On the Funding of Higher Education Institutions

Resolution of the 11th General Meeting of 22 November 2011

I.    Introduction
The concession of greater autonomy to universities increases their scope for decision making and provides them with the flexibility that they need to compete for the best brains. Besides increased autonomy, adequate basic funding by the state is needed to enable universities to fulfil their duties. However, there is evidence of a real-terms decline in basic funding. Unless this issue is addressed, freedom of universities to act will be massively restricted, which runs counter to the reasons for granting them autonomy.

II.    Resolutions
1.    Universities require reliable basic funding.
2.    The Federal Government and the States must increase investment in education.
3.    Federal and state competences in relation to education policy must be rebalanced.
4.    There is no “demographic return” on higher education that can be used to put other public budgets on a sound footing.

III.    Background
1.    Current Situation

The economic strength of the Federal Republic of Germany cannot be allowed to disguise the fact that its competitive position is threatened by demographic trends and a lack of dynamism in the education sector. The working-age population is in steady decline. At the same time, the increase in the number of those of working age with tertiary-level qualifications is insufficient to meet the growing demand for skilled workers within the economy.
According to one study, an annual economic growth rate of 1.5 per cent up to 2020 will mean a shortage of around 2.5 million full-time workers, including 2.4 million skilled workers, half of whom should be academically qualified.
While it is true that Germany has a model system of vocational education, its higher education enrolment rate of well below 40 per cent is currently (based on 2008 figures) the lowest in the OECD after Turkey, Belgium, Mexico and Luxembourg. Despite an expansion of tertiary education in recent years, it is nowhere near making full use of the talent pool available. The number of graduates as a proportion of those born in a single year has risen to 25 per cent, but elsewhere the increase has been faster and from a higher base: in the same period, the OECD average for the proportion of those born in a typical year with higher qualifications rose to 38 per cent.

This lack of commitment to the education and higher education sectors is clear from a number of indicators. In Germany, higher education spending accounts for 1.1 per cent of gross domestic product – well below the OECD average of 1.5 per cent. Both public and private spending on the tertiary sector is below average as a proportion of GDP (0.9 and 0.2 per cent respectively, against one per cent and 0.5 per cent). In addition, the funding structure of universities has changed for the worse. During the period 1995-2008, basic funding increased by only 6 per cent in nominal terms – a fall in real terms – whereas third-party funding of universities more than doubled, rising as a proportion of higher education expenditure from 11 to 20 per cent. International experts see the diversification of funding streams as crucial if higher education funding is to be put on a stable footing in the long term, but the procurement and implementation of externally- funded projects is contingent on sufficient basic funding.
Years of systematic underfunding have hampered the development of the higher education sector in quantitative and qualitative terms. It is important to bear in mind that investment in human capital in general, and in education and research in particular,
is a key determinant of economic growth.

In an ageing society, investment in education is not only vital – it also brings a return, in terms of additional revenue from taxes and social contributions and reduced benefit payments. Currently, this amounts to US $210,000 per graduate – almost five times the cost of funding a student place and the revenue lost because people spend less time earning. However, the looming shortage  of skilled workers, and the negative impact that that will have on growth, threaten to reduce revenue by 1,200 billion euro by 2020, resulting in a significant decline in living standards.

2.    Policy Measures Required for the Higher Education Sector

Actively tapping into the pool of unused talent is an urgent priority if the gap between demand for and current availability of skilled workers is to be narrowed and the economic costs associated with that reduced. The following objectives are, therefore, to be pursued in the higher education sector:
•    Increasing the proportion of those who go on to higher education from school
•    Making German universities more attractive to international students
•    Increasing the number of professionally qualified people without formal university entrance qualifications in universities
•    Reducing the student drop-out rate
•    Increasing opportunities for lifelong learning
In recent years, the proportion of those who go on to higher education from school has risen from under 70 to over 80 per cent today. However, one in five of those with university entrance qualifications opt against doing a degree. If we want more people to go on to higher education from school, the number of student places available must be expanded and targeted measures introduced to persuade more pupils to enter higher education.
As many families are deterred by the individual costs of higher education, provision of financial assistance, in the form of either grants or loans, should be increased so that people do not decide against doing a degree on financial grounds.
In 2008, the proportion of international students in Germany was 9.3 per cent. Germany ranks highly on this score, behind Australia, the United Kingdom and Austria. It also benefits from the large number of foreign students, as around a quarter of the foreigners who graduate in Germany pursue careers here.
Improving student-teacher ratios is important if more international students are to be recruited. The success rate in Anglo-Saxon countries is significantly higher because of more intensive supervision and better conditions (provision of accommodation and grants).
In order to increase significantly the number of people in employment without formal university entrance qualifications who are admitted to degree programmes, universities must be put in a position to offer them additional and specialised services (bridging courses, mentoring and coaching programmes etc) that will enable them to succeed in higher education – for example, in relation to language skills, basic mathematical and scientific skills and academic approaches and the scientific method.
There must also be more opportunities for people in this position to study while working and/or to take courses part-time. This allows them to study while remaining in work, so that doing a degree does not mean completely giving up their job and financial security. However, provision of opportunities to study while working and on a part-time basis is contingent on the necessary staff resources being made available. The same applies to provision of courses for academically educated immigrants, so that the various qualifications they hold can be recognised and built upon.
Improving student-teacher ratios is also the key to increasing student success rates in Germany significantly. With smaller class sizes, it is easier to identify, support and advise talented students. A sufficient number of postgraduate courses must be made available. At the same time, the provision of lifelong learning must be strengthened.
Universities expressly support other strategies for tapping into additional reserves of talent (for example, children from low- income, less well-educated and immigrant families). These must start in early-years education and at school.

3.    Preconditions for Implementation
There is considerable ground to be made up in the education sector. The number of study places currently available is insufficient to allow all those who wish to enter higher education to do so. The number of places available on Master’s courses is insufficient for the longer term. Much work is needed to improve the condition of buildings. As outlined above, there is a need to tap into further reserves of talent both at home and abroad and to improve the quality of education. At the same time, it is important that we strengthen research in the higher education sector.
Together universities make up the largest publicly funded contributor to research, so they have a central role to play in promoting innovation and meeting future challenges. Yet in no OECD member state is education’s share of total public spending lower than in Germany.
It is clear that in future great efforts will be needed to maintain funding of the higher education sector. Even though the number of school-leavers is in long-term decline, funding will have to be increased temporarily to meet the objectives that have been set. In any case, there is no chance of realising the sort of “demographic return” that financial policy experts have forecast for the education sector in coming years, which is intended to help relieve the pressure on public finances.

However, the right structural conditions must be created to free up the funding that is required. The states are having great difficulty meeting their financial responsibilities. The so-called balanced budget amendment, which will come into force at the end of the decade, will only aggravate these problems. Due to shortfalls in their own revenue, some states have little room for manoeuvre in relation to education funding, once federally determined expenditure has been taken out of the equation. Article 91b of the Basic Law permits the Federal Government and the states to co- operate on academic and research projects in universities only where projects are of national significance and where all the states are in agreement. These provisions are not designed to attract the educational investment that is required and to provide the hoped-for impetus for modernisation. There is an urgent need to facilitate co-operation between the Federal Government and the states on the basic funding of universities, including teaching
– if necessary, by amending the Basic Law. Alternatively, resources must be allocated in such as a way as to allow the states to fund education adequately.

We must also increase the proportion of higher education funding coming from private sources. The figure for Germany is 16.6 per cent, which is well below average in international terms (the OECD average is 33.3 per cent, accounting for 0.5 per cent of GDP as compared with 0.2 per cent in Germany). We call on politicians to create the conditions necessary to attract additional private-sector resources. At present, universities’ ability to attract additional resources is dependent not least on whether they can get students to contribute to funding their degrees. There has been a change of policy on this issue in most states, which have either abolished or at least limited existing contributions. That has meant the removal of what is currently an important financial contribution to the funding of teaching. It is absolutely imperative that the resulting loss of income is made good from state resources. The HRK’s position on student contributions is set out in a resolution passed at its 205th plenary session on 23 November 2005, entitled “On the future of higher education funding”.

Finally, there is a need to change the structural composition of universities’ revenue streams. Third-party contributions to the funding of universities have risen by 80 per cent since 2000. This is largely the result of various programmes to strengthen research. However, universities have also generated increased revenue from economic activity, where no provision was available within the framework of basic funding. By contrast, basic funding has been falling in real terms since the mid-1990s. In other words, the increase in student numbers over the past decade has been matched only by an increase in third-party funding and resources acquired through competition. However, such resources can be used only for the purposes for which they were acquired – they cannot be drawn on to fund teaching. Third-party resources can, therefore, only offset the lack of basic funding in a limited way. Rather, institutions must have the capacity (in terms of premises, technical equipment and administration) to allow them to provide adequate basic facilities and implement projects; again, the costs of this must be met out of basic funding. In the past few years, universities have taken on a variety of new and additional duties that must also be funded in the longer term. The chairman of the German Council of Science and Humanities has himself pointed out that this is making it more difficult for universities to maintain or raise their level of performance in relation to their core duties of transmitting knowledge and producing the next generation of academics. The practice in many states of providing initial funding for specific projects that then have to be taken on and/or continued by the universities in the longer term is especially problematic. It is not uncommon for projects favoured by the state or sponsors to be initiated in this way, but it has the effect of limiting the independence of universities in the long term in relation to spending.

If they are to be able to respond appropriately to future challenges, universities must have reliable basic funding that gives them longer-term security with regard to planning and a certain amount of flexibility when it comes to determining spending. Resources awarded through competition can only be additional to this, rather than a substitute for it. Short-term and continual changes in policy of the sort that we have seen in some states in relation to student contributions make longer-term strategic planning impossible. Similar problems are associated with short-term changes to how targets are set – for example, as a result of new models for the allocation of resources.

IV.    Conclusion
Education must be seen as an economic asset, with particular importance in an ageing society. Policy must take account of this. It is irresponsible to plan on the basis of a demographic return that will rehabilitate public finances. Universities appeal to the Federal Government and the states to increase investment in education to ensure future prosperity.