Universities of the Future from Social and Economic Perspectives

Session Chair

• AKAI Nobuo (Faculty Fellow, RIETI / Associate Professor, Osaka School of International Public Policy, Osaka University)

Presentation: "American Universities in the Face of New Economic Realities: Financing Higher Education while Stimulating Economic Growth"

• Michael K. YOUNG (President, the University of Utah)

Discussant

• HATA Takashi (Professor, Center for the Advancement of Higher Education, Tohoku University)

In this session, two reports were presented on the subject of "Current Situation and Issues in University Governance." Dr. Young's report reviewed the changes in higher education financing in the U.S. and the impact of U.S. universities on economic development. The comments made by Professor Hata focused on the current situation and issues related to the governance of Japan's national universities.

A review of the changing patterns of U.S. higher education financing points to the following historic tendencies. Tuition revenue and private donations are low in the case of public universities and higher in the case of private universities. State support is high in the case of public universities and low or negligible in the case of private universities. University budgets reveal the following characteristics. In the case of public universities, state support is decreasing, while federal research funds, tuition revenue, and private donations are increasing. In the case of private universities, the shares of both federal research funds and private donations are increasing.

Issues and challenges related to tuition, state support, federal support, corporate support, clinical revenue, fundraising, and commercialization are as follows.

Challenges related to tuition include:

1. Tuition is closely observed by the state legislature.
2. Negotiations with students are unavoidable, and prices have to be set to the market.
3. The use of tuition revenue has to be specifically designated, but this can lead to reduced flexibility.
4. Raising tuitions can price out disadvantaged students.

Challenges related to state support include:

1. State funds are designated for certain purposes. A substantial increase in funding cannot be expected, but universities must constantly lobby their state legislatures.
2. Increases in state support do not keep pace with inflation.
3. Occasionally it is possible to secure funds for large projects, such as the Utah Science, Technology and Research Initiative (USTAR).

Challenges related to federal support include:

1. Federal resources are limited.
2. Increases in federal support do not keep pace with inflation.
3. Proposals are peer reviewed, but innovative projects are often not initially funded.

Challenges related to corporate support include:

1. Close cooperation with corporations is good, but corporate sponsorship may influence research results, which can turn out to be highly controversial.
2. Corporate funds available for basic research are limited.
3. Corporate ties can skew the intellectual agenda of professors and research results.

Challenges related to clinical revenue include:

1. Public sources are subject to budget constraints by the federal government.
2. Private sources are subject to competition and changes in the market.

Challenges related fundraising include:

1. Donors set the priorities.
2. Benefits tend to be concentrated in specific areas, and resources are not distributed ideally throughout the system.

Benefits and challenges related to commercialization include:

1. The benefits of commercialization include bringing resources to universities, providing jobs and tax revenue, and bringing work to the real world.
2. The challenges of commercialization include too much emphasis on applied research.

The main features of the Utah Model of Entrepreneurship are:

1. A culture of entrepreneurship is nurtured in the faculty.
2. Faculty members are involved in outreach programs.
3. Contributions are made to education programs.
4. The commercialization of technology supports funding and advisory functions.
5. Projects are funded through returns on commercialization.

The following questions were received from the floor.

Q: As a state university, what kind of pressure from the state government is the University of Utah exposed to? Does the state government issue specific directives on the types of entrepreneurial projects the university should engage in? What specific arrangements, such as university ownership of corporate shares and the creation of incubators, have been made regarding the management of research funds?

A: There has been no pressure from the state legislature. Subsequent to our partnership with corporations, it has been the university that has been constantly acting on the state legislature. Hence, the process of change is not being led by the state legislature. The legislature only provides funding. Regarding specific arrangements for the management of research funds, the university is now able to own corporations. This was made possible through clarifications made in the interpretation of existing laws by the state government.

Q: How much capital gain has been generated through university entrepreneurship? To rephrase the question: What is the principal benefit of entrepreneurship to universities? Is it a financial benefit, or is it the ability to improve the reputation of the institution and to thereby attract better students and faculty members?

A: University entrepreneurship does not generate massive revenues. Annual revenues amount to $2.5 billion. This is not a small amount, but neither is it an extremely large amount.

A survey of the current situation of Japan's national universities indicates that revenues from university hospitals and outsourced research are increasing. Notwithstanding the cutback in operating grants, total financial resources remain unchanged due to the increase in these revenues. However, operating grants include grants for special educational research, which are earmarked funds that cannot be used for general purposes. It should be noted that this effectively curtails the discretionary powers of universities. Disparities between educational institutions are becoming more serious, and operating grants do not cover all personnel expenses. Regarding competitive funds, over the past decade, the allocation of Grants-in-Aid for Scientific Research has become considerably more concentrated. However, in Japan, there is absolutely no discussion on the negative effects of the concentration of research funding.

The central question is: What are the public functions of universities? Traditionally, the national universities were placed under the aegis of the educational administration of the central government. However, other government ministries and institutions have long shown a keen interest in national universities. As a result, the functions of national universities have shifted away from the framework of educational policy and have now become core instruments in the pursuit and implementation of industrial policies and other general national policies. Notwithstanding this shift, the framework for discussing national universities at a government-wide level remains weak. Moreover, the public sector continues to play a central role in higher education. Consequently, the function of the government cannot be underestimated, and it is unrealistic to discuss the transfer of these functions to private universities.

Emphasis should be placed on achieving regional equality in educational opportunities. Regional disparities among entry rates for higher education remain large. Another key question is whether national universities are open to all income classes. International ranking is being considered as a measure of public function. However, these are indicators of performance or basic conditions and it is doubtful whether they reflect public function.

Following are some issues for future consideration. First, national higher education has moved into the market and the governance of national universities cannot be assigned to one-to-one interactions between the government and individual institutions. A "peak" group should be created to promote market competition among all universities, to make inter-university adjustments, and to contribute to government policymaking. Japanese universities are partitioned into public and private sectors, and there is no unified framework for discussing the totality of higher education. This situation is unique to Japan. The Japan Association of National Universities still resembles a salon and is inadequate as a governance mechanism for promoting market mechanisms in higher education.

Second, the leading national universities should re-examine their responsibilities to higher education. In this regard, the former imperial universities have a particularly heavy responsibility as Japan's leading national universities. These institutions should consider what actions they can take to elevate the whole of Japan's higher education and to explain the quality of Japanese higher education to the rest of the world. They must also consider their accountability to taxpayers.

The following questions were received from the floor.

Q: I believe that funds need to be provided for the improvement of low-performance universities. The question is what form should such funding take. Under the present system, funding is earmarked before being provided to the universities. Don't you think that such funding should take forms that are more conducive to university autonomy and initiative?

A: Regarding the allocation of funds to universities based on evaluation results, we need to consider "how much" should be allocated on this basis. In the UK, evaluation-based funding accounts for about 10% of total funding for higher education. This ratio is also not very high in the case of the U.S. In the future, we need to discuss an appropriate allotment ratio that will generate incentives without undermining the basic functions of universities.

My personal views on promoting improvement through the evaluation process are as follows. Allocating resources to low-performance institutions is not a very good idea. First of all, there is no particular reason to allocate more resources to institutions with poor assessment results. It is far more important to develop a framework for promoting high-performance areas. Furthermore, there is a general rule that says that creating linkages between evaluation and resource allocation will distort the evaluation process and its results. If resources are allocated to institutions with low evaluation results, there will be an incentive to produce poor results. Therefore, to pursue improvement through evaluation, we will need to explore approaches that are not implemented through resource allocation.

Q: As a means of underwriting the public functions of universities, you have advocated government fiscal expenditure for the elimination of disparities. On the other hand, you said that university autonomy should be respected as far as possible. Isn't there a contradiction between these two positions?

A: National universities have no funds that they can use freely. This certainly applies in the case of personnel expenses. Some universities receive large amounts of operating grants. But the amount is carefully calculated. The number of teaching staff required is calculated on the basis of the number of departments and faculties established. Operating grants correspond to the size of the teaching staff, and no room is left for discretionary spending. If we want to create mechanisms for underwriting the public functions of universities, we have to carry out monitoring based on some indicators as part of the plan.

Q: Regional universities are in a very difficult position today. An increasing number of good students from low-income families are enrolling in evening courses in these universities. Among OECD countries, Japan is at the lowest level in terms of government spending on education. Is there no movement to lobby for the halving of tuition?

A: The panel discussion will be dealing with the issue of why government funding is not going to places where it is most needed. So, I would like to ask you to pose your question again during the panel discussion.