Plan B higher education reform ideas are everywhere at the moment. Higher education consultant and former higher education bureaucrat David Phillips has a proposal for the problem of drop-out rates among lower ATAR students. His idea is that rather than these students being included in the demand driven system, places for them should be allocated to universities with good track records in supporting them.

I agree that we have a problem here, but I don’t think this central planning response is the right one.

A minimum ATAR cut-off was one of the ideas circulating in 2013, and something we considered in the review of the demand driven system. We didn’t go with this idea. One of the reasons was the inherent limitations of what central planners can know. While the non-completion rates of lower-ATAR students are too high, based on the historical evidence 50 to 60 per cent of them do finish their qualifications. ATAR breaks down as a predictive tool because a range of other personal and institutional factors are likely to be the difference between completing and dropping out. The knowledge needed to predict is held largely by the prospective student and the higher education provider. This is far too decentralised for a central planner that has to go with clear rules.

There is also a big problem with the large numbers of students admitted to courses via entrance tests, prior vocational education and other alternative measures. For these applicants, we don’t have the ranking of ability provided by ATAR. The capacity of the central planner to say which of these students should be in the demand driven system and which in the allocated system is even weaker than it is for ATAR.

Even if we could determine a fair and efficient cut-off point, there are still other problems. One of the arguments for the demand driven system is that it allows for experiments, innovation and competition. It lets providers think of and try out new ideas for assisting particular student groups. The central planning model of just rewarding institutions with historic success would kill this dynamism.

The other difficulty is the weakness of the Commonwealth as a central planner, which in turn influences the incentives of any of the players. With the existing sub-bachelor allocated places, the rules for allocation changed regularly before the system was effectively frozen due to Budget constraints. This kind of uncertainty works against investment in the field, because arbitrary actions by government could wipe out the financial gains.

We would have to be wildly optimistic to think governmental processes of the future would be better than in the past. Politics is increasingly dysfunctional and the bureaucracy has been weakened by successive ‘efficiency dividends’ and revolving door senior appointments limiting corporate memory. The beauty of the demand driven system is that that they only have to get the broad policy framework right once, and after that the system can adapt on its own, without relying on government.