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Can Financial Investment Buy University Success?

Can Financial Investment Buy University Success? main image

Martin Ince looks at the evidence gathered by the OECD on how university spending affects higher education achievement, alongside analysis of the latest QS World University Rankings

Over the past century, educating children has come to be regarded as a basic task for a working society. In the rich world, virtually all children go to school, while in the developing world, an “inclusive and equitable quality education” is one of the UN’s 17 Sustainable Development Goals for 2030 across the South.

And a school-educated population is a national asset that most governments realize is worth paying for. According to the OECD’s Education at a Glance handbook for 2015, 91% of the money spent on non-tertiary education in the OECD nations comes from the public purse.

But even governments that accept the need to pay for schools are less inclined to fund the whole cost of higher education. The same OECD report notes that in contrast with the position for schools, 30% of the money that goes into tertiary education comes from private sources. The biggest of these is income from tuition fees paid by students and their families. Other sources of private income, such as contracts for industrial research, are smaller but still important.

Steady growth in private funding

There is also a clear trend for private funding to grow over time. The OECD finds that for countries where data is available, public funding declined from 69 to 65% of spending between 2000 and 2012.

It is possible to argue that money is money, and where it comes from does not matter, provided universities have enough of it. However, there are also critics who claim that this growing dependence on tuition fee income is bad for universities. It encourages them to grow student numbers faster than they add teaching staff, and in recent years both the UK and Australia have abandoned state controls on student numbers.

It also makes universities dependent on cash flow that can easily be diverted elsewhere if a particular institution falls in student attractiveness. And in many nations, especially the US, the sheer volume of debt built up by current fee levels is so great as to have become a national political and economic issue.

But let’s use the OECD data to look at this controversy in a new way. What, if anything, is the link between higher education spending and university success, as measured by the QS World University Rankings®?

Variation in HE spending per student

The OECD finds that its members spent an average of US$15,028 on each university student in 2012, about 50% more than the average spending on a child in primary school. But rates of growth in this spending vary wildly.

While some nations have cut spending since the 2008 financial crisis, others have continued to expand. Of the 34 nations on which the OECD has firm data, six were spending less per student in 2012 than in 2005. Hungary, Switzerland and Iceland were spending 85, 87 and 90% as much per student respectively as they had seven years earlier. (All these figures are corrected for the effects of inflation in the country in question.)

As the Swiss have one of the world’s most capable higher education systems, with its top universities ranked 8th and 14th in this year’s QS World University Rankings, this perhaps suggests that growing expenditure per student is not a prerequisite for university success.

The same data shows that one nation – Australia – was spending exactly as much per student as in 2005, and that Israel, Mexico and the Netherlands are essentially unaltered. However, Australia’s student numbers also grew by 33% over the same period. So the amount of cash in the higher education system rose drastically between 2005 and 2012.

Australia is of course a massive player in global higher education, and is a magnet for mobile students from Asia and beyond. It has four top-50 universities in this year’s QS World University Rankings, although its flagship institution, the Australian National University, has fallen out of the top 20.

The Netherlands, too, is well-represented in this and all other international university rankings, with a dozen top-200 institutions in the 2016 QS ranking. However, nine of these are worse-placed now than in 2015, while only three are higher. This may suggest that both countries are putting enough money into their universities to keep them functioning as world-class institutions, but have no plans for heavy new investment.

Asian investors’ success in climbing rankings

If we look at countries with significant increases in spending per student, we find that many are involved in a national catch-up operation with the rich West, including the Czech Republic, Poland and Slovakia. Also notable is Japan, which is spending more per student by 14%, at a time when student numbers are falling, making this growth steadily more affordable.

Sadly, the figures gathered by the OECD do not cover Singapore, whose top universities are in 12th and 13th place in this year’s QS World University Rankings. Five years ago they were placed 28th and 58th. However, we know that the Singaporean government has put immense resources into higher education. One sign of this success is that the Singapore Management University, set up in 2000, is one of the newest institutions in the QS ranking, entering this year in the 431-440 bracket.

However, the most striking point to emerge from the OECD data is that the biggest single increase in spending took place in South Korea, which in 2012 was spending 38% more per student in higher education than in 2005. Student numbers there were also up by 3% from 2005 and by 11% since 2000.

A look at this year’s QS World University Rankings alongside the 2011 edition shows that in those five years, Korea has grown its presence in our top 200 from five institutions to seven. Of the original five, all are better-placed now than in 2011. The top two, Seoul National University and KAIST, are up from 42nd to 35th, and from 90th to 46th respectively over the five years, while Korea University is up from 190th to 98th. This must be strong evidence that money spent on students is at least one factor in improved university performance.

Do ‘excellence initiatives’ work?

We know that governments do not want universities to compete only on the education they provide. They also want them to be globally important centers for the production of new knowledge. And in recent years, many have decided that the way to compete with the US and the UK as major research powers is to imitate their policy of concentrating research cash in a small number of institutions.

This has certainly been the approach taken by South Korea, where Seoul National University and a few others have received most of the nation’s university research funding. The same applies in Taiwan, whose flagship institution, National Taiwan University, has risen from 87th to 68th in our rankings in the past five years.

Nations from China to Latin America have imitated this approach, often with large amounts of money. An OECD analysis of these schemes looked at the biggest of them all, the German Excellence Initiative, which spent €24 billion between 2006 and 2010. It was judged a success in terms of strengthening university recruitment and early career prospects for researchers, in a system that has often been criticized for its inflexibility. The funding will continue at a lower level until at least 2017.

While the Excellence Initiative is regarded as having been transformative for German higher education, it is tricky to discern its effects on Germany’s standing in the QS rankings. In 2011 there were four German universities in the top 100, and in 2016 there still are. The three that were there in both years are all now lower-placed.

Running faster just to stay still

Perhaps the most successful attempt to boost a nation’s higher education standing has been in China, where 39 institutions benefit from the 985 program, worth almost RMB 2 billion (US$300 million) each to the biggest winners, Peking University and Tsinghua University. In 2011, these two were placed 46th and 47th respectively in the QS ranking. Now they are 39th and 24th. However, the number of Chinese universities in the top 200 remains at seven, the same total as five years ago.

It is very difficult for even the best-funded of these initiatives to match the big money available to the elite US universities that dominate the upper reaches of the ranking, or indeed their close rivals in the UK. Only Singapore has been able to push its universities into the top 20 in the face of this opposition.

In addition, there is a powerful Red Queen effect at work, which means that it is hard to stay still in these rankings, much less to move up. For example, the average top-100 university in the rankings had 4,243 international students in 2011 and has 6,117 now, a 44% increase. This means more money for the university, as well as a more elite student body.

They also had 32% more papers indexed in the Scopus database used to develop the rankings, up from an average of 23,778 to 31,467 now. That means that their research spending is likely to be on the rise. It suggests too that only a massive effort, such as those we have seen in South Korea and Singapore, and at the topmost level in China, is likely to have the effect of propelling contender universities into the upper reaches of the rankings.

For more expert analysis, read the free online supplement to the QS World University Rankings.

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