The old human sciences building on the grounds of the University of Auckland was affectionately known among my peers as The Dungeon. With its dingy basement corridors and eerie acoustics, it stood in stark contrast to the more recently-constructed business school, a colossal, contemporary glass structure.
 
The university’s modern lecture rooms are more hi-tech, the air-conditioning more pleasant and the seats more ergonomic. And yet, despite the improvements, it still takes 60 minutes to deliver a one-hour lecture today, as it did 132 years ago.
 
American economists William Bowen and William Baumol explained the phenomenon now known as Baumol’s Cost Disease. They observed that despite the rise in musicians’ salaries, orchestral performances rarely experience any increase in labour productivity. The same number of musicians is still needed to perform Beethoven’s Ninth Symphony today as was needed when the composition was first performed in Vienna in 1824. Except, symphonies need to compete with other more productive sectors for employees.
 
Like the performing arts, tertiary education is a labour-intensive industry, a characteristic that makes it particularly susceptible to this affliction.
 
Competition for workers means salaries generally rise faster than productivity rates in less productive sectors. But for the tertiary sector, most productivity gains come from increasing class sizes. To attract reputable academics from alternative occupations requires offering competitive wages. The end result is that universities require more money in real terms per year to do exactly the same thing they did the year before.
 
Exacerbating the effect of the cost-disease in New Zealand is the fact that universities are subject to centrally mandated tuition fee caps. The Annual Maximum Fee Movement, set to 3 percent for 2016, dictates by what rate annual fees may increase. Restrictions on the number of students allowed per year mean many of our tertiary institutions are squeezed at both ends. Constrained by tuition caps, student quotas, and rising fixed costs, universities must then look towards international student fees to make up any shortfall. And, as discussed earlier, this limits their ability to invest in services and improve quality differentiation.
 
Increased revenue enables tertiary institutions to attract and retain high-quality academic staff who drive teaching and research performance.
 
University costs will not come down until someone discovers new and more productive ways of teaching. In the 1999 film The Matrix, learning new skills was simple because brains came with handy upload ports. Alas, real productivity innovations in university teaching are more common in fiction than in practice.