by attempting to erode the staff’s terms and conditions. This culminated in the inevitable industrial dispute over contracts in 2004-5, wherein both management and unions could have come straight out of central casting for a remake of the famous Peter Sellers film ‘I’m Alright Jack’.
It is important to note that the aggressive, growth-at-all-costs approaches of Northern Rock and LondonMet were both legitimated by an appeal to social equality. Just as the parents and partners of the students were being offered loans and mortgages by Northern Rock that they could ill-afford – all in the name of extending home ownership to marginalised groups – their kin were being offered a chance to go to universities such as LondonMet in the name of ‘widening participation’. At the time it was very difficult to argue that this was anything but a ‘good thing’ for all concerned. In fact, we believed that this was part of a package of redistributive policies and no one, not least the academics who had benefitted from the 1970s expansion – ironically, mostly through the Polytechnics – could object to opening the doors of HE even wider. The only real objections came from the middle-classes who found that their newly mortgaged working class neighbours were now squeezing them in competition for houses and places for their kids at university. It was not long therefore before the traditional retail banks and even the ‘elite’ universities wanted some of this widening participation action.
Everyone, it seemed, wanted you to either take out a mortgage from their bank and/or send your son or daughter to their university. And it was this feeding frenzy, of both the major retail banks, especially those who had in fact subsumed the demutualised building societies, and the ‘traditional’ universities who had come both late and screaming to the widening participation party, that added fuel to the crises experienced by both Northern Rock and now LondonMet. Everyone had to ‘up their game’ to attract new customers in this highly competitive market. And in both cases the quality – of the loans with Northern Rock and the ‘student experience’ at LondonMet – began to be degraded.
The regulators, no doubt egged-on by the government’s fixation with deregulation, singularly failed to acknowledge or even understand the crisis they were harbouring in both the financial and HE systems. Just as the Financial Services Authority (FSA) in the UK failed to question the basis of Northern Rock’s accounts and the probity of their business model, the HEFCE has allowed LondonMet to pursue growth at the expense of both student and staff interests. There was from very early days in the LondonMet approach clear evidence that the student experience was far from being comparable to that enjoyed in other universities. The staff at LondonMet also made their views known with regard to the erosion in the standard of the learning and teaching that was taking place as a consequence of this patently unsustainable rate of expansion. However, the nature and quality of the LondonMet senior management and the ineptitude of the HEFCE vouchsafed that nothing much of any note was done to address the issues, especially the rates of student retention and progression. Confidence in the management and the strategic ‘vision’ it promoted had, in any case, all but disappeared in the wake of a damaging industrial dispute in 2005.
It is only in 2007 that the FSA began to get wind of the impending crisis at Northern Rock. And it was only in 2008 that HEFCE sent in the forensic accountants to LondonMet. In both instances we might therefore point the finger at the regulators for allowing these institutions to chart an almost inevitable course to disaster. In the case of the HEFCE, they appear to have continued to fund ‘ghost’ students who had either walked or disappeared from LondonMet long since. This is the equivalent of the bank continuing to offer its mortgage defaulters yet more loans. Even if the market conditions in both housing and HE were entirely unforeseeable, there is perhaps a good case for arguing that the business models of both Northern Rock and LondonMet were, in any circumstances, little short of being criminally negligent – even corrupt. The sub-prime market was predicated on moving the risk on in the form of ever-more complex (and therefore beyond effective regulation) financial instruments. In the case of LondonMet, the opening up of HE to new types of students has led to ever-more complex configurations of fee arrangements, course regulations and notions of achievement and progression. And these appear to have been too difficult for the HEFCE to comprehend or at least accommodate in their traditional, red-brick university conceptions of students and progression. LondonMet was bound to fall foul of models that were designed with quite different students and institutions in mind, let alone financial circumstances. And that indeed appears to be what has happened. Like Northern Rock, LondonMet in the HE sector strayed beyond the boundaries of the traditional ways of ‘doing business’.
For all their similarities, the way in which the two institutions are now being treated also reveals what appears to be their singular difference. Northern Rock was bailed out by the government and eventually nationalised on the pretext that ‘confidence’ in the entire banking system was at stake. The sight of customers queuing to withdraw their funds from a British bank appeared to shock the government into action. Both economically and politically they were not going to allow Northern Rock to be a DNR. Despite the obvious failure and hubris of its management and business model, the reputation of the entire system was considered to be endangered by Northern Rock becoming a basket case. Whereas, in the case of LondonMet, it appears that the whole of the HE system is endangered if it is allowed to survive. That is, the existing hierarchy of HE institutions appears to be best served if this institution is allowed to fail. It could in fact have the same fate and serve the same purpose as the failure of Lehman Brothers in the US. That is, the failure of LondonMet needs to be cast as a ‘little local difficulty’ – and one that is largely the responsibility of an inept senior management rather than the system as a whole. And, by the inevitable derogation of failure downwards and success upwards in such organisations, responsibility for the demise of LondonMet has to be seen to rest with its impoverished staff and students. The message from the HEFCE is therefore quite simple: ‘this is a poorly managed and failing ‘new’ i.e. diverse, university: all you others take note’. It is noticeable how very few, if any, other universities have spoken out about Londonmet’s partial treatment at the hands of the regulators. So much for sector solidarity!
The fact that the staff have kept this institution going, despite the poor management and the largely hostile press it engenders, is little short of a miracle. It speaks volumes of the commitment of my colleagues to the one real mission of the institution – to offer the best educational opportunity we can to whoever comes through the door. Recent Research Assessment Exercise (RAE) results suggest that this is in fact a vibrant and successful ‘multiversity’. However, unlike Northern Rock, LondonMet now finds itself with a ‘liquidity’ problem and with no prospect of a government rescue package (regardless of the outcome of the forthcoming general election). The staff are now of course paying the price – with many being laid off and those of us who remain being required to work even harder in worsening conditions. Meanwhile, those senior executives who have been most culpable continue to draw their salaries, bonuses and pensions. Today, whilst recognising the worlds of banking and HE are no longer radically different given their common, central focus on money, one would still not have expected to see the state bail out a private bank whilst leaving a very large, publicly-funded university to slowly sink into the mire. Our world has indeed turned upside-down!