HESA

Higher Education Strategy Associates

Category Archives: Funding and Finances

September 29

Differentiating University Missions (Part Four)

One way or another, the underlying argument for differentiation is essentially the story of Adam Smith’s pin maker – that there are increasing returns to specialization. What those increasing returns are, exactly, is a matter of some dispute. For Harvey Weingarten, the increasing returns are essentially “more quality” – that is, for any given quantity of dollars we’ll see a higher return in terms of better research, better teaching, etc. He doesn’t really think you can save much money because of the politics.

Ian Clark and his co-authors of the book Academic Transformations, on the other hand, phrase their argument explicitly on the issue of finances – basically, that as resources become more scarce, there is a public policy case for a making institutions more specialized because it will result in a cheaper system.

Now, in both cases, the pro-diversification advocates are basing their argument on increases in productivity. The difference is essentially one of phrasing: one is about saying we can do more with the same, the other saying we can do the same with less. Politically, the former is a lot more palatable; given where we are fiscally, the latter is probably more realistic.

The strongest opposition that Weingarten’s piece encountered was from the provincial faculty association, OCUFA, which published its own piece on differentiation shortly after in response to the piece Weingarten wrote with Fiona Deller. Oddly enough, OCUFA’s response was actually more of a refutation Clark et al’s piece than it was of the Weingarten-Deller one. It seems as though the fact that Clark and co. received some HEQCO funding for their work meant that OCUFA viewed the two sets of arguments as identical even though they aren’t (quite).

Essentially, therefore, the argument against differentiation so far has boiled down to: “no, because it might mean less public money.” But it’s not as though the significant increases in per student funding has necessarily delivered big increases in quality – a point which OUSA executive director Sam Andrey made very forcefully at our conference yesterday. Empirically, saying that the alternative to differentiation is more funding just isn’t very convincing.

But there’s another possible argument against mission differentiation: namely, that it delivers a lot less than promised. As COU’s Bonnie Patterson suggested, it may be that the way forward isn’t so much about differentiation of mission in terms of the research and teaching function as it about differentiation of profile and areas of effective specialization. More on that tomorrow.

September 28

Differentiating University Missions (Part Three)

Here’s an important question. Why don’t Canadian governments act as if outputs matter when it comes to funding universities and colleges?

There’s nowhere in Canada where the overwhelming majority of operating funding isn’t essentially determined by enrolments (OK, you get goofy exceptions like Nova Scotia where the funding formula is based on what enrolment was in 2003, but apart from that…). But this creates no incentives other than to try increase market share, which essentially is a zero-sum game. It’s also really dull.

If we want to shake things up and get institutions to pursue differentiation, we need to go in a radically different direction. And in this respect, I’m a big proponent of the methods of the X Prize Foundation. Put a carrot out there big enough for institutions to pursue and institutions will change their behavior.

Interested in emphasizing good teaching? Why not offer $50 million annually to the institution that comes top on teaching quality in the next Globe and Mail satisfaction exercise? I guarantee that dozens of institutions will snap to it in terms of emphasizing teaching.

(Yes, yes, I know it’s an imperfect measure of teaching. But do it once and it’s an absolutely certainty that institutions will come up with a better measurement method the next year, so why not, you know?)

One could do the same kind of thing in terms of all sorts of outputs. The institution with the greatest impact on local economies? $40 million every five years. The institution that does the most to improve graduate employability? $80 million every five years. The amounts don’t actually matter that much, as long as they are big enough to drive institutional behaviour.

Where quantitative data can’t quite provide a definitive answer, adjudication can be done entirely by academics themselves (though preferably ones from out-of-province or from other countries) – by all means, let’s keep the principle of peer review. If nothing else, it will make institutions pay attention to their own outputs a lot more assiduously, which would be a good in and of itself.

As we saw yesterday, academia left to itself won’t provide diversity. You can try to tie institutions down to particular missions, but that’s likely to meet with resistance. So why not put down the stick and try some carrots instead? Considering how badly we’ve done at incentivizing diversity to date, the downside seems pretty minimal.

September 27

Differentiating University Missions (Part Two)

One of the things that distinguishes Canadian universities from those virtually anywhere else is the unparalleled freedom they have to determine their own mission. In most countries – including our neighbours to the south, I should underline – the final say over public institutions belongs with government. As one of our American-born staffers once explained to a compatriot “the difference is that up here, public universities get funding from the government, and then they tell government to kiss off.” Our institutions have freedoms that are largely reserved for private institutions in most countries.

At one level, of course, this is all to the good. It’s generally accepted that decentralization of authority in education leads to more innovation and responsiveness. What’s intriguing, though, is that despite all this freedom, there’s a remarkable unanimity among institutions about which direction they’d like to be heading: more graduate students, more research intensity and a more globalized posture.

Obviously, this can’t be explained by free institutions looking for market opportunities. It would be ludicrous to suggest that there aren’t communities looking for universities that specialize in undergraduate teaching and that have strong regional development mandates.

What it does suggest, though, is two things: a) there are other, deeper tendencies in academia which are pushing in the opposite direction and b) governments don’t make other missions sufficiently attractive financially.

The deeper tendency is fairly obvious; the professoriate – which owns our universities in all but name – spends the better part of a decade in training being trained to do research and would, given the choice, prefer their professional lives to revolve more around research than teaching. Professionally, great researchers are valued over great teachers. Left to their own devices, this is what they’d prefer to be doing. Hence the trend towards institutional isomorphism.

So the role of government – assuming it doesn’t want all universities to look the same – is to create a system that encourages institutions to act in diverse ways. Assuming tuition is capped and institutions can’t make money out of good teaching by charging for it, government only has two choices. One is that it can use regulatory power to set out different missions for institutions (which is essentially what happens in the U.S., and is also more or less what was advocated by HEQCO’s Harvey Weingarten and Fiona Deller in their paper The Benefits of Greater Differentiation of Ontario’s University Sector).

The other is that government can use a variety of financial carrots to incentivize different types of behavior. More on that tomorrow.

September 14

Data Point of the Week: StatsCan Gets it Wrong in the EAG

So, as noted yesterday, the OECD’s Education at a Glance (EAG) statfest – all 495 pages of it – was just released. Now it’s our turn to dissect some of what’s in there.

Of most immediate interest was chart B5.3, which shows the relative size of public subsidies for higher education as a percentage of public expenditures on education. It’s an odd measure, because having a high percentage could mean either that a country has very high subsidies (e.g., Norway, Sweden) or very low public expenditures (e.g., Chile), but no matter. I’ve reproduced some of the key data from that chart below.

 

(No, I’m not entirely clear what “transfers to other entities” means, either. I’m assuming it’s Canada Education Savings Grants, but I’m not positive.)

Anyways, this makes Canada looks chintzy, right? But hang on: there are some serious problems with the data.

In 2008, Canada spent around $22 billion on transfers to institutions. For the chart above to be right would imply that Canadian spending on “subsidies” (i.e., student aid) was in the $3.5 – 4 billion range. But that’s not actually true – if you take all the various forms of aid into account, the actual figure for 2008 is actually closer to $8 billion.

What could cause such a discrepancy? Here’s what I’m pretty sure happened:

1) StatsCan didn’t include tax credits in the numbers. Presumably this is because they don’t fit the definition of a loan or a grant, though in reality these measures are a $2 billion subsidy to households. In fairness, the U.S. – the only other country that uses education tax credits to any significant degree – didn’t include it either, but it’s a much bigger deal here in Canada.

2) StatsCan didn’t include any provincial loans, grants or remission either. They have form on this, having done the same thing in the 2009 EAG. Basically, because StatsCan doesn’t have any instrument for collecting data on provincial aid programs, it essentially assumes that such things must not exist. (Pssst! Guys! Next time, ask CMEC for its HESA-produced database of provincial aid statistics going back to 1992!) So, what happens when you add all that in (note: U.S. data also adjusted)?

 

Not so chintzy after all.

September 06

A (Not Very Good) Sign of Things to Come

So, Dalton McGuinty has released the Ontario Liberal Party’s platform and its associated costing document.

What’s drawn everyone’s attention so far is this idea of “30% tuition rebates” – understandably so since the cost of the this one is almost a third of all new proposed spending (the miserly sums are a nod towards the fact that the province is essentially broke and can’t afford any new spending).  I’ll go into more depth about these rebates tomorrow in my Globe blog, globecampus.tumblr.com; suffice for the moment to say that the vagueness of some of the wording suggests that this item was a very last-minute inclusion and that there a lot of potential landmines – really big ones, actually – in implementation.

But ignore that for a moment, and take a gander at page nine of the costing document.  It suggests that if the McGuinty Liberals are re-elected then Ontario post-secondary institutions can expect to see their budgets grow from 7.2 billion to 7.9 billion over the course of the next four years.  Now, if you’re thinking; “10% over four years isn’t bad in tough times,” think again – that $700 million increase includes the $486 million set aside for the tuition grants, which of course doesn’t benefit institutions one bit.  It also presumably needs to cover ongoing funding for the 60,000 new places the government has announced  (capital costs for these students are included in the cost estimates but the ongoing operating funding isn’t).  Assuming a nice round $5,000 subsidy per student per year, that’s another $300 million, at which point we have used up the entire budgeted increase.

So, no rise to account for inflation.  No rise to account for increasing salaries.  No rise for anything, really – it’s a straight nominal freeze for institutions regardless of what’s happening to them on the cost side.  And this is from what is probably the most pro-PSE of the three parties in the current legislature.  Any other deal institutions might get is likely going to be worse.  And there’s no get-out on the tuition side.  If anything, the Liberals look set to reduce the annual 5% increase to something closer to 3%.

That means there’s no getting around the need for some serious belt-tightening.  Administrations at Western and Carleton are almost certainly wishing they could get a do-over on their faculty settlements from last year, and I can guarantee that this is going to make a resolution of the current Ontario colleges support staff strike a lot more difficult.  There simply isn’t money around anymore to fund the kind of settlements to which people have become accustomed.

Expect strikes.  Expect hiring freezes.  Expect an exodus of Ontario talent to better-funded universities further west.  This is what a $15 billion deficit will do to you.

September 01

Strategy Matters

Here’s a key truth to understanding the future of academia: the western world hit “Peak Higher Education” sometime in 2009. That is to say, across the OECD, we are unlikely to see public funding at 2009 levels ever again. Between the current global financial crisis and its associated fiscal problems, and the challenges associated with aging societies, there will not be a return to prior levels of public support for higher education for decades to come.

Now peak higher education isn’t hitting everyone equally. Canadian institutions, for instance, are thankfully not facing the 20%+ cuts the University of California system has undergone these last few years, or the 41% decrease in funding for teaching that UK universities are in the midst of experiencing. In some parts of the country, funding might even increase slightly over the next couple of years (though rather clearly, Ontario, Quebec and the three maritime provinces won’t be among the chosen few). But overall, the sector as a whole is going to be in decline.

Which means universities and colleges have four choices:

(1) They can get better at raising resources, through fundraising, charging higher tuition, attracting more international students

(2) They can get bend their cost curves to serve students more cheaply

(3) They can try some combination of the 1 and 2, or

(4) They can shrink.

That’s it. Those are the only alternatives. There’s no silver bullet which gets an institution out of those choices.

This is going to be painful. All those tough decisions which we used to be able to avoid taking when the next round of government funding came in? We actually need to face them now. In turn, what this means is that strategic thinking and strategic planning is going to take on a much more important and central role in higher education.

That’s why we at HESA are pleased to announce the launch of our new quarterly publication, The Global Higher Education Strategy Monitor. It takes a look at how institutions all over the world are using strategy to drive quality improvements and how higher education as a whole is adapting to Peak higher Education. Managing Editor Pamela Marcucci has put together a great first issue, which is available free of charge here. We hope you enjoy it.

August 24

Data Point of the Week: Comparing Academic Salaries

If there’s one subject we write about that gets people riled up, it’s academic salaries in Canada and the U.S. It’s a complicated issue – so let’s look at concrete examples at three of the better-paying Canadian institutions (Trent, Calgary and McMaster) and three prestigious American universities (Dartmouth, Washington and Berkeley).

If you just look at baseline salaries for two sets of institutions, you see some pretty big differences as shown in Figure 1, below. The gap is bigger for associate professors than for full professors, but either way, Canadian professors appear to be making out a lot better than American ones.

Figure 1: Unadjusted Average Base Salaries at Selected Institutions, in Thousands of Dollars.

But this isn’t quite the whole story. Our professors get a 12-month salary, and receive the same pay no matter what they do in the summer months. In the U.S., however, pay is on a nine-month basis – in the summer, many profs are working on research and drawing a separate income from their research grant. Different funders have slightly different rules about how much salary professors can take, but the basic rule of thumb – based on National Science Foundation (NSF) rules that came into effect in 2009 – is that they can take another two months’ worth of salary (i.e., 2/9 of their regular annual pay).

How does that affect average compensation in the U.S.? NSF data seems to indicate that about two-thirds of all professors at research universities hold grants. So, multiplying that out, average compensation across all faculty would look like this:

Figure 2: Adjusted Average Base Salaries at Selected Institutions, in Thousands of Dollars.

At the associate professor level, there is still an advantage to being in Canada – Trent, for instance, still has better salaries than Berkeley. But because promotion carries greater rewards in the U.S., the advantage reverses for full professors. There, all three Canadian universities have higher salaries than the University of Washington, but lower than those at Dartmouth and Berkeley.

If we only looked at research-active faculty, the numbers would look even better for the U.S. than they do in Figure 2. On the other hand, if we look at research-inactive faculty, the accurate comparison is Figure 1.

Another way of putting all this is that for older, research-active faculty, Canadian institutions may still face a bit of a compensation gap. For younger (i.e., associate professor rank) research-active faculty, Canada is the better bet; even Trent  outspends Berkeley. But where Canada really kicks tail is in research-inactive faculty, where faculty at our three selected universities have a collective compensation advantage of almost 25% for associate professors and 10% for full professors.

Which raises an interesting question: given the choice, is that the category in which we really want to have an advantage?

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