Universities, Public Funding & Entrepreneurship: The Consequences of Risk

Alex Usher of Higher Education Strategy Associates asked some interesting questions in his morning blog post.  The world of university funding in Canada is changing – there is more money overall for universities but governments have been paying a declining share of university operating budgets with the remainder coming from tuition and assorted sources of research and contract funding.  Indeed, a lot of new government money is targeted towards capital projects or new student support programs rather funding what faculty often see as core teaching and research functions of universities. 

Usher maintains that faculty need to come to grips with the fact that a rising share of their salaries is being paid for by tuition which makes the student experience more important and part of that experience is based on non-essentials like residences and student services.  However, on the management side the greater reliance on non-governmental funding has fueled an entrepreneurial spirit that leads to the question of accountability when new initiatives do not pan out.  As he writes: “Shared governance of universities is a lot easier when government’s paying the bill.  When universities have to go out and earn money themselves, it’s a different story.  But it’s a reality we have to deal with.  Faculty need to come to terms with the fact that income is a lot more fragile than it used to be, and administrators need to be held much more accountable for money put at risk.”

I think part of the issue here is that there is an ongoing shift in how university success is being measured and who bears the benefits and costs of pursuing success.  In return for public funding, universities are being judged by government funders with a set of pseudo private sector criteria.   How many graduates get jobs?  How much has enrollment increased?  Funding is tied to these indicators in the form of per student grants tied to enrollment.  Universities are increasingly taking entrepreneurial risks in launching new campuses or programs designed to attract students in an effort to increase their revenues.   If the new initiative is successful, there are additional resources made available to the university but they often tend to accrue to the programs, faculty and students that successfully drove the spending increase.  Many see this as fair - especially faculty in the successful programs.  However, if these new initiatives do not pan out there is an immediate impact on budgets and the entire university community bears the costs – faculty, students and programs.  Entrepreneurship at the university level means that the costs and the benefits are borne asymmetrically.

Contrast this with the faculty side of things.  On the faculty side, there has always been entrepreneurial behavior when it comes to an academic research career.  Academics are actually quite entrepreneurial when it comes to their own careers as they “market” their research to peers at conferences, assemble research teams and grant applications, and advance their research programs.  Often, they take risks in pursuing their own ideas.  If they are successful, their research takes off, publications and more grants ensure, and they develop national and international academic reputations.  If unsuccessful, then the academic bears the cost quite directly in terms of a quite diminished research career.  True, they can shift to a career that emphasizes more service activity or teaching, but there is not an expectation that the “university” will help salvage their research careers. While there are many kinds of student support services and assistance centers to promote student success, as a faculty member you truly are on your own.

In the end it is all about incentives and the distribution of costs and benefits.  The immediate short term goals of the “university” – more revenues, program expansion, higher enrollment, balancing the budget – diverge from the longer-term interests of its prime human capital resource – the faculty – who measure their success by research publications, grant success and peer recognition – peers who tend to be faculty in an international community and not their university’s administrators.  In a sense, it has always been so but it seems to have become starker. 

It is not that there should not be more overlap.  Successful researchers and academics boost the reputation of their university, which assists university administrations in attracting more resources.  This means potentially more resources internally for academics and their projects but these effects are often more of a spillover than directly linked cause and effects.  What is the mechanism to capture these benefits and costs in a manner that does not lead to a separation in aspirations?

 

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Measuring Universities: Once More Unto the Breach

Comments

[Nick Rowe]

Alex Usher and that HESA blog are very good. Funny you blog about his post today, because for the first time ever I left a comment on that particular post. (To say he forgot to mention that students pay rent for residence room, and those rents, AFAIK, cover the full cost of building residences, so that even if students didn't care whether they lived in residence or rented off campus, there would be no net savings for universities from building fewer residences.)

For a faculty member, a higher research profile pays off in terms of getting competing offers from other universities, which your university may match even if you don't take those offers. Teaching? Not so much. But prestige amongst one's peers is also a big motivator.

Yep. In the longer term, the most important measure of a university's success is how many students want to go there, and how good those students are. I've just been looking at our admissions/applications data this morning, as I do every couple of days this time of year (when I'm in my associate dean's job). I'm not sure if regular faculty think about it much. At the aggregate level, there's a very strong link between our students and our pay. At the individual level, little link at all.

[Nick Rowe]

I forgot to say: prestige amongst one's peers is largely prestige as a researcher. Teaching not so much.

[Determinant]

At my undergrad university, winning the Student Union Teaching Award or being nominated for the same was a big feather for a prof aspiring to tenure. Faculties would always take the more able teaching prof of two candidates who had equivalent research backgrounds.

If they could avoid it being a problem, they would make it so.

[Simon van Norden]

The real-estate debacle at UQaM is a nice illustration of the problems of accountability when adminstrators try to be entrepreneurial. Long story short, the adminstration had a private-sector real-estate development deal go sour to tune of over $100M IIRC. (I'm hoping someone will provide a link to the relevant facts of the case.) The hard question is who to hold responsible.

Should the govt let the university go bankrupt?
Should it simply cover the university's capital deficit from general revenues?
Should it cover UQaM's capital deficit with capital funds from other provincial universities?
Should it raise tuition fees to make up the lost funds? (Given the demonstrations we saw here last year, there's no chance of that.)

[Jacques René Giguère]

Simon: all in all, the ilôt Voyageur thingy may have gone up to $ 400G. Nobody knows for sure.
Il you begin to google "ilôt ,, as soon as you get to type "ilôt V the terms "ilôt Voyageur" ilôt Voyageur uquam" and "ilôt Voyageur scandale" pop in at 1st, 2nd and 4th position. I don't know any brief account. It has been running for so long, the file is ten feet deep...
Such as it is for those who either don't have a life or wish to spend the only one they will ever have

https://www.google.ca/#hl=fr&gs_rn=4&gs_ri=psy-ab&tok=_bHrDhNRpkH0wUaKv1A_wQ&cp=7&gs_id=x&xhr=t&q=il%C3%B4t+voyageur&es_nrs=true&pf=p&sclient=psy-ab&oq=%22il%C3%B4t+V&gs_l=&pbx=1&bav=on.2,or.r_gc.r_pw.r_cp.r_qf.&bvm=bv.42661473,d.aWc&fp=1ceaaeeda7056207&biw=1024&bih=667

[John S]

Why does the "core teaching" function of universities need to be publicly funded at all? (Basic scientific research maybe, but not transmission of job skills).

Critics like to complain that for-profit universities stink. But at the same time, isn't there a massive crowding out effect from publicly subsidized universities that squeezes the for-profit market?

[John S]

If govt wants to assist poor young people who want to go to university, I think it would be better to give (means tested) tuition vouchers and then get out of the way.

The current system (at least in the US) encourages lots of young people to waste time studying useless subjects and rack up huge debt. Why not give the private sector more of a crack at it?

Here's a promising online program, Western Governors University (not private, I believe, but no reason why it couldn't be):

"We charge tuition at a flat rate every six months. If you can complete your program in less time, you only pay tuition for the time it takes. Essentially, the faster you progress, the more you save—a big incentive to work hard that you won’t find at other major schools.

TIME Magazine called WGU "the best relatively cheap university you've never heard of."

[John S]

Oops, link: http://www.wgu.edu/about_WGU/WGU_different

[hix]

"Yep. In the longer term, the most important measure of a university's success is how many students want to go there, and how good those students are."

That is rather sad considering how low informed student choices are. I know 2 cases were universities that just changed the name of a program suddenly had 10 times more applicants. Fancy prefixes like international or environment (in English) always work great in Germany.

[Nick Rowe]

hix: fair point. I know of a similar case where changing the name of a program suddenly created a massive increase in applications.

[Brian Graff]

A few years ago (3 or 4?), on this website, was an article written by a faculty member at some canadian university - maybe it was even one of the creators of this website.

It dealt with how in their faculty, they moved towards offering extra courses and getting extra revenue to make use of resources being wasted - particularly the lack of courses offered in summer months.

Each faculty essentially has a budget and staff and what is offered was not necessarily what students wanted to take, but was a form of central planning. some courses had demand that exceeded supply, while others were difficult to fill unless epople needed a course and had no other choices left.

Anyone remember this and have a link or copy?

[The Keystone Garter]

Community colleges result in shorter returns to government in the form of federal tax revenue. Michigan had "Finance Advisor" as a growing career, as advice, just before the recession. But in general. Universities produce longer-term gains. Community colleges can write scientific papers in trade journals. They should strive for penning a 3rd of these. I'd expect the federal government to be more concerned with unemployment and getting tax revenue of low unemployment sector graduates (after entering the workforce). Provincially, longer-term education and health suggests they are more tied to the fate of Universities.

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