HESA

Higher Education Strategy Associates

Category Archives: Government

June 13

Who Should Benefit from Skills Training Money?

We seem to be in a period in Canada where money for “skills” is in vogue, mainly because it is seen as a panacea for lots of quite separate problems. At a really high-order level, you’ve got the Innovation ministry in Ottawa pounding the drum on skills because the tech industry says skills are a bottleneck to whatever kind of tech-powered Nirvana the Minister imagines Canada to be headed towards. And then you’ve got the Employment and Social Development Ministry and to an extent the PMO who see investing in skills as a social cohesion play – more skills means more jobs means we won’t look like the US rust belt and we can avoid a nasty bout of populism up here.

I’ll focus on the social cohesion play for the rest of this blog because no one wants to hear my views on the Innovation Minister’s views on coding again (though on the off-chance you do, see here). The mostly-unacknowledged problem we have right now is that there are three entirely separate possible foci for skills training, and very little (as far as I can tell) strategic direction about where we should be spending our dollars.

The first direction is pretty simple: providing money to train people who have lost their jobs. This is what Employment Insurance has done for over forty years. It’s not particularly good at it; but then, it’s not like any other countries are particularly good at it either. Re-training people mid-career is hard, especially if they don’t have an especially high skill level to begin with.

Then there’s the second direction, the one the Harper government tried to take us down, a bit. And that’s providing money to employers to provide more skills to their own workforce. The argument here – in part – is that we can to some extent prevent unemployment by subsidizing companies to invest more in their employees’ skills and thus make them more competitive. This is essentially what the Canada job Grant was supposed to do.

Finally, there’s a third direction, which is to help people develop their own skills, shall we say, prophylactically. That is, help workers get whatever skills they think they need in order to make themselves more flexible, and more employable. Now obviously you don’t need policy to do this – in a market economy people can invest in their own skills as they like, but repeated evidence from around the globe shows that if you do that then you tend to get a Matthew effect: those that already have tend to get more.

It’s never entirely clear why those with lower skills don’t invest on their own. Is it money?  Time? General disinclination to spending time in a classroom? But they don’t, so people are always looking for ways to try to entice them.  Not many schemes have worked well, however. One notable attempt to do this in the UK via something called “individual learning accounts” ended in dramatic failure and mass fraud.

One obvious possibility to encourage this kind of training would be to create some kind of guarantee for workers to be able to take time off for training, an idea which was contained in the 1985 MacDonald Commission (which dubbed it a “Time Bank”). Ontario could have gone this route last month when it announced its labour reform package, but instead decided to give everyone a third week of paid holiday instead. Missed opportunity.

The point I want to make here is not just that these are three different target “markets” for training, it’s that they are to some extents at cross-purposes with one another. For instance, employers really like the second type, because they get to direct where the training goes. They are somewhat less keen on the third kind, because if individuals are investing in their own skills, they are probably to some extent doing so to give themselves insurance and make themselves more mobile.

Because funds are not inexhaustible, there are trade-offs between subsidizing different types of training. At some point, if we’re going to get skills training policy right, the question of what skills, for who, and when, have to be answered openly and trade-offs have to be analyzed and debated. We’re not there yet – right now it’s mostly an inchoate “Need moar Skillz!” But we need to get there soon. Otherwise this is all a waste of time.

May 24

The Rock

No, not Dwayne Johnson (though You’re Welcome is indeed a great song).   I’m talking about Newfoundland (and Labrador), where the Minister of Advanced Education, Gerry Byrne, has decided to pick a fight with Memorial University of Newfoundland (MUN).

Why, you ask?  Good question.

MUN is in a position somewhat like the one the University of Alberta faced a couple of years ago, only worse.  Up to about 2012, a decade of hydrocarbon-fueled provincial budgets made MUN a pretty fun place.  The provincial government drenched the institution in money, which allowed it not only to keep tuition low (this year, $2,759 vs. Canadian average of $6,373), but also allow MUN to receive over $40,000 per FTE student, higher than the average in any other province (note this is not to say that MUN’s income per student was higher than that of any other Canadian institution.  It wasn’t.  But it made the top ten).

But of course, we all know the oil boom party came to a halt a few years ago.  Since then, it’s been cut, cut, cut – as I noted back here last week, provincial spending on post-secondary education has fallen by a remarkable 21% over the last six years). Some may want to accuse the provincial government of savagery in its cuts, but to be honest I’m not sure what choice they had.  Outside of OPEC countries, few jurisdictions’ budgets were as geared to the price of oil as Newfoundland’s, so when the price started to fall, across-the-board cuts were pretty much inevitable and there wasn’t much prospect of higher education being spared much pain.

So, MUN had to face cuts.  But the problem with cutting budgets at a university is a little thing called tenure.  Salaries of tenured faculty eat up about 30% of most Canadian universities’ budgets.  Throw in benefits and you’re up to around 40%.  If someone tells you to cut 20% the budget, but 40% of the budget is essentially untouchable, that means the rest of the budget has to be cut by about one-third.  And I don’t care what business you’re in, that stings.

But wait a minute, you say.  Doesn’t Newfoundland have the country’s lowest tuition, both for domestic ($2,759 vs. national average of $6,373) and international ($9,360 vs. $23,589) students?  Actually, aren’t international students only paying about 40% of the cost of their education?  After all, students there can afford a fee increase: only Manitoba has a smaller percentage of students receiving student aid.  There must be some flexibility there, right?

Well, as it turns out, no.  That would of course be the right thing to do, but the government doesn’t want to take the blame for raising tuition for middle-class students (though it doesn’t seem to have a problem cutting student aid to the poorest by 78%).  It flirted with allowing MUN to raise fees last year, but the university could see through that trap and refused.  This year, it ran out of room to manoeuvre and so proposed a set of fee increases which fell harder on out-of-province and international students than they did on domestic ones.  Cue grumbling about administrative waste, inefficiency, and high administrative salaries, not just from the usual suspects internally but from the Minister himself, who clearly wants to pose as a defender of students against the mean old administrators.  First, he says, MUN needs to wring out every bit of efficiency possible out of current structure – to that end, he says, the university needs to go back to “zero-based budgeting”.

Now, I don’t know any specifics about MUN, but it’s a fair guess that after ten years of having a firehose of money pointed at them by the provincial government, the institution had probably grown flabby in some areas.  It would be against human nature if it hadn’t.   But here’s the thing about university overspending: when it happens, it’s like blowing up a balloon.  The extra funds don’t cluster in one area, they are spread pretty evenly throughout the institution; like a balloon, the institution looks the same only bigger.  Did you really need to hire six people in student services instead of five?  Did you really need that extra tenure line in economics?  Could our profs maybe make 5% less than those at Dalhousie rather than exactly the same?  So fair play to the Minister – there are almost certainly efficiency gains to be had.

But note that most of the “extra costs” listed above are salary costs.  That’s normal because most universities spend 70%+  of their money on salaries.  And a lot of these salaries are covered by collective bargaining agreements which are pretty tightly worded to prevent job losses   How do you zero-base budget in that environment?  You can’t.  At best you wait for people to retire and then restructure around those who are left.  The Minister knows all of this perfectly well and that the idea of zero-based budgeting in this context is as dumb as a bag of hammers, yet for some reason he pretends otherwise.

It’s not that MUN doesn’t need to keep a lid on costs and restructure.  It does, and is already doing it.  But without breaking collective agreements (is that what the minister wants?  he should say so), cuts of this magnitude are very difficult to implement.  What MUN needs is some breathing space, something that a rise in fees would provide.  The Minister should stop trying to pick fights with the university, and try working constructively with it to mitigate the problems that the 21% cut his government’s cuts have created.

 

April 18

Naylor Report, Take 1

People are asking why I haven’t talked about the Naylor Report (aka the Review of Fundamental Science) yet.  The answer, briefly, is i) I’m swamped ii) there’s a lot to talk about in there and iii) I want to have some time to think it over.  But I did have some thoughts about chapter 3, where I think there is either an inadvertent error or the authors are trying to pull a fast one (and if it’s the latter I apologize for narking on them).  So I thought I would start there.

The main message of chapter 3 is that the government of Canada is not spending enough on inquiry-driven research in universities (this was not, incidentally, a question the Government of Canada asked of the review panel, but the panel answered it anyway).  One of the ways that the panel argues this point is that while Canada has among the world’s highest levels of Research and Development in the higher education sector – known as HERD if you’re in the R&D policy nerdocracy – most of the money for this comes from higher education institutions themselves and not the federal government.  This, that say, is internationally anomalous and a reason why the federal government should spend more money.

Here’s the graph they use to make this point:

Naylor Report

Hmm.  Hmmmmm.

So, there are really two problems here.  The first is that HERD can be calculated differently in different countries for completely rational reasons.  Let me give you the example of Canada vs. the US.  In Canada, the higher education portion of the contribution to HERD is composed of two things: i) aggregate faculty salaries times the proportion of time profs spend on research (Statscan occasionally does surveys on this – I’ll come back to it in a moment) plus ii) some imputation about unrecovered research overhead.  In the US, it’s just the latter.  Why?  Because the way the US collects data on HERD, the only faculty costs they capture are the chunks taken out of federal research grants.  Remember, in the US, profs are only paid 9 months per year and at least in the R&D accounts, that’s *all* teaching.  Only the pieces of research grant they take out as summer salary gets recorded as R&D expenditure (and also hence as a government-sponsored cost rather than a higher education-sponsored one).

But there’s a bigger issue here.  If one wants to argue that what matters is the ratio of federal portion of HERD to the higher-education portion of HERD, then it’s worth remembering what’s going on in the denominator.  Aggregate salaries are the first component.  The second component is research intensity, as measured through surveys.  This appears to be going up over time.  In 2000, Statscan did a survey which seemed to show the average prof spending somewhere between 30-35% of their time on research. A more recent survey shows that this has risen to 42%.  I am not sure if this latest co-efficient has been factored into the most recent HERD data, but when it does, it will show a major jump in higher education “spending” (or “investment”, if you prefer) on research, despite nothing really having changed at all (possibly it has been and it is what explains the bump seen in expenditures in 2012-13)

What the panel ends up arguing is for federal funding to run more closely in tune with higher education’s own “spending”.  But in practice what this means is: every time profs get a raise, federal funding would have to rise to keep pace.  Every time profs decide – for whatever reasons – to spend more time on research, federal funds should rise to keep pace.  And no doubt that would be awesome for all concerned, but come on.  Treasury Board would have conniptions if someone tried to sell that as a funding mechanism.

None of which is to say federal funding on inquiry-driven research shouldn’t rise.  Just to say that using data on university-funded HERD might not be a super-solid base from which to argue that point

March 30

What’s Next for Student Aid

A few months ago, someone asked me what I wanted to see in the budget.  I said i) investment in aboriginal PSE, ii) system changes for the benefit of mature students and iii) changes to loan repayment (specifically, a reduction of the maximum loan payment from 20%  of disposable income to 15%).  To my great pleasure, the government came through on two of those wishes.  But there is still a lot of work to do yet.

Let’s start with the Post-Secondary Student Support Program, which the Government of Canada gives to individual First Nations to support band members’ education costs.  The Budget provides a $45 million (14%) bump to this program but also said the Government would “undertake a comprehensive and collaborative review with Indigenous partners of all current federal programs that support Indigenous students who wish to pursue post-secondary education”, which I think is code for “we’d prefer a new mechanism which is somewhat more transparent than PSSSP”.

Let’s just say I have my doubts about how easy this collaborative review will be.  Indigenous peoples – young ones especially – have a lot of issues with the federal government at the moment, and it will be difficult to try to manage a focussed review of this one subject without a lot of other agenda items intruding.  I’ve written on this subject before, and there certainly are ways which the funding could be arranged to be managed more efficiently.  That said, some of these ways involve taking management away from band councils and giving it to some other aboriginal organization operating at a larger scale and not all bands are going to find that appealing.

Anyways, the takeaway is: if the feds are expecting a replacement to PSSSP to be in place by fall 2019, they’d better get to work yesterday.

Now, what about the new measures for mature students/adults returning to school?  This was a welcome budget initiative, because the policy discussion has perhaps been focussed too heavily on traditional-aged students for the past few years.  There are however, maybe two cautions I would put on the initiative and how it will roll out.

The first is the budget description of the $287M over three years for programs benefitting these students as a “pilot project’.  I am fairly certain that is PMO-speak, not ESDC-speak.  First of all, I’m moderately certain the law doesn’t allow pilots; second, the idea that provinces are willingly going to spend time and money re-jigging all their program systems to accommodate program changes that are inherently temporary in nature is kind of fanciful.  So I suspect what’s going to happen here is that over the next few months CSLP is going to come up with a bunch of different ways to help this population (change cost allowances for older students, and maybe for dependents too), re-jig how prior-year income is calculated, raise loan limits for this population, raise grant eligibility, etc etc) and then roll them out in roughly ascending order of how irritating they are for provinces to program.  It’s not going to be a big bang, which may limit how well the policy is communicated to its intended targets.

But there’s a bigger issue at play here which the government missed in its haste to get a budget out the door.  One of the biggest problems in funding re-training are the artificial breaks in funding and jurisdiction that occur at the 12-month mark.  If your program is shorter than that, you’re covered by various provincial labour market initiatives and on the whole your compensation is decent.  Longer than that, you’re on fed/prov student aid, which in general is not as generous (and more to the point is repayable).  It would be useful for the two levels of government to work together to provide a more seamless set of benefits.  Perhaps regardless of program length, learners could benefit from 8 months of the more generous treatment and then move on to a slightly less-generous mixed loan/grant system.  This wouldn’t be a quick shift: my guess is that even if you now started talking about how to achieve this, it would still take four or five years for a solid, specific solution to come into view (if you think universities are slow, try federalism).  But still, now’s as good a time as any to start, and perhaps the dollars attached to the mature students programs may be a good conversation starter.

My third wish – the one that didn’t get any traction in this budget – was for improvement in student loan repayment.  I’m not that disappointed in the sense that I’m not greedy (no budget would ever have given me 3-for-3), but I do think there I work to be done here.  Perhaps this gets enacted as part of the follow-up to the Expert Panel on Youth being chaired by Vass Bednar and due for release at some point this spring (although who knows, if the Naylor Report is anything to go by, we could be waiting into 2019).  Or perhaps not: it’s not like CSLP hasn’t already been given a huge whack of work for the next couple of years.

But if that’s the worst problem we have in student aid in Canada, I’d say we are in pretty good shape.

 

(As a coda here, I’d just like to pay tribute to the Canada Student Loans Program’s Director-General, Mary Pichette, who is leaving the public service shortly.  Mary’s been involved two big rounds of CSLP reform: the one in 2004/5 which first created the grants for low-income students, and second the ones around the 2016 budget (not just the increase in grants but the many smaller but still important changes to need assessment as well. 

 I won’t say –I’m sure she wouldn’t want me to – that those two reforms were down to her.  But they were down to teams that she led.  She did a lot over her two stints in the program to make the policy shop more evidence-based and her legacy is simply that she’s made life easier for literally hundreds of thousands of student across the country.  They can’t thank her, but I can.  Mary, you will be missed.)

March 02

Bravo, New Brunswick

Readers may remember that about this time last year, I was giving the Government of New Brunswick a bit of stick for a botched student aid roll-out. Today I am pleased to give credit where it is due, and congratulate the folks in Fredericton for fixing the problem and developing a much better student aid system.

Let’s go back 12 months to pick up the story.  In February 2016, the Ontario government had come up with a fabulous new system which basically made a promise of grants equal to or greater than average tuition for students from low to mid-family incomes.  At family incomes above that, students received a declining amount of money out to about $110,000 at which point the grant flattens to a little under $2,000 (a remnant of the government’s ludicrous “30% tuition rebate” from 2011) and then falls to zero a little over $160,000.  With a bit of clumsiness this eventually, sort of, got branded as “free tuition for low- and middle-income students, which it isn’t, quite, but close enough for advertising.  Cue what is seen to be a major policy success.

It was such a success that New Brunswick decided to copy it later last spring.  Like Ontario, they built on the change to Canada Student Grants and eliminated some of their own tax credits (including the egregiously wasteful graduate tax rebate) to fund a “Tuition Access Bursary”, which guaranteed a grant equal to tuition (up to a maximum of $10,000, which was more generous than Ontario) for students from families making under $60,000. Which is great, right?  Well, yes, except the problem is, there was no phase-out for the grant.  At $59,999 in family income, there you were raking in $6500 or so in grants and at $60,001 you got $1200 in grants (the federal middle-income grant) and that’s not great social policy.  Making it worse was the fact that families in that $60K to $70K would also be losing a lot of money in tax credits that both the federal and provincial governments were ending in order to pay for this new benefit; my back-of-the envelope calculation was that in this range, parents were going to be about $1,200 worse off as a result of the change.

In any case, because I and others pointed out this flaw, the government after a brief period of defensive blustering decided it was best to go back to the drawing board and revisit the formula.  They did so and last week came up with a new “Tuition Relief for the Middle Class”, which basically involved taking a sliding declining scale of grants for families earning between $60-100,000 onto the existing Tuition Access Bursary (which has been renamed the “Free Tuition Program”).  Arguably, the New Brunswick program is now somewhat better than the Ontario program because 1) it’s not just “grants up to “average” tuition”, a caveat which I suspect is going to leave a lot of people slightly cheesed off when the program starts and 2) It still manages not to subsidize people up to that absurdly high $160K + threshold that Ontario insists on maintaining.  Ontario gets points for making its aid portable, though – New Brunswick’s program is only available to students who study in-province, which I think is a shame.

The announcement – which you know, hey guys, it’s a good news story! – was marred somewhat by some media sniping about how the number of beneficiaries is about 30% short of what was estimated last year.  To me this is neither here nor there: government cost estimates on year 1 of a new program are often a matter of throwing numbers at a dartboard.  The good news is that there is still money to either raise the entry threshold for the Free Tuition Program or (better still) expand the debt relief program or top up the amount of money available to high-need mature students and parents through the New Brunswick Bursary Program.

Now, all we need for this to be perfect is for New Brunswick to come up with a smart, credible monitoring program to examine the effects of these changes on participation over the next few years.

(New Brunswick folk: that’s on the way, right guys?  Right?  Well, you know where to find me if you need a hand…)

Anyways, as I say, credit where it is due.  Well done, New Brunswick.

February 28

The “Not Enough Engineers” Canard

Yesterday I suggested that Ottawa might be as much of the problem in innovation policy as it is the solution.  Today I want to make a much stronger policy claim: that Canada has a uniquely stupid policy discourse on innovation.   And as Exhibit A in this argument I want to present a piece posted over at Policy Options last week.

The article was written by Kat Nejatian, a former staffer to Jason Kenney and now CEO of a payment technology company (OVERCONFIDENT TECH DUDE KLAXON ALERT).  Basically the piece suggests that the whole innovation problem is a function of inputs: not enough venture capital and not enough engineers.  Let me take those two pieces separately.

First comes a claim that Canada’s Venture Capital funding is following further and further behind the United States.  He quotes a blog post from Wellington Financial saying: American venture-capital-backed companies raised US$93.37 per capita in 2006, while in Canada we raised US$45.76 per capita. Nearly a decade later, in 2015, US companies had doubled their performance, raising an average of US$186.23 per capita, while Canadian companies had only inched up to US$49.42.

There are two problems here.  First, these figures are in USD at current exchange rates.  You may remember that 2006 was an extraordinarily good year for the Canadian dollar, and 2015 less so, so this isn’t the best comparison in the world.  Second, they in no way match up with other published data on venture capital as a percentage of GDP.  The reference years are different, but the Conference Board noted that the VC funding as a percentage of GDP grew in Canada from .06 to .1% of GDP between 2009 and 2013, and now stands second in the world only to the US (the US grew from .13% to .18% while all of Europe fell back sharply).  And Richard Florida noted in The Atlantic that in terms of VC funding per capita, Toronto is the only non-American city which cracks the world’s top 20.  I am not sure what to make of these differences; I expect some of it has to do with definitions of venture capital (early-stage vs. late-stage for example).  But looking at more than one data point throws Nejatian’s hypothesis into doubt.

But the bigger whopper in this article has to do with the claim that Canada does not educate enough engineers.  Now forget the fact that the number of engineering graduates has very little to do with success in innovation, even if you define innovation a narrowly as Nejatian does (i.e. as tech and nothing else).  His numbers are simply and outrageously wrong.  He claims Canada produced only 12,000 new Engineering grads; in fact, the number of undergraduate degrees awarded in Architecture & Engineering in 2014 was 18,000, and that’s excluding math and computer science (another 5,400), not to mention new graduate degrees in both those areas (another 11,700).  He claims the UK produces 3.5 times the number of engineers per capita that Canada does.  It doesn’t; there is a gap, but it’s not very big – 9% of their degrees go to engineers compared to 8% of ours (see figure below).  He repeats the scare claim – demolished long ago by Vivek Wadhwa among others – that India is going to eat our lunch because it graduates 1.5 million engineers per year.  This argument needs to go back to 2006 where it belongs: only a tiny percentage of these engineers are of the calibre of North American E-schools, and one recent Times of India  piece suggested that 93% of them were not actually employable (which sounds like an exaggeration but still points to a significant underlying problem).

Figure 1: Science & Engineering Degrees as % of Total Degrees Awarded, Selected OECD Countries

OTTSYD 2017-02-27-1

(See what I mean?  The US has the smallest percentage of undergraduate degrees in engineering and yet it leads everyone else in tech…yet apparently that doesn’t matter to Nejatian – all that matters is MOAR ENGINEERS.  I mean, if we increase our proportion of degrees in engineering by about 60% we could be as innovative as…Italy?)

I could go on, but you get the picture.  This is a terrible argument using catastrophically inaccurate data and yet it gets a place in what is supposed to be our country’s premier publication on public policy.  It’s appalling.  But it fits with the way we talk about innovation in this country.  We focus on inputs rather than processes and relationships.  We see a lack of inputs and immediately try to work out how to increase them rather than asking i) do these inputs actually matter or ii) why are they low in the first place (actually, the only redeeming feature about this article is that it doesn’t make any recommendations, which given the quality of the analysis is really a blessing for all concerned).

Could Canada do with a few more engineers?  Probably.  It’s the one field of study where incomes of new graduates are still rising in real terms, which suggests the demand could support a greater supply.  But the causal link between Engineers and innovation is a vast oversimplification.  If we want better policy in this country, we need to start by improving the quality of the discourse and analysis.  Policy Options has done us all a disservice by letting this piece go out under their name.

February 27

Can Ottawa Do Innovation?

The National Post’s David Akin had a useful article last week entitled Canada Has Failed at Innovation for 100 years: Can The Trudeau Government Change That?  Read it, it’s good.  It’s based around a new-ish Peter Nicholson article in Canadian Public Policy which is unfortunately not available without a subscription.  But Nicholson’s argument appears to be: we’ve done pretty well our entire history as a country copying or importing technology from Americans: what exactly is it that Ottawa is going to do to “shock” us into becoming a massive innovator?

Good question.  But I have a better question: does it make any sense that the federal government is leading on these kinds of policies?  Wouldn’t provinces bet better suited to the job?  Knee-jerk centralists (my guess: probably half my subscribers) probably find that suggestion pretty horrific.  But hear me out.  There are a number of really good reasons why Ottawa probably isn’t best placed to lead on this file.

First: innovation policy is to a large extent is about people and skills.  And skills policy has been fully in the hands of provincial governments for over twenty years now.  We accept that provincial governments are closer to local labour markets and local business for skills purposes.  Surely the same is also true for innovation?

Second: Canada is huge.  We’re not like Singapore or Israel or Taiwan, where industries are essentially homogenous across the entire country.  We are more like China or the US, where a single industry might look completely different in one part of the country than another.  If you haven’t already read Run of the Red Queen: Government, Innovation, Globalization and Economic Growth in China by Dan Breznitz and Michael Murphree, I recommend it.  Besides showing how innovation can be profitable even when it is not of the “new product”/”blue sky” (a truth to which our current government seems utterly oblivious), it shows how the structure of a single industry (in this case, IT) can be utterly different in different parts of a single country.  That’s also true in Canada.  And it’s why it’s tough to draw up decent national policies on a sectoral level.

(A corollary to that second point, which I made back here: because the country is so big, any government attempt to play the “cluster” game in the name of improved innovation is bound to get wrapped up in regional politics pretty quickly.  Anyone who’s watched Montreal and Toronto’s unseemly jockeying for a single big federal investment in Artificial Intelligence will know what I mean.)

Over the course of the past twenty years, of course, many provinces have set up their own innovation ministries or agencies.  But apart from the partial exceptions of Ontario and Quebec, they tend to be poor cousins of the federal ministry: understaffed and not especially well-resourced.  As a result, they’re not at present any more effective than Ottawa in driving innovation.  But that could change with more effective investment.  And of course, Ottawa would always have a role to play: if nothing else, its authority over competition policy means it will always have levers which it can and should use to promote innovation (even if at present it seems extremely reluctant to use this particular lever).

In short, it’s worth considering the hypothesis that it’s not “Canada” which has failed at innovation, but Ottawa.

February 22

Notes for the NDP Leadership Race

As contestants start to jump into the federal NDP leadership race, it’s only a matter of time before someone starts promising free tuition to all across the land.  Now, I’m not going to rehash why free tuition is both regressive and undesirable (though if you really want to take a gander through the archives on free tuition, have a look here).  But I do think I can do some public service by talking about federalism and higher education, or rather: what the feds can and cannot do in this sphere.

The entire Canadian constitution is based around a compromise on education dating from 1864.  Upper Canada came to the Quebec conference with one overriding aim: representation by population in Parliament, so that their superior population would give them the most seats in Parliament.  Lower Canada agreed if and only if a second, local, and equal tier of government was created which would have jurisdiction over education and health, because over-their-dead-bodies were a bunch of (mostly) Orangemen going to get their hands on a hallowed set of (mostly) French catholic institutions.

There’s nothing in there that stops Ottawa’s ability to give money to individuals for the purpose of education.  This is why, despite all the sturm und drang, Quebec never put up a legal fight to the Canada Millennium Scholarship Foundation: Ottawa can give cash to whoever it wants, whenever it wants.  But when it comes to dealing with institutions, their ability to direct money to areas of provincial jurisdiction is subject to provincial veto.  The provinces accept (with limits, in Quebec’s case) that the feds can flow money to institutions for the purposes of academic research.  Hence the Canadian Foundation for Innovation.  They do not accept that it can send money to institutions for operating purposes.

(Historical footnote: there was a period where nine out of ten of them were prepared to accept this.  Back in the mid-1950s, there was a ruse in which the federal government handed tens of millions of dollars every year (a lot back then) to Universities Canada – then known as the National Conference of Canadian Universities and Colleges – which it would then distribute to institutions.  In theory this was a canny work-around to the constitution.  In practice, it stalled because Duplessis blew a gasket and told Quebec universities that if they touched a dime of that money, he’d take it out of their provincial funding.  Pierre Elliott Trudeau then wrote a wonderful article in la Cite called “Federal Grants to Universities” explaining why Duplessis was 100% right and St. Laurent was in kookooland, constitutionally speaking.  It’s a great article, read it if you can.  Anyway, this arrangement lasted into the 1960s, when the feds got out of this arrangement and moved into per-capita grants instead.  And that door is now shut: there is no going back through it.)

Politically, there is a fantasy shared by some on the political left that the federal government can simply re-acquire policy leadership in the post-secondary field by passing an act of Parliament and adding great wodges of cash to existing transfers… with strings attached.  I’ve previously (here) torn a strip off the idea of a federal Post-Secondary Education Act, but let me focus here specifically on the idea that a generalized fiscal transfer could actually affect tuition fees.  Let’s just imagine how that discussion would go.

Ottawa: we want to give each of you money so that you bring your tuition fees to zero.  Quebec and Newfoundland, your fees are about $3000, so we’ll give you that per student…

Ontario: Our fees are $7500 a student or so.  Fork it over.

Quebec and Newfoundland: Hold it.

I could go on here about the nuances of fiscal federalism, but basically that’s the problem in a nutshell (for my American readers: in some less disastrous timeline, Hillary Clinton is facing exactly this problem as she attempts to implement her free tuition promise for public universities). There are ways the federal government could bribe provinces into lowering tuition.  In fact, something like that actually happened in Nova Scotia as a result of the NDP-Liberal budget deal in the minority Parliament of 2005.  But you wouldn’t necessarily get them to lower by an equal amount, and you definitely wouldn’t get them to go to zero because they have vastly different starting points.

So, here’s the quick heads-up to all prospective New Democrat leadership candidates: even if it wanted to, the Government of Canada has no sensible way to eliminate tuition nationally.  If you do manage to form a government, this will be broken promise #1.  So don’t promise it.  Instead, think about ways to support students which don’t involve tuition.  There is a whole whack of things you could do with student assistance instead.  And the best part is: if you use student aid as a tool instead of tuition, you can channel aid to those who actually need it most.

February 14

How to Fund (1)

Over the next three days, I want to talk about funding formulas.  I know I did this a couple of years ago, at the start of the Ontario funding formula review exercise (see here, here, and here, but it’s worth revisiting  partly because I’m cheesed off at how Ontario managed to botch the review, but also, it’s because I’ve been looking at funding formulas in Europe and the US for article I’ve been writing, and it’s absolutely stunning to me how pretty much everyone except Canada has some kind of performance measurement in their formula, but we can’t because everyone is afraid of creating “winners” and “losers”.  So today I’d like to give you a kind of grand overview of how funding formulas actually work, tomorrow I’ll have an overview of how formulas work in various parts of the world and then on Thursday I’ll come back to blow off steam about Ontario.

Are you sitting comfortably?  Then I’ll begin.

There are basically seven ways governments can hand money over to institutions.  They are, in more or less ascending order of policy sophistication:

Negotiated BudgetsMost of the developing world works on this system.  An institution tots up its wish list for the year, shows up at the Minister’s office, which says yea or nay to a variety of requests, and that’s that.  The government is under no obligation to treat institutions in the same manner and so “favoured” institutions often make out pretty well under this system.  This system tends to exist in countries where trust in institutions is low: effectively this system gives government a line-by-line veto over institutions budgets.

Historically-based lump sums.  This is more or less how it’s done in most Canadian provinces.  Government looks at what they gave each institution last year (which probably has at least some relationship to costs and outputs) takes a gander at provincial finances this year, and decides what everyone’s going to get in consequence this year.  It’s a step up on negotiated budgets in the sense that everyone gets treated more equally.  In provinces like Newfoundland and PEI, where there’s only one institution, this systems makes sense (because really, why make a formula when there’s only one institution?).  It probably makes less sense in Alberta, which also uses it.

Enrolment-based fundingIn most of North America, including Canada’s two biggest provinces, the majority of cash transferred by governments to institutions is simply based on the numbers of students enrolled, with more expensive programs given an extra “weight”, allegedly based on real costs (so, a medicine student is worth 5x an arts student, etc.).  These weights vary quite a bit from jurisdiction to jurisdiction so it’s a bit dubious that they are really based on “actual costs”.  It’s better to think of them as consensual fictions which are mutually convenient for both institutions’ and government’s planning purposes.  (Intriguingly, during the Ontario funding formula discussions, one of the most urgent pleas from institutions was “don’t mess with the subject weightings”.  Make of that what you will.)

Output-based FundingFitfully, the world is moving to various types of output-based funding.  In the US that means small amounts of funding based on various measure of progress/completion; in Europe, it’s quite large amounts of funding, usually some combination of student output and research outcomes.   Where it is based on student funding, the money is often weighted by the discipline from which the student graduate, just the way enrolment funding is. Note that output-based funding is not the same thing as outcome based funding.  There are a very few places which get funded based on student employment rates or student loan default rates (though the Harris government in Ontario did give that a try for awhile and countries like Finland do incorporate employment outcomes in funding decisions at the margins).

Competitive Funding. In Canada, we traditionally think of competitive funding as occurring at the level of the individual researcher.  But increasingly, we’re seeing funding being competitive at the institutional level (think CFI, think CFREF).  In other countries – particularly those which provide money for teaching and research in two separate envelopes – this has been the norm for a long time.

Mission-based funding.  There are a few places – Austria in particular – where funding is at least partially conditional on fulfilling a particular mandate or reaching a set of goals.  (Arguably, British Columbia uses this method, but the conditions are softer than in Austria).  In some ways this is a throwback to a negotiated budget system, but with an actual check for  “return on investment”.

Other Stuff.  Governments hand out money for all kinds of reasons.  Some are recurrent, such as being a Northern university (in Ontario, anyway) or a university serving the French community. In some countries you will see special envelopes for institutions to maintain art galleries and museums.  Then there’s the stuff which is basically play-money for ministers wanting to make a few headlines: throw-away money for a new building here, a new building there, money for mental health initiatives, or entrepreneurship centres, or what have you.  Most often seen in election years.

(If you want to split hairs, there’s an eighth way: subsidizing student tuition dollars through loan and grants.  But we’ll stick to the direct methods of subsidy for now).

Most jurisdictions of course use multiple means of dispersing funds.  For instance, though a majority of the world’s jurisdictions provide funds primarily as “negotiated”, “lump-sum” or “enrolment-based formula” systems, they still often have pockets of money given out competitively, or as “other” funding.

Internationally, what is striking about Canada (and to some extent the US) is how reliant they are on methods 2 and 3 compared to Europe which on the whole uses method 4 (output-based funding) a lot more.  I’ll show those differences in more detail tomorrow.

February 09

Skills and Youth

What with the Advisory Council on Growth’s paper on skills, and the Expert Panel on Youth Employment wrapping up, public policy is suddenly back to a focus on skills – and in particular what skills youth should have.  So, let’s talk about that.

While some in the federal government will state forcefully that they are not – repeat NOT- going to be like the previous government and tell students what fields they should study (read: welding), literally every time skills come up they start babbling about coding, tech and whatnot.  So as near as I can tell, this government is just as directive about skills as the previous one, it’s just that a) they’re pushing a different set of skills and b) they aren’t actively trashing programs of study they see as less valuable, the way the Tories did with sociology.

The Liberals’ urge to get everyone tech-ing is understandable, if shallow.  What’s the one part of the youth labour market where kids are doing better than ever?  Engineering and computer science.  Are tech-enabled industries the wave of the future?  Well, kinda, depending on your definition of what that means.  But let’s think a little bit more about what that means.

Consider what I would call “hard” tech skills: the people who actually do code or computer science for a living. There’s just not that many of them around.  And here’s a secret: even if Canada becomes some kind of massive tech haven, there still won’t be that many around.  It’s simply not a high-employment industry.  Defining it really ambitiously and assuming high rates of growth, these jobs might equal five percent of the labor force.  So, yeah, let’s increase the size of engineering and CS programs, a bit.  But that’s not a skills solution for the economy as a whole.  We need something for the other 95% of the population.

Now, there’s a broader set of tech skills that matter to a broader subsection of the population.  Some people call these “coding skills” but it’s actually closer to digital literacy.  Basically, people who work with databases all the time – whether they are in accounting or sales or advertising or what have you – can become more productive if they better understand the logic behind databases and have some understanding of how algorithms might improve their use.  Artists and designers can command higher salaries if they have some digital skills.  To be clear – this doesn’t mean we need more credentials in these areas.  It means we need more people in the workforce who possess thee skills as part of their toolkit.  They could learn this stuff through coding schools or “bootcamps”, or maybe more colleges and universities could integrate these skills into existing programs but more likely most people are going to acquire these skills informally.  Which is fine, as long as they have them.

But still, put those two sets of tech skills together and you’re covering maybe a quarter of the labour force.  And that’s not good enough.  What are we going to do for everyone else?

No one has a crystal ball that can help understand what jobs of the future look like.  But it does seem the case that if technology is going to be as disruptive as the tech-boosters think it will be, then a lot of jobs are going to be automated.  In fact, human employment will be increasingly be concentrated in things that computers or robots cannot do.  And in the main, those are either jobs that require a wide variety of physical skills or jobs that involve judgement and empathy.  Last year, Geoff Colvin wrote a book on this subject called Humans are Underrated, which is worth reading if you’re into this topic.

Put it this way.  We’ve got a minority of our future workers who will be working hard to make better robots and algorithms to do things humans can’t do (at least not near the price computers can do it).  But we’re also going to have a majority of our future workers who are going to have to work hard at making themselves unreplaceable by machines by employing very human skills like empathy and narrative.  Why in the name of all that’s holy would we focus our energies just on the first group of workers?  Why not acknowledge what’s actually happening in the labour market and say: we’re going to work on both?

A final point about skills and youth.  As I noted back here something really does seem to have changed in the labour market after 2008.  Full-time enrolment rates in particular have shifted downwards – but this is much more pronounced among the younger age groups (15-19) than it is among older ones (25-29).  This is consistent with a theory of skills-biased technological change: younger people have fewer skills than older ones.  But be careful here in equating the acquisition of skills with obtaining an education.  Employers want people who can get a job done: by and large when they talk about “skills shortages” what they actually mean is “experienced worker shortages”, because to them acquired tacit knowledge matter at least as much formally-acquired knowledge.   To put that a little more concisely: it’s not just that education is more important than ever, but experience is also more important than ever, especially for young people.

I know the Expert Panel will be thinking about these issues, because they kindly invited me to a roundtable event last week and we talked about all this (thanks, Vass!).  But the people who really need to be thinking about these issues are colleges and universities – perhaps more the latter than the former.  Study after study for the last two decades have shown that the number one reason students attend university is to get a god job.

As I’ve just run through, jobs are about experience and skills.  Could be tech skills, could be empathy/narrative skills: either is fine.  Slowly, institutions are coming around to the idea that experience matters and so work-integrated learning is expanding.  Great.  Hard tech skills?  We’ve got a lot of that covered.  Integrating second-level tech skills into other programs in Arts, Science and business.  Getting there (in some places, anyway).  But the narrative/empathy stuff?  I know some people blather on about how humanities give you these skills somehow by osmosis, but do they really?  Who’s checking?  How is it being measured?  And why on earth would we want to limit that stuff to the Liberal Arts anyway?

If I were a university President, these are the kinds of things I’d be asking my Deans to think about.

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