Market reform in the Australian vocational education and training sector Damon Anderson Centre for the Economics of Education and Training, Monash University-Australian Council for Educational Research Paper presented to Educational Research: Building New Partnerships Conference jointly organised by Education Research Association, Singapore and Australian Association for Research in Education Singapore Polytechnic, Singapore 25-29 November 1996 Market reform in the Australian vocational education and training sector by Damon Anderson Centre for the Economics of Education and Training Monash University-ACER. Introduction In the wake of the Deveson Review (1990) which advocated increased commercialisation and deregulation of the national vocational education and training (VET) system in Australia, Commonwealth, State and Territory governments endorsed the concept of an open training market at a Special Ministerial Conference in late 1990. Announcing the decision to the media, the then Federal Minister for Employment, Education and Training, John Dawkins was reported to have said that the training ministers had decided to: ... establish an open training market, with appropriate safeguards on quality and access, so that industry, private and public providers are able to gain use of each other's resources and expertise. The public training system needs to both compete and cooperate with industry training and private providers. TAFE must lose its monopoly position in respect of many aspects of training (eg. apprenticeships). (Milne 1990, p.1) In April 1992, the Ministers for Vocational Education, Employment and Training (MOVEET) collectively decided to implement the open training market concept as part of a national plan for the coordinated reform of the VET sector. The decision to establish an open training market represents an important milestone in the development of the national training reform agenda, the principal stated aims of which are to improve the quality, diversity and flexibility of vocational education and training (VET) provision and to establish a more integrated and effective national system for skills formation in Australia. In conjunction with other key national reforms, the open training market concept constitutes a comprehensive framework for reshaping the structure, composition and balance of the VET system, with respect to the public and private training sectors, and for redefining the roles of and relationships between public and private providers in Australia. In particular, with the advent of the open training market concept, private providers have been assigned the hitherto unprecedented status of 'equal players' with publicly funded Technical and Further Education (TAFE) colleges in the national VET system. In spite of the scale and significance of the training market reforms, there has been insufficient analysis of their impact to date on the national VET system. Furthermore, although governments have placed much greater emphasis on the role of private providers and their contribution to the process of national skills formation, relatively little is known about the size, structure and composition of the private training sector, or its relationship to the public TAFE sector (Anderson 1994, 1995). The purpose of this paper is to examine changes in the structure, size, composition and balance of the VET system in Australia in the wake of the training market reforms, with special reference to private providers. The paper argues that, by reconstructing the regulatory and financial basis of the VET system, the training market reforms have created the conditions for private sector growth and are facilitating a rapid transition from a peripheral to a parallel private training sector within the context of a unified national VET system. Geiger's typology of private sectors in education In a comparative study of higher education (HE) in eight countries, Geiger (1986) developed a threefold typology to describe the basic structural configurations of private, vis a vis public, sectors. In essence, Geiger argued that private HE sectors could take one of the following three forms: mass, parallel or peripheral: Where public higher education is restricted in size and somewhat selective in intake, private sectors become the agency for meeting the general social demand for higher education. The result is 'mass private sectors' that usually contain the majority of a country's enrolments. Where public and private institutions have equivalent status and functions, the two sectors may be said to be 'parallel'. And, where government chooses to have the public sector dominate the principal tasks of higher education, private institutions are left with only 'peripheral' roles to fulfil. (p.2) According to Geiger, 'the scope of peripheral private sectors is largely determined by the extent of the ... terrain occupied by dominant public sectors' (1986, p.107). When governments define educational functions in an inclusive manner as a public responsibility, 'private sectors are relegated to those tasks that are neglected by the state (and) are forced to operate ... around the periphery of the state system of higher education' (Geiger 1986, p.107). One of the defining characteristics of a mass public/peripheral private sectoral structure is a tendency on the part of private providers towards market segmentation rather than open competition with the dominant public sector. In the face of a mass public HE sector, as exists in Australia, 'private schools tend to develop a special niche for themselves where they are shielded from direct competition with the publicly financed sector' (Geiger 1986, p.158). Geiger's typology is best viewed as a continuum with peripheral private sectors at one pole and mass private sectors at the other. Private sectors may fall into any one of Geiger's three categories at any given time, and are capable of moving along the continuum in response to external factors. According to Geiger, governments can either encourage or hinder the emergence of parallel private sectors by exercising their substantial legislative, regulatory and financial powers. The first two preconditions for initiating a transition from a peripheral to a parallel private sector are 'the legal right to establish private schools and the establishment of officially equal national degrees' (Geiger 1986, p.75). Where public education has been fully subsidised by the State, a further precondition for the emergence and survival of a parallel private sector is relative fiscal equalisation. Specifically, 'the state must provide most of the financial resources if independently controlled institutions are to be able to educate their students virtually without charge' (Geiger 1986, p.75-6). In effect, therefore, for a private education sector to undergo a peripheral-to-parallel transition, not only must the legal status of public and private institutions be equalised and their respective qualifications accorded the same recognition, but also any significant differences between the financial conditions under which they operate must be eliminated or minimised. The dual VET system in Australia Up until the establishment of the open training market, the formal VET system in Australia was characterised by public provision, funding and regulation. The core of this system comprised state-based networks of government-owned, maintained and controlled TAFE colleges. As Goozee (1993) observes, the remarkable growth and expansion of the TAFE system over the past two decades is directly attributable to the unprecedented injection of Commonwealth funding for capital and recurrent programs, indirect subsidisation via student financial assistance schemes (eg. Tertiary Education Assistance Scheme), and the introduction of the legislative embargo on tuition fees in TAFE following the Kangan Report (ACOTAFE 1974). The TAFE system has since enjoyed sole access to government funding for VET programs, and almost exclusive control of publicly recognised vocational qualifications. Coexisting with, but operating in almost total isolation from, the mass public TAFE sector was a non-TAFE sector which comprised a mix of private industry, enterprise and commercial providers of training, and a large informal sector of publicly funded adult and community education (ACE) providers.1 In a highly segmented training system, private providers were confined to marginal areas of training provision, and denied any formal recognition for their activities. Lines of demarcation were clearly drawn between the public and private VET sectors, and non-government providers were prohibited from trespassing on TAFE college territory. Apart from a few isolated exceptions, TAFE colleges enjoyed exclusive rights to offer apprenticeship training which effectively cemented their position as the dominant institutional providers of off-the-job trade and technical training for industry. Although private training institutions have performed a historically important role in the provision of certain forms of vocational education and training, they have been generally ignored, although tolerated, by government. Apart from the latter half of the 1970s when private not-for-profit business colleges received government subsidies to compensate for financial losses arising from the Commonwealth embargo on tertiary fees, private VET institutions have been independently financed and administered (CTEC 1978). Unlike the secondary school system where public and private schools have shared access to a common public award system and government funding for many years, the post-school VET system has been characterised by a strict separation between public and private providers with respect to curriculum, administration, jurisdiction and finance (Sweet 1990). The extent to which private VET providers in Australia constituted an identifiable 'sector' like their secondary school counterparts is difficult to determine in the absence of any historical data on non-government provision in the post-school sector. The few available sources suggest that, apart from some notable exceptions, private providers have generally had a sporadic and fluctuating existence. Certainly, the provision of on-the-job and in-house training by industry and enterprise-based providers has been a widespread, though poorly documented, phenomenon. However, unlike off-the-job training provided by private institutions, this form of private sector training has been organisationally distinct from, and largely complementary to, the provision of off-the-job training in the public TAFE sector, particularly under the apprenticeship system. Furthermore, due to the lack of a sufficiently cohesive sectoral identity or recognised role in the overall framework of public policy, private providers have tended to operate as a fragmented and uncoordinated group of mutually independent organisations. At best, therefore, non-government providers of VET have in the past constituted what Geiger refers to as a peripheral private sector operating autonomously on the margins of the mass public TAFE sector (Geiger 1986). Quantifying the size and extent of the peripheral private training sector is problematic due to the longstanding dearth of data on private providers in Australia. In a comparative study of VET sectors in six developed countries conducted in 1987, at which time the training market reforms in Australia had not commenced, Cantor observed that: Alongside the public sector of technical education in Australia there exists a relatively small and ... largely undocumented, private sector. The most numerous institutions in this sector appear to be commercial, business and secretarial colleges ... It also appears that specialist private training agencies and institutions, in areas other than business, are increasingly being called upon by industry to supply training programs. (1987, p.62) Cantor's observations were necessarily limited as accurate statistical information about the private VET sector in Australia was 'almost impossible to obtain' (1987, p.82). Up until the end of the 1980s, therefore, a dual system of post-school vocational education and training existed in Australia, comprising a mass public sector and peripheral private sector. The most striking features of this system were the complete separation of public and private providers in terms of access to government resources, course recognition and student certification, the almost total dominance of the mass public TAFE sector, and the virtual invisibility of the peripheral private VET sector, at least in terms of public policy. From an economic perspective, the TAFE system has enjoyed an effective monopoly over public funding for, and recognition of, VET provision, although it has been subject to much higher levels of government regulation than its private sector counterpart. Apart from the relatively small commercial arms of TAFE colleges which have for many years offered short non-accredited courses to private clients on a fee-for-service basis, TAFE colleges and other publicly-funded VET providers such as providers of adult and community education have operated almost exclusively under non-market conditions. Conversely, private providers have managed to survive on the fringes of the mass government-maintained TAFE sector relatively unconstrained by government regulation and operating under genuine free market conditions. Training market reforms The drift towards a market-based approach to training provision is evident in the policy directions and initiatives adopted by Commonwealth and State governments since the inception of the training reform agenda at the close of the 1980s. In essence, these reforms aimed to commercialise TAFE, legitimise private providers as 'equal players', and promote more intersectoral (and intrasectoral) competition between public and private providers. Initially these strategies were adopted in order to advance certain key objectives underlying the training reform agenda, such as increasing the efficiency and effectiveness of the public training system, improving the quality and diversity of training providers, and enhancing flexibility and responsiveness to industry needs and national economic priorities. Over time, however, these disparate initiatives cohered into a more systematic strategy to develop a market-based approach to VET provision (Anderson 1994). A brief chronology of key training market reforms and related government reports and policy statements is contained in Figure 1 (see Appendix). Arguably the most significant of these training market reforms is the creation of the National Framework for the Recognition of Training (NFROT) which constitutes a regulatory mechanism by which private providers and their courses can be respectively registered and accredited by public authorities. Combined with the introduction of national industry-determined competency standards as the common reference point for course development and accreditation in both the public TAFE and non-TAFE sectors, NFROT removes longstanding barriers to market access for non-TAFE providers including industry, enterprise, commercial and ACE providers. In the 1994 Annual National Report for the Australian VET system, ANTA stated that the aims of developing an open training market are to: remove the monopoly of TAFE to award qualifications; ensure that the TAFE system is able to negotiate freely with industries, enterprises and individuals to provide training services and to charge for them; find appropriate ways for government to fund industry and other private training providers to undertake some aspects of training so that all government funding does not have to be allocated to TAFE; and encourage industries to spend more on training. (ANTA 1995, p.10) ANTA identified a number of strategies which had been implemented and piloted throughout the system to enhance the development of an open training market including competitive tendering, preferred supplier arrangements2, cooperative ventures and 'user choice'3. It reported that $12 million were made available during 1994 for open tendering activities, and foreshadowed a substantial increase in 1995. These funds were part of the $720 million in growth funds set aside for the VET sector under the Federal Government's One Nation initiative (Keating 1992). In broad terms, the recent training market reforms undertaken by Commonwealth, state and territory governments have largely satisfied all three pre-conditions for the transition from a peripheral to a parallel private VET sector, as defined in Geiger's typology (1986). Although subject to different bodies of law (depending on whether they are incorporated bodies, not-for-profit organisations or otherwise), TAFE colleges and registered non-TAFE providers are now covered by acts of parliament governing VET which are relatively standard across the different state jurisdictions. Differences remain in that public TAFE colleges are still required to fulfil community service obligations and satisfy more stringent accountability requirements with respect to their recurrently funded course provision. However, recent moves at a national and state level to contract out a growing proportion of publicly funded VET programs under identical terms and conditions to public and private providers mean that, to all intents and purposes, the remaining disparities in legal status are relatively insignificant. The foreshadowed national competition reforms arising from the Hilmer Report (1993) are likely to further standardise the legal conditions under which public and private VET providers operate. Secondly, public recognition of private sector courses under the National Framework for the Recognition for Training (NFROT), together with the national standardisation of VET qualifications under the Australian Qualifications Framework (AQF), has equalised the official status of public and private sector qualifications. As ANTA has stated, 'the development of national frameworks for the recognition of training providers and their courses has improved the process of making industry and private providers part of the vocational education and training system' (ANTA 1995, p.10). Although disparities may exist in the level of esteem attached by industry and the wider community to public and private qualifications, reforms to credit transfer and course articulation arrangements are progressively eliminating any formal differences. Thirdly, major steps have been taken in the direction of equalising the financial conditions under which public and private providers operate, although significant differences persist. Two of the most important changes to date are the removal of the Commonwealth legislative embargo on fee charging in TAFE in 1991 - which has since resulted in steady fee increases in TAFE across Australia - and the extension of eligibility for Austudy benefits from 1993 to private students enrolled in publicly recognised courses. Both these changes have reduced the cost differential for students attending public and private training providers, although tuition fees remain considerably higher in the private sector. With respect to direct government subsidies, the increasing use of competitive tendering in government resource allocation processes is progressively leveling the playing field in relation to program revenue bases in the public and private sectors. At this stage, the use of competitive tendering has been confined to Commonwealth funds for labour market programs, the Australian Traineeship System and some other national programs, and to a proportion of the ANTA growth funds administered by state governments. The introduction of new market mechanisms for resource allocation, such as the de facto voucher scheme proposed for apprenticeships/traineeships under the 'user choice' system of training provision, promises to further standardise the financial conditions under which public and private providers operate. Such approaches, if comprehensively implemented, would leave direct Commonwealth and state grants for TAFE infrastructure (staff, capital and equipment) as the only significant impediment to competitive neutrality between public and private providers.4 In summary, the training market reforms introduced by Commonwealth, state and territory governments over the past few years have to a large extent equalised the legal, regulatory and financial status of public and private training providers. Theoretically, the foundations have been laid for the private training sector in Australia to undergo a peripheral-to-parallel transition. The following section of this paper will examine the extent to which this process has occurred by analysing the changing structure, size, composition and balance of the public and private training sectors. Impact of the training market reforms The lack of historical and contemporary data on the structure, composition and balance of the training system in Australia poses considerable difficulties in assessing the precise nature of the impact of the market reforms (Anderson 1994). Moreover, the fluidity of the policy environment and the differential nature of policy settings between and within the federal and State spheres of influence add a further layer of complexity to the overall picture. Nevertheless, it is possible to arrive at some broad and tentative conclusions about the nature, scope and dimensions of change in the national VET system on the basis of recent research on the training market and data on TAFE and registered private providers, albeit limited. Market structure and organisation Under the former dual sector structure, there existed a relatively simple and direct correspondence between public provision and non-market forms of production on the one hand, and private provision and market forms of production on the other. Recent reforms, however, have broken the twin nexus between public/market and private/non-market forms of production by shifting the axes between government finance and regulation. In terms of financial arrangements, private providers now enjoy access to public recognition and funds via indirect student subsidies and, increasingly, direct program subsidies. With respect to regulatory arrangements, public TAFE providers are now able to deliver training on a fully commercial basis with limited government scrutiny, while private providers can secure public recognition (and hence access to public funds) on the condition that they meet minimum standards in relation to quality, access, financial accountability and other matters. As a result, the VET system in Australia is now characterised by a complex mixture of market and non-market forms of production which transect the formerly dichotomous public and private spheres of provision. The differential application of new forms of market financing and government regulation has produced a training market comprised of three main segments which are distinct in terms of structure, organisation and operation: the regulated or closed market sector; the partially regulated or quasi-market sector, and the deregulated or open market sector (Anderson 1994). The structure, composition and balance of each market segment is the product of the different types of financial and regulatory mechanisms in operation. Only the latter sector conforms broadly to the concept of a free market in educational services based on direct competition between a range of suppliers operating under equal financial and regulatory conditions. The first two sectors are characterised by higher levels (though different types and degrees) of government planning, resource allocation and regulation. As a result, the nature of the relationship between the public and private sectors varies considerably, depending on which segment is in question, as does the type and level of intersectoral and intrasectoral competition. The regulated or closed market sector The regulated or closed market sector, which existed prior to the training market reforms, is dominated by the mass public TAFE sector and includes the bulk of recurrently funded program activity. Direct competition between public and private providers for clients and resources is non-existent as access to this market sector is confined to TAFE colleges who enjoy almost exclusive access to public VET funds administered by State Governments for the recurrent delivery of accredited VET programs (including off-the-job components of apprenticeship programs). However, there is a degree of indirect competition between TAFE colleges for resources allocated through government planning processes and for clients as funding is now allocated on a student contact hour basis. Demand is rationed by government policy and consumers are subsidised by government although the introduction of tuition fees has reduced the relative level of government subsidisation in recent times. The size of this market sector has been steadily reduced over the past decade by the Commonwealth Government's progressive introduction of competitive tendering for program funds under its control. In 1986 it decided to allow private providers to tender for public funds to deliver off-the-job training for the Australian Traineeship System, and in 1988 it began to allocate funds for Commonwealth labour market programs by competitive tender. The effect of the Commonwealth Government's decisions to open up public VET funds to private providers in this manner has been to extract a major segment from the regulated or closed market sector, and thereby to create a new partially regulated or quasi-market sector. The partially regulated or quasi-market sector The partially regulated or quasi-market sector has only recently emerged as a distinct market sector due to the introduction of new forms of government resource allocation (eg. competitive tendering, preferred supplier arrangements and cooperative ventures). At present, this sector primarily encompasses labour market programs (LMPs) administered by the Commonwealth Department of Employment, Education and Training (DEET) and the Australian Traineeship System, funding for which is now allocated by competitive tender to a mix of public and private (including ACE) providers. It is defined as a quasi-market sector because government has attempted to simulate the action and effects of market forces on training supply by allocating program funds on a competitive basis but within a public sector management and accountability framework. As is the case in the regulated/closed market sector, demand is effectively rationed by government policy and course participants are subsidised by government. In effect, market-like forms of financing have been fused with non-market forms of regulation. Although market conditions are simulated through mechanisms such as competitive tendering, government remains the direct purchaser of training programs and services on behalf of students/trainees. As government continues to act as an intermediary, there is no direct commercial relationship between the suppliers and actual consumers of VET programs and services as would apply in a genuine free market environment. Moreover, government continues to regulate market conditions through price setting and quality control mechanisms administered by Commonwealth and state training authorities. Market access is restricted to public and registered private providers, and government resources are allocated either through an open tendering approach to stimulate intersectoral and intrasectoral competition among public and private providers, or alternatively through a 'quarantined approach' in which funds are set aside for public and/or private providers to engage in intrasectoral competition for government training contracts.5 Since 1994, the use of competitive tenders and funding submissions from private providers for a rapidly growing proportion of ANTA growth funds administered by States and Territories represents further expansion of the partially regulated/quasi-market sector. In 1995, for instance, the State Government in Victoria allocated $7.5 million to registered private providers for the delivery of accredited training programs, an increase from around $4 million in 1994 and $2.2 million in 1993. In effect, the allocation of government funds to private providers in Victoria has increased by around 340 per cent over a three year period. In Western Australia, $2.8 million were allocated to private providers in 1994 which rose to an estimated $7.6 million in 1995, or an increase of 271 per cent over two years. Although these are relatively small amounts when compared to total recurrent expenditure on TAFE, which amounted to $550.4 million in Victoria and $265 million in Western Australia in 1994, the rate of increase is significant. At this stage, however, the introduction of contestable funding arrangements for VET program delivery has been confined to ANTA growth funds. To date, none of the states or territories have contracted out any component of training delivery currently provided by TAFE colleges and the level of base funding for public providers has not been reduced (WADOT 1995). ANTA has foreshadowed a significant increase in the proportion of growth funds allocated through competitive processes (ANTA 1994b; WADOT 1995). ANTA has also devised a 'user choice' system which would effectively transfer control over funding for off-the-job components of apprenticeship/traineeship courses from state training authorities to employers and employees using a simulated or de facto voucher-based model of program resource allocation 6. User choice was initially implemented on a pilot basis in 1995/96 and will be fully operational in 1998. The extension of the principles of user choice across all recurrently-funded provision would signal the effective end of the closed market sector and a significant expansion of the partially regulated or quasi-market sector. The deregulated or open market sector The deregulated or open market sector, which includes the commercial provision of training for full fee-paying clients such as industry/enterprises and overseas students, is the sector which conforms most closely with the conventional economic definition of a free market operating under laissez faire conditions. This market sector is characterised by an absence of government regulation and the free flow of market forces. Providers do not receive any form of government subsidy and consumers are self-financed. Supply is driven by demand, rather than by the planned or managed allocation of government resources, and goods are purchased directly by consumers (individuals and industry/enterprises). As a result, it is the market sector in which there is direct and vigorous intersectoral and intrasectoral competition among public and private training providers for clients and resources. The deregulated/open market sector has undergone considerable expansion in recent times through the deregulation of export education in 1986 and the introduction of the now defunct Training Guarantee Levy in 1989. Both these Federal Government policy initiatives created new market segments and expanded the pool of capital available for commercial training activities. Up until these government initiatives, however, this market sector was largely the domain of private providers, with TAFE colleges involved only on a limited basis through their commercial fee-for-service activities. However, in response to the decreasing size of the regulated/closed market sector, ongoing budgetary restraint in a context of rising demand, and a consequent need to augment their recurrent income, TAFE colleges are now actively seeking new client groups and financial sources in the deregulated/open market sector. In summary, the recent introduction of various forms of market financing and regulation by Commonwealth, state and territory governments has created a new tri-sectoral training market comprised of: a fully regulated or closed market sector in which access to recurrent program funds and capital grants remains restricted to TAFE colleges; a partially regulated or quasi-market sector in which Commonwealth funds for the delivery of training under the Australian Traineeship System, labour market programs, other nationally-funded programs and an increasing proportion of ANTA growth funds administered by State and Territory governments are open to competition between public and private providers; and a deregulated or open market sector in which private, and increasingly public, providers engage in direct competition for clients and resources (Anderson 1994). Sectoral structure Reflecting the recent changes in market structure and organisation, however, the former dual sector structure of public and private providers has now been replaced by a tri-sectoral arrangement comprising a regulated public TAFE sector, a new partially regulated private sector and an unregulated private sector (Anderson 1994, 1995). Regulated public sector Although the regulated public TAFE sector remains the largest of the three sectors, TAFE colleges are increasingly drawing on private sources of finance (student fees and industry contracts), exposed to competition in certain segments of the market, and subject to less comprehensive regimes of government regulation and bureaucratic control. The survival of this sector is contingent on the maintenance of a closed market sector and its size is directly linked to the extent to which access to government funds for recurrent program provision and capital infrastructure is restricted to public TAFE providers. However, due to the combined effects of government policy, public TAFE colleges are now also competing for funds in the new quasi-market and open market sectors. Partially regulated private sector The second sector comprises a new and expanding partially regulated private or non-TAFE sector which is increasingly reliant on public funds and subject to higher levels of public scrutiny and accountability than was the former peripheral private sector. This sector is a product of the new forms of market financing and regulation introduced by Commonwealth and state governments. It is a partially regulated private sector in that providers operate in both the partially regulated/quasi-market and deregulated/open market sectors. Although registered private providers increasingly enjoy access to government program funds via competitive tendering processes, the extent of their access remains heavily restricted and dependent on government policy. Unregulated private sector The third unregulated sector of private or non-TAFE providers comprises the bulk of the former peripheral private sector and continues to operate independently of government finance and regulatory controls. In effect, while recent government reforms have created the conditions for the formation of a new category of private providers which is partially regulated and reliant on government funds, the voluntary nature of government registration under NFROT has allowed a second tier of unregistered private providers to continue functioning entirely outside the new framework of government financing and regulation in the quasi-market sector. Sectoral size Due to the lack of data about post-school VET provision in both the public and private sectors, it is difficult to estimate the comparative size of the three provider sectors. It is clear, however that since the implementation of NFROT, there has been a rapid proliferation in the number and type of authorised non-TAFE providers of publicly recognised vocational qualifications. According to the Allen Consulting Group (ACG 1994b), there were 1209 registered non-TAFE providers in Australia as at September 1994. Given that there were only 309 non-TAFE providers registered nationally in September 1992, which increased to 782 by October 1993 (Anderson 1994), the size of the non-TAFE sector has increased almost threefold in the two year period since the implementation of NFROT. Available data also suggest that the number of recognised private providers which comprise the new partially regulated private sector represents only the tip of the iceberg. For instance in its 1993 pilot survey of commercial providers, the ABS found that only 39 per cent of 170 provider respondents were registered with a State government training recognition authority (1994a). Moreover, only 25 per cent of commercial training providers had had their courses accredited with the relevant state accreditation authority which suggests that three quarters of the total course provision in the private training sector continued to be delivered outside the partially regulated or quasi-market sector constructed by governments. In spite of government efforts to incorporate private providers in the national VET system, therefore, the unregulated private sector remains substantially larger than the regulated private sector. The extent to which the increase in the number of recognised non-TAFE providers reflects actual growth in the total size of the private training sector is impossible to determine in the absence of any base line data on private provision prior to the training market reforms. The increase in the number of government registered non-TAFE providers may simply reflect decisions by established non-TAFE providers to move into the new quasi-market sector. In other words, the training market reforms may not have stimulated any real growth in the level of private provision per se, but rather just a re-organisation of existing private providers into the quasi and open market sectors. Data from the 1995 ABS survey of commercial training providers provides some indication of growth in the private training sector. The ABS found that almost 60 per cent of commercial training providers (64 per cent of 'primarily training providers' and 55 per cent of 'other training providers'7) had been operating since 1987, around which time the training market reforms commenced. Even more significant is the finding that 37 per cent of all commercial training providers (39 per cent of primarily training providers and 35 per cent of other training providers) commenced business after 1990 when the Training Guarantee levy came into full effect and competitive funding for training delivery under government LMPs increased significantly. Whether these trends were the result of growing demand for VET programs and services in the wake of training market reforms or simply a reflection of the fluctuating nature of private sector involvement in training is difficult to assess - and will remain so until better time series data is available on the private training sector 8. Table 1: Private training providers by period operating in training market, 1994 Period started operatingPrimarily training Other training Total provider (%) provider (%) Before 1987 35.8 45.5 41.1 During period 1987 to 1989 25.2 19.5 22.1 During period 1990 to 1992 28.1 21.8 24.7 After 1992 10.9 13.2 12.1 Total 100 100 100 Source: ABS (1996) Commercial training providers Australia, 1994 Catalogue No. 6352.0, AGPS, Canberra. The expansion of the national VET system arising from the dramatic increase in the number of small recognised non-TAFE providers has been accompanied by numerical contraction in the public TAFE sector as a result of corporate restructuring. College amalgamations in the Victorian TAFE sector, for instance, have led to a 15 per cent reduction in the number of TAFE colleges from 34 in 1990 to 29 in 1994. Although the total number of campuses comprising the public TAFE sector increased during the same period, most of the smaller mono-purpose TAFE colleges were closed reflecting the trend in the public TAFE sector towards large multi-campus development. In effect, government reforms have on the one hand expanded and diversified the composition of the national VET system by recognising small non-TAFE providers, and on the other reduced the total number of public TAFE providers by creating larger multi-campus institutions. In terms of total provider numbers, the private training sector in Australia is substantially larger than the public TAFE sector. Available data shows that there were 1,045 public TAFE providers (NCVER 1995), and around 3,100 non-TAFE providers across Australia in 1994 (ABS, 1996). The latter group comprised 1,891 unregistered providers and 1,209 registered providers. The ABS survey (1996) suggests that of the 1,209 registered private providers, 1,000 were offering publicly accredited courses in the quasi and/or open market sectors. In effect, the ratio of regulated public (TAFE) providers (1,045): partially regulated private (non-TAFE) providers (1209): unregulated private (non-TAFE) providers (1,891) was roughly 1:1:2. Further, this suggests that in terms of supplier numbers in each market sector, there were: 1,045 public TAFE providers operating in the closed market sector; 2,254 recognised (TAFE and non-TAFE) providers in the quasi-market sector (of whom an estimated 2,045 were active in 1994); and 4,145 providers (TAFE, registered non-TAFE, unregistered non-TAFE) in the open market sector. These figures suggest that in 1994 the comparative ratio of training suppliers in the closed:quasi:open market sectors was roughly 1:2:4. Table 2: Provider numbers by sector, 1994 Provider sectorRegulated public Partially regulated Unregulated private sector private sector sector Numbers 1045 1209 1891 Ratio 1 1 2 Sources: ABS (1996), ACG (1994b) Comparing raw numbers of providers and courses is an inadequate basis for assessing the relative size and significance of the TAFE and non-TAFE training sectors. In terms of participant numbers, the 1993 ABS survey of commercial providers shows that most are relatively small training organisations. Forty per cent reported training fewer than 100 course participants and only 21 per cent trained 500 or more course participants in 1993. As previous research has revealed, not only are TAFE colleges much larger and more educationally diverse institutions than private and public non-TAFE providers, but institutional and course numbers give no indication of the relative number of student enrolments in each sector (Anderson 1994). Nevertheless it is clear that the training market reforms have generated significant change in the size and composition of the national VET system in a relatively short period of time. Recognised non-TAFE providers outnumber TAFE colleges by almost two to one and they are increasingly competing with TAFE providers for government funds in the quasi-market sector and privately financed clients in the open market sector. Composition of the private training sector Data on the composition of the partially regulated private or non-TAFE sector is limited. Available data shows that the introduction of NFROT has not only increased the number but also diversified the type of publicly recognised providers of vocational qualifications. Nationally, industry providers accounted for 16 per cent of all registered non-TAFE providers in 1994, enterprise providers accounted for 18 per cent, commercial providers accounted for 37 per cent, community providers accounted for 24 per cent, and other providers (eg. secondary schools) accounted for 6 per cent (ACG 1994b). As reflected in Table 3 which shows registered non-TAFE providers in Victoria as at June 1995, commercial providers accounted for 21 per cent, industry providers accounted for 18 per cent, enterprise providers accounted for 16 per cent, community-based providers accounted for 32 per cent, and private and state secondary colleges accounted for 14 per cent. Excluding community providers who are not-for-profit organisations, at least one third and up to two thirds of all registered non-TAFE providers in Australia are for-profit providers of training programs and services. Table 3: Registered non-TAFE providers, Victoria, June 1995 Provider Category Number (%) Commercial 93 (21%) Industry 79 (18%) Enterprise 72 (16%) Community 144 (32%) Adult & Further Education (70) Skillshare (40) ACFE & Skillshare (7) Other (27) Private Secondary College (PSC) 21 (5%) State Secondary College (SSC) 41 (9%) Total 450 (100%) Source: OTFE (1995) State Register of Private Providers of Vocational Education and Training, June. It should be noted however that the NFROT definition of 'private provider' includes not only non-TAFE providers which belong to the private sector (eg. business colleges, industry skill centres, in-house trainers, and training consultants), but also non-TAFE providers which technically reside in the public sector (eg. providers of adult and community education, Skillshare agencies and state secondary schools)9. In Victoria, for instance, public non-TAFE providers accounted for about 52 per cent of the 450 registered private providers in June 1995, whereas private non-TAFE providers accounted for only 42 per cent. In this respect, therefore, aggregate data on private provider registration masks, and indeed overstates, the real extent to which the training market reforms have altered the composition of the national VET system. Table 4: Private Provider Courses by Industry, Victoria, June 1995 Source: OTFE (1995) State Register of Private Providers of Vocational Education and Training, June. Key: IND = industry provider; ENT = enterprise provider; CBP = community-based provider; COM = commercial provider; PSC = private secondary college; SSC = state secondary college. As reflected in Table 4, although recognised training in the non-TAFE sector spanned a diverse range of industries and occupations in Victoria in 1995, 76 per cent of the recognised courses which non-TAFE providers were accredited to deliver involved training for the services sector. The most common areas of recognised course provision in the non-TAFE sector were: business services (31.3 per cent); general studies (14.0 per cent); social and community services (SACS) (7.8 per cent); tourism and hospitality (6.4 per cent); and wholesale, retail and personal services (WRAPS) (6.0 per cent). The heavy concentration of registered non-TAFE providers on services sector training is indicative of the course profile in the wider non-TAFE sector. The ABS survey (1994a) of commercial training providers ( in which 69 per cent of the sample population comprised unregistered private providers) found that training courses were most frequently offered in management and administration, (31 per cent), supervision (23 per cent), general computing skills (21 per cent), technical and para-professional courses (18 per cent), and sales and personal services (18 per cent). Commercial and community-based providers, which collectively accounted for 53 per cent of all registered non-TAFE providers in Victoria, provided 74 per cent of all recognised non-TAFE courses leading to occupations in the services sector. Sixty nine per cent of recognised non-TAFE courses leading to occupations in the primary (agriculture/horticulture) and secondary (manufacturing) industries were offered by industry and enterprise-based providers, which collectively accounted for only 34 per cent of all registered non-TAFE providers in Victoria. Therefore, although the non-TAFE sector remains heavily segmented in terms of provider type and area of study, as a whole it comprises a heterogeneous range of providers offering recognised training for an equally broad range of industries and occupations. Balance of public and private training provision Some indication of recent change in sectoral balance in the quasi-market sector can be gleaned from published data, albeit limited, which reflects market shares by sector since 1988/89 with respect to Jobtrain, until recently the major Commonwealth labour market training program (LMP) for the long term unemployed. Although data on Jobtrain allocations are sketchy and reflect conditions in only one segment of the partially regulated quasi-market sector, they nevertheless shed light on the impact of training market reforms, specifically the effects of competitive tendering on the balance of provision between the public and private training sectors. As reflected in Table 5, in the period between 1988/89 and 1993/94, the relative market positions of TAFE colleges and private (including community-based) providers altered dramatically, with TAFE's market share declining in inverse proportion to that of private (non-TAFE) providers. In 1988/89, the ratio of Jobtrain allocations to the TAFE and private (non-TAFE) sectors was 70:30. By 1993/94, however, the relative market shares had almost reversed with the ratio becoming 35:65. Moreover, in the six year period between 1988/89 and 1993/94 when total Jobtrain funding allocations increased by around 24 per cent, the TAFE allocation decreased by 37 per cent whereas the non-TAFE allocation increased by 266 per cent. This trend clearly points to a significant increase in the market share commanded by private providers in the wake of government reforms. This trend is confirmed at a more general level in the ACG report (1994b) which found that although TAFE had traditionally been the major recipient of funds for LMP training, its market share had decreased significantly in recent times. Of the $520 million allocated in 1992/93 for the training component of Commonwealth LMPs, the ACG report estimated that TAFE had probably received slightly less than half (although the precise ratio is unclear in the absence of authoritative figures from the Department of Employment, Education and Training (DEET)). According to the ACG, the major recipients of LMP funds appear to have been small private and community-based providers, particularly Skillshare agencies - a finding which concurs with that made in a comparative study of public and private providers in 1993 (Anderson 1994). Table 5: DEET Jobtrain Funding by Sector, Australia, 1988-1994 (1) $ million (percentage of total funds) Financial Year TAFE Private Providers (2) Total 1988/89 36.6 (70%) 15.8 (30%) 52.4 (100%) 1989/90 (3) 22.2 (54%) 18.4 (45%) 40.6 (100%) 1990/91 35.7 (53%) 32.1 (47%) 67.8 (100%) 1991/92 (4) (40%) private: (30%) (85%) community: (15%) total: (45%) 1992/93 (5) n/a n/a n/a 1993/94 23 (35%) 42 (65%) 65 (100%) Source: DEET Programs: Impact on TAFE (AGPS various years) and ACG (1994b). Notes: Figures for the first three financial years are based on data contained in DEET Programs: Impact on TAFE (AGPS 1988;1990;1991;1992) for each State and Territory. Figures for 1993/94 are drawn from DEET data reported by the Allen Consulting Group (ACG 1994b). The DEET definition of 'private providers' includes private, community and other providers in the non-TAFE college sector. Figures for 1989/1990 do not include the Jobtrain funding allocation for Victoria as they were not contained in the relevant DEET report. Adjusted downwards at the average national rate (ie. Jobtrain funding decreased nationally by 4.7 per cent between 1988/89 and 1989/90), the Jobtrain funding allocation for Victoria in 1989/90 is estimated to have been around $9.3 million. This adjustment brings the total national allocation for Jobtrain in 1989/90 to $49.9 million. Although precise financial data was not published for 1991/92, DEET reported the relative public and private sector shares of Jobtrain funding in percentage terms as shown. However, the percentages reported by DEET did not total 100 per cent. Comparative financial data for 1991/92 and 1992/93 are not available in published form as DEET ceased reporting Jobtrain funding by sector in 1990/91. To which factors this shift in relative TAFE and private (non-TAFE) market shares can be precisely attributed is unclear. Presumably, as cost-competitiveness is a major criterion employed by DEET when awarding contracts, either private providers have proven to be more cost-efficient or TAFE colleges have been steadily pricing themselves out of the market. As a comparative study of TAFE and commercial colleges in 1993 revealed, private providers bear lower overhead costs than TAFE colleges and tend to undercut their competitors on price by economising on inputs such as support services, facilities and equipment (Anderson 1994). Alternatively, as private providers enjoy greater flexibility than TAFE colleges with respect to program organisation and resource management, they may be more efficient at mounting the rapid-response short course provision required under DEET labour market programs. The tendency for DEET LMPs and traineeships to be established in non-trade areas may have also contributed to this trend given that private providers tend to specialise in training for the services sector, an area in which the level of TAFE provision has been traditionally low in relative terms. Although Commonwealth funding for labour market programs such as Jobtrain constituted only one segment of the training market, it is nevertheless an important one because it suggests that in the context of the quasi-market sector, there has been a significant redirection of government training funds from the public to the private sector. The new Federal Coalition Government has indicated that it intends to open up access to public VET funds on a much wider basis to private providers, particularly in the closed market sector of recurrently funded program provision. The experience of competitive tendering for LMP funds under the previous Federal Labor Government suggests therefore that there is likely to be an acceleration of the privatisation trend in the Australian VET sector. Given that the bulk of private sector training is concentrated on the services sector however, the trend is unlikely to occur to the same extent across the board unless governments decide to allocate capital grants to private providers for infrastructure development, or alternatively to open up access to publicly funded facilities and equipment in the TAFE sector. Conclusion The foregoing analysis suggests that the recent training market reforms introduced at a Commonwealth and state level are fundamentally transforming the structure, size, composition and balance of the national VET system in Australia. To the extent that government reforms have now largely standardised the legal, regulatory and financial conditions under which public and private providers operate, the pre-conditions identified by Geiger (1986) for the emergence of a parallel private sector have been fulfilled. As the above examination of changes in the national VET system shows, the former dual sector structure comprising a mass public TAFE sector and a peripheral private sector has been replaced by a more complex tri-sectoral structure comprising a regulated public sector, a partially regulated private sector and an unregulated private sector. Within the framework of the quasi-market sector, there has been a proliferation of of recognised private training providers, and a relative decrease in the market share enjoyed by public TAFE institutions. Although still largely confined to a relatively narrow segment of the training market, private providers are nevertheless assuming a much expanded role in the provision of publicly recognised VET programs. In effect, the training market reforms have created the necessary conditions for private sector growth and are faciltating the rapid emergence of a parallel private sector alongside the formerly dominant public TAFE sector. References Allen Consulting Group, ACG (1994a) Successful Reform. Competitive Skills for Australians and Australian Enterprises, Australian National Training Authority, Brisbane. Allen Consulting Group, ACG (1994b) Establishing an Effective Australian Training Market. Final Report to the Office of Training and Further Education, OTFE, Melbourne. Anderson, D. (1994) Blurring the boundaries: TAFE and commercial colleges in the open training market, National Centre for Vocational Education Research, Adelaide. Anderson, D. (1995) 'Private training provision in Australia: An overview of recent research', in F. Ferrier & C. Selby Smith (eds.) The Economics of Education and Training 1995, AGPS, Canberra, pp. 1-14. Australian Bureau of Statistics, ABS (1996) Commercial Training Providers Australia, 1994, Catalogue No. 6352.0, AGPS, Canberra. Australian Bureau of Statistics, ABS (1994a) Survey of Commercial Training Providers Australia. Statistical Report 1993, Catalogue No. 6352.0.00.001, AGPS, Canberra. Australian Bureau of Statistics, ABS (1994b) Training and Education Experience, Australia 1993, Catalogue 6278.0, AGPS, Canberra. Australian Committee on Technical and Further Education, ACOTAFE (1974) TAFE in Australia. Report on Needs in Technical and Further Education, (Kangan Report) 2 Vols., April, CTEC, Canberra. Australian Committee on Vocational Education and Training Statistics, ACVETS (1994) Collection of National Financial Data on Vocational Education and Training. 1993 Calendar Year, December, ACVETS, Canberra. Australian National Training Authority, ANTA (1993) Priorities for 1994: Advice of the Board of the Australian National Training Authority, ANTA, Brisbane. Australian National Training Authority, ANTA (1994a) Proposals for more effective implementation of training reform, ANTA, Brisbane. Australian National Training Authority, ANTA (1994b) Vocational Education and Training: Directions and Resource Allocations for 1995, ANTA, Brisbane. Australian National Training Authority, ANTA (1995) Annual National Report: Australia's Vocational Education and Training System, 2 Vols., ANTA, Brisbane. Carmichael, L., Chair, Employment and Skills Formation Council (1992) The Australian Vocational Certificate Training System, National Board of Employment, Education and Training, Canberra. Cantor, L. (1987) Vocational education and training in the developed world: A comparative study, Routledge, London. Commonwealth Tertiary Education Commission, CTEC (1978) Report on Non-Government Business Colleges, CTEC, Canberra. Dawkins, J. (1989) Industry Training in Australia: The Need for Change, AGPS, Canberra. Dawkins, J.S. & Holding, A.C. (1987) Skills for Australia, AGPS, Canberra. Department of Employment, Education and Training, DEET (various years) DEET Programs: Impact on TAFE, AGPS, Canberra. Deveson, I., Chair (1990) Training Costs of Award Restructuring, 2 Vols., (Deveson Report), AGPS, Canberra. Geiger, R. (1986) Private Sectors in Higher Education: Structure, Function and Change in Eight Countries, University of Michigan Press, Ann Arbor. Goozee, G. (1993) The development of TAFE in Australia, NCVER, Adelaide. Hilmer, F, Chair (1993) National Competition Policy. Report by the Independent Committee of Inquiry, AGPS, Canberra. Keating, P. (1992) One Nation, AGPS, Canberra. Ministers of Vocational Education, Employment and Training, MOVEET (1992) National Goals for Vocational Education and Training, VEETAC, Canberra. National Centre for Vocational Education Research, NCVER (1995) Selected Vocational Education and Training Statistics 1994, NCVER, Adelaide. Office of Training and Further Education, OTFE (1995) State Register of Private Providers of Vocational Education and Training, June, OTFE, Melbourne. Sweet, R. (1990) 'Relationships between TAFE and other education systems', Unpublished mimeo, Dusseldorp Skills Forum, Sydney. Appendix Figure 1: Chronology of training market reforms 1986Deregulation of export education Commonwealth funding for Australian Traineeship System opened up to private providers 1987Skills for Australia (Dawkins & Holding 1987) Introduction of Commonwealth-State Resource Agreements/college performance agreements Commonwealth capital and equipment grants for TAFE-industry collaboration 1988Competitive tendering introduced for Commonwealth labour market programs funds 1989Industry Training in Australia: The Need for Change (Dawkins 1989) Introduction of Training Guarantee Levy 1990Training Costs of Award Restructuring (Deveson 1990) Promotion of training market concept and associated reforms (eg. national skills recognition; commercialisation of TAFE; tuition fees in TAFE) Special Ministerial Conference endorses training market concept 1991Removal of Commonwealth prohibition on TAFE tuition fees 1992National Goals for Vocational Education and Training (MOVEET 1992) endorse: *open training market *National Framework for Recognition of Training (NFROT) *competency-based training (CBT) *national industry competency standards Establishment of ANTA to facilitate and coordinate national training market development 1993Extension of Austudy to private sector students ANTA Priorities for 1994: a 'client-focussed' system and market competition (ANTA 1993) 1994Successful Reform (Allen Consulting Group 1994a) Recommended demand-driven resource allocation ('user buys') ANTA growth funds allocated by competitive tender 1995ANTA implements 'user choice' pilot program 1 Under the National Framework for the Recognition of Training, ACE providers are categorised alongside industry, enterprise and commercial training organisations as 'private providers'. 2 'Preferred supplier arrangements' refer to the practice of choosing a training provider(s) on evidence of past performance and demonstrated ability to achieve specified outcomes. 3 'User choice' denotes a system of resource allocation for apprenticeship/traineeship programs which aims to empower consumers by giving employers/employees joint responsibility for choosing between training providers (public or private). Government resources are subsequently directed to the selected providers. Although 'user choice' is designed to reduce the role of government in training provision, it still retains control over the administration of, and accountability for, training resources. 4 As government-owned and maintained organisations, TAFE colleges continue to enjoy sales tax exemptions and other indirect financial subsidies which further reduce the cost of training delivery compared to private for-profit providers. At this stage, however, the Commonwealth Government seems unlikely to revoke such exemptions and subsidies. Conversely, private providers can charge market rates for the bulk of their course provision, in contrast to TAFE colleges which must abide by government limits imposed on fee charging for state-funded recurrent programs. Also, unlike TAFE colleges, private providers have unlimited capacity to raise venture capital through commercial loans for new business activities. 5 The WADOT report, Developing the training market (1995), identifies these two alternative approaches to competitive tendering now variously employed in different states and territories. 6 'User choice' theoretically empowers clients to decide on where training will be undertaken (ie. choice of provider) and although the funds are directed accordingly, state training authorities retain administrative control of training resources. Nevertheless, government to a certain extent loses planning control over resource allocation and in this respect 'user choice' is qualitatively different from competitive tendering. 7 'Primarily training providers' (46 per cent of the total sample) are those for which the provision of training on a commercial basis is their primary business activity whereas 'other training organisations' (54 per cent of the total sample) are those for which training is not their main business activity. 8 Past research on private providers suggest that there is a significant 'turnover rate' in the private training sector. KARMEL AND WILLIAMS 9 Although the NFROT definition of 'private providers' includes both publicly and privately financed providers of VET programs and services, providers registered under NFROT will be referred to generally as 'non-TAFE providers'. In the interests of accuracy and consistency, a distinction is drawn in this paper between 'public non-TAFE providers' and 'private non-TAFE providers' where relevant. 8