The glass tower: the market for higher education and online learning

“But we don't want to teach 'em," replied the Badger. "We want to learn 'em”  Wind in the Willows, Kenneth Grahame.

We are told that the future of the UK economy lies in a better educated, and hence more productive, workforce. Some of this extra productivity is expected to come from the intellectual benefits of higher education - an area where there is an ever greater focus on student choice. What is less often noted is that the market for university degrees has many characteristics which make it difficult for student choice to drive higher levels of teaching quality.

The rise of online learning tools such as MOOCs: Massive Open Online Courses (Online courses which are often freely available and at a university level) will bring a much greater focus on higher education teaching. This may not, however, change some of the basic premises of people’s main investment in higher education (such as the age at which it occurs and that it is not totally online) and perhaps the key role of online learning is in enhancing the skills of the workforce.

The university bundle

There are a number of factors which make it difficult for student choice to encourage better teaching in higher education:

  1. There isn’t really a market for teaching as such The products that universities sell are degree courses, which consist of a bundle of different things, only one of which is teaching, the quality of which can anyway vary within and across degree courses. The academic experience aside, students are also paying for (and interested in) the wider social experience of being at university having fun, the university facilities and ultimately the degree that’s awarded (its class and reputation). None of these are necessarily that closely related to teaching quality.

  1. You normally only buy degrees once i.e.

  • if the product is not that good you cannot retaliate by deciding not to use the provider again.

  • the choice is not necessarily an informed one as it is not based on any experience. There are admittedly a range of information sources that allow prospective students to compare courses, however the UK’s competition authority in a recent assessment found a number of limitations in this area relating to, among other things, the learning experience and course outcomes.[1]

  1. It can be difficult to switch to another provider If people are unhappy with their course it can be hard to switch to another course within the same university, let alone another one. Among full-time first degree students in 2011/12 only 2% switched to another university.[2] This is in part an administrative issue, but there are also the economic and social costs of moving location to another university.

  2. The market for degrees/universities is quite segmented Although there are a large number of universities in the UK, there is commonly considered to be significant variation in the levels of education they provide, so it is arguable that the number of providers in certain segments of the market, particularly at the higher end, can be relatively limited.

  3. It can be hard for new providers to enter or for universities to expand their offer significantly  New higher-educational establishments are set up  (the recent New College for the Humanities in London for example), but owing to regulation such as the funding and planning system this does not happen on a substantial scale. It can also be hard for existing universities to expand. Although some of the restrictions in this area are being relaxed. In 2013 it was announced that the cap on student numbers at publicly funded higher education establishments would be removed by 2015/16.[3]

  4. Universities do another activity, research, which to some extent conflicts with teaching Academics are, at least in the UK, primarily rewarded on the basis of their research contributions, rather than the quality of their teaching. This means that research is to a degree in competition with student teaching for resources (intellectual and financial). It also means that academics are often not appointed on the basis of their teaching skills.[4]

It is arguable that some of the issues above are more pronounced in the UK than in other countries. In the US for example, there is a greater ability to switch between courses and universities in higher education, and there are also institutions that are more focussed on teaching: liberal arts colleges.

This is not to suggest that teaching is somehow uninfluenced by overall levels of higher education funding. Nor is to imply that the economic incentives caused by competition for students are necessarily beneficial. Increasing teaching quality is probably harder for universities (and students) than giving students better marks in exams for example. Market forces are anyway not the only means of ensuring teaching quality, there is also training and regulation.

Technological change is, however, likely to lead to an increasing economic focus on teaching in higher education as students who have previously been unable to directly compare their lectures with those of other institutions, and are paying ever more for their education, start to be able to compare theirs to the best in the world online, often at no cost.

Off and on campus

MOOCs are particularly interesting as they, in principle, address some of the reasons why one would not expect student choice in itself to generate better teaching overall, being:

  1. a defined teaching product
  2. a product where it is easy to switch providers
  3. a product where it is (comparatively) easy for successful suppliers (some of whom are existing universities) to expand the supply of the offer in response to increases in demand (no larger lecture theatres or longer student bars are needed).
  4. a product where the choice of providers is potentially much wider as the cost of using a provider that’s located further away, or in another country, is so much lower.

The effects of MOOCs will ultimately depend on the degree to which, and the contexts within, the format can be made to work successfully. Which subjects are they used most effectively for, and for what kind of student? How best are they structured?[6] What kinds of business models can be built around with them?[7] How to accreditate course participation so that it’s accepted by employers?[8] Whether they should be regulated?[9]

It is difficult to know exactly how all this will pan out. From an economic perspective, the consequences of online learning depends on the extent to which it is, or becomes, a substitute or complement for existing forms of higher education (or other kinds of education such as vocational training and professional qualifications).[10] A limitation is that although MOOCs may be able to replicate the experience of lectures fairly well, it is harder for them to provide the interactivity of class teaching. Some also consider that MOOCs perhaps work more effectively with technical subjects and where people already have high levels of academic attainment.[11]

The result of this may be that in a higher education context MOOCs will be embedded in the degree curriculum of existing universities for specific courses, with the lecture content being delivered online by universities/providers that are recognised for the quality of their lectures and the class teaching provided by the university (A so called flip classroom approach).[12] Such a system would represent a partial return to what happened historically in the UK where many universities delivered the degrees certified by another UK academic institution. An implication of the separation of lecturing from class teaching is presumably that the overall educational experience becomes even more dependent on the quality of participating institutions’ class teaching. 

Given their potential future importance, the impact of MOOCs should be considered in the recently opened Competition and Markets Authority (CMA) case on higher education in England. The domestic market aside, one area where MOOCs may have an effect is in their impact on the international market for higher education. In recent years overseas students have been an important source of income for UK universities, but MOOCs, where US providers predominate, could create a market for distance learning which reduces international (and domestic) demand for direct attendance at UK universities and, through their role in marketing the university itself, also displace direct demand to the US.

There are though reasons to suspect that MOOCs will not totally change some of the more basic aspects of people’s main investment in higher education:

  1. Making a long-term/substantive investment in education Learning requires students to engage with the material they are being taught. Students by taking a degree enter into a one-off, quasi-exclusive, contract of a number of years in length, and the very characteristics of this contract which make it harder for competition to drive better teaching, also mean that students have a greater incentive to invest effort in their studies. There is evidence that MOOCs have low completion rates (it has been estimated that most courses have a completion rate of less than 13%[13]), which is consistent with the limited investment required to participate.[14]

  1. Making that investment earlier in life There are clear economic reasons why most people make their biggest investment in higher education shortly after leaving school. As people work longer they accumulate experience which hopefully leads to higher wages. This means that the wages foregone due to studying (in economic jargon ‘the opportunity costs’ of studying) tend to be higher later in life. Not only this, investments that pay off over several years are more likely to justify themselves economically if they are made earlier. These two factors encourage people to make their main investment in higher education when they are younger.

  1. Going to a physical institution Classroom interaction aside, there are other reasons why people go to a physical university, rather than an online one, and do so earlier in life. The time when the return to investing in a three year social experience is arguably highest is when people are younger and social networks are more fluid making it easier to create social connections. 

Although incentives to make the main investment in higher education earlier remain, in an economy that is getting ever more technologically sophisticated there is likely to be a greater premium (for individuals and the economy as a whole) in keeping up to date with technological changes and combining different skills throughout people’s careers. For example, how can the economy quickly expand the skills of its workforce in new technical areas such as data science that combines skills from different disciplines like statistics and programming?[15] At any one time, only a small proportion of the workforce are recent graduates and centres of expertise in particular skills may not be readily accessible around the country. Those in employment may anyway have limited time for studying. Anything that can therefore help bring the cost down, and increase the speed and ease, with which new skills can be acquired by the workforce is to be welcomed as it helps makes the economy more flexible and creative. We want to online learn ‘em.




[1] Office of Fair Trading, OFT (2014), ‘Higher-education in England, a call for information’, pp. 23-33.

[2] Higher Education Statistical Authority (HESA), Non-continuation rates 2011\12

[3] HM Treasury (2013), ‘Autumn Statement’, pp. 53-55.

Student places aside, while it exists for understandable reasons, the cap on tuition fees constrains universities incentives to increase teaching quality as they are unable to recoup any associated cost increase in higher fees.

[4] It could be argued that the move to higher student fees will shift incentives back in favour of teaching, however unless teaching is completely separated from research (something that many would see as unhealthy) this issue is likely to remain intrinsic to the higher education system. With the increasing demand for post-graduate education with its greater research focus it is also arguable that there is perhaps greater complementarity between research and teaching.

[6] For an in-depth discussion with the economist John Cochrane on his experience of teaching a MOOC see:

[7] BIS (2013), ‘The maturing of the MOOC’, Business and Financial Models, pp. 70-77.

[8] Ibid, Accreditation -a route to payment, pp. 78-80.                                   

[9] MOOCs are currently not formally scrutinised by the UK’s Quality Assurance Agency (QAA), for the QAA's position on MOOCs see:

[10] This is part of a set of much wider questions on the extent to which digital content is a substitute for physical experience. For a recent Nesta analysis of this in the context of the effect of live screening of theatre performances at cinemas on theatre attendance see    .

[11] Fowler, G. (2013) ‘MOOC’s an early report card’, Wall Street Journal.

[12] In this context it has also been argued that MOOCs would be playing a role analagous to course textbooks.

[13] For a review of data on MOOC attendance see Katy Jordan’s MOOC project.

[14] This is not to say though that higher education necessarily needs to be three years of full-time study to achieve this or that one could not structure a MOOC to get high-levels of student engagement.

[15] Bakhshi, H. , Mateos-Garcia, J. and  Whitby, A. (2014), ‘ Model Workers, how leading companies are recruiting and managing data talent’, Nesta.



John Davies

John Davies

John Davies

Principal Data Scientist, Data Analytics Practice

John was a data scientist focusing on the digital and creative economy. He was interested in the interface of economics, digital technology and data.

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