Creative Education
2012. Vol.3, Special Issue, 1006-1015
Published Online October 2012 in SciRes (
Copyright © 2012 SciRes.
Emerging Trends and Old Habits in Higher Education
Management: Focus on the Public vs. Private Funding Debate
Federico Barnabè
Department of Business and Social Studies, University of Siena, Siena, Italy
Received August 29th, 2012; revised September 28th, 2012; accepted October 10th, 2012
This work takes into consideration the wide reform process that is impacting on Universities all over the
world, especially focusing on the public versus private funding debate for Higher Education Institutions.
In this regard, the paper provides some considerations on possible funding sources, discusses data related
to the relevance of public funding and presents the features of the main models of public funding across
many countries, particularly focusing on Europe.
Keywords: Higher Education Institutions; Funding Sources; Accountability Mechanisms
Preliminary Considerations
Trends and Changes within the University System
Recently the University has been increasingly challenged to
modify its traditional modus operandi and organizational
structure in order to meet higher expectations coming from a
large number of stakeholders and provide a wider range of
products and services of higher quality (Mazza, Quattrone, &
Riccaboni, 2008).
For academic players, from the institutional level to the indi-
vidual/faculty level, such process has implied a profound
change and the capacity to address a variety of critical issues.
Moreover, such factors have to be analysed in the light of some
specific social and economic changes that have characterised
modern society in European countries: demographic pressures,
public spending cuts, the worldwide financial crisis are just
some examples of key factors that have been impacting on the
Higher Education (HE) governance system and more specifi-
cally on Higher Education Institutions (HEIs) funding system
over the last two decades.
As a result, modern universities have been forced much more
than in the past to develop and implement medium and long
term strategies and to focalise their resources, both human and
financial ones, toward the achievement of pre-defined and
highly remunerative targets. Subsequently, almost everywhere,
wide processes of reform have been launched. These processes
have progressively changed the traditional model of the univer-
sity, now become much more than in the past a sort of entre-
preneurial institution, open to competition and to the market,
able to sell its research and educational products within a wide
and globalised context (Etzkowitz, 2003). Within this frame-
work, a crucial point for all the countries and HEIs involved by
the reforming process has been to ensure the financial sustain-
ability of the higher education sector and its players.
More in particular, in most countries such sustainability has
been pursued in coherence with a few specific objectives, in-
cluding (Eurydice, 2008: p. 7):
increasing public funding for higher education;
granting more autonomy to institutions for managing finan-
cial resources;
establishing direct links between results and public funding
encouraging the diversification of funding sources.
In many cases, such objectives have been pursued through a
general reshuffle of the institutional governance structures in
use; in other situations, some countries have developed specific
policies aimed at varying the weights of funding sources.
Starting from this premise, the article provides some consid-
erations on possible funding sources for HEIs, discusses data
related to the relevance of public funding for HEIs and presents
the features of the main models of public funding across many
countries, specifically focusing on Europe.
Impacts on University Funding Sources
The difference between public and private funding is a rele-
vant one and is heavily influenced by the choice between higher
or lower control by governmental bodies on HEIs.
Generally, it is possible to classify national higher education
systems into systems that are primarily coordinated by market
interactions—“market-oriented systems”—and systems that are
coordinated by governmental planning—“state-oriented sys-
tems” (Clark, 1983; Liefner, 2003).
In market-oriented systems a large proportion of funding for
HEIs is provided by private actors, and competitiveness is a
crucial factor for obtaining high levels of funding, simultane-
ously assuring qualitative teaching and research activities. The
HE system in the United States and more in general in An-
glo-Saxon countries is the prototype of a market-oriented sys-
tem for both teaching and research activities.
On the other hand, in traditional state-coordinated systems,
teaching and research activities in HE are strongly managed by
government directives, and policies and university funding is
mostly provided by the government. These systems are usually
less innovative and responsive to changes in demand. In a few
European countries it is possible to identify state-oriented sys-
tems in which governments (at least partially) plan and manage
teaching and research activities as well as organizational mod-
els and structures.
However, most national higher education systems cannot be
defined as totally state-oriented or market-oriented systems,
employing features of both. This is the reason why it is possible
to select different forms and mechanisms of funding, evaluation
and accountability when dealing with policies and strategies
promoted by HEIs.
To this end, Scott (2003: p. 9) differentiates a so called meta-
regulatory approach, in contrast with a regulatory one. Ac-
cording to Scott, regulatory systems are those that set rigid
prescriptions for universities, give emphasis to the measure-
ment of results in quantitative terms and privilege rigid direct
control over autonomy. However, these systems often produce
undesired results, such as resistance, window-dressing and the
inability to guide the subjects’ behaviour towards the desired
direction (e.g. see Galbraith, 1998; Geuna, 2001; Butler, 2003).
By contrast, a meta-regulatory strategy provides forms of indi-
rect control. Indirect controls can stimulate managerial and or-
ganisational skills, and guide participants towards the achieve-
ment of regulatory objectives set for each study course, de-
partment or sector. The implementation of a metaregulatory
approach—in a similar way to the “soft managerialism” men-
tioned by Trow (1994)—may also be less costly than direct
controls. Therefore, this solution could be particularly effective
in academic institutions, which are traditionally viewed as
loosely coupled institutions (Reponen, 1999; Czarniawska &
Genell, 2002) and are strongly characterised by their autonomy
and self-regulation. It also provides the stimuli to guide the
evaluated individuals towards the desired objectives, even if the
latter are set by institutions outside the university.
When all these considerations are related to the selection of
financial sources for HEIs and represent an input to the debate
whether public or private funding is to be preferred, a wide
range of models, mechanisms, performance measures and fea-
sible strategies are to be taken into account. However, these two
sources are not the only funding channels available for HEIs.
Sources of University Funding
Possible Funding Sources for Higher Education
Sources and methods of university funding are numerous and
At a first glance, the main funding sources may be identified
in families and students, private companies and the State. Be-
sides these, there are various other institutions, both public and
private, national and supranational (such as foundations, private
non-profit institutions and supranational organisations that fund
HEIs). Finally, the University can fund itself.
These sources have different weights and impacts from
country to country even tough, as a general consideration, it is
clear that all over the world the amount of money provided by
the State is quickly decreasing whilst at the same time every-
where the University is increasingly called to explore new ways
of fund raising and progressively open itself and its products to
the “market”.
In this regard, although it is unanimously considered that
public funding still plays a key role in the growing process of
the University, especially when dealing with countries that are
still developing and subsequently present specific educational
needs to be supported (Conceição, Heitor, & Oliveira, 1998: pp.
204-205), a range of critical factors—both endogenous and
exogenous to the University—has recently modified the avail-
ability, the weight and the function of public funding; among
them, demographic pressures, public spending cuts, the overall
financial crisis, new and growing expectations and demand
from academic stakeholders.
This situation has pushed the University to diversify its
funding sources and processes, move much more than in the
past towards the market and private companies, trying to com-
plement public funding with alternative funding sources (Was-
ser & Picken, 1998). Anyhow, before examining such sources,
a note on public funding should be provided.
Public funding is usually referred to as the total amount of
money that the State transfer to HEIs.
The function assigned to public funding is straightforward:
as stated in a document by the European Commission (Eurydice,
2008: p. 69), “the public funding mechanisms for higher educa-
tion in Europe represent levers through which central govern-
ments pursue their strategic objectives within the sector”.
However, the debate is very open as to the opportunity—or
even necessity—for HEIs to diversify their funding sources and
strengthen the link between resource allocation and perform-
Overall, trying to generalise, it is clear that when considering
funding allotted to universities we can refer to the total amount
of resources provided either by the public sector or by the pri-
vate sector; in addition to the two previous situations, the uni-
versity may fund itself as portrayed in Figure 1.
Within these main sources some more specific categories of
funding processes can be identified.
The first category refers to a situation in which the funding
process has as its source a governmental body, usually the
Ministry of Education. The funds allotted to the University
are provided on the basis of a specific methodology. The
University may be not restricted in any specific use to
which the funds are distributed, only carrying out activities
in order to contribute towards the attainment of general po-
litical, economic and social goals. Alternatively, funding
may be provided by a governmental body as well, but in
this case a detailed series of rules and procedures is im-
posed upon the use of the resources provided to the Univer-
sity. Last, the university can be funded by a variety of gov-
ernment bodies and public institutions, including, as an
example, local and regional governments.
Figure 1.
Main funding sources for HEIs.
Copyright © 2012 SciRes. 1007
Copyright © 2012 SciRes.
In the second case, HEIs are funded with private financial
sources, mostly provided by the students and their families,
and by private companies.
The university may also fund itself by means of its invest-
ments and the exploitation of its property (both fixed and
intellectual), thus ensuring an independent source of money.
Furthermore, within this case it is possible to refer to the
sale (in a strict commercial sense) by the university of edu-
cational and research activities.
All these distinct categories of funding processes correspond
to different combinations of the source of funding, the mecha-
nism by which funding is awarded and provided, conditions in
the use of funding and the justification for funding.
In so doing, it should be carefully noted that university
funding is generally considered from the point of view of the
“university system” (Caraça, Conceição, & Heitor, 1998: p. 37)
whilst the point of view of the single academic institution is
frequently overlooked or ignored.
Subsequently, the following table clarifies how educational
expenditure can be financed, differentiating between public and
private sources of funds plus private funds publicly subsidised,
and between spending on education inside or outside educa-
tional institutions. Examples of goods and services usually
purchased thanks to those specific forms of funds are provided.
Table 1 allows to generalize and classify educational expen-
diture through three dimensions:
1) the first dimension, represented by the horizontal axis, re-
lates where expenditure occurs, i.e. distinguishing between
expenditure within or outside educational institutions, such as
2) the second dimension refers to the goods and services that
are purchased. This dimension is represented by the vertical
3) the third dimension is represented by the capital letters
used in the diagram, distinguishing the different sources of
funding among public sources of funds (A), private sources of
funds (B) or private funds publicly subsidised (C).
Such categorisation certainly provides a more comprehensive
picture of education systems and possible funding sources.
However, it still fails to estimate the weights of such sources,
i.e. whether those typologies of expenditures are primarily fi-
nanced by public funding or on the contrary by other funding
According to the a large part of the literature, public funding
(and more in particular direct public funding) still represents a
relevant share of the total higher education funding and in most
countries HEIs would not be able to provide educational ser-
vices and products without a massive support from govern-
ments and public authorities, in the form of direct or indirect
public funding.
On the basis of the previous considerations, a more in depth
analysis is helpful and some key questions should be addressed,
as follows:
Which is the role played by public funding within the HE
system of several countries?
How does resource allocation vary among the higher educa-
tion systems of several nations and which are the most
widely used methodologies of resource allocation?
More specifically, which are the most common methods
used by HEIs to internally allocate their resources? And
subsequently, which are the most common and feasible ac-
countability mechanisms for the use of funding?
Which are the main destinations of public funding?
The Relevance of Public Funding for Higher
Education in Europe
In the previous sections we highlighted that education ex-
Table 1.
Classification of educational expenditure.
Spending on educational institutions
(e.g. schools, universities, educational administration and
student welfare services)
Spending o n education outside educational institutio n s
(e.g. private purchases of educational goods and services,
including private tutoring)
e.g. public spending on instructional services in
educational institutions
e.g. subsidised private spending on books
e.g. subsidised private spending on instructional services
in educational institutions
Spending o n core educat i onal
e.g. private spending on tuition fees
e.g. private spending on books and other school materials
or private tutoring
e.g. public spending on university research
Spending on research and
development (B)
e.g. funds from private industry for research and
development in educational institutions
e.g. public spending on ancillary services such as meals,
transport to schools, or housing on the campus
e.g. subsidised private spending on student living costs or
reduced prices for transport
Spending on educational
services other than instruction (B)
e.g. private spending on fees for ancillary services (B)
e.g. private spending on student living costs or transport
egenda: A = Public sources of funds; B = Private sources of funds; C = Private funds publicly subsidized; Source: Adapted from OECD (2011: p. 204).
penditure is basically financed by a few distinct forms of fund-
ing and mainly by public and private funding. Moreover, we
stressed that both public and private funding are necessary to
cover HE expenditures, for example when dealing with expen-
ditures related to R&D. Additional data are consequently help-
ful in providing some evidence.
First of all, taking into consideration Gross Domestic Expen-
diture on R&D, it is clear that HE still represents a relevant
sector for private and public investments, as shown in Table 2.
In this scenario, HEIs play a central role. However, their
functions go far beyond R&D activities. It is the very essence
of HEIs and their educational mission that represent the main
rationale to their own existence: create and transfer new
knowledge and manage public goods in their educational ser-
vices and products. In this regard, it is to note that funding to
HEIs is needed to cover a wide range of expenditures, from
current expenditures, to investments and specific (research and
teaching) projects.
Overall, some additional information can be provided taking
into consideration the following table that represents the rela-
tive proportions (as a %) of public and private expenditure on
educational institutions, for tertiary education and for a selec-
tion of OECD countries.
Table 3 clarifies which are the main funding sources for ter-
tiary education across the world. It is straightforward to identify
relative weights and sources of funding. As said, although HEIs
are increasingly differentiating their funding sources and have
been increasingly challenged to find new financing entities,
public funding (and more in particular direct public funding)
counts for a substantial share of the higher education budget.
Table 2.
Gross domestic expenditure on R&D (2008).
% financed by % performed by Total researchers 2007
Country Million current PPP$ Industry GovernmentIndustry Higher education Government Full time equivalent
EU-27 262,985.0 55.0 34.1 63.4 21.8 13.7 1360,332
Total OECD 886,347.1 63.8 28.6 69.6 16.8 11.1 3997,466
Source: OECD/OCDE (2009: p. 1).
Table 3.
Distribution of public and private sources of funds for educational institutions after transfers from public sources, by year.
2008 2000
Index of change between 2000
and 2008 in expenditure on
educational institutions
Private sources
sources Household
Expenditure of
other private
All private
Private: of
All private
sources Public sources All private
Australia 44.8 39.8 15.4
55.2 0.4 49.6 50.4 121 146
Canada 58.7 19.9 21.4
41.3 m 61.0 39.0 121 133
France 81.7 9.6 8.7
18.3 2.4 84.4 15.6 116 141
Ireland 82.6 15.0 2.5
17.4 1.1 79.2 20.8 142 114
Italy 70.7 21.5 7.8
29.3 6.7 77.5 22.5 108 155
Japan 33.3 50.7 16.0
66.7 m 38.5 61.5 100 125
Netherlands 72.6 15.1 12.3
27.4 0.3 76.5 23.5 120 147
New Zealand 70.4 29.6 m
29.6 m m m 156 m
Norway 96.9 3.1 m
3.1 m 96.3 3.7 126 106
Spain 78.9 17.0 4.2
21.1 1.7 74.4 25.6 144 112
Sweden 89.1 n 10.9
10.9 a 91.3 8.7 117 151
United Kingdom 34.5 51.5 14.0
65.5 16.3 67.7 32.3 112 278
United States 37.4 41.2 21.5
62.6 m 31.1 68.9 141 107
OECD ave rage 68.9 - -
31.1 3.3 75.1 24.9 131 217
egenda: a = Data is not applicable because the category does not apply; m = Data is not available; n = Magnitude is either negligible or zero. Source: OECD (2011: p. 244).
Copyright © 2012 SciRes. 1009
Even more evident are the data comparing the proportion of
educational expenditure from public and private sources. Note
that public expenditure includes all direct purchasing of educa-
tion resources by the public sector (at whatever administrative
level), whereas private expenditure includes the payment of
tuition fees (and all other payments) primarily by households,
businesses and non-profit associations. These data are provided
in Table 4 for the EU countries.
As shown in Table 4, education expenditure is mostly fi-
nanced by public funding that in most of the cases represents
more than 80% of education expenditure and is 86.2% on av-
erage. However, some differences are evident among EU coun-
tries and these divergences can depend upon a variety of ex-
ogenous or endogenous factors as well as cultural, political and
geographical elements.
Furthermore, on the whole financial cuts and governmental
reforms are shifting the burden of financing educational expen-
diture on HEIs themselves more than on the governments and
tax payers. In this regard, the data for several OECD countries
allow to identify clear downward trends in relative proportions
of public expenditures on educational institutions, as shown in
Table 5.
In sum, overall it is plain the role of public funding even
though with a decreasing relevance.
Table 4.
Proportions of educational expenditure from public and private sources, 2008.
Public funding 86.2 94.3 87.2 87.3 92.2 85.4 94.7 93.8 :
Private funding 13.8 5.7 12.8 12.7 7.8 14.6 5.3 6.2 :
Public funding 87.1 90.0 91.4 82.7 90.1 90.1 : : 95.0
Private funding 12.9 10.0 8.6 17.3 9.9 9.9 : : 5.0
Public funding 83.6 90.8 87.1 90.5 : 88.4 82.5 97.4 97.3
Private funding 16.4 9.2 12.9 9.5 : 11.6 17.5 2.6 2.7
Public funding 69.5 90.0 : 98.2 90.3 92.2 :
Private funding 30.5 9.1 : 1.8 9.7 7.8 :
Source: Eurostat (2012: p. 93).
Table 5.
Trends in relative proportions of public expenditure on educational institutions, for tertiary education, 1995-2008.
Share of public expenditure on educational institu t i ons (%)
Country 1995 2000 2002 2003 2004 2005 2006 2007 2008
Australia 64.8 51.0 48.7 48.0 47.2 47.8 47.6 44.3 44.8
Canada 56.6 61.0 56.4 m 55.1 53.4 m 58.7 m
Finland 97.8 97.2 96.3 96.4 96.3 96.1 95.5 95.7 95.4
France 85.3 84.4 83.8 83.8 83.8 83.6 83.7 84.5 82.7
Germany 89.2 88.2 m m m 85.3 85.0 84.7 85.4
Ireland 69.7 79.2 85.8 83.8 82.6 84.0 85.1 85.4 82.6
Italy 82.9 77.5 78.6 72.1 69.4 69.6 73.0 51.6 51.3
Japan 35.1 38.5 35.3 36.6 36.6 33.7 32.2 32.5 33.3
Netherlands 79.4 76.5 74.9 74.4 75.0 73.3 73.4 72.4 72.6
New Zealand m m 62.5 61.5 60.8 59.7 63.0 65.7 70.4
Norway 93.7 96.3 96.3 96.7 m m 97.0 97.0 96.9
Spain 74.4 74.4 76.3 76.9 75.9 77.9 78.2 79.0 78.9
Sweden 93.6 91.3 90.0 89.0 88.4 88.2 89.1 89.3 89.1
United Kingdom 80.0 67.7 72.0 70.2 69.6 66.9 64.8 35.8 34.5
United States 37.4 31.1 39.5 38.3 35.4 34.7 34.0 31.6 37.4
OECD average 79.7 77.8 76.0 76.5 74.2 72.8 73.3 69.1 69.3
egenda: m = Data is not available. Source: Adapted from OECD (2009: p. 234) for 1995-2006 and OECD (2011: p. 245) for 2007-2008.
Copyright © 2012 SciRes.
In order to develop a more in depth analysis, at least three
key elements should be further discussed: types of grants, ac-
countability mechanisms for the use of funding and destinations
of public funding. These factors are discussed afterwards.
Models and Features of Public Funding in
Types of Grant
Across Europe, HEIs generally receive block grants meant to
cover several categories of expenditures. In most countries,
block grants are subsequently divided between categories of
expenditure depending on the internal governance of the insti-
tution concerned, whilst only in a few countries block grants
are allocated under expenditure headings that have to be strictly
complied with. Overall, in the majority of cases block grants
are intended to cover teaching and ongoing operational expen-
It is to note that block grants do not represent the only source
of public funding, since in many countries HEIs receive public
funding linked to specific objectives and purposes: it is the case
of investment schemes linked to national programmes, social
objectives and research programmes.
Coming to the funding mechanisms, the main typologies that
are in use across Europe are the following ones.
1) Budget negotiation with the funding body based on a
budget estimate submitted by the institution. or budget estab-
lished by the funding body based on past costs.
2) Funding formulas. They are tools used to calculate the
amount of public grants for teaching and/or ongoing operational
activity. In some cases they could also take into consideration
research activity. The rationale behind the use of funding for-
mulas is clear: they are considered to be feasible ways of in-
creasing the transparency of public funding by allocating funds
objectively among HEIs, also avoiding other pressures (such as
political ones). Usually, these formulas rely on input criteria
and therefore are based on the volume of institutional activities,
which is very often measured as the number of students en-
rolled at the institution. It is also to note that in many cases
funding formulas take into consideration performance criteria,
which are related to the outputs achieved by a specific HEI over
a previous period (e.g. student success rate).
3) Performance contracts, having the aim to clearly define
objectives in line with national priorities; thus, a share of public
funding is allocated to HEIs depending on these contracts
which basically represent a way to measure whether institutions
actually achieve their targets. Although the use of these con-
tracts seems to widely vary across countries, they represent
useful incentives for HEIs to simultaneously pursue individual
and national strategic objectives.
4) Contracts based on a predetermined number of graduates
by field of study. In other words, contracts between HEIs and
public authorities are meant to ensure a certain number of stu-
dents graduated by the end of a given period in particular sub-
jects or field of study.
5) Funding for specific research projects, awarded in the
framework of competitive building procedures. It is to note that
in the majority of countries where HEIs receive funds for re-
search and development, public funds are provided under a
dual system based on basic funding for research, which is used
for purposes determined by the HEIs, or on public funding
awarded on a competitive basis for specific schemes or research
programmes. These two solutions also differ in reference to the
criteria adopted in order to allocate funds: in basic funding for
research, countries usually rely on inputs (e.g. costs of research
activities carried out) and/or performance measures (e.g. num-
ber of academic publications or amount of public and private
funding obtained); for public funding allocated on a competi-
tive basis, very often peer evaluation procedures and perform-
ance criteria are used (e.g. see the Research Assessment Exer-
cise in U.K.).
European Commission’s data allow not only to gain a com-
prehensive picture related to Member Countries but also to
stress which changes have been made over the last few years,
thus further testifying the process of reform we referred to.
In this regard, Table 6 represents the situation at 2007,
whilst Table 7 offers a more recent analysis.
As shown, the most widely used mechanism in 2006-07 was
the funding formula, even though the relative importance of this
mechanism with respect to other ones varied according to
country, as shown in Figure 2.
As said, however, over the last few years many changes have
been made to funding schemes across Europe, with the relative
composition of funding mechanisms that was consequently
further modified, as shown in Table 7.
Accountability Mechanisms for the Use of Funding
and Main Destinations of Public Funding
As clarified in the previous section, very often public funding
is allocated to HEIs in the form of block grants. On their side,
HEIs usually have a high degree of autonomy in selecting the
destinations of such funds and block grants are consequently
destined to cover many types of expenditures. In particular, as
to monitoring institutions for the use of public funding, it is to
stress that HEIs in Europe seem to be quite free to use as they
prefer public funding at their disposal.
This situation is particularly verified when HEIs are awarded
block grants covering different categories of expenditure.
However, it is well known that autonomy has to be matched
with accountability.
Therefore, specific forms of monitoring the use of funding as
well as the introduction of accountability measures seem to be
necessary in order to enable the public authorities and other
Performance contracts
a budget estimate
Budget based on
Past costs
Variabledependingon the regionalauthority: DE, ES
Performance contracts
a budget estimate
Budget based on
Past costs
Variabledependingon the regionalauthority: DE, ES
Figure 2.
Overview of the public funding mechanisms, public and government-
dependent private higher education, 2006-07. Source: Eurydice (2008:
. 70). p
Copyright © 2012 SciRes. 1011
Table 6.
Main mechanisms for direct public funding, public and government-dependent private higher education, 2006-07.
Budget negotiation with the
funding body
Budget based on past costs
Funding formula ● ● ● ● ● ●
Performance contracts based on
strategic objectives ● ●
Contracts based on a predetermined
number of graduates
Funding for specific research
projects, ● ●
● ●
Budget negotiation with the
funding body
Budget based on past costs
Funding formula
Performance contracts based on
strategic objectives
Contracts based on a
predetermined number of graduates
Funding for specific research
Table 7.
Main funding mechanisms for European HEIs, 2011.
Negotiated allocation : :
Purpose-specific funding : :
mechanisms : :
Input-based mechanism : :
Other : :
Negotiated allocation : :
Purpose-specific funding : :
mechanisms : :
Input-based mechanism : :
Other : :
Source: Eurydice (2012: p. 38).
stakeholders to perform desired control and design financial
and strategic policies. Moreover, accountability measures
would serve as a reliable and useful regulating mechanism to
assure institutional autonomy. Common forms of accountability
measures and mechanisms include financial audits, perform-
ance indicators, annual reports, production of information da-
tabases, and publication of internal evaluation results.
European Commission’s data allow to present the following
picture related to Member Countries.
As shown by the Table 8, financial audits are a quite com-
mon way of ensuring accountability. Such audits can be carried
out by independent external bodies (e.g. a national or regional
body) or can be performed internally by the HEIs themselves.
Performance indicators are a second common way to ensure
Copyright © 2012 SciRes.
Table 8.
Accountability measures in relation to use of public funding, public and government-dependent private higher education, 2006-07.
Compulsory external
financial audits
Compulsory internal
financial audits
Public funding related to
performance indicators
Public funding related to the
fulfillment of institutional
strategic plans/objectives
Compulsory external
financial audits
Compulsory internal
financial audits
Public funding related to
performance indicators
Public funding related to the
fulfillment of institutional
strategic plans/objectives
Legenda: = Accountability measure used; = Variable depending on the regional authority. Source: Eurydice (2008: p. 64).
accountability. Many countries are held accountable for their
use of public funding by linking at least a part of the amount to
performance, obviously with different weights for such meas-
ures into the funding formulas used to calculate the public
block grants and research grants.
Last, in almost all countries institutional strategic plans are
compulsory. Therefore, they represent a useful tool not only to
measure the institutional accomplishments, but also to influence
the allocation of public funding to each HEI.
As to the main destinations of public funding, the expendi-
tures by educational institutions can be classified into two main
categories: current expenditure and capital expenditure.
Overall, current expenditure is the largest one, including cost
items such as wages and costs relating to staff, costs of main-
taining buildings, purchasing educational materials and opera-
tional resources. Among these, staff expenditure represents the
largest cost item, being an average of 70% of annual expendi-
ture in the EU, as portrayed in Table 9.
As shown, current expenditure weights for more than 91% on
the total amount of expenditure by public sector institutions in
almost all the EU countries, thus demonstrating a high degree
of homogeneity across Europe. On the contrary, more signifi-
cant differences can be found taking into consideration the
relative proportion of capital expenditure in each country.
Discussion and Final Remarks on Changes in
University Public Funding
From the information and considerations provided in the
previous sections, it is clear that HE funding sources have been
differentiated across different countries in the last decades.
This process has happened in concomitance with the passage
from the elite university system to the “mass higher education”
and within a context increasingly characterised by cuts and
rationalizations in public expenditures and funding. In many
countries these factors fundamentally led to two situations:
a) the diversification of funding sources for HEIs, with an
increased relevance given to private funding and a higher em-
phasis placed on the capacity of universities to exploit their
own capital and knowledge;
b) the diversification of public funding procedures and allo-
cation mechanisms, more often than in the past linked to per-
formance and oriented towards competition among universities
and HE systems.
In this scenario, HEIs can be currently viewed as cost-shar-
ing systems (Johnstone, 2004) in which at least four principal
parties co-participate in financing universities and higher edu-
cation activities: the government or taxpayers, parents, students
and individual or institutional donors. Across different coun-
tries the tendency towards cost-sharing seems to be clear, being
caused by specific phenomena such as the dramatic increase in
the number of students over the last three decades, the substan-
tial decrease in direct public funding to universities, the enor-
mous pressures upon academic institutions to provide qualita-
tive research and teaching outputs, the higher costs of higher
education (both per unit and per student costs). However, even
though cost-sharing and funding diversification seem rational
and in some way foreseeable events, they are still controversial
and under debate.
In particular, the decision of most governments to grant more
autonomy to institutions (not only for managing financial re-
sources but also in terms of statutory and managerial autonomy)
has pushed HE systems and HEIs toward a greater diversifica-
tion of funding sources, the establishment of more direct links
between results and the amount of funds allocated, the creation
of partnerships between HEIs and private businesses, research
institutes and regional authorities, the exploitation of their own
properties. In brief, it seems t at the university is rapidly h
Copyright © 2012 SciRes. 1013
Table 9.
Distribution of total annual expenditure in public sector institutions across major categories of expenditure, 2008.
Capital 8.9 4.1 14.0 10.0 5.3 7.6: 9.2: 12.59.5 5.914.9 15.8 9.0 : 5.8
expenditure—Staff 70.2 82.3 60.6 53.2 77.0 71.3: 72.9: 70.4 73.6 74.7 73.0 65.9 71.4 : 69.0
expenditure—Other 20.8 13.6 25.5 36.8 17.7 21.1: 18.0: 17.1 16.9 19.4 12.0 18.3 19.6 : 25.2
Capital 8.0 13.6 : 8.0 3.5 : : 11.3 7.8 3.4 :
expenditure—Staff 71.6 67.7 : 60.5 84.2: 67.2 57.7 59.9 63.5 71.5 68.7 69.8 66.6 76.6 61.2:
expenditure—Other 20.4 18.7 : 31.5 12.3: 21.7 37.6 33.0 30.5 20.2 23.3 30.2 22.1 15.6 35.4:
Source: Eurostat (2012: p. 95).
changing: from ivory towers, universities are quickly becoming
entrepreneurial institutions, open to the market and in competi-
tion for financial resources, staff and students (see Barry, Chan-
dler, & Clark, 2001; Etzkowitz, Webster, Gebhardt, & Terra,
However, a completely shared and common view on which
funding solution is the best way is still to be identified. In par-
ticular, if on one hand the entrepreneurial model of university
were to be adopted and consequently an increasing degree of
autonomy and freedom to collect their own financial resources
should be granted to HEIs, on the other hand part of the litera-
ture still underlines the need and relevance of public funding to
universities, especially when considering developing or in
“late-comers” countries.
Therefore, as Barr (1993: pp. 719-720) and other scholars
point out, some key questions should be raised in considering
the “public vs. private funding to HE” debate. Among them:
should higher education be centrally planned?
how should student loans be designed?
should higher education be subsidised?
And, subsequently:
which should be the proportion between public and private
funding to universities?
which accountability mechanisms on the use of funding
should be strengthened?
how to further stimulate competition among universities,
also in regard to their fund raising functions?
how to further stimulate the diversification of funding
sources for HEIs?
The answers to these questions should help in addressing the
issue related to whether and/or to what extent universities and
HEIs in general should receive public funding.
It is not our aim to discuss whether public funding is to be
preferred to private funding or to other alternatives. Both solu-
tions have advantages and disadvantages. In any case, public
funding to HE still remains fundamental in many countries and
seems to be the tool used by central governments to pursue
their strategic objectives and steer HE systems.
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