The changing rationale for public funding: Why do we have publicly financed universities?

The changing rationale for public funding: Why do we have publicly financed

universities?

Aldo GeunaUniversita’ di Torino

DIMETIC, PECS – July 2009

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Content

Changing roles of the university Traditional rationale: Post-WWII approach. Changing characteristics of university research. New rationale: Contractual-oriented approach. Advantages and Potential Unintended

Consequences: What matters it is from where you start.

Growing Role of University Research

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Changing roles of university

1. To reproduce and transmit existing knowledge (Paris&Bologna).

2. To improve critical reasoning and other skills of individuals:(i) as input to their work (Bologna); (ii) to develop democratic, civilised society (Cambridge/Oxford).

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Changing roles of university

3. To increase knowledge base: (i) by pursuing knowledge ‘for its own sake’; (ii) by developing useful knowledge. Berlin: the Humboldian university

4. To serve training and research support needs of economy (at regional and national levels).

“The entrepreneurial university”

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The changing continental universities

France, Italy… major institutional reforms with more autonomy and accountability;

Germany, the creation of the elite research intensive institutions;

Denmark merging to succeed; …….

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Post-WWII Rationale: The endless frontier

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The post-1945 rationale

Public good

Linear process Budgetary expansion Academic quality increasing with funding

Ex-ante judgement of research promises Evaluation by academic community (peers)

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Market-failure - Public good

Nelson (1959) and Arrow (1962) laid foundations of economics of science

Emphasised certain characteristics of scientific knowledge as a public good:

– non-rival – others can use the knowledge without detracting from the knowledge of the producers

– non-excludable – other firms cannot be stopped from using the information

MORE– expansibility - The possibilities of multiple transfers make it

possible to distribute information very widely without loss.=>– Non-appropriable at least completely (see patents).

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=> Private benefits less than social benefits.

Also long timescale of basic research while firms usually have short-term investment perspective.

Social benefits also wider than private benefits– Firms would not have invested in research on e.g. smoking-

cancer link, ozone hole, global warming

=> Firms tend to under-invest in research (less than socially optimal – free riding)

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To raise research funding to socially optimum level, government needs to invest.

Main product from govt-funded research = economically useful information, freely available to all.

By increasing funds for basic research, govt can expand the pool of economically useful information.

This information published – assumed to be durable and costless to use.

Close connection between university teaching and research means universities also produce graduates with up-to-date knowledge and skills.

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Linear model

Scientific discoveries in early 20th Century & WW2 belief in linear model of innovation.

Basic research App. res. Devlpt Innovation.

Government responsibility = to fund basic research – will eventually wealth, health & nat. security.

Contract not very explicit re exact form of benefits nor when.

Used to justify substantial increases in gov’t funding. Viewed as investment in future welfare.

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V Bush ‘Social Contract’: The endless frontier

V. Bush report “The Endless Frontier”: WWII (radar, atomic bomb, etc…)

Science also seen as inherently unpredictable (‘serendipity’), ex-ante judgment.

Scientists in best position to judge which research best to fund (peer review).

Essential characteristics of V Bush social contract– high level of autonomy – few strings attached– institutionalisation of peer review to allocate funds– belief that basic research best done in universities

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Main funding mechanisms

Institutional core funding for universities (not US) – general university funding (GUF)

– block grant for teaching and research– allocated on incremental or formula basis – provides funding for research infrastructure (labs, equipments,

technicians, libraries etc.) – “the well found laboratory”

Project funding (only in some countries)– for specific research projects – additional costs– proposals submitted – ‘responsive mode’– judged by peer review– funding decision by committee of scientists (often discipline-

based)

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What about mission-oriented research?

Ignores university research funded by government departments and ‘mission-oriented’ agencies– e.g. defence, health, energy, agriculture, space

Areas chosen reflected political priorities - ‘demand-pull’ model– US – defence, space, health– Japan – agriculture, energy– UK – defence, aerospace– France – defence, nuclear energy

‘Mission-oriented research’ (cf. curiosity-oriented’)– very large funding (especially in US but also UK and F)– not just confined to technical universities

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Changing characteristics of university research.

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Changes in 1980s – 1990s

Driving forces– Economic problems (recession, inflation,1970s);– Growing costs of welfare state – health,

education, social security;– Liberal versus social-democratic views of

government (new public management; the EURO);

– Globalisation and growing economic competition;

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Changes in 1980s – 1990s

Driving forces:– Growing importance of scientific and

technological knowledge – the ‘knowledge economy’;

– ‘Massification’ of HE (from 7-8% to 40-70% NS);– Growing cost of research.

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Chart A2.3 Entry rates into tertiary-type A education (1995, 2000 and 2006)

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Changing public research systems

Governments (first in the UK then in other countries) introduced new/revised policies:

– To enhance quality and efficiency of public research;

– To stimulate business investment in research;– To strengthen research links/collaboration

between public and private sectors;– To increase supply of QSEs;

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– To adapt to needs of service sector (increasingly important in OECD countries);

– To achieve a target level of R&D spending (e.g. 3% in EU “Barcelona target”);

– To fund research in priority fields;– To stimulate public understanding/engagement

(manly UK).

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Reforms aiming to make the contribution of public research systems more effectively to innovation (were they successful?):

– Universities given increased autonomy and/or transformed into quasi-private (NPO) organisations (e.g. Italy, France, Japan, Denmark, Slovak Republic);

– Decreased reliance on block funding and more on competitive project funds;

– More emphasis on evaluation of HEIs and PROs (RAE early developed in the UK/NL);

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– More emphasis on mobility of students and researchers;

– Changes to IPR for universities and public research organisations (e.g. Germany, Denmark, Norway, Switzerland)

– Encouragement to protect and exploit intellectual property (IP)

– Technology/knowledge transfer made formal/institutional ‘third mission’ of universities (e.g. UK, Denmark, Norway)

Growth in patents during 1990s although slowed since 2000

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New rationale: Contractual-oriented approach

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The contractual-oriented approach 1

Implementation:– Competitive mechanisms for resource allocation;

– Financial quasi-market incentives to steer university behaviour to meet societal needs and increase efficiency (GUF declined in relative terms, and in some cases e.g. UK, Australia now allocated on basis of performance see RAE);

– Policies to increase selectivity and concentration;

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– Project-based funding (see FIRB/ANR in ITALY/FRANCE) increased in importance:

shift from responsive mode to directed programmes (UK Research Councils)

Shift to research linked to needs of ‘users’ (though decrease in recent years in UK);

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– Growing emphasis on ex post evaluation;

– New government funding initiatives based on ‘challenges’ and competition e.g. Joint Infrastructure Fund (especially UK).

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Implicit assumptions– Possible to evaluate quality of research output

reliably (is it? S&T indicators, ISI, citations, metrics);

– Possible to identify most promising research avenues (is it? Discussion on Foresight);

– Costs can be reduced without sacrificing quality (is possible? teaching versus research);

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– Due to existence of economies of scale and scope, concentration increases output of overall system (do they exist? At what level? See unintended consequences);

– Admin and other costs associated with more competitive system are small cf. benefits.

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Advantages and Potential Unintended Consequences: What matters it is from

where you start

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Advantages

Creates incentives for performance (of a specific type).

In some system (see Italy) allocation “a pioggia” create disincentives for the most productive.

Scientific production in Skewed:– 60% of researchers produce one paper or the

majority of papers is produced by the top scientists.

[Lotka, A.J. (1926) The Frequency Distribution of Scientific Productivity, Journal of the Washington Academy of Sciences, 16/12, 317-323.]

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Skewness in Science

Deciles top 10% 10-20% 20%-30% 30%-40% rest

Share of research output

Pareto - 80/20 61% 16% 7% 5% 11%

Lotka – 60%/1 paper 57% 12% 7% 6% 18%

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Unintended consequences of the new rationale

1. Increased concentration of resources

2. Disproportionate incentives for short-term research

3. Conflicting incentive structures

4. Exacerbation of ‘Matthew effect’

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Increased concentration of resources

Resources increasingly concentrated in few leading research universities

Implicit assumption that there are economies of scale/scope

But no strong empirical evidence for economies of scale/scope in university production

– Either for research itself at level of department or institution (but ‘critical mass’ effect at level of group)

– Or for joint production of teaching and research– Some scale economies for teaching and admin, and hence

perhaps indirect benefits for research Mobility of students and researchers

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Increased concentration of resources

Adverse consequences– Fewer resources in lower ranked departments/ institutions

to support new ideas and new people – decreased diversity may be detrimental to research in longer term, even if more ‘efficient’ in short term

– Lower ranked institutions less able to contribute to meeting regional needs

– Temptation to undercharge, bidding for funds on marginal rather than full-cost basis – driving down prices to detriment of universities (become financially overstretched, staff overworked); Evaluation of real opportunity costs

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Disproportionate incentives for short-term research

Evaluations tend to focus on short term e.g. publications in last few years

Emphasis on addressing needs of users may lead to neglect of longer-term research

Lack of incentives for long-term, path-breaking, ‘risky’ research

Decreased variety of research lowers probability of scientific novelty

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Conflicting incentive structures

Different competitive funding schemes may create conflicting incentive structures

– e.g. high-quality publications for RAE VS helping ‘users’ Weakened teaching incentives Traditional academic incentive structure (‘open

science’) in conflict with private-oriented incentive structure linked to business-financed research:

– Work with industry may bring problems of secrecy, delay in publication etc.

Risk that incentive structure of subsidiary source of funds may dominate university research behaviour

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Exacerbation of ‘Matthew effect’

Merton (1968) – success in research brings status and funding – further increases chances of future success

– “To them that hath shall be given” – the ‘Matthew effect’ Evidence shows very small proportion of researchers

produce large share of most influential publications ‘New economics of science’ (e.g. David) elaborated this in

terms of path-dependence and self-reinforcing mechanisms (e.g. ‘increasing returns’)

Growing range of uncoordinated funding sources reinforces cumulative, self-reinforcing process

Means that researchers at lower-status universities locked into a ‘vicious circle’ as compete for resources and status – again lowers diversity

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Growing Role of University Research

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OECD R&D Classification

GERD = Gross domestic expenditures on R&D (all R&D carried out on national territory)

BERD = Expenditure on R&D in the Business Sector GOVERD = Government intramural expenditures on

R&D HERD = Expenditure on R&D in the Higher

Education Sector OTHER R&D

– NPO R&D– Abroad R&D

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% of GERD performed by HE

1981 1991 2001 2002 2003 2006

France 16.4 15.1 18.9 18.9 19.4 18.1

Germany 17.1 16.2 16.4 17.0 16.9 16.5

Italy 17.9 21.5 32.6 32.8 33.9 30.2 (05)

Japan 17.6 17.5 14.5 13.9 13.7 13.4 (05)

UK 13.5 16.7 21.8 22.6 21.4 25.6 (05)

US 9.7 14.5 … 13.4 14.0 14.3

EU-27 20.6 (05) 22.2 22.4.. 22.5

OECD 14.5 16.3 17.5 18.2 17.4 17.6

Source: Elaboration

OECD, Main Science and Technology Indicators, various issues

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% of GERD performed by HE

1991 1998 1999 2000 2001 2002 2003

Argentina 29.8 28.5 30.4 33.5 35.0 33.9 27.4

China 11.3 10.4 9.4 8.6 9.8 10.1 ..

Israel 22.6 21.2 19.5 15.7 15.9 16.1 17.1

Russian Fed 5.4 5.2 4.8 4.5 5.2 5.4 6.1

Singapore 27.3 26.3 25.6 23.9 23.6 25.4 ..

Taipei .. 11.3 11.7 12.2 12.5 12.3 ..

Source : OECD, Main Science and Technology Indicators, November 2004

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Growing role of university research

Growing % of GERD performed by HE (in OECD countries not in catching up countries)

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HERD as % of GDP

1981 1991 2001 2002 2006

France 0.32 0.36 0.42 0.43 0.38

Germany 0.38 0.41 0.41 0.43 0.41

Italy 0.16 0.26 0.36 .. 0.33

Japan 0.51 0.51 0.44 0.43 0.45

UK 0.32 0.34 0.41 0.42 0.45

US 0.39 0.39 … 0.36 0.37

EU-27 .. .. 0.39 0.39 0.39

OECD 0.36 0.37 … 0.39 0.40


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HERD as % of GDP

1991 1998 1999 2000 2001 2002 2003

Argentina 0.13 0.12 0.14 0.15 0.15 0.13 0.11

China 0.08 0.07 0.08 0.09 0.11 0.12 ..

Israel 0.71 0.70 0.75 0.74 0.80 0.82 0.84

Russian Fed 0.06 0.05 0.05 0.05 0.06 0.07 0.08

Singapore 0.41 0.48 0.49 0.45 0.49 0.55 ..

Taipei .. 0.22 0.24 0.25 0.27 0.28 ..


All the R&D spending of catching up countries have increased including HERD

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Methodological note

HERD/GERD – relative importance of higher education (mostly university) research in total research carried out in the country. What is the weight of university research in the total research performed in the country.

HERD/GDP – absolute importance of university research. The trend tells you if the country has increased or decreased spending in that area of research

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Growing % of GERD performed by HE HERD growing as a percentage of GDP

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% of HERD financed by industry

1991 1998 1999 2000 2001 2002 2005

France 4.2 3.4 3.4 2.7 3.1 2.9 1.6

Germany 7.0 10.5 11.3 11.6 12.2 11.8 14.1

Italy 4.0 4.8 .. .. .. .. 1.4

Japan 2.4 2.3 2.3 2.5 2.3 2.6 2.8

UK 7.8 7.3 7.3 7.1 6.2 5.8 4.6

US 5.3 6.1 6.1 6.0 5.5 4.9 5.0

EU-27 .. 6.0 6.7 6.5 6.5

OECD 5.5 6.0 6.1 … 6.4 6.2 6.1


F G I J UK US

1981 98 98 96 61 81 74 GOV 1992 93 92 93 52 70 67

2003 90 85 .. 51 65 68 1981 1 2 3 1 3 4

Business 1992 4 8 5 4 8 7 2003 3 13 .. 3 6 5 1981 0? ..? ..? 0 5 7

NPO 1992 0? ..? ..? 0 12 7 2003 0? ..? ..? 1 17 7 1981 1 .. 0 37 9 15

HE 1992 2 .. .. 44 5 18 2003 4 .. .. 46 4 19 1981 0 .. 1 0 2 ..

Abroad 1992 1 1 2 0 6 ,, 2003 2 2 .. 0 8 ,,

Source: Vincent_Lancrin 2006

HERD SOURCE OF FUNDS %

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HERD Source of Funds

HERD Source of Funds for and Aggregate of 7 EU Countries (%).

Total Gov. GUF DGF Business Abroad NPO HE 1983 94.0 68.3 25.7 2.9 0.6 1.5 1.1 1985 92.7 65.2 27.5 3.7 0.7 1.7 1.3 1989 89.9 60.2 29.7 5.4 1.4 2.1 1.2 1991 89.4 61.7 27.7 5.5 1.6 2.3 1.2 1993 87.7 60.1 27.6 5.8 2.5 2.7 1.4 1995 85.6 57.2 28.4 5.7 3.2 3.7 1.8 1997 85.2 56.8 28.4 6.4 3.2 3.6 1.6 1998 6.9 3.9 3.6

Source: Elaboration OECD data. The breakdown in GUF and DGF has been estimated for Italy. The 7 countries are: Denmark, France, Germany, Italy, Ireland, The Netherlands and the UK. Belgium, .

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Growing % of GERD performed by HE HERD growing as a percentage of GDP Slowing growth (decreasing) % of HERD

financed by industry with a marked decrease in most recent years; increase % of HERD financed by own funds, foundation and abroad (more diversified system).

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From Grant to Direct Funding

GUF DGF1983 73% 27%1985 70% 30%1989 67% 33%1991 69% 31%1993 69% 31%1995 67% 33%1997 67% 33%

Source: Elaboration OECD data. The 7 countries are: Denmark, France, Germany, Italy, Ireland, The Netherlands and the UK.

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F G* I J UK US

1981 46 20 .. 39 19 100 Direct 1992 51 .. 28 35 100 Gov. 2003 35 28 .. 22 43 100

1981 54 80 .. 61 81 ? GUF 1992 49 .. 72 65 ?

2003 65 72 .. 78 57 ?

From Grant to Direct Funding

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Growing % of GERD performed by HE HERD growing as a percentage of GDP

Growing % of HERD financed by other sources (industry, NPO, Abroad, etc.)

Switch from institutional core funding (GUF) to project-based funding (although not in Italy)

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University research funding: Main findings

Increasing importance of HE (University) research (relative and absolute).

Relative decrease in government funding (associated to an absolute increase from late 1990s, mainly direct funding).

More diversified sources (not only business!!).

Data problems!

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OECD Data Problems

Similar type of institution classified in different categories see CNR (I) e CNRS (F).

Non-for-profit Organisations: data available only in a few countries though phenomena is becoming more important.

R&S expenditure include salary costs but doctoral students have different treatments in different countries in certain they are students that may get a grant, in others are pubic employees with all the connected benefits (comparability problems).

Documents

The changing rationale for public funding: Why do we have publicly financed universities?