IN MY OPINION: Institute of Management companion Professor John Quelch, Dean of London Business School, argues that market forces should prevail in higher education

IN MY OPINION: Institute of Management companion Professor John Quelch, Dean of London Business School, argues that market forces should prevail in higher education - British higher education is in a state of crisis. The raw measures of outputs in higher

by PROFESSOR JOHN QUELCH
Last Updated: 31 Aug 2010

British higher education is in a state of crisis. The raw measures of outputs in higher education - students graduated and research papers per thousand pounds invested - suggest a highly productive system. But, as with the National Health Service, the apparent productivity is built on a house of cards of false economies. The system is not merely not world-class; it is losing all chance of being so.

Tuition fees and faculty salaries are standardised at levels that reward the mediocre lecturer while taking advantage of the patriotism and inertia of the excellent - and all in the name of 'access' and 'fairness'.

If the discipline of the market was brought to bear on higher education, there would be a long-overdue and healthy shakeout. Strong institutions would immediately specialise, focus on their strengths and address specific market segments. Weak institutions would be forced out of business.

In the debate on how to unlock the true potential of British higher education, scant attention has been paid to London Business School, ranked by the Financial Times in 2000 and 1999 as the number eight business school in the world and the number one outside the US. For comparison purposes, the second British business school was ranked by the FT at number 35.

Moreover, Oxford University, 25 times older than the London Business School, is ranked no higher than eighth in one world league table of universities.

How has London Business School achieved world-class status?

The School charges market-based tuition fees (at pounds 30,000, the tuition cost for our 21-month MBA is only 10% below Harvard Business School's price). We use these tuition fees to bring our faculty salaries, working conditions and teaching loads as close as possible to the US market. Some 12% of our MBA students receive scholarship support but many more take out loans, knowing that exit salaries will be, on average, 75% higher than they were on entering the programme.

Our leading recruiters - McKinsey, Goldman Sachs, etc - often pay off these loans as part of their efforts to hire the best students.

As a result of letting the world market drive tuition fees and faculty salaries, the School has become the most international institution of higher education in Britain. Last year we lost two faculty to US business schools but hired in 15 from the States. Our professors represent 23 nationalities, and our students come from more than 60 countries. Most of our students stay in Britain after graduation, making London Business School an important magnet for attracting international management talent.

We compete in the global market for our most important assets - our faculty and our students - and do so on a budget that includes only 6% government funding, by far the lowest in British higher education.

By necessity, therefore, we operate London Business School on a tight commercial basis. Instead of Harvard Business School's dollars 1 billion-plus endowment, we work with less than six months' working capital cover.

We have to be more market-responsive as a result. Our executive education business - serving companies like Chase, Hoffman LaRoche, IBM and LVMH - is now the seventh-largest among business schools worldwide. Contacts with senior managers at these companies keep our faculty on the leading edge of practice, and executive education profits fund their research and doctoral students.

London Business School also invests in its own seed capital funds. So far, these have backed 20 alumni-led start-ups. If only two or three of these investments hit it big, this will help London Business School to close the endowment gap on our leading US competitors.

The top US business schools glean 25%-35% of annual revenues from unrestricted alumni donations and cashflows from endowments. At London Business School, the comparable figure is 2%. This is not because our alumni lack generosity.

It is because their average age is low and because, for decades, they have not been properly nurtured. Recently, we have dramatically upgraded our alumni services and lifelong learning initiatives, but this investment will take some years to pay off.

What the London Business School story shows is how a young academic institution can achieve a world-class reputation at less cost to the taxpayer if liberated from the constraints of standardised, state-controlled tuition fees and salaries. And despite - indeed because of - our need for tight budgetary control, commercial discipline and market responsiveness, our faculty are world leaders in management thinking. Our reputation for high standards of management scholarship is unrivalled in Europe.

Of course, the School is a specialised postgraduate institution; it is not an 'all things to all people' undergraduate university. But there are lessons in our story. I have no doubt that, if Oxford and Cambridge charged market-based tuition fees, accompanied by loan programmes and scholarships, the quality and commitment of students and faculty, the level of alumni support and, indeed, access for able, disadvantaged undergraduates would rise, not fall. Which vice-chancellors will have the courage and tenacity to implement a radical break with the unsustainable status quo?

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