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

2. Society has changed its perception of universities • Universities centre stage • Increasing focus of political attention • No longer separate from the world

3. Increasing demands on higher education • Create knowledge • Research • Transmit knowledge • Teaching • Engine for economic growth • Prepare workforce for a “knowledge economy” • Knowledge transfer • Regional development • Community Service • Social mobility • Social Cohesion/Moral Authority

4. The economic role of universities • Instrumentalist (utilitarian) view unsurprising, but regrettable • Cost to taxpayers is high • Cost to individuals is increasing

5. Non-economic benefits of higher education • Are real • Are substantial • Have both financial and social value • Wider Benefits of Learning Group (http://www.learningbenefits.net/Publications/ResearchReports.htm) • Better health • Better parents • Better social integration

6. The case of England: Sources of University Income 2001-02 Source: HESA finance record 2001-02, HEFCE-funded HEIs

7. Some universities are much more self sufficient than others

8. Who should pay for higher education? • The state benefits • So the state should pay • For 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 • Universities should be entrepreneurial & seek multiple sources of funds

9. The approach to Government funding varies • Degree of autonomy (and maturity) • Formula • Negotiated

10. Relationship between autonomy and funding

11. The Autonomy of Universities • Managerial Autonomy • Vice-Chancellor/Rector/President is appointed by University Council • Councils are self appointed & supreme • Academic autonomy • Students • Staff • Programmes & Curriculum • Financial autonomy • Block Grant • Balances • Borrowing • Overdrafts

12. The approach to Government funding varies • Degree of autonomy (and maturity) • Formula • Negotiated • Capacity and infrastructure • Accountability requirements • Extent & significance of Government funding • Extent of competition between universities • Are supply & demand in balance? • How much differentiation between universities is ok? • Policies the Government wishes to effect through HE

13. Approaches to funding • Deficit funding (the traditional approach) • Negotiated • How to handle private income when inputs are funded? • Formula-based • Cost based • Price-based • Contract funding • Competitive funding • Needs competition! • Performance-based • Specific funding (to advance specific policies)

14. Drivers • Relations between Government and sector • Stage of development • Specific vs block grant • Market vs planning • The size of the system • Policy concerns – for example • Promote efficiency • Encourage growth • Promote quality • Reduce drop-out • Promote employability • Widen participation • The national infrastructure available

15. Performance-Based Funding: What is it? • Differential funding based on some measure(s) of performance

16. Why PBF? • Encourage certain behaviours • Encourage efficiency • Create competition • Improve quality • Create differentiation between universities • Avoid corruption • Simplify allocation mechanisms

17. Alternative forms of PBF • Pure market forces • Government intervention Could be based on • Quality • Price • Outputs (though this has an element of price) • Simply to drive Government policy (e.g. proportion of poor or minority students admitted)

18. Alternative forms of PBF • Pure market forces • Government intervention Could be based on • Quality • Price • Outputs (though this has an element of price) • Simply to drive Government policy (e.g. proportion of poor or minority students admitted) What types of behaviours are you trying to encourage?

19. PBF in UK • Teaching • Number of students recruited – of different types (academic/social) • Penalty for dropout • Cost • Research • 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

20. 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

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

22. One Consequence of PBF in England – selective research funding

23. Another consequence: similar sized institutions receive very different grant

24. Advantages of PBF • Promote policies through funding • Encourages entrepreneurship • Can encourage quality • Can encourage efficiency • Can provide funding differentially • Can encourage pretty well any behaviour you wish • Can leverage behavioural improvement well beyond those benefiting from the funding

25. Disadvantages of PBF • Conflicting policies • Risk of destabilising institutions • Risk to subject/regional provision • Sacrifices collegiality for competition • Can give rise to conforming behaviour • e.g. chasing publications • e.g. avoiding interdisciplinary research • Can give rise to undesirable behaviour • e.g. funding the number of graduates produced

26. Caveats & conditions for successful PBF • Data • Audit • Culture (how much differentiation and hierarchy is acceptable?)

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

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