Funding World-Class Universities

capGovernments always face a choice between access and excellence: should resources be spent narrowly on a few institutions in order to make them more ‘world class’, or should they be spread more widely in order to build capacity and increase access?

During hard times, these choices become more acute. In the United States, for instance, the 1970s were a time when persistent federal budget deficits, combined with a period of slow growth, caused governments to slash their higher education budgets. Institutions often had to choose between their access function and their research function, and the latter did not always win.

In many senses, the world since 2008 has been in a similar situation; a combination of slow growth and fiscal deficits are forcing choices between widening access and increasing research intensity (which is of course the basis of ‘world-classness’). The question is: what choices are in practice being made in different countries?

I assembled data on real institutional expenditures per student in higher education, in 10 countries: Australia, Canada, France, Germany, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States.

These 10 countries collectively house 91 of the top 100 universities in the Academic Ranking of World Universities or ARWU, also known as the ‘Shanghai ranking’, and so can give us a relatively strong picture about what is happening at the world’s very best research institutions.

flagsExpenditures are preferred to income as a measure of financial capacity because the latter is inconsistent and prone to sudden swings (especially where endowment returns are concerned), which detracts from the longer-term trend analysis.

Insofar as is possible, and in order to reduce the potential impact of different reporting methods and definitions of classes of expenditure, I use the most encompassing definition of expenditures, given the available data.

The availability of institutional data across countries is uneven. Reasonably consistent annual data at the institutional level can be obtained in Australia, Canada, Sweden, Switzerland, the United Kingdom and the United States; however, institutional-level data is spotty in Germany, Japan and the Netherlands, and in France no real institutional data is available.

For the first six countries, comparisons between the finances of ‘top’ universities (that is, those in the top 100 of ARWU) and other universities is possible; for the other four, only general comments at the national level can be made.

Tuition fees

An examination of this data reveals a number of important findings:

Since 2008, total per-student expenditures across the sector as a whole have risen in only three countries: Japan, Sweden and the United Kingdom.

In the United Kingdom, student numbers have risen, but institutional expenditures have increased even more, thanks to the influx of money from the massive new tuition fees introduced in 2012. This is equally true at top universities and across the sector as a whole; in both cases, per-student increases are about 8% in real terms since 2008.

In Japan, universities have received a very slight increase in funding (just over 3%) but student enrolments have been flat.

In Sweden, there have been small but steady increases in institutional income/expenditures, but the real news is that enrolments have been decreasing rapidly as part of what appears to be a policy of trying to maintain quality. As a result, sector-wide per-student expenditures have risen roughly 15% since 2008.

…the intended outcomes of the pact – greater access to university studies – has in fact come true…

The surprise here perhaps is that per-student expenditures in Germany are no different than in 2008 despite the federal länder ‘higher education pact’. Partly, that is because of the choice of base year (if 2007 were chosen instead, we would see a significant rise), but also because one of the intended outcomes of the pact – greater access to university studies – has in fact come true, thus diluting the new money.

thinkOnly in Canada, Switzerland and the United States are ‘top’ universities doing better than the rest of the pack. In the United States, ARWU top 100 universities have seen per-student income climb 10% since 2008, while the rest of the system has stood still or declined a bit. This has mainly been due to their ability to charge increased tuition and expand their research funding, especially at the major private universities.

In Switzerland, expenditures are up across all institutions, but student growth has been slower at ‘top’ universities than elsewhere, so per-student expenditure growth has been higher among the elite schools (10% since 2008) than the rest of the sector, where it has fallen slightly.

In Canada, per-student funding at top universities has stayed constant, but this is better than at other institutions, where per-student funding has fallen somewhat.

Overall, Switzerland, the United Kingdom and the United States are the only countries where ‘top’ universities are continuing to increase their per-student revenues in the wake of the economic crisis. These three countries already monopolise the top 20 positions in the ARWU rankings. In theory at least, this should solidify their standing at the top.

In Australia and Sweden, ‘top’ universities are doing worse than the rest of the system. In Sweden, the sector as a whole has seen per-student incomes increase by 15%, but because the top universities have been attracting more students, they have had no increase at all in per-student income.

In Australia, the entire sector is seeing a fall in per-student income, but it is worse in the ‘top’ universities (–15%) than in the sector as a whole (–10%).

The future?

What does this mean for the future of world-class universities? Strikingly, while money is an important ingredient, the success of universities does not rest solely upon it. Certainly, money does not seem to have much of a material short-run effect on ARWU rankings. If it did, Australia’s universities would be doing much worse than they are. Clearly, institutional strategy, hiring practices and the quality of university management matter as well.

brilBut it is equally plain that money makes a lot of other challenges in higher education much easier. If present trends continue, it seems likely that private American universities will keep their positions at the top of international rankings tables and perhaps even widen their lead. Top American public flagships, along with British and Swiss universities, will find it easier to cope than most.

Elsewhere, the problem seems to be in part that new money often only follows new students. That is, universities who want more money to pursue a more research-intensive path must first admit more students, mainly undergraduate ones.

Governments may think they are offering universities a good bargain this way, but frankly this is not always helpful. Much of the new money simply gets spent educating the students themselves and there is very little ‘extra’ to devote to excellence.

Governments who wish their universities to pursue world-class status quite simply need to find ways to decouple revenue growth from enrolment growth.

Governments who wish their universities to pursue world-class status quite simply need to find ways to decouple revenue growth from enrolment growth. That could mean relinquishing control over tuition fees, or increasing the size of excellence programmes, or some other measure.

The alternative to raising more money in order to pursue world-class university status is to make universities more efficient and find more ‘margins’ within the institutions that can be reinvested in research.

It seems clear that Australian ARWU universities have been doing exactly this for some years now, and governments around the world may want to look at the ways in which institutions there have found success.

Given the overall fiscal difficulty many governments are currently experiencing, this may be a more productive way for institutions to continue pushing for world-class status than waiting for further infusions of public money. As Ernest Rutherford is reputed to have once said: “Gentlemen, we have run out of money. It is time to start thinking.”

Alex Usher
is president of Higher Education Strategy Associates in Toronto, Canada.

This article was first published in International Higher Education on 28 October 2016

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