Unpicking Te Pūkenga

The new coalition government has come in with very few commitments in tertiary education. Changing fees free from first year to final year. Requiring institutions to have a free speech policy as a condition of funding. A third medical school. An expanded intake in the two existing medical schools. Boosting retention in the nursing workforce through bonding. Plus, of course, revitalising international education, thereby mitigating some of the financial challenges facing institutions[1].

But the biggest item on the government’s tertiary education agenda … to unpick the merger that created Te Pūkenga, the new national institution that is the centre-piece of the previous Labour-led government’s reform of vocational education (RoVE). By far, the most complicated, most risky proposal. It’s hard not to feel sorry for any minister having to front up for this task.

We know that Te Pūkenga has had a torrid time of it, spending much of its energy on its internal organisation, building up its head office, dealing with its structure, trying (vainly) to create an operating model. Trying to find a way to meld the two strands of vocational education – work-based and polytechnic-based – that for three decades have been rivals. Merging 28 separate entities[2]. Running up ever-increasing deficits. It was always a big ask. But, more than four years after Minister Hipkins announced the decision to create Te Pūkenga, there’s not a lot to show for all the work, for all the disruption, for the exodus of so many skilled and experienced people.

It’s not my place to analyse what went wrong at Te P. Rather, what we need to focus on is how the demerger might play out and how it will affect the shape of the vocational education and training (VET) system.

To do that, we need to remind ourselves why the previous government decided it needed to reform vocational education. And we need to look at what we have learned from RoVE, from the painful creation of Te P, from a new funding approach and from the new bodies created to help steer the VET system. That is the starting point for the analysis underpinning the design of a new VET system.

That is, we need to look back in order to look forward ….

So what led to the need for RoVE? Let’s start by looking in turn at each of the major parts of the system – polytechnics and work-based industry training. And from that, I identify the four elements that I consider are needed for a flourishing VET system following the demerger of Te P.

Looking back …

The polytechnics …

As the country emerged from the GFC and the labour market strengthened, enrolments in polytechnics fell. Between 2012 and 2019, domestic enrolments dropped 25%. While that fall was offset to an extent by international enrolments, those too began to drop after 2018 when the new Labour NZ First coalition government set out to restrict the entry of international students below degree level.

Inevitably, financial performance suffered.

After 2016, the polytechnics as a whole were in deficit, surviving on their reserves and depreciation, essentially mortgaging their future, risking the quality of their future work. No wonder the government was concerned.

Of course, it’s not easy running a polytechnic. Polytechnics operate in multiple markets – foundation education, higher education, community education as well as VET. They receive their government revenue from multiple funding streams, each with different and high compliance requirements. They serve widely-dispersed populations that are less mobile than the typical higher education students, so they have to operate from multiple sites, usually incurring losses on their regional operations.

And in degree-level education, polytechnics always have to deal with the problem of the “disparity of esteem” – they stand little chance when taking on a university head-to-head except in a small number of applied fields, so they need to create degrees that reflect the polytechnic tradition; that limits their market to an extent[3].

Polytechnics have small scale. High compliance. And in some cases, poor strategic choices …

Good leadership always helps. There were five polytechnics[4] that managed well despite the difficult operating environment, despite the enrolment downturn, returning a surplus in each of the eight years 2012 to 2019. But they were the exceptions. All the others had at least one and up to five deficit years over the period. Some had been troubled by failed strategic initiatives[5]. And yet others[6] struggled with financial pressures caused by small but widely spread populations.

By the time Te P took over, the polytechnic network was in a downward spiral, both in enrolments and in financial performance. The polytechnics group in Te P reported a decline of 9% in EFTS and an operating deficit of $119 million in 2022. And 2023 is even worse, with an expected $185 million deficit across the polytechnic group.

Work-based industry training …

Over 2010/2012, the (National-led) government reformed the industry training system.

They addressed the very low completion rates among industry trainees[7]. While participation in industry training had more than doubled between 2000 and 2008, trainee numbers fell by more than 20% between 2010 and 2011 in response to the government’s new expectations. Apprenticeships were reformed and expanded, and greater support was provided for apprentices’ learning needs.

The government consolidated the 43 small ITOs into 12 larger organisations, each covering multiple industries – a measure that made particular sense in those sectors that had been covered by multiple ITOs. Building and construction is the most obvious example; where there had been perhaps six ITOs covering trainees at a single work site, there would now be a single ITO covering trainees and apprentices in glazing, joinery, kitchen and bathroom manufacturing, flooring, painting and paperhanging as well as carpentry. That created greater organisational capability, plus it created the potential for harmonised standard-setting in distinct, but related, trades[8].

Reviewing the 2010-2013 industry training changes, University of Waikato academics Gemma Piercey and Bill Cochrane[9] acknowledged that some of the new measures would lead to improvements in industry training – for instance, the consolidation to 12 ITOs could help “… address the coordination issues that have plagued the system. The emphasis on completions could also serve to improve the return on the government’s investment …” They also praised the new pastoral care for apprentices. But they complained that the VET system still lacked mechanisms for input from industry and employers; it remained, they argued, supplier driven. And they lamented that the changes had not addressed gaps in information, for instance, data on skill gaps and reliable forecasts of skill needs.

Two rival VET systems …

From the creation of the ITOs in the early 1990s, VET in New Zealand has been plagued by rivalry between the two VET systems – work-based and polytechnic-based. In polytechnics, tuition was largely managed by education professionals, using institution-owned equipment, and where a work experience component complemented the primary delivery – classroom-based teaching. But in work-based training, most of the hands-on tuition is done by the trainee’s employer (supported by ITO staff). And the employer owns most of the equipment and machinery needed to prepare their students for work. And the on-the-job tuition is complemented by a theoretical component, mostly delivered off the work site[10].

Each ITO was focused on a small set of industries and occupations and had a national role in arranging and overseeing training for those industries – including setting standards. Each polytechnic trains for multiple industries and occupations and each has a role in leading skill development for a region.

Demand for industry training is pro-cyclical – meaning that, when the economy turns down and unemployment rises, trainee numbers will fall because many employers don’t have the volume of work that enables them to employ trainees. With polytechnics, it’s the reverse; when the economy turns down, people find it hard to get jobs so many will queue up at their local polytechnic.

Originally, in the early 1990s, it had been expected that ITOs would purchase the off-job component of training from polytechnics. But that was costly, leading some ITOs to turn to specialist private providers of tuition, rather than polytechnics. And, over time, many ITOs shifted from off-job provision to online delivery and assessment of theoretical material. Those trends eroded the economies of scale in polytechnic trades departments.

Two distinct systems. Different philosophies. Different capital requirements. Different cost structures. Different funding approaches.

The rivalry came to a head with “managed apprenticeships”, polytechnic programmes that more or less replicated the ITO model. ITO leaders complained that polytechnics were being funded at very high rates to deliver exactly what ITOs deliver at a fraction of the cost to government. A detailed study[11] that compared the cost of, and the outcomes from, managed apprenticeships with the equivalent industry training qualifications found that:

Completion rates for managed apprenticeships were somewhat lower than for equivalent industry training provision, meaning managed apprenticeships may be a more efficient means to achieve credits than equivalent industry training
The cost of completing managed apprenticeship programmes was higher than the corresponding cost of completion of industry training apprenticeships, reflecting the higher funding rate paid by government for polytechnic enrolments
Managed apprentices were employed at slightly lower rates after qualification completion than equivalent industry training apprentices.

No one wants to go back …

It’s easy to forget why the previous government took such a radical approach to reform in vocational education. Te Pūkenga may not have been the best answer to the VET system’s problems, but reform was needed.

No one wants to go back to the past: to a non-viable failing polytechnic system; to competing, rival VET systems; to a VET system that was unlikely to reflect the perspectives of industry and that had weak mechanisms for understanding and communicating future skill needs.

Identifying what we don’t want in the VET system is the easy part. What we do need in our new system is a more complex question. Which brings us to …

Looking forward …

The rest of this article asks what would work. And how can we create something from the detritus of the RoVE, taking account of the few firm decisions we already have from government.

We have been given three decisions already:

the NZ Institute of Skills and Technology – Te Pūkenga – is to be disestablished
a new network of regional polytechnics will be created in place of Te Pūkenga
the MBIE officials who work on the regional skills leadership groups have been advised that these groups are being wound up.

The Minister has undoubtedly received advice already on possible ways forward and she has canvassed possible approaches for other matters … Without knowing anything at all of the officials’ or the minster’s thinking, I would surmise that there are four main areas for advice and decisions:

How to create a network of viable regional polytechnics
What to do about the rivalry between the two VET approaches
What to do with the funding system
What to do about standard-setting, gaining the employer/industry perspective and skill information.

A network of regional polytechnics

Every institution in the new regional polytechnic network needs to be viable. That is a given. Scale is not everything in polytechnic viability. But it’s almost everything; it’s possible to have a large institution that fails financially (for instance, as a result of bad strategic choices) but it’s all but impossible to achieve viability in a very small institution, at least in the NZ tertiary education system.

That means the government needs to configure the Te P campuses to create institutions of reasonable scale. Let’s say nine regional institutions plus the Open Polytechnic. That would represent around 5,000 to 5,400 EFTS on average[12]. And a minimum starting size of around 4,500 EFTS.

That would mean absorbing polytechnics (for instance Tai Poutini, Northtec and WITT, perhaps NMIT[13]) into neighbouring regional institutions. And a single institution for the four cities that make up the Wellington conurbation.

Of course, polytechnics, unlike universities, can’t expect their students to travel to them[14]; they need to maintain face-to-face provision through their regions, sometimes in very small towns. Our polytechnics have shown they have the ability to manage operations across multiple regions – SIT (six locations, plus distance learning), Toi Ohomai (six), UCoL (four) and EIT (six) are just four examples of institutions that have a record of delivering effectively across multiple locations. And one of the (few) positive spinoffs of covid is that institutions are better placed now to complement face-to-face teaching with online components.

Regional polytechnics could be mandated to perform the regional skill facilitation role seen, under the RoVE reforms as the function of the Regional Skills Leadership Groups.

Unfortunately, some of the expected benefits of the Te P merger – like harmonising and upgrading of IT systems – have yet to materialise. But the network should aim to buil;d on any initial work on harmonisation and rationalisation.

My advice is: develop a network of nine or so regional polytechnics, to ensure each institution is large enough to for financial viability. Retain the Open Polytechnic. And, try to get excellent leaders in each institution – possibly by enticing back some of those who had abandoned ITOs and polytechnics in response to RoVE. Plus rescue what the network can of the harmonisation work done to date. And resurrect past collaborative initiatives (such as the Tertiary Accord of NZ) in the quest for efficiency.

What about work-based training

One of the best features of the RoVE decisions was to end the two-VET-systems model, coupled with the determination to see work-based learning and institution-based learning as different, complementary mechanisms for delivery of a common product. All VET requires some theoretical learning. All VET requires some level of hands-on, work-based learning.

A further benefit of co-location of work-based and institution-based VET is that work-based training is strongly pro-cyclical: employers are more likely to take on trainees and apprentices and to pay for their workers to upskill when their business is thriving. When an industry is in retreat, young people who want an apprenticeship may struggle to find an employer and therefore may seek out institution-based VET. It’s that dynamic that helps account for the fact that, in 2022, when the labour market was buoyant, Te P’s work-based learning division showed a healthy surplus while its institutions experienced losses. Co-location and integration can help smooth the effects of the business cycle.

From a trainee’s perspective, co-location would help ensure that the boundaries between work-based and institution-based VET could be made permeable. So that a trainee on an institution-based programme can switch seamlessly to work-based if he/she is offered a job. And a work-based trainee can switch seamlessly to institution-based work if, for instance, the employer becomes insolvent and has to downsize or close. And we know from Mahoney’s (2015) comparative analysis of managed apprenticeships and work-based apprenticeship training that the outcomes of the two strands are similar but that some students do better in work-based, others in institution-based.

And embedding work-based learning support staff in polytechnic departments should inject more of the industry/employer perspective into the institutional teachers and conversely, greater appreciation of teaching and learning technique.

Te P has, by all reports, not yet done much to integrate the work-based and the institution-based strands of VET. That is an important priority for the new institutions.

One of the principles underpinning the government’s determination to unpick the national VET institution Te P (and also to dismantle some of the other national mergers undertaken by the previous government – Three Waters, especially) is to restore greater control to the regions. Given that the RoVE VET model and its predecessor both saw work-based training overseen by national, centralised bodies, retaining the control of work-based in regional polytechnics makes sense.

My advice is to retain one of the best measures in the RoVE decisions – do away with rival VET systems by locating the work-based training administration and supervision in the regional polytechnics. Pick up the pace on the important work, started in Te P, on integrating the work-based and the institution-based delivery.

What to do about the funding system

One of the touch points of the antagonism between the two strands of VET pre-RoVE was the disparities in funding approaches. Polytechnics received EFTS-based funding, with the rate depending on the volume and field of the training. Funding rates were set to take account of assessment costs, of the extent to which it is possible to exploit economies of scale through class size, plus capital requirements.

The industry training fund provided for the standard-setting role of ITOs, the cost of purchasing off-job training courses, the cost of teaching resources, the cost of assessment, and the cost of learning support by ITO field advisors (who travel to monitor and support students’ learning and employers’ teaching). Funding for industry training was flat – either on the assumption that costs were independent of the type of programme (a questionable assumption) or, possibly, to incentivise efficiency[15].

Determined to eliminate this sore point, the government asked officials working on RoVE to develop a unified funding system (UFS), that would start from a common base and that would take account of actual cost differences.

The UFS integrates all funding for VET, institution-based and work-based, into a common framework that takes account of mode of delivery (work-based, institution face-to-face, distance education, work-integrated learning) and student characteristics as well as volume and field of study. Plus a somewhat ill-defined “strategic component” ….. That saw funding to work-based training increase. But in a fiscally neutral transition, the consequence was that funding per EFTS for polytechnic teaching fell. Then, in 2022, the first year of the UFS, the labour market was strong, meaning that the pro-cyclical work-based training flourished and the counter-cyclical polytechnic training fell. Which just exacerbated the movement of money from institution-based to work-based. Te P’s books for 2022 showed that its work-based training division generated a surplus of $53 million, partly offsetting the very large deficits across the polytechnic divisions. For 2023, the work-based division is expecting an even larger surplus.

That doesn’t mean that the UFS is in any way “wrong” or poorly designed. On the contrary, I believe the structure of much of the UFS is fine even if the approach to allocation of the strategic component of the UFS is unclear. Whether the current calibration of the funding formula – ie, the weights and values given to each of the elements of the funding model – is right is more questionable. No funding model is ever going to be precise; after all, funding models should create incentives on institutional behaviour. But if the calibration is seriously wrong, then there will be perverse incentives.

My advice is to stick with the UFS. But look again at its calibration. And review the basis for allocating the strategic component and, if necessary, absorb that component into the rest of the fund.

Standard-setting, the employer/industry perspective and skill information

The RoVE reforms saw the end of ITOs’ statutory roles in standard-setting and industry qualifications. So there was to be a new approach – to standard-setting, to qualification design, development and review. To making sure there would be an industry perspective into vocational education. And government wanted to improve information about the learning pathways into industries. And better information on skill needs and on how skill needs can be expected to evolve, to inform future qualification design. These are the elements of what is often termed “skills leadership”.

These are crucial functions for a healthy VET system. They are – necessarily – national functions[16].

The response: the six Workplace Development Councils (WDCs), fitting into a cluttered landscape alongside Regional Skills Leadership Groups (to provide advice on skills needs in a region), Te Taumata Aronui (to builda partnership with Māori on vocational education) plus Centres of Vocational Excellence. As well as the multiple government tertiary education agencies.

And not just cluttered; some government agencies’ powers had to be exercised following consultation with the WDCs – for instance, WDCs and TEC each had roles in funding decisions while both WDCs and NZQA were given rights in programme approval, quality assurance and assessment. TEC funds and monitors the performance of WDCs while it takes advice from those WDCs.

In a 2019 comment on the RoVE decisions, I wrote:

Intersecting rights and shared responsibility will be tricky, especially because the three bodies have different missions and because WDCs – though they are funded statutory bodies – come to their role from an industry perspective, while NZQA is a government regulator and TEC is a government funder.

But, in practice, the two government agencies have developed ways of working with WDCs that have eased those risks. TEC and NZQA state that they “recognise in their relationships with WDCs that the WDCs are led by industry and that government’s role is a supportive one”[17]. WDCs advise the agencies and publish their advice.

The WDCs have been operating for 30 months. Looking at Muka Tangata | The People, Food and Fibre WDC[18], we see that they have simplified the qualifications structure, to ease the pathways through those qualifications, they have reviewed qualifications and developed new qualifications to meet industry priorities and they have advised providers on qualifications in the industry areas they cover. They have produced workforce development plans. And they have provided advice to the TEC.

But what is most impressive is the work they have done in generating intelligence – data and information on the qualifications system and on the workforce in their industries – leading to workforce development plans.

As the VET system moves to a regional model, it’s important that the standards, the parameters of the system are developed centrally.

Sure, the WDC system works better in some industry areas than others. It’s harder for those WDCs that link disparate industries – for instance, Toi Mai whose coverage includes sports and recreation, hairdressing, journalism, expressive arts, gambling. Muka Tangata covers 14 industries, but they are all part of the primary sector, meaning they have common interests. It’s easier too where industries in the sector have a tradition of forming groups that advance the common interests of the sector – the primary sector and the construction sector are examples.

And 30 months of operation, the achievements of the WDCs are impressive. And in a regionalised VET system, the WDCs’ role will be all the more important.

But there is a question of cost. In the new government’s pre-election fiscal plan, the WDCs (like the RLSGs) were marked for abolition in order to generate savings. The WDCs cost the government more than $61 million a year[19]. Around 87% of the WDCs’ revenue comes from the government grant. Sure, the public is a principal beneficiary of the WDCs’ work, especially in that their work will lead to better, safer, more efficient services. But so are groups like the primary sector industry groups, the infrastructure sector groups … who benefit from the analysis, the advocacy and the standards work of WDCs. Shared benefits. Doesn’t that make a case for phasing in an industry contribution to funding over time?

My advice is to retain the WDC model. But look to raise a portion of their revenue from the industry groups they represent. And look for simplification, for ways to improve the operation. But recognise that the WDC model is an important complement to a VET system that will be primarily regionalised.

What’s next

Unpicking Te Pūkenga is the priority for the minister. But it’s not the only important challenge facing the system. In its BIM, the TEC suggested a review of tertiary foundation education – something I would warmly endorse. And, as universities face another hard year financially, the review of higher education funding, commissioned by the minister’s predecessor should also be a priority.

References

Bibliography

Green N, Hipkins C, Williams P, Murdoch C (2003) A brief history of government funding for industry training 1998-2002 Industry Training Federation

Joyce S (2019) Strengthening skills: expert review of Australia’s vocational education and training systemAustralian Department of Prime Minister and Cabinet

Mahoney P (2009) Industry training – exploring the data Ministry of Education

Mahoney P (2015) What is a managed apprenticeship Ministry of Education

Maurice-Takerei L (2016) A whakapapa of technical, trade and vocational education in Aotearoa, New Zealand: Origins of a hybrid VET system E-Press Monograph Series, Unitec

McClelland J (2006) A changing population and the New Zealand tertiary education sector Ministry of Education

Ministry of Education (2019) Summary of change decisions; Reform of Vocational Education Ministry of Education

Ministry of Education (2012a) History of industry training Ministry of Education

Ministry of Education (2012b) Industry training review: summary of submissions received on the discussion paper: key roles in industry training systems Ministry of Education

Murray N (2004) Who gets their hands ‘dirty’ in the knowledge society? Training for the skilled trades in New Zealand PhD Thesis, Lincoln University

Murray N (2001) A history of apprenticeship in New Zealand Masters Thesis, Lincoln University

Piercy G and Cochrane B (2015) The skills productivity disconnect: Aotearoa New Zealand industry training policy post 2008 election New Zealand Journal of Employment Relations, 40(1): 53-69

Porta G (2022) Travel to tertiary: An analysis of how far school leavers travelled for tertiary study, Ministry of Education

TEC (2018) A brief history of ITPs in New ZealandTertiary Education Commission

Ussher S (2006) What makes a student travel for tertiary education Ministry of Education

Reports consulted

Annual reports of the six Workforce Development Councils

Coalition Agreement: NZ National Party and ACT New Zealand

Coalition Agreement: NZ National Party and New Zealand First

Muka Tangata Briefing 2023

TEC and NZQA joint quarterly monitoring report on Workforce Development Councils, September 2022

TEC Changes in the funding environment for ITPs

TEC History of industry training and explanation of various pathways, 2010

Websites consulted

Hanga-Aro-Rau The Manufacturing, Engineering and Logistics WDC

Muka Tangata – The People Food and Fibre WDC

Ringa Hora – The Services WDC

TEC Workforce Development Councils

Te Mata Raraunga Workforce skills data platform

Toi Mai The Creative, Cultural, Recreation and Technology Industries WDC

Toitū Te Waiora The Community, Health, Education and Social Services WDC

Waihanga Ara Rau The Construction and Infrastructure WDC

End notes

[1] These first two were commitments made by the government following coalition talks; the fees free change came from NZFirst, while free speech came from the ACT party.

[2] 16 polytechnics and 12 ITOs

[3] When, following the GFC, falling enrolments provided headroom for the government to increase tertiary funding rates, this funding went to rectifying imbalances in funding rates in high-cost areas dominated by universities; polytechnics won almost none. Connew, Dickson and Smart (2015) )A comparison of delivery costs and tertiary education funding by field of study: Results and methodology explains the measures.

[4] Two metropolitan institutions (Ara and Otago Polytechnic), two regional institutions (EIT and SIT), plus the Open Polytechnic. Of those five, two (Ara and Open) had lower enrolments in 2019 than in 2012. Ara recorded surpluses even after it absorbed the financially fragile Aoraki Polytechnic in 2016, while EIT absorbed the loss-making Tairāwhiti Polytechnic in 2011. None of the CEs of those five remain in the sector (though the former CE of SIT now works on (not in) the sector. I should point out that Wintec and UCol came close to making that cut too. Refer to TEC’s data on TEI financial performance.

[5] For instance, the strategy pursued by Unitec was costly financially and resulted in staff dissatisfaction.

[6] Such as Tai Poutini Polytechnic and Northtec

[7] See Mahoney (2009) Industry training: exploring the data. Following the 1999 election, the (Labour-led) government expanded the industry training system by providing ever increasing funding to ITOs, obliging ITOs to struggle to find trainees. As a result, completion rates plummeted. Less than a third of trainees achieve a qualification five years after starting their industry training programme. Between 2000 and 2010, more than half of trainees achieved no credits while the TEC found that some ITOs were claiming funding for ineligible trainees (for instance, people who had lost their jobs, people who weren’t actively training, even some dead people!). One ITO chief executive told officials that, in response to the new emphasis on getting trainees to complete, he had been obliged to shift staff “from sales and marketing to learning support”

[8] But there were still quirks. For instance, tiling, roofing, drain laying, gas-fitting, plumbing were in the scope of the Skills Organisation. The Primary Industry Training Organisation covered pretty much all primary industries except forestry.

[9] See Piercy and Cochrane (2015) The skills productivity disconnect: Aotearoa New Zealand Industry Training policy post 2008 election

[10] See this article for a more detailed overview of these tensions. This section (and the previous one) draw also on Murray (2004), Murray (2001), Maurice-Takerei (2016) and Ministry of Education (2012a).

[11] Refer to Mahoney (2015) What is a managed apprenticeship ..

[12] Using enrolment data from 2022. The figure relates only to institution-based delivery and so excludes the work-based learners.

[13] Regions like Taranaki and the west coast of the South Island may lament not having an autonomous tertiary institution headquartered locally, but a local campus of a regional polytechnic is no worse than a local campus of the national institution Te Pūkenga.

[14] Three Ministry of Education reports show that, among young students, leaving one’s home district to study is much more prevalent among university students. See Porta (2022) Travel to tertiary: An analysis of how far school leavers travelled for tertiary study, Usher (2006) What makes a student travel for tertiary education and McClelland (2006) A changing population and the New Zealand tertiary education sector

[15] See Ministry of Education (2012) History of industry training and Green et al (2003) A brief history of government funding for industry training 1998-2002

[16] We need confidence that an electricians trained in Invercargill and Kaitaia have met the same minimum standard.

[17] This is drawn from the TEC/NZQA joint quarterly monitoring report, September 2022

[18] See for instance, this summary of the work of Muka Tangata | The People, Food and Fibre WDC. One might equally have looked at other WDCs.

[19] The grant to the WDCs ranges from about 8.7 million (Toi Mai) to $13.1 million (Hanga-Aro-Rau). The government grant ranges from 79% (Ringa Hora) to 97% (Toitū Te Waiora) of total revenue.