International Perspectives on Financing Higher Education

Josef C. Brada, Wojciech Bienkowski, Masaaki Kuboniwa, Josef C. Brada, Wojciech Bienkowski, Masaaki Kuboniwa, Josef C. Brada, Wojciech Bienkowski, Masaaki Kuboniwa

• Publisher: Palgrave Macmillan
• Year: 2015
• ISBN:
  9781137549143
• Topic: Volkswirtschaftslehre
• Subtopic: Wirtschaftspolitik

Higher education is increasingly important to the labor market success of individuals and the prosperity of nations, yet, as this book shows, public funding for higher education is declining. It presents innovative approaches to increasing funding for universities through closer ties with business and through privatization of universities.

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Competing for Public Resources: Higher Education and Academic Research in Europe – A Cross-Sectoral Perspective

Marek Kwiek

1.1 Introduction

The chapter focuses on the increasing cross-sectoral competition for public resources between various types of public sector institutions in Europe and its implications for future public funding for both higher education and academic research. It views the major models of the institution of the modern (Continental) university and the major types of the modern institution of the state, and of the welfare state in particular, as traditionally closely linked (following Becher and Kogan, 1992; Kogan and Hanney, 2000; Kogan et al., 2000). Historically, in the postwar period in Europe, the unprecedented growth of welfare states and state-funded public services was paralleled by the unprecedented growth of public universities. The massification of higher education in Europe coincided with the growth of the welfare state in general. We are witnessing massification processes in higher education and far-reaching restructuring processes of welfare states. The major implication is the fierce competition for public resources, studied in this chapter from a cross-sectoral perspective, in which the future levels of public funding for higher education in tax-based European systems are highly dependent on social attitudes toward what higher education brings to society and the economy, relative to what other claimants to the public purse can bring to them.

1.1.1 Reconfigurations of knowledge production: a larger context

Knowledge production in European universities is undergoing a significant reconfiguration, both in its governance and authority relationships (Whitley et al., 2010) and in its funding modes (Martin and Etzkowitz, 2000). The combination of ever-increasing costs of academic research and the decreasing willingness and/or ability of European governments to finance academic research from the public purse (Aghion et al., 2008; Geuna and Muscio, 2009) leads to growing emphasis in both national and European-level policy thinking on seeking new revenue sources for research universities (Alexander and Ehrenberg, 2003; Mazza et al., 2008). New sources may include increased fees for the teaching mission and increasing reliance on various forms of third-stream activities leading to more noncore nonstate income for the research mission (Geuna, 1999; Shattock, 2009; Temple, 2012).

The inter-sectoral national competition for tax-based public funding has been on the rise in the last two decades, following the rising costs of all major public services, especially health care and pensions (Kwiek, 2006; Powell and Hendricks, 2009; Salter and Martin, 2001). At the same time, both the ability and the willingness of national governments to fund growing costs of both higher education and academic research may be reduced even more for reasons such as a shrinking tax base (Tanzi, 2011), financial austerity (Blyth, 2013; Schäfer and Streeck, 2013), escalating costs of maintaining the traditional European welfare state model and economic challenges resulting from global economic integration, and the transition to knowledge-based capitalism, as well as the overall social climate in which, in the opinion of both the population at large and policymakers, the promises of science are not being delivered by public universities.¹

Institutions often do not undergo their transformations in isolation: they operate in parallel, and in parallel they often change, as Aldrich (2008), March and Olsen (1989), and Brunsson and Olsen (1993) argued. There is thus a complex interplay of influences between institutions and their environments, and European universities are perfect examples of the powerful connectedness between changes in institutions and changes in the outside world from which they draw their resources, founding ideas, and social legitimacy. The institution of the university in Europe, we assume here, may be undergoing a fundamental transformation, along with the institution of the state itself and the welfare state in particular. Institutions change over time, but so do social attitudes toward institutions.

1.2 The increasing competition for public resources

In very general terms, public expenditures for all publicly funded public services can be studied in the context of a zero-sum game. Higher expenditures in one sector of public services, for instance, public pensions for the aged or public higher education, occur at the expense of expenditures in other sectors of public services, for instance, public healthcare, or public infrastructure such as roads and railroad systems, law and order, and so on, unless public resources are increasing along with expenditures and the pie to be shared is bigger. Such a zero-sum game in public expenditures was evident in European post-communist transition countries, especially immediately following the collapse of communist regimes in 1989 and throughout the 1990s. Public policy choices were hard, priorities in expenditures were hotly debated political issues; higher education and academic research, certainly, have not been on the top of the list of public priorities. Carlo Salerno (2007, p. 121) argues that the ‘marketization’ of higher education recasts the problem of priority-setting in public spending in terms of the resources available to achieve them: ‘Society values what the University produces relative to how those resources could be used elsewhere’ (Salerno, 2007, p. 121, emphasis added). The present chapter focuses on the idea of the current ever-increasing competition for public resources between the three major claimants to the public purse in Europe, higher education, old-age pensions and healthcare services, and the increasing instability combined with growing conditionality of all public-sector funding (in much more detail, see Kwiek, 2015).

The traditional social obligations of the state are under sustained, fundamental revisions, and some activities and objectives viewed today as basic could be redefined as being outside of traditional governmental duties (Hovey, 1999, p. 60). The higher education sector has to compete permanently with a whole array of other socially attractive and socially useful forms of public expenditures. The sector, to win the competition for public funding with other segments of social and welfare programs, has to be more competitive in its national offers compared with other claimants to the public purse. State-funded services and programs have traditionally included healthcare, pensions, and education, but today the costs of healthcare and pensions are expected to escalate in aging Western societies while higher education is increasingly expected to show its ‘value for money’. It may be expected both to reduce some of its costs and to draw ever more noncore nonstate funding on the revenue side (CHEPS, 2010; Shattock, 2009).

Transformations in public-sector services in general, and in higher education in particular, are expected to be gradual and long-term rather than abrupt and short-term. The construction of public higher education architectures, especially those of governance and funding, in postwar Europe took decades, and their transformation will take decades too. What may increase in the future is the role of the accumulation of small, subtle, gradual, but nevertheless transformative changes (Mahoney and Thelen eds, 2010).² The welfare state after its ‘Golden Age’ in the 1960s and 1970s in Europe entered an era of austerity that forced it ‘off the path of ever-increasing social spending and ever-expanding state responsibilities’ (Leibfried and Mau, 2008, p. xiii). Similarly, public higher education and research sectors in Europe also stopped being a permanent ‘growth industry’ (Ziman, 1994), with ever-increasing numbers of institutions and faculty and ever-expanding public research funding available. The transformation paths of the welfare state and of higher education over the last half-century show similarities, with the age of expansion and massification and the age of austerity experienced during similar periods across Europe.

The scale of operations and funding of universities, including both university teaching and university-based research, remain historically unprecedented. Never before has the functioning of universities brought so many diverse, both explicitly public and explicitly private, benefits. But, also never in postwar history were all aspects of their functioning analyzed in such a detailed manner from international comparative perspectives, and, indirectly, carefully assessed by international organizations (Martens et al., 2010). Measuring the economic competitiveness of nations increasingly means, inter alia, measuring both the potential and the output of their higher education and research, development and innovation systems (Kwiek, 2011, 2013a). Therefore, higher education can expect to be under ever more national and international scrutiny. The traditional post-Second World War rationale for allocating resources to universities has been shifting to a ‘competitive approach’ to university behavior and funding (Geuna, 1999). Higher education and academic research have been exposed to market rules.

1.2.1 The market perspective and increasing financial austerity

The growing relevance of the market perspective in, and increasing financial austerity for, all public services, accompanied by the growing competition in all public expenditures, both services and infrastructure, is strengthened by several factors. They include globalization and the internationalization processes, the recent financial crisis, as well as changing demographics and their implications for social and public expenditures. European higher education institutions may be responding to increasingly unfriendly and cross-sectorally competitive financial settings by either cost-side or revenue-side solutions (Johnstone, 2006). A more probable institutional response to possibly worsening financial environments in which higher education institutions will operate is through revenue-side solutions: seeking new sources of income, largely nonstate, noncore, and nontraditional to most European systems, ‘external income generation’ leading to more ‘earned income’, as Gareth Williams termed it in Changing Patterns of Finance in Higher Education with reference to British universities already two decades ago (Williams, 1992, pp. 39–50; also see Kwiek, 2008; Kwiek, 2012b; Shattock, 2009).

New sources of income may thus include various forms of academic entrepreneurialism in research such as consulting, contracts with industry, research-based short-term courses, and so on, and various forms and levels of cost-sharing in teaching including tuition fees at any or all study levels from undergraduate to graduate to postgraduate studies, depending on national academic traditions, as well as systems of incentives for institutions and for entrepreneurial-minded academics and their research groups within institutions. In general, noncore income of academic institutions includes six items: gifts, investments, research grants, research contracts, consultancy, and student fees (Williams, 1992, p. 39). What also counts, and determines the level of cross-country variations in Europe, is the relative scale of current underfunding in higher education. Most underfunded systems, such as, for instance, some systems in Central and Eastern Europe, may be more willing to accept new funding patterns than are Western European systems with traditionally more lavish state funding. ‘Academic entrepreneurialism’ and various forms of ‘third mission activities’ seem to have attracted ever more policy attention at both the national and EU levels in the last few years (Kwiek, 2013a).

Higher education in general, and top research-intensive universities in particular, as opposed to healthcare and pensions sectors, are perceived by European societies as being able to generate their own additional income through, for example, various forms of entrepreneurialism and third-mission activities or cost-sharing mechanisms where fees are legally possible. Ironically, the more financially successful public entrepreneurial universities are today, the bigger the chances that their financial self-reliance will become an expectation in the future; universities may actually be ‘punished’ for their current ability to cope in hard times. Along with the efforts to introduce market mechanisms such as multi-pillar schemes instead of pay-as-you-go ones in pension systems and privatized systems based on additional, private, individual insurance policies in healthcare systems, especially but not exclusively in European transition economies, the most far-reaching consequences of this marketization and privatization trend can be expected for public funding for higher education and research. As William Zumeta stressed in a US context a decade ago, ‘unlike most of the other state budget components, higher education has other substantial sources of funds that policymakers feel can be tapped if institutions need to cope with deep budget cuts’ (Zumeta, 2004, p. 85).

Privatization and marketization processes can change the very nature of educational institutions, apart from having a direct impact on their financial situation. Williams (2003, p. 6) asked in the context of ‘enterprising universities’ emergent in Anglo-Saxon countries at the end of last century: ‘when does a new stimulant become so powerful, or so addictive, that the organism itself changes its nature? If it does, is the change evolution or decay’ and to what extent, is ‘an enterprising “operational mode” beginning to dictate the value-driven “normative mode” of universities?’ Changes in funding modes may thus introduce changes in core university values, and, therefore, the increasing cross-sectorial competition for resources is more than merely a change in Becher and Kogan’s (1992) ‘operational mode’ of universities.

1.3 New university-society contracts

Europe can thus expect, as a mostly new policy solution to the current problem of the underfunding of European universities, a growing policy emphasis on a more substantial inflow of private research funds from the business sector and of more private teaching funds from student fees. With different speeds of change in different national systems, and with a possibility that more radical changes can be expected in more underfunded systems and less radical changes in more affluent systems.

In policy terms, the European Commission is becoming much more positive toward student fees than ever before (Aghion, 2008, p. 226). Trends in European demographics, especially the aging of European societies, will directly affect the functioning of the welfare state in general, but only indirectly, through the growing pressures on all public expenditures in general, will it affect universities. Each shift in priorities toward social assistance can automatically bring about negative financial consequences for public universities due to a limited pool of funds that can be allocated to public services as a whole.

There is a clear paradox: higher education is seen as more important than ever before in terms of the competitiveness between nations, but though the importance of knowledge in our societies is greater than ever, at the same time, along with the pressures to reform current welfare state systems, the capacity, and often the willingness, of national governments to finance higher education and academic research and development is weaker than in previous decades. Knowledge, although not basic knowledge, to use a somewhat outdated distinction between basic and applied research, is increasingly produced by the business sector rather than by higher education and increasingly funded by the business sector. In the OECD (Organisation for Economic Cooperation and Development) area, the share of research and development performed by the business sector in total research and development performed has been increasing steadily over the past two decades. The tension between the general attitude of governments and populations, with education perceived as perhaps the primary asset of the individual, on the one hand, and the inability or unwil...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of Figures and Tables
• Acknowledgements
• Notes on Contributors
• Introduction
• 1 Competing for Public Resources: Higher Education and Academic Research in Europe – A Cross-Sectoral Perspective
• 2 Restructuring of the Higher Educational System in Japan
• 3 Financing Universities and a Plea for Privatization
• 4 Student Loans: The Big Debate
• 5 The 2012/13 Reforms of Student Finances and Funding in England: The Implications for the Part-Time Undergraduate Higher Education Sector
• 6 Higher Education Investment Fund: A New Approach for the Private Financing of Higher Education
• 7 University-Industry and Business Cooperation: Global Imperatives and Local Challenges – An Example from Portugal
• 8 Cooperation between a University and Industry – Good Practices
• 9 Challenges in Research: A Strategic Approach
• Index