As Europe approaches the world technology possibility frontier and leaves the era of catching up, innovation and highly educated people have become crucial drivers of its growth potential. If forces must be mobilised in Europe to create the most competitive and knowledge-based economy of the 21st century, European universities must play a key role. But compared with their counterparts in the US, Australia, and (increasingly) China, they seem to fall behind in the fierce international competition for talented academics and students, missing out on fast-changing research agendas, innovative opportunities, and teaching curricula. Indeed, international rankings indicate that European countries are not doing too well on higher education, research, innovation, and growth.
Many European nations have started reforms of their higher education and public research systems, but few make them a national priority. Yet reforms are crucial to regenerating Europe’s growth capacity, as Aghion et al argue. Here we take stock of the limited evidence and policy analysis that is available for such reforms.
Evidence on EU universities’ performance
Public versus private funding
There is ample empirical evidence on private returns to higher education in terms of a higher probability of finding better-paid jobs and higher lifetime earnings (e.g., Jacobs and van der Ploeg, 2006). Positive economy-wide educational spill-over effects justify public support of education, but the difficulties of verifying their size and calculating true social returns are substantial. There is compelling evidence that human capital increases productivity, suggesting that education is productivity-enhancing rather than merely a device that individuals use to signal their level of ability to the employer ( Sianesi and van Reenen). The macro-evidence also indicates that type, quality and efficiency of education matter for growth.
On the performance of European universities
Shanghai and Times Higher Education Supplement rankings indicate lower performance of Europe’s universities relative to the US, especially at the top. But a closer look shows a more nuanced picture on Europe’s performance. Although Europe does not score well on quality of education, research and transfer, Europe scores well on number of graduates, PhDs, and number of publications. It also shows heterogeneity within Europe, with Nordic countries even outperforming the US on a number of indicators. A relatively low share of the EU population graduates from higher education. Relatively few young people in the EU enrol in higher education but enrolment is growing strongly. The EU produces more mathematics, science, and technology graduates than the US but has fewer researchers in the labour market. Europe produces more doctorates than its major competitors. Tertiary education in the EU also leads to higher employment, lower unemployment and higher earnings. Europe has caught up with the US on quantity of publications, though a quality gap remains. No sufficiently reliable data are available on knowledge transfer across countries.
On the drivers of performance of universities: Funding & governance
What explains these differences in performance of universities? One factor is poor funding of EU universities. Total investment in higher education in the EU is lower than that of key competitors (with the exception of Scandinavian countries). Per student funding is almost half the US level. Differences across countries in spending become even more pronounced when sources are considered. EU countries have almost no private funding due to having no or very small tuition fees, few private institutions, almost no philanthropic funding and contributions by alumni, and little funding provided by enterprises. This is why US universities are much better funded than their EU counterparts. Research funding in the EU is not necessarily less than in the US, but the allocation may be different.
The second factor is governance of universities. The OECD has developed indicators on the basis of surveys of its member countries measuring autonomy (financial autonomy, staff policy autonomy (hiring/firing and wages), student selection and course content and accountability (evaluation mechanisms and funding rules). There seems to be a high variance in university governance across countries and a multifaceted nature of governance, where different dimensions of autonomy and accountability are not necessarily correlated.
On the link between funding, governance and performance
Hampered by lack of good data, embarrassingly few studies assess the determinants of performance of European universities. A Bruegel study reports some first findings on the link between proxies for governance and research performance, as measured by the Shanghai Ranking. First, one must correct for other determining factors affecting research performance such as size, age, and budget per student besides governance. The only governance indicator that turns out to be significant is budget autonomy. One may conclude that larger budgets per student are more effective if institutes enjoy more budget autonomy. Policy should thus tackle simultaneously funding and governance.
Countries with a large population benefit from returns to scale and may be more efficient in providing public goods and generate higher productivity (Alesina and Spolaore). Within the context of the market for higher education and research, the law of large numbers suggests that in such countries the chances of a genius surfacing is larger than for a small country. This is why it is important to engender competition as well as cooperation on the European level.
Policy agenda for higher education reforms in Europe
Although the general principles of the policy reform agenda are clear, the details are not. The link between governance, funding, and performance is not obvious and needs still further data and research. In addition, differences in preferences on funding, governance mechanisms, and trust levels among stakeholders abound in the EU, across and within countries. This suggests difficult and heterogeneous reform processes and outcomes in EU countries. In this endeavour, policy makers should be able to rely on good data and analysis, which is unfortunately not yet available. Nevertheless, some suggestions for reform can already be made.
Boosting investment in higher education
The high returns from higher education have highlighted its role as an investment, benefiting both the individual as well as society as a whole. But beyond the need for a sufficiently large public investment in universities, there is the issue of how to best invest public money. Governments should strike the right balance between core, competitive, and outcome-based funding (underpinned by robust quality assurance).
Beyond the case for public spending, the empirical evidence suggests that private returns to higher education are also substantial in Europe. This suggests more scope for private funding of higher education and in particular for asking students to pay higher tuition fees in continental Europe. Free higher education does not by itself suffice to guarantee equal access and maximum enrolments. Access is better targeted through other instruments, such as income-contingent loans and scholarships for the most able students from less privileged backgrounds. Since the private and social returns differ across the types of higher education (Bachelor, Master, PhD and across disciplines), private versus public funding shares should also be differentiated.
European policy makers should be careful not to impose a standardised, micro-managed governance model on their universities. Society through its government could enforce a number of objectives on universities (e.g., with respect to selection of students or curriculum design) in return for public funding, but beyond this universities should be given sufficient degree of freedom to develop their own strategies. In return for being freed from over-regulation and micro-management, universities should accept full institutional accountability to society at large for their results. In many countries this would mean a new approach to policy making with less ex ante checks and greater ex post accountability of universities for quality, efficiency, and the achievement of agreed objectives. For universities, this requires new internal governance systems based on strategic priorities and professional management of human resources, investment, and administrative procedures.
More intensive competition among universities
Higher funding cannot be justified without reform. However, in some EU countries, under-funding and system rigidities are so acute that they impede reform. Universities are consequently trapped in a vicious circle. To unlock the reform process, perhaps the most important driving force emerges from competition. Competition for students and faculty is a global game, which is already removing the barriers within Europe and establishing a large, integrated market for higher education and research. The European Commission can contribute to the reform agenda through further improving mobility of students, researchers and funds across Europe. In a more integrated Higher Education and Research Area, European universities could develop their comparative advantages and become stronger players on the world scene.
But perhaps the most important recommendation is to invest in more data and analysis to support evidence-based reform. The European Commission should take the lead in developing and implementing performance indicators for institutions in the EU.
Aghion, P., M. Dewatripont, C. Hoxby, A. Mas-Colell and A. Sapir (2007). Why Reform Europe’s Universities?, Policy Brief, Bruegel, Brussels.
Alesina, A. and E. Spoloare (2003). The Size of Nations, MIT Press, Cambridge, MA.
Jacobs, B. and F. van der Ploeg (2006). Guide to reform of higher education: A European perspective, Economic Policy, 47, 535-592.
Ploeg, F. van der and R. Veugelers (2008). Towards evidence-based reform of European universities, CESifo Economic Studies, 52, 3, 2-22.
Sianesi, B. and Van Reenen, John Michael (2003),”The Returns to Education: Macroeconomics”. Journal of Economic Surveys, Vol. 17, pp. 157-200
Veugelers, R. and F. van der Ploeg (2008). Reforming European universities: Scope for an evidence–based process, in M. Dewatripont and F. Thys-Clement (eds.), Governance of European Universities, Editions de