Funding of Tertiary Education: Issues, Challenges, Strategies and Methods Bahram Bekhradnia Director Higher Education Policy Institute, Oxford, UK Almaty 18 April 2006

Society has changed its perception of universities oUniversities centre stage oIncreasing focus of political attention oNo longer separate from the world

Increasing demands on higher education oCreate knowledge -Research oTransmit knowledge -Teaching oEngine for economic growth -Prepare workforce for a “knowledge economy” -Knowledge transfer oRegional development oCommunity Service oSocial mobility oSocial Cohesion/Moral Authority

The economic role of universities oInstrumentalist (utilitarian) view unsurprising, but regrettable -Cost to taxpayers is high -Cost to individuals is increasing

Non-economic benefits of higher education oAre real oAre substantial oHave both financial and social value oWider Benefits of Learning Group ( blications/ResearchReports.htm) blications/ResearchReports.htm  Better health  Better parents  Better social integration

The case of England: Sources of University Income Source: HESA finance record , HEFCE-funded HEIs

Some universities are much more self sufficient than others

Who should pay for higher education? oThe state benefits -So the state should pay oFor individuals HE is a privilege, not a right - personal benefit -So individuals should share some of the cost -But don't make it impossible for poor students - EG loans with easy repayments oUniversities should be entrepreneurial & seek multiple sources of funds

The approach to Government funding varies oDegree of autonomy (and maturity) -Formula -Negotiated

Relationship between autonomy and funding

The Autonomy of Universities oManagerial Autonomy -Vice-Chancellor/Rector/President is appointed by University Council -Councils are self appointed & supreme oAcademic autonomy -Students -Staff -Programmes & Curriculum oFinancial autonomy -Block Grant -Balances  Borrowing  Overdrafts

The approach to Government funding varies oDegree of autonomy (and maturity) -Formula -Negotiated oCapacity and infrastructure oAccountability requirements oExtent & significance of Government funding oExtent of competition between universities oAre supply & demand in balance? oHow much differentiation between universities is ok? oPolicies the Government wishes to effect through HE

Approaches to funding oDeficit funding (the traditional approach) oNegotiated oHow to handle private income when inputs are funded? oFormula-based -Cost based -Price-based oContract funding oCompetitive funding -Needs competition! oPerformance-based oSpecific funding (to advance specific policies)

Drivers oRelations between Government and sector oStage of development -Specific vs block grant -Market vs planning oThe size of the system oPolicy concerns – for example -Promote efficiency -Encourage growth -Promote quality -Reduce drop-out -Promote employability -Widen participation oThe national infrastructure available

Performance-Based Funding: What is it? oDifferential funding based on some measure(s) of performance

Why PBF? oEncourage certain behaviours oEncourage efficiency oCreate competition oImprove quality oCreate differentiation between universities oAvoid corruption oSimplify allocation mechanisms

Alternative forms of PBF oPure market forces oGovernment intervention Could be based on oQuality oPrice oOutputs (though this has an element of price) oSimply to drive Government policy (e.g. proportion of poor or minority students admitted)

Alternative forms of PBF oPure market forces oGovernment intervention Could be based on oQuality oPrice oOutputs (though this has an element of price) oSimply to drive Government policy (e.g. proportion of poor or minority students admitted) What types of behaviours are you trying to encourage?

PBF in UK oTeaching -Number of students recruited – of different types (academic/social) -Penalty for dropout -Cost oResearch -Very selectively funded -Dependent on quality, assessed in Research Assessment Exercise (overhead of the RAE only appropriate in a large system) -Dependent also on  Number of staff  Number of PhD students  External income from Charities

Attempts at cost-based Performance Based Funding in England Polytechnics Funding Council -Each Year guaranteed only 95% (or 90%) of last year’s grant -Polytechnics had to bid each year for the balance + new money - price based bidding -Discounts for high quality bids Crude system –encouraged cheapness

Actual and Planned Reduction in HE Unit of Funding in Real Terms

One Consequence of PBF in England – selective research funding

Another consequence: similar sized institutions receive very different grant

Advantages of PBF oPromote policies through funding oEncourages entrepreneurship oCan encourage quality oCan encourage efficiency oCan provide funding differentially oCan encourage pretty well any behaviour you wish oCan leverage behavioural improvement well beyond those benefiting from the funding

Disadvantages of PBF oConflicting policies oRisk of destabilising institutions oRisk to subject/regional provision oSacrifices collegiality for competition oCan give rise to conforming behaviour -e.g. chasing publications -e.g. avoiding interdisciplinary research oCan give rise to undesirable behaviour -e.g. funding the number of graduates produced

Caveats & conditions for successful PBF oData oAudit oCulture (how much differentiation and hierarchy is acceptable?)

Examples of PBF oSouth Africa – a mixture of inputs and outputs (not all universities can respond, so also a top-sliced development fund) oIndonesia research quality as a basis for differential funding oNorway & Denmark – funding based on the numbers graduating oEngland – students present at year end, and research quality

Funding of Tertiary Education: Issues, Challenges, Strategies and Methods Bahram Bekhradnia Director Higher Education Policy Institute, Oxford, UK Almaty 18 April 2006