A CAUTIONARY TALE of marketization of postsecondary education


British Columbia’s experience with private postsecondary providers illustrates the danger of market logic in higher education.

For many years, British Columbia was second in Canada only to Ontario in the number of private postsecondary education institutions operating within its borders. This was largely a consequence of little to no regulation and a hospitable climate created by international students looking for an immersive English language learning experience.

This sector was reined in somewhat by the creation of the BC Private Postsecondary Education Commission in 1990. The legislation establishing the Commission required all institutions offering postsecondary education to be registered. Registered institutions had the further option of applying for a form of accreditation, which they used to brand themselves as a better quality institution.

Although this legislation had the effect of shutting down the fly-by-night operations, in practice it provided little protection for students. After some high-profile private institution closures, in 1999 the Act was amended to require institutions to pay into a Tuition Assurance Fund for the purposes of reimbursing students left in the lurch by institutional closures.

The 1999 amendments also expanded the investigative authority of the Commission, giving it the power to enter premises and access all institutional records. This gave the Commission some teeth in dealing with uncooperative institutions.

The evolution of the Commission as a consumer protection agency came to an abrupt halt in 2003 when the Liberal government of Premier Gordon Campbell replaced the Commission with the Private Career Training Institutions Agency. The Agency was very similar in function to the Commission, but rather than being directed by government appointees, the Agency was directed largely by the private institutions themselves.

Self-regulating industries work best when the vendors have a shared interest in providing high-quality products and maintaining consumer confidence, and the consumers have access to extensive third-party information about the vendors and their products. Despite warnings that BC’s private postsecondary education sector lacked these key characteristics, the Liberals forged ahead with their experiment.

From the outset, there were rumblings that the new Agency tended to favour institutional interests over student and public interests. This became abundantly clear in 2006 when it was revealed that the chairperson of the Agency’s quality assurance committee, Michael Lo, had been evading the Agency’s scrutiny for years and was illegally offering degree programs through his private college.

Michael Lo also played havoc with the Liberal government’s attempt to build a private-sector market for degree programs in British Columbia—a point I will return to shortly.

Over the years, various US-based private institutions had offered degree programs in British Columbia, despite prohibitions from doing so in the province’s University Act. Successive Social Credit and NDP provincial governments chose to turn a blind eye to these activities because the political cost of dealing with the problem appeared greater than any potential benefit to British Columbians.

However, the political cost of ignoring these out-of-province and private degree-granting institutions grew rapidly in the late 1990s as a university degree became much more valuable as an entry-level credential for the labour market.

In addition to the expansion of grey market degree-granting institutions operating in British Columbia, a number of fake degree-granting institutions set up shop in and around Vancouver, taking advantage of BC’s lax enforcement of the University Act.

In 2001, the Ministry of Advanced Education commenced proceedings to shut down one such questionable institution, Vancouver University. As a result of the Ministry’s failure to enforce the provisions of the University Act against this institution for more than 20 years, the trial judge refused to grant an injunction to prohibit the institution from representing itself as a university and granting degrees.

This failure of its existing practices forced the Ministry of Advanced Education to create a new mechanism to deal with the grey market and fake degree-granting institutions that had made their home in British Columbia.

Consideration was given to limiting degree-granting to BC institutions specifically chartered to do so. However, a handful of legitimate US-based institutions that had been operating in British Columbia wanted to continue their operations in the province. They argued that rather than being barred from operating in BC, they were willing to submit to some form of quality control process to assure government of their legitimacy.

These voices were joined by a small number of BC business people who saw profit in expanding the offerings of their private colleges, or setting up new private institutions specifically to grant degrees.

In keeping with its free market ideology, in 2002 the Gordon Campbell government introduced the Degree Authorization Act which, for the first time, provided a framework by which anyone, including for-profit institutions, could legally offer degree programs in British Columbia provided they passed a quality assurance process.

One of the applicants for authorization to grant BC degrees was Michael Lo, owner of Kingston College in Burnaby, who, in 2001, had purchased Lansbridge University, a private Canadian institution based in New Brunswick.

Lo had originally sought to operate a BC-based campus of Lansbridge University in BC’s grey market. He pressed his case in personal meetings with the Liberal Premier and the Minister of Advanced Education, but was ultimately told he would have to apply for permission under the Degree Authorization Act.

In 2004, Lo first applied to the Degree Quality Assessment Board to grant degrees under the new legislation. When these applications proved inadequate, he withdrew them and reapplied in early 2005.

Despite misgivings expressed by several parties about Lansbridge’s eligibility to be called a university and its ability to offer reasonable quality degree programs (including strenuous objections from this author), approval was given to Lo in June 2005.

Lansbridge may have operated without much scrutiny for years had not Lo’s previous transgressions at Kingston College come to light in the fall of 2006. A group of students from India who had been studying at Kingston College for a degree from a UK-based university went to the media to complain about their shoddy treatment by the college.

It turned out that Kingston College’s partner university, American University in London, was a degree mill and had been forced to shut down by UK authorities. Kingston College told the students they could instead apply their credits to a degree from another US-based institution (which was also was a degree mill) but they would have to pay additional tuition fees on top of the almost $15,000 they had already paid Kingston.

If these students had given up, as many before them had, Michael Lo would have gotten away with his malfeasance. Instead, the student complaints in the media resulted in formal investigations of Michael Lo and his educational enterprises, the 2007 closure of Lansbridge University’s BC operations, and the collapse of a significant portion of Lo’s educational empire.

The Lo case was a huge embarrassment for the Liberal government and stymied their efforts to expand the market for private-sector postsecondary education in three significant ways.

First, the government was forced to concede that it had given too much freedom to the private postsecondary education industry to regulate itself through the Private Career Training Institutions

Agency. In the spring of 2007, new government appointments were made to the governing board and new public reporting requirements were implemented to improve the transparency of operations.

Second, the Degree Quality Assessment Board was forced to review how Lansbridge University had passed through its review process when there was documentation available in government agencies on Michael Lo’s past transgressions. Although this resulted in some tightening of procedures, the more significant outcome was the admission by some members of the Board that they no longer felt as obliged to facilitate the Liberal government’s fast-track expansion of private degree programs in British Columbia.

Third, the Kingston College and Lansbridge University debacles, amongst others, resulted in Indian, Korean, and Chinese government officials raising serious doubts about British Columbia as an educational destination for their citizens. The Liberal government was forced to make public promises of private postsecondary education reform to placate disgruntled foreign officials.

In one fell swoop, Michael Lo had succeeded where public interest advocates had failed: he proved the failings of self-regulation for the private postsecondary education sector, he restricted the growth of the private degree granting in British Columbia, and he forced the Liberal government to pull back on its plans for further liberalization of the private postsecondary education market.

In the summer of 2007, the Ministry of Advanced Education engaged John Watson, a respected former postsecondary education administrator, to conduct a review of the Private Career Training Institutions Act.

Watson’s 2008 report confirmed that the self-regulation model created by the Gordon Campbell government in 2002 had ill-served students, the public, and BC’s international reputation. Moreover, the provisions to protect students from market failures and malfeasance had proven largely inadequate.

Watson proposed overhauling the Act to increase investigative and quasi-judicial powers, to make student and public interests paramount, to increase protections for students, to improve transparency of operations, and to expand the scope of coverage to include all private postsecondary institutions.

Watson’s report resulted in immediate changes to the policies and procedures of the Private Career Training Institutions Agency, but it wasn’t until the spring of 2015 that the Private Training Act was introduced and adopted.

The new Act will bring the private postsecondary education industry firmly back within the control of government. The industry will be accountable to a Registrar and a Commissioner, both civil service appointments, who will exercise broad powers of administration, investigation, and adjudication.

The full scope of the Act will be defined by regulations yet to be established by the Minister of Advanced Education, so it is difficult to say if the new regulatory regime will fully address the many deficiencies identified over the previous 25 years of regulation.

What is clear is that students and the public still will not have access to independent information about providers and programs. Although the new legislation greatly improves accountability and transparency, it does so as a matter of administrative function and not public service.

Speak to students at private postsecondary institutions and it won’t take long to hear stories about fellow students being ill-treated by institutional officials.

This is not unique to private institutions, but at public institutions there are multiple avenues by which students may seek resolution. For example, they can speak to a  higher-level official, they can approach the institutional ombudsperson, they can ask the student association to intervene, or they can sound off in the student newspaper.

At private institutions, there typically is only one avenue for resolution and it ultimately ends up in the office of the person responsible for the profitability of the institution.

Under such conditions, it’s not surprising to hear stories from students at private institutions who are ignored, bullied, and even threatened with legal action for seeking resolution to legitimate grievances.

To draw an analogy, what would it be like to buy an automobile in a market where the manufacturers supressed all complaints about their products? Or where the authors of critical product reviews were silenced by threat of legal action? Or where there was little information about whether the vehicle was still running after five years?

That’s what it’s like to be a consumer of private postsecondary education in Canada.

In the United States, the situation is somewhat better because of the long tradition of private postsecondary education. However, private postsecondary education students still lack information and leverage that other consumers take for granted.

So, what lessons can be learned from British Columbia’s 25-year experiment in the marketization of postsecondary education?

First, the postsecondary education market is unlike other markets in that the final product is not the result of discrete processes applied to an inert object within a well-defined framework. Rather, it’s a messy process of continuous instruction, assimilation, application, evaluation, and reflection among free-willed individuals. There are certain aspects that can be codified and objectively evaluated, but ultimately education is a subjective experience.

Second, without the freedom for students to share these subjective experiences with potential students, there remains a massive asymmetry in information available to the vendor and the consumer. The student will always have a structural disadvantage, resulting in market failures.

Third, government regulation of the private postsecondary education market might reduce the incentives for vendors to take advantage of the information asymmetry, but the structural disadvantage for the consumer remains. Unless government takes substantial steps to reduce the asymmetry between vendor and consumer, the symptoms of market failure will persist.

The marketization of postsecondary education is inevitably the result of ideology intersecting with political calculus. The lesson from British Columbia is that the interests of students and the public will be served only when the political cost of not doing so is greater than the cost of the alternatives. AM

Robert Clift is a PhD Candidate at the University of British Columbia.