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Checks and Balances

Assessing the value of higher education worldwide is tricky, but it's necessary to inform decision making

By Chris Carnie




"Join the World Class, propel your career to even greater heights, and earn a degree that has no equal." So claims an April 2004 advertisement in the Financial Times for a TRIUM Executive MBA Program, a collaborative effort of the New York University Stern School of Business, London School of Economics and Political Science, and Paris' HEC School of Management.

Does that succinct, self-interested message sum up the value of higher education? That's the kind of question that keeps teams of policy makers, education leaders, and senior advancement officers happily occupied for years. It's also the kind of question that is best examined by reflecting on the complex, interrelated issues of funding, accountability, access and demand, and who benefits.

Counting value, one by one

Economists, educators, and nearly everyone else agree that education brings substantial financial benefits to individuals. "Private" benefits are those typically calculated as the greater proportion a more educated person earns compared with a less educated person—in other words, the rates of return to investments in education. Those rates of return average about 18 percent in Asia; 19 percent in Europe, the Middle East, and North Africa; 19.5 percent in Latin America and the Caribbean; and nearly 28 percent in sub Saharan Africa, according to a September 2002 World Bank policy research working paper, "Returns to Investment in Education: A Further Update." (The paper builds on a similar World Bank study published in 1994 by George Psacharopoulos of the University of Athens.)

The story is the same in Australia. According to a May 2003 policy paper issued by the government's Department of Education, Science, and Training, Our Universities: Backing Australia's Future, average gross lifetime earnings for university graduates are about AUS$600,000 more for men and AUS$400,000 more for women than for their counterparts who didn't graduate from college. (To learn more, go to www.backingaustraliasfuture.gov.au.)

"The benefit to the individual of acquiring a university degree, measured in increased lifetime earnings is, for the average student, immense," says Alan Gilbert, president and vice-chancellor of the University of Manchester and former vice-chancellor of the University of Melbourne. "An investment in higher education is, literally, just about the best investment an individual or family can make, other than winning a lottery of some kind."

Students in the United Kingdom agree, according to the University Lifestyle Survey 2004, published by the Sodexho Research Institute and the Times Higher Education Supplement. The report states that improved employment and earning prospects are among the top reasons students attend a college or university. "Increasingly, a liberal education is what happens at high school," says Peter Slee, pro vice-chancellor of the University of Northumbria, "and higher education is about professional orientation."

Further, individuals who don't necessarily benefit directly think higher education has great personal value. According to research commissioned by the Association of Universities and Colleges of Canada, 82 percent of Canadians say a university degree positively affects lifetime earnings and career advancement opportunities. (The polling/research firm Ekos Research Associates conducted the December 2003 poll as part of a larger Rethinking Government study.)

The investment required to realize those rewards differs greatly from country to country. In the many countries where government funds all or nearly all of higher education, "The biggest cost [for individuals] is the wages students forgo to go to school," says Harry Patrinos, co-author with George Psacharopoulos of the aforementioned World Bank report. Even so, there's no denying that the personal value of such education far outweighs the costs.

A broader view of value

Attempts to quantify higher education's value to a society are more difficult, however. The Australian report states that in 2001, higher education as a whole employed about 80,000 people throughout the country and generated total revenue of AUS$10.2 billion. In addition, the report states, "Many institutions, particularly those in regional areas, play a significant role in the economic and social life of their communities which goes far beyond their traditional educational activities."

The Organisation for Economic Co-operation and Development, a Paris-based pangovernmental economics and democracy agency, issues an annual report that analyzes several indicators of educational value, including "the social returns that accrue to investments in education." The third chapter of this 400-plus page report "sketches a comparative picture of access, participation, and progression" in member countries. (For details, go to www.oecd.org and search for "Education at a Glance 2003.")

Higher education's value to society is not just a question of measurable return on investment, however. Consider what Psacharopoulos and Patrinos call the "externalities or spillover benefits" that accrue to a community. "Take the medical student who invents a cure for something," Patrinos says. "Society benefits because he got that degree."

Gilbert agrees. "It is clear that good universities are civilizing institutions exercising a responsibility for creating and sustaining informed opinion in favor of human rights, humane values, civil liberties, social responsibilities, the rule of law, and the role of the private citizen in the advocacy and exemplification of these personal and civic virtues," he says. "Equally, universities' normal educational functions enrich the general knowledge base of an economy, are vital in advanced skills formation, and—while often criticized for not being highly efficient at this—transfer immensely important knowledge and technological innovation into the wider economy. They are, in short, part of the vital knowledge infrastructure of a developed economy."

Knocking on narrow doors

One certain indication of education's value is the growing number of students who compete for admittance in many parts of the world. According to an article in the Sept. 12, 2003, Chronicle of Higher Education, nearly 135,000 students applied to the National Autonomous University of Mexico (UNAM), the country's largest public campus, for 33,000 openings that academic year. The National Polytechnical Institute turned away more than 40,000 applicants for 20,400 openings. Since December 2000, the Mexican government has opened 54 universities and technical colleges, creating 200,000 undergraduate spaces, and it has increased government spending for higher education by 20 percent, to $5.4 billion, Mexico's President Vicente Fox said in a previous speech. Still, in the Chronicle article, UNAM Rector Juan Ramón de la Fuente predicted a "potentially explosive situation" unless the government added 800,000 more spaces, which would bring the number of undergraduates in Mexico to 2.6 million.

In Canada, "high school students played the largest and most dramatic game of musical chairs in Canadian history" in fall 2003, states an article from the Nov. 10, 2003, Macleans. Part of the increase in student numbers was due to the elimination of the fifth year of high school in Ontario, creating a "a blockbuster double class of high school seniors." Some 40 percent of Canadian college students come from that province. To accommodate the influx, many institutions greatly increased the number of applicants they admitted. Others, citing issues of quality, held the line. At Queen's University, for example, nearly 40,000 applicants vied for 3,500 undergraduate openings.

Meanwhile, parts of Europe are experiencing the opposite trend. Populations are aging, not rejuvenating, creating what the French call the "Papy Boom" ("Grand-dad Boom"). In Spain, the number of college students has declined almost 11 percent from 1993 to 2003 because of demographic changes in Spanish society, according to El balance educativo de la Legislatura, a 2004 report issued by the minister of education.

Capital gains

Growing demand likely reflects the widely accepted principle that higher education delivers substantial value to individuals and to society. One question that remains in dispute, however, is this: Who pays? If society reaps the most good, some politicians and education leaders say, government should pay the lion's share of the costs.

"Higher education provides a substantial public as well as private good," says Eric Thomas, vice-chancellor of the University of Bristol, chair of the UK's Task Force on Voluntary Giving to Higher Education, and chair of the Worldwide Universities Network. "It is, therefore, the duty of government to continue to give substantial support to higher education. The UK government has made it plain that it recognizes that duty and will fulfill it in the long term."

In addition, notes Manchester's Gilbert, "There can be few more obvious and rewarding uses of taxpayers' money." The UK government should have two main priorities in funding higher education, Gilbert says. First, it should ensure that high-potential, low-income students have educational opportunities regardless of their ability to pay. Although policy discussions differ in approach, "the key outcome is to broaden the base of higher education participation by removing financial barriers," he says.

The second purpose should be to provide the funding that research-intensive universities need to sustain infrastructure and personnel to conduct world-class research and train world-class researchers. "Government investment in higher education research capabilities is as obvious a form of social overhead capital investment as building a bridge or funding a freeway," he says.

A third reason for strengthening public funding, Northumbria's Slee says, is to ensure that colleges and universities have sufficient funds to provide the intellectual capital that can sustain and strengthen a country's position in the global marketplace. "When the whole world is a potential source of competition, all producers of goods and services must have the ability to innovate," he says. "One requirement of any government is to ensure that its citizens are able to contribute to this process, through raising standards of education and widening the range of people who can benefit from it."

Slee acknowledges two problems with such a premise, however. First is the fiscal reality that most governments face: Citizens want ever greater levels of public service, but few vote in favor of higher taxes to fund them. Plus, funding higher education is just one priority in a long list of initiatives awaiting state cash. Second is the increasingly frequent argument that public funds should not underwrite private gain. "Why should governments use taxes paid by the whole population to help a minority (albeit large) to improve their life chances?" he asks.

Gilbert recognizes the conundrum too, as do a growing number of political leaders. "An expectation that individuals make a contribution to the cost of their education is entirely reasonable," he says. "So-called 'free public' higher education in circumstances where participation is still significantly biased toward more privileged sections of the population is regressive public policy—a kind of middle class welfare."

Passing the buck, the peso, and the pound?

Many colleges and universities in Europe, North America, and elsewhere are attempting to close funding gaps by creating or increasing student fees—a wildly unpopular move in many countries.

"It's not difficult to get students onto the streets if you threaten an increase in fees," says Sir John Daniel, president of the Vancouver-based Commonwealth of Learning, UNESCO's former assistant director general for education, and former vice-chancellor of the Open University.

In 1999, a proposed fee of about $145 a year (an increase from a token fee of a few cents) sparked student riots and strikes at UNAM that lasted 10 months until administrators withdrew the proposal.

In the UK, the government white paper The Future of Higher Education proposed top-up fees with some universities charging more than others. (For details, go to www.dfes.gov.uk/hegateway and click on "Higher Education Reform.") In response, an estimated 20,000 students protested in London in October 2003. Skeptical student leaders at the Cambridge University Student Union created a Web site (www.theblairrichproject.com)—the "site for the fight against fees." One message of the site: Enrollment in a university should "depend on your academic potential, not on the size of your chequebook." (In January, the government narrowly won a vote to reform higher education funding and charge higher student fees repayable after graduation via income-contingent loans.)

Student groups in Canada also are protesting rising student fees and stagnant financial aid. "Our student assistance program has remained unchanged for a decade while tuition has skyrocketed and debt has soared," says Adam Spence, executive director of the Ontario Undergraduate Student Alliance, a coalition of elected university student councils from across Ontario that represents 100,000 students in the province. In British Columbia, according to the November 2003 Macleans article, province officials lifted a six-year tuition freeze in 2002, resulting in institutions raising fees by 62 percent. In October 2003, students at Alberta campuses—worried that their province would follow suit—held a day-long protest. (At the federal level, the 2004 Canadian budget includes a 27 percent increase in federal student loan limits, new grants for low-income students during their first year, and a program to help lower-income families save for postsecondary education.)

Some education leaders say higher fees are a double-edged sword: They generate more revenue but they have the potential of creating greater student expectations. "Students want to have a stimulating social and cultural experience. I fear that expectations may rise above the deliverable, especially with increased fees," Bristol's Thomas says. "Students may believe that they deserve more [services] than this additional revenue can deliver. It bears repetition that a clinical medical student will pay £3,000 a year for a course that costs £20,000 to deliver."

New funding models

So who should pay? Many education leaders predict that a hybrid model will emerge. "The preferred higher education funding model should involve mixed funding, drawing on the users—individuals and, if practicable, employers of graduates—seeking a private benefit, as well as on the public purse and on community benefaction," Gilbert says.

Such a mixed-funding model opens up the academy to market forces and fund raising, says Northumbria's Slee. "Government pays part, and the beneficiaries (students, employers) pay part, either through fees or through other contributions… .

"The development of this approach to funding creates markets," he says. "If your [institution's] income depends on tuition fees, you have to recruit the students. To recruit the students, you have to offer a better deal than your competitors. To offer a better deal, you have to have better teachers and facilities. To create this kind of advantage, it helps to have access to money—hence the value of fund raising."

Daniel says such a combination of funding represents the "real-world view," and critics of this view "are not being very honest or rigorous. No country has the funds to offer lifelong learning for free."

A central element of a hybrid model is the diversification of funding streams. "One of the challenges in both higher education public policy formation and institutional funding strategies is how best to mobilize private sector support for the institutions that provide the human capital for economic innovation and growth," Gilbert says. "As far as I know, there are as yet no systematic answers to this problem."

Paying the piper; calling the tune

Some governments are using changing demographics, demand, and funding sources to prompt changes in accountability. In Spain, for example, where student populations are declining, "accountability is nearly zero," according to Jacqueline Glarner, a lecturer in university management at the Universitat Politècnica de Catalunya in Barcelona. Government funding has increased 27 percent, partially linked to new forms of accountability such as the Contracte-Programa (Catalan for "Contract Program") at the universitat. The program connects output goals to incoming government funding. But such efforts are increasingly controversial, as educators express concerns about institutional autonomy.

The suggestion that "public funds are somehow 'pure' in comparison with private fees, donations, or investments," Gilbert says, "is a dangerously facile view and overlooks the reality that governments have, in many jurisdictions over the past century, represented a greater danger to the institutional autonomy of universities than have any private patrons. The truth is that the autonomy of universities in relation to academic and research independence is paramount and non-negotiable, irrespective of whether it is a public agency or a private donor trying to 'call the tune.' For universities, robust systems of self-governance and eternal vigilance are the necessary bulwarks against external interference. Both must operate effectively in relation to any potential threat, whatever its source."

Yet others say colleges and universities must be accountable to more—not fewer—constituencies, including society, students, and funders. "Universities are accountable to their governing bodies, staff and students, partners, and the government," Thomas says. Further, he adds, of course they also should be accountable to citizens, business executives, and others outside education. "All of these institutions are either part of the public sector or contribute to it fiscally. It is only right and proper that universities, with their substantial public mission, should be accountable to them."

Still others assess accountability using the language of commerce. "Universities and colleges are accountable to their customers and one customer is the state," says Northumbria's Slee. "But as fees increase—and in the UK fees will rise by almost 200 percent in 2006—then the other paying customer, the student, has to make increasingly sophisticated investment decisions about the cost-benefit of higher education, of particular programmes, and of the cachet of particular brands. Higher education institutions have to learn to manage multiple stakeholders."

What's next

When they look ahead, economists and education leaders see a more homogenous education landscape, as the global market prompts similar thinking about value and funding and similar responses, including a focus on quality.

The European Union, for example, is continuing to pursue a European Higher Education Area to unify higher education systems. The initiative, known as the Bologna Process, was first proposed in a 1999 meeting of European ministers of education from 29 countries. It focuses on quality and reform.

Quality ultimately is linked to resources, a concept that is apparent in Eastern Europe, where universities are in transition from "all are equal" to "some are more equal than others." A key obstacle to better resource distribution in Bulgaria, for example, is "the lack of a nationally (and internationally) agreed-upon system of indicators to measure institutional and program performance," states Patricia Georgieva, head of Bulgaria's Centre for Higher Education Research at the National Institute of Education, in a report titled Management and Financing of Higher Education.

As market forces and other external pressures blur traditional boundaries, "value" becomes even more complex. Potential students, politicians, researchers, and staff members weigh value not just in their home state but globally, comparing Harvard University to Ho Chi Min City University and Oxford University to the University of Oslo.

So what, finally, is the value of education? "To build a society in equilibrium, education is basic," says Ramon Colell, a mathematics teacher who lives and works near Barcelona. It creates the backbone of society. Investing in education is investing in the very core of civilization, building the society we want for our children and their grandchildren.

About the Author Chris Carnie Chris Carnie

Chris Carnie s an expert on philanthropy, researcher, writer and trainer, specialising in philanthropists and their foundations. He has worked across Europe, in the Gulf, and in Central and Southern America with organisations who want to understand and work with this market.

Carnie teaches strategy and marketing on the Postgraduate Certificate in Fundraising at the University of Barcelona, and is the author of three books including How Philanthropy is Changing in Europe published last year by Policy Press in the UK.

 

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