The high road and low road of public investment in universities

Investments in universities may be on a downward trend worldwide, but Australia starts below average. Flickr/skynet, CC BY-SA

Across the world, governments are grappling with the health of their public finances. The acute needs of healthcare, infrastructure and schools education are hard to ignore, so many governments see cuts to spending on universities as the “least worst” response. The recently mooted reductions in university funding in Australia thus follow a global, albeit patchy, trend of sorts.

The following graph shows spending per tertiary student by governments as a percentage of per capita GDP between 1998 and 2011. Australia, on the far left, is among the lowest in the OECD, although the overall trend among the nations shown is downward.

OECD Funding per Tertiary Student as a Percentage of GDP per Capita. Germany, Canada and Luxembourg are excluded due to lack of data. http://data.worldbank.org/indicator/SE.XPD.TERT.PC.ZS

The great variance across the OECD is notable. Many nations fund university students at levels around half their GDP per capita (Austria, Switzerland, Sweden, Denmark, the Netherlands and Norway for example). Others provide much lower levels of public investment. Australia is notable among the latter group, with funding per student, even before the recent budget cuts and “efficiency dividends”, barely exceeding 20% of GDP per capita.

The 20% reduction in funding per student foreshadowed in the May budget (although yet to be passed by parliament) follows cuts of a similar magnitude in the UK. In the United States, serious financial problems have rapidly emerged in universities reliant on financially crippled state budgets. Common to the US and UK experience, and the proposals in Australia, is a shifting of educational costs towards students, in spite of the very real fears about the long-term impacts for graduates.

The picture among continental European nations is more mixed. Nations facing serious economic problems (including Spain and Italy) are significantly reducing university funding. Others, especially the Nordic nations, are generally maintaining or even increasing funding. Importantly, these Nordic nations have had the most generous funding in the past and the least focus on student fees as the core funding mechanism.

Australia is positioning itself among the “low road” nations - where governments have responded to real or perceived crises in public finances by cutting university funding. The cuts are generally seen as among the most palatable available to budget framers.

A key justification often employed relates to the shared societal and private benefits that flow from higher education. In essence, why should governments pay for the higher education of citizens who garner significant private benefits from its provision and completion?

What are the consequences of this way of thinking?

There are many problems with such an approach. First, the “high road” nations see universities as key players in complex knowledge economies that support high-value-adding jobs.

A reduction in university research and teaching will likely significantly “dumb down” Australia’s economy, making us more reliant on imported knowledge and technology. Regional neighbours such as Singapore, Japan, Korea and Hong Kong see universities as the ideal domain for economically relevant research. The loss of such capacity in Australia will have far-reaching consequences.

Second, other risks relate to the global nature of academia. The risks of a brain drain are evident because academics have one of the most portable and global careers.

Oportunities in Europe and Asia in the decades ahead will likely be very enticing for Australia’s best and brightest. An emaciated university sector, with slipping research rankings, will also attract fewer international students. This will have far-reaching consequences for universities and the local economies within which they are based.

Furthermore, developed economies including Australia have long seen the provision of free or highly subsidised education (from school to university) as an entitlement available to all. While the most capable and motivated citizens surely gain from this, a key element of the social contract established by such arrangements is that these people also make the greatest contribution back to society through progressive taxation systems across their working lives. Having people privately pay for skills with private and public benefits lacks equity.

Finally, it is likely that the burden shifting to students will create barriers to participation for low socio-economic students – regardless of how repayments are structured – especially as fees increase significantly.

The balance between public and private burden sharing and benefits is complex. Looking globally, Australia was well behind similar nations even before the May budget. Further reductions will make for a meaner, dumber and less competitive society and economy.