Helping Academic Research in Europe: More Money and More Autonomy, Please!

Philippe Aghion, Mathias Dewatripont, Caroline Hoxby, Andreu Mas-Colell, André Sapir, 1 October 2007

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European growth has been disappointing for the last 30 years, but policymakers have only recently started to realise that Europe’s growth performance is intimately linked with the research performance of its universities.

Europe invests too little in higher education. It is by now widely known that the EU spends less than 2% of its GDP on R&D, compared to more than 2.5% in the US. But the gap between Europe and the US is even wider for universities than for R&D spending. In 2001, total (public and private) spending on higher education in EU25 accounted for barely 1.3% of GDP, against 3.3% in the US. In other words, every year Europe spends 2% of GDP less than the US. In terms of expenditure per student, the contrast is starker still, with an annual spending of €8,700 in EU25 versus €36,500 in the US.

The unsatisfactory research performance of Europe’s universities also results from inadequate institutions. European universities suffer from poor governance, insufficient autonomy and often perverse incentives.

Europe started to recognise some years ago that its university system faces a problem. A first step was the Bologna Declaration that initiated the creation of a ‘European Higher Education Area’. Recently, a growing number of individual EU member states have introduced reforms of their university systems.

However, only the recent publication of global rankings, such as the Shanghai Jiao Tong University Academic Ranking of World Universities (the ‘Shanghai ranking’) has made most policymakers aware of the magnitude of the problem and sparked a public debate on university reform. These rankings tend to reinforce the evidence that the US is well ahead of Europe in terms of cutting-edge university research.

In a Policy Brief written for Bruegel1 , a Brussels-based European think-tank, we have analysed the research performance of European countries based on the 2006 Shanghai ranking and we have connected research performance with university funding and governance thanks to survey information we have collected from European universities that belong to the Top 500 of the Shanghai ranking. Using US information, we have also assessed how university autonomy affects the patenting impact of university research funding.

Several interesting findings come out of our investigation.

First, in terms of per-capita research performance, the gap between Europe and America is large, in particular for the best-performing universities. As we broaden the investigation from the Top 50 to the Top 500 universities in the Shanghai ranking, the relative per-capita performance of European countries improves compared to the US. This, in turn, suggests strongly that quality variance is lower among European universities than among their American counterparts. It also suggests that what Europe lacks most is top-class universities. However, there are important differences among European countries: Switzerland, the UK and Sweden do particularly well, even in the Top 100, where they outperform (Switzerland and Sweden) or almost match (the UK) the United States on a per capita basis. The rest of Scandinavia (Denmark and Finland), plus Belgium and the Netherlands also do pretty well in the Top 200 and Top 500. By contrast, Southern and Eastern Europe lag far behind. France and Germany do relatively poorly, except in the third tier, the universities ranked between 301 and 500.

There is a high degree of heterogeneity between countries in terms of size and funding of universities in the Top 500: Southern Europe (Italy and Spain) has very large (more than 40,000 students on average) but not well-funded universities; Sweden and the Netherlands have universities of average size (20-25,000 students), and better funded; Germany and Belgium also have average-size universities, but they're poorly funded; and the UK and Switzerland have small (10-15,000 students) and very well-funded universities.

There is also a great deal of heterogeneity – albeit with some general trends – as far as university governance is concerned. State intervention is pervasive in Europe, even when universities are not public. Wage-setting autonomy is rare, with Sweden and the UK being the foremost exceptions. Hiring autonomy is prevalent, except in Southern Europe. Note finally that “endogamy” of faculties (measured as the percentage of faculty trained in-house at the PhD level) seems to be negatively correlated with country size. It is high in small countries (Belgium, Denmark, Ireland and Sweden, but not in Switzerland which is highly open to hiring scholars with PhDs from other institutions), and small in large countries (Germany, Italy and the UK, but not in Spain). This finding clearly reflects the absence of significant academic mobility between European countries.

A striking fact is thus the high variance in university governance across European countries, even among those which are performing well in terms of research. For example, among the three European countries with the best performance index, endogamy is high in Sweden but low in Switzerland and the UK; Swedish and UK universities can set wages but Swiss cannot, and universities are mostly public in Sweden and Switzerland whereas they are mostly private in the UK.

We did econometric analysis to investigate the effect of budget and governance on university research performance measured by Shanghai rankings. Three findings stand out:

  • Money helps performance. Specifically, there is a strong positive correlation between the university budget per student and its Shanghai research performance.
  • Autonomy is good for research performance. Among our different indicators of autonomy, the variable that ‘wins’ in our regressions is budget autonomy, that is, whether or not the university requires Government approval.
  • Autonomy and funding are complementary inputs to performance; budget autonomy doubles the effect of additional research funding on the Shanghai research performance.

Finally, evidence collected on US States is consistent with the above results. Increased university funding in a given US State does increase patenting in that State, and the effect is roughly twice as high when its universities enjoy a high degree of autonomy. Here again the most important dimension of autonomy seems to be budget autonomy.

Policy implications

What should be done to improve the performance of European universities? Two main policy conclusions emerge from our analysis:

  1. European countries should invest more in their university systems. On average, EU25 members spend 1.3% of their GDP on higher education, against 3.3% in the US. European countries should increase funding for higher education by at least 1 percentage point over the next ten years. It remains an open question how the burden of this increase is to be shared between public budgets and private funding, including tuition fees.
  2. For this effort to pay off, European universities should become more autonomous, in particular with regard to budgets, and also in hiring and remuneration. What matters for good performance is both money and good governance. The two are complementary; increasing university budget has more impact with good governance and improving governance has more impact with higher budgets. We are aware, however, that greater autonomy can be perverse and that it must be accompanied by greater performance evaluation.

Just like the Shanghai ranking, our study focuses mainly on the research function of universities and has left aside politically-sensitive issues of tuition fees and student selection, which are perhaps more directly related to the teaching function, although they also impact on research. Yet, we are confident that a reform stressing increased budget per student and greater autonomy (together with greater evaluation) will be performance-enhancing, either alone or as part of a more radical overhaul of the university system, involving tuition fees and student selection.

Footnotes:

1 Entitled ‘Why Reform Europe’s Universities?’, available at www.bruegel.org.

Topics: Education
Tags: European universities, international rankings, research performance

Professor of Economics at Harvard University and CEPR Research Fellow
Professor at ECARES, Université Libre de Bruxelles and CEPR Research Director
Scott and Donya Bommer Professor of Economics at Stanford University
Professor of Economics at the Universitat Pompeu Fabra
Professor at Universite Libre de Bruxelles, Senior Fellow of BRUEGEL, Research Fellow of CEPR and member of European Commission's Economic Policy Analysis Group.

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