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 GeunaDepartment of economics

University of Torino

2

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 it matter is from where you start.

3

Changing roles of university

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

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).

4

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 (?)

5

Post-WWII Rationale: The endless frontier

6

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)

7

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 and see

discussion on Tacitness).

8


=> 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)

9


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.

10

Linear model: V Bush ‘Social Contract’ - The endless frontier

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

Basic research App. res. Devlpt Innovation.

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

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

11


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. Science also seen as inherently

unpredictable (‘serendipity’), ex-ante judgment.

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

12


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

13

Main funding mechanisms 1

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”

14

Main funding mechanisms 2

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)

15

What about mission-oriented research?

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

‘Mission-oriented research’ (cf. curiosity-oriented’)– very large funding (especially in US but also UK and

F)– not just confined to technical universities

16

What about mission-oriented research?

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

17

Changing characteristics of university research.

18

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);

– Weakening of the military rational;– Globalisation and growing economic competition;

19

Changes in 1980s – 1990s

Driving forces:– Growing importance of scientific and

technological knowledge – the ‘knowledge economy’;

– The emergence of new technology driven industries: biotech, ICT, nanotech;

– ‘Massification’ of HE (from 7-8% to 40-70% NS) due to both increased demand and increased # of students finishing secondary education;

– Growing cost of research.

20

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

0

10

20

30

40

50

60

70

80

90

100

Aust

ralia

Icela

ndPo

land

Finl

and

Swed

enNe

w Z

eala

ndSl

ovak

Rep

ublic

Norw

ayHu

ngar

yRu

ssia

n Fe

dera

tion1

Unite

d St

ates

Kore

aDe

nmar

kNe

ther

land

sUn

ited

King

dom

Israe

lOE

CD a

vera

geEU

9 av

erag

eIta

ly1

Port

ugal

Czec

h Re

publ

icGr

eece

Slov

enia

Japa

nSp

ain

Chile

1Es

toni

aIre

land

Aust

riaSw

itzer

land

Germ

any

Belg

ium

Mex

icoTu

rkey

2006 2000 1995

21

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;

22


– 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.

23


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. France, Italy, 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);

24


– 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 ‘third mission’ of universities (e.g. UK, Denmark, Norway)

Growth in patents during 1990s although slowed since 2000

25

New rationale: Contractual-oriented approach

26

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 (but also in part Sweden, Denmark, Poland, Belgium) now allocated on basis of performance see RAE;

– Policies to increase selectivity and concentration;

27


– Project-based funding (see FIRB/ANR in Italy/FRANCE) increased in importance with a shift from responsive mode to directed programmes and to research linked to needs of ‘users’ (though decrease in recent years in UK);

28


– Growing emphasis on ex post evaluation;

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

29


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? Student presentation on Foresight);

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

30


– 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.

31

Advantages and Potential Unintended Consequences: What matters it is from

where you start

32

Advantages

Creates incentives for performance (of a specific type).

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

Scientific production is 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.]

33

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%

34

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’

35

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

36

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.

37

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

38

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

39

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

the changing rationale for public funding: why do we have publicly financed universities?

Documents

research funding

useful knowledge

govtfunded research

uptodate knowledge

knowledge base

social benefits

public funding

changing rationale