Financing Universities In Developing Countries

Adrian Ziderman, Douglas Albrecht

• Publisher: Routledge
• Year: 2013
• Print ISBN: 9780750703529
• eBook ISBN: 9781135398934
• Topic: Education
• Subtopic: Education General

Inadequate public funding means that governments in developing countries are continually working to find ways of expansion to meet the growth demand for higher education.; This book considers the effectiveness of government funding methods in developing quality and efficiency in higher education systems in developing countries, and looks at policy measures taken to widen the funding base including raising tuition fees, student loan programmes, graduate taxes, industry-education links and national service programmes.; Taking information from around the world and drawing on successful practice in developed countries, this volume should be of interest to specialists and researchers in education economics and economic development, academics in general education and those involved in the finance and administration of higher education.

Chapter 1

Introduction: University Financing and the Role of the State

Pressure to reform the financing of higher education has mounted in virtually every part of the world. The problems compelling change have been developing for decades, but the economic stringency of the 1980s has exacerbated the need for reform, bringing many institutions to the brink of collapse. The crisis confronting higher education systems is not simply financial. There are justified concerns about quality, relevance, equity and specific missions of institutions. In many countries, developing and developed, all these issues need to be addressed. However, it is clear that putting the financial structures of higher education onto a more solid footing is essential before many of these other problems can be resolved. As we shall argue, it is not only a question of more resources, but the framework within which institutions operate that needs to be improved.

Overview of the Argument of the Book

This book addresses the financing crisis facing universities in most parts of the developing world, and in particular the role that reform may play in easing these financing pressures. The primary focus of the discussion is on degree-granting universities, although most of the messages pertain to other institutions as well. The root of the financial crisis in higher education in many developing countries lies in the combination of a dramatic and continuing growth in student numbers — often the outcome of imposed liberal admissions policies to ensure wide access to higher education — unmatched by public expenditures on higher education. While low and middle level income countries experienced rapid student enrollment growth in the 1980s, real public expenditures on higher education fell. This erosion in real resources available to universities has stemmed from conditions of general economic hardship ruling in many developing countries, combined in particular with parsimony in government budgets. Policy environments have not been conducive to the promotion of greater internal efficiency within universities nor have they facilitated in these countries the development of alternative, non-government, sources of funding.

The financial crisis in universities has led to aggregate declines in unit spending throughout the developing world. Between 1975 and 1985 alone this decline exceeded 50 per cent; the decline continued throughout the 1980s and into the 1990s. This decline combines a fall in total real expenditure for universities with a rapid expansion of student enrollment. Moreover, despite the decline in financial resources, in many countries a larger proportion of the budget moved to maintain student welfare rather than supporting educational and research activities. Three categories of constraints imposed on universities have contributed significantly to the financial crisis. These are: first, government-sponsored enrollment policies, where the government imposes an agenda on institutions of greater student access to higher education without linking it to funding; second, government limits on university access to outside funding; and third, government restrictions on the internal deployment of resources — across budget centers and among expenditure categories. These three types of restrictions have precluded the possibility of universities matching resources to their activities or of finding more efficient and effective methods for carrying them out. Given this context at universities, the remainder of this book examines methods to overcome the financing crisis.

A realistic view of future developments in public spending does not indicate any reversal of the current regime of tight public expenditure allocations to higher education. We therefore turn to an examination of the scope for the alleviation of financial pressures on the higher education system through the development and extension of non-government forms of funding. These forms of funding have received much attention in recent years as offering a solution to the financing crisis facing universities. While such moves will be important, we shall argue that they are unlikely to be sufficient and that their potential to redress financial problems has been somewhat exaggerated.

The three major measures that have been suggested as potential solutions, to be applied separately or in concert, are: greater cost recovery through the introduction of student fees or the raising of student fees from the nominal levels charged at present in most countries; delayed cost recovery through a regime of student loans; and a broader diversification of revenue sources, particularly selling services to industry. In Chapters 3, 4 and 5 we discuss the efficacy of these measures; we shall conclude that while each would constitute an important element of a broad program of reform of the university system, in themselves they are likely to represent only partial solutions to easing the financial pressures facing universities.

Greater cost-recovery for instruction and, particularly, for student housing and meals, while critical elements in a program of financial reform, will have some adverse effects on equity and access. However, these fears are often exaggerated. Greater cost-recovery would reduce subsidies wastefully paid to the less needy, and should be combined with well targeted student support schemes for those in greater need. The evidence suggests that it is not the presence of tuition fees as such that has acted as a major barrier to access to universities as much as poor access to earlier education opportunities, the costs for some of forgone earnings, and social class attitudes to higher education.

The discussion of student loans in Chapter 4 draws on earlier papers by the authors: Albrecht and Ziderman (1991, 1992b and 1993). Student loan schemes are potentially valuable in facilitating more extensive cost-recovery. They enable students to delay payments for higher education (whether for tuition or living expenses) until they are earning the enhanced income that their higher education has made possible. However, where in place, student loan programs to date have benefited only a small percentage of students, the sums involved relate to only a small proportion of real instructional costs and living expenses and, due to a combination of highly subsidized interest charges on loans and of payment default, the repayment proportion of loans has not been high. We argue that while the performance of loan schemes can be improved, their potential contribution to revenue generation is likely to be limited, and that a system of high tuition fees coupled with widespread loans is not a feasible option in many countries.

Increased cost-recovery in terms of more realistic student fee levels (facilitated by student loan programs) has a central role to play in policy reform, a role that extends beyond that of generating additional revenues. To the extent that student tuition fees replaced direct government subsidies, universities would be encouraged to become both more competitive and internally efficient; in competing for students’ fee income they would have to pay increasing attention to the quality and relevance of the courses they offer, particularly as they relate to the needs of the job market and employment opportunities.

It might be possible to achieve many of the benefits of a such a student-responsive system without moving strongly towards fee payment and cost-recovery. As discussed in Chapter 6, and illustrated for Chile, state subsidies to universities could be maintained at any given level, but channelled through the students in terms of a student ‘entitlement’ to higher education or through subsidized loans, from which students would pay fees set by universities. This too would facilitate student choice, stimulate competition amongst universities and make universities more responsive to labor market opportunities. Of course, it is possible to employ the two approaches in concert, dividing subsidies between direct payments to universities and indirect payments via students. However, in situations where the labor market rewards degrees rather than skills, the result may be that institutions will sell diplomas rather than education.

In addition to revenue diversification through cost-recovery, universities may seek to tap other sources of non-government funding. Chapter 5 examines the potential role for such income-generating activities as the provision of short ad hoc specialized courses, the sale of services to industry and the commercial management of research and university assets. However, greater revenue diversification through university–industry alliances cannot be expected to resolve fundamental financial problems of universities in developing countries. Where university resources are not fully utilized, however, there remains significant potential to generate additional revenue that could provide an important source of discretionary funds.

Universities may not be free to take full advantage of the limited opportunities for generating non-governmental revenues because conditions both within and outside the university system are not conducive to such activities. In particular, governments may impose high financial dependency on universities by putting constraints on revenue diversification, as well as restrictions on the freedom of universities to allocate funds internally, as they see fit. Government policy in this area, together with government control over student enrollments, will need to be revised if universities are to succeed in escaping from the twin ills of low internal efficiency and low quality.

It is in this context that Chapter 6, drawing on a earlier paper Albrecht and Ziderman (1992a), examines the mechanisms through which governments transfer and allocate resources to higher education. Given the limited possibilities for outside revenue generation, the state will remain by far the major source of funds in most university systems, though at a reduced level of funding. This strongly suggests that prime emphasis needs to be placed on ensuring that the transfer mechanisms of government funding to universities provide incentives for institutions to operate efficiently and to make the most effective use of scarce funds in times of financial stringency. Unfortunately, the transfer of resources to universities has, for the most part, been on the basis of political criteria and negotiations, rather than on objective criteria related to the internal workings of the universities. We discuss the improvements that would result (and some possible shortcomings) from the use of sounder mechanisms for transferring funds to universities, in particular the use of output-based criteria (‘payment by results’) or input formulas, usually based on multiplying enrollments by parameters of unit cost.

Meanwhile, the rapid erosion of financial resources in relation to enrollments continues apace, with little incentive or capacity in place for universities to seek efficiency gains. This deterioration can be stemmed only if universities are granted greater autonomy over decision making in relation to admissions and resources, while ensuring accountability to the providers of funding.

Finally, we consider the case for making use of a broader form of cost-recovery — repayment in kind through service to the community. While schemes of national and community service are to be found in many developing countries, they are concerned for the most part with the personal development of the individual rather than with any potential contribution to society. In Chapter 7 we discuss existing national service schemes and consider how they may be refocused to constitute a form of cost-recovery in kind for higher education.

While there is no one overall formula for redressing financial problems in universities, the underlying argument of this book is that proper financial reform must include at least two elements. First, efforts must be made to mobilize more non-government resources for higher education to provide a stable source of funds. Second, the resources available to institutions need to be used more productively. Such a reform will require a fundamental shift in the relation between the government and higher education institutions by creating an environment in which institutions, in remaining responsible for managing themselves better, are left free to make appropriate decisions.

Before embarking on a detailed exposition of this argument in Chapter 2, the next two sections provide, respectively, a view of the historical development of university funding as it relates to the major themes of this book, and a conceptual account of university financial flow models, with emphasis on the role of government in university funding.

University Funding: Historical Perspectives

Higher education history reveals three important points relevant to issues discussed in this book. First, it shows the extent, until the early nineteenth century, to which university finances were dependent on student and not government funding; universities were consumer demand driven institutions. Second, as a consequence of this funding relationship, instructors and institutions were much more responsive to student demands. Third, the impetus for massive state intervention — both in finance and provision — was the training of individuals for administrative and technical careers in the civil service, a form of employer-based training. Subsequent industrialization and ongoing technical advance defined new, broader roles for the university in both basic research and in the preparation of professional and technical personnel for the growing private sectors of the economy.

Before the existence of the modern university, which appeared in Europe in the eleventh century, higher level instruction invariably took the form of students hiring teachers. In India, for example, students would attend the homes of Brahmin scholars who were hired and paid on the basis of their academic and moral reputation.

In most countries, higher education institutions trained élite administrators and religious figures. In China, for example, private schools developed to train people to become scholar administrators. In ancient Greece, students paid itinerant scholars for moral and scientific training that was intended to prepare them to participate in public political life of the polis, as well as to help them to enlarge their private fortunes. In the Islamic world, students could hire teachers inside mosques for religious instruction; to this day, the al-Azhar University in Cairo has preserved the tradition of students hiring scholars in the central mosque.

A significant innovation in higher education came about during the Roman Empire. Roman education initially borrowed heavily from Greek traditions in science and th...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Contents
• Foreword
• Authors’ Preface
• Chapter 1 Introduction: University Financing and the Role of the State
• Chapter 2 The Financial Context and Policy Environment
• Chapter 3 Mobilizing Student Resources: Cost-Recovery
• Chapter 4 Delayed Payment Strategies
• Chapter 5 The Potential for Revenue Diversification
• Chapter 6 Funding Mechanisms and Government Transfers
• Chapter 7 Payment in Kind: The Role of National Service
• Chapter 8 The Paths to Reform: A New Role for the State
• Appendix 1 Methodological Note on Calculating Subsidies on Mortgage-Type Loan Programs
• Appendix 2 Checklist of Policy Options for Delayed Payments Schemes
• Appendix 3 Higher Education Statistics, Selected Countries
• References
• Author Index
• Subject Index