1

Why US Universities

Have Higher Quality?

Privatization vs. Flexibility

Elise S. Brezis BIU and Paris School of Economics

June 2010

2

Leading universities: US universities

World Rank

InstitutionClassificationYear of

establishment

1Harvard UnivPNP1636

2Stanford UnivPNP1891

3Univ California - BerkeleyPub1868

5Massachusetts Inst Tech (MIT)PNP1861

6California Inst TechPNP1891

7Columbia UnivPNP1754

8Princeton UnivPNP1746

9Univ ChicagoPNP1890

11Yale UnivPNP1701

12Cornell UnivPNP1865

13Univ California - Los AngelesPub1919

14Univ California - San DiegoPub1960

Source: SJTU .

3

•The purpose of this paper is to analyze the elements that are important for the quality of Higher Education.

•Are private universities a must for quality?

• 0r

•Is Flexibility in the management of university a must?

•In other words, is the quality of US universities due to being private or having flexibility of management?

4

Quality and Ownership

•In the past, public universities were flourishing

•The best universities were known to be the German ones like Heidelberg and Berlin

•Today the best universities are private. (But not all private are among the best!).

•The US private universities are the highest in the ranking of universities

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InstitutionRegional rankingPrivate/Public

Harvard 1Private

Stanford2Private

Berkeley3Public

MIT4 Private

Caltech 5Private

Columbia6 Private

Princeton 7Private

Chicago 8Private

 Yale9Private

Cornell10PrivateSource: SJTU

Ownership of US top 10 universities

6

•Is there some correlation between Quality and Private ownership?

7

• Previous Research on this correlation:

•Psacharopoulos, 2005 claimed that there is a relationship between the distinction of private vs. public universities and the quality of university.

•He showed that countries with a high proportion of private institutions have overall higher quality universities.

•The correlation between top 100 institutions and the share of private resources financing HE is 63%.

8

country %Private share of education

Nb. Universities in top 100

Austria51

Denmark21

France144

Germany87

Sweden124

UK3011

Japan575

Australia482

US6751

Canada414

Israel431

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I. Why Quality Matters?1. Historical Perspective

• In the past, there were universities of homogenous quality.

and• Universities were not important for economic

development.

• The reasons for the changes in the quality of universities are:

• the change of the purpose of universities • and massification.

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•From the Middle Age on, universities were part of the religious establishment, and their main role was to teach liberal arts, philosophy, and theology.

•Most university students, whose numbers were in any case few, were preparing for a career in the Church, even after the Reformation.

•Homogeneity of quality of education (all in Latin).

•During these centuries, the impact of higher education on the economy was inexistent. Until 19th century, the effects of university education on innovation are small.

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•Dramatic changes took place in the second part of 20th century

•First, the role of universities has changed and they became of utmost importance for economic growth.

•Second, the quality of education became heterogeneous:

• The number of universities and colleges in the West rose, and the number of students increased even more.

•Concurrently with this democratization of higher education, universities became heterogeneous not only in their specialization, but also in their quality.

• There are top universities,…and the others.

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• This paper analyses whether private ownership is a necessary condition for a university’s achieving quality as suggested by Psacharopoulos My presentation will have 3 parts:

I. What is Quality?

II. What elements affect Quality?1. Private Ownership2. Flexibility3. Budget

III. Empirical Analysis on relationship between quality and Ownership, flexibility, and budgets.

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I. Quality

• Universities produce multiple goods and have three main goals.

•The first goal is R&D.

•The university is the place where ideas are developed, innovation processes are invented, and basic research takes place.

•The second: educate the next generation of the labor force.•Higher education leads to an increase in human capital, which is one of the main factors of production today

•The third role is to increase social capital.

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• Therefore, the quality of a given university should be related to the excellence of these two elements: R&D and education.

• The ideal index for quality of education is related to the increase in human capital, which can be proxied by an increase in wages.

• So, assuming the same ability, better education might be proxied by the labor market.

• For R&D, the best proxy is to check its impact on other research.

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•For the past few years, two institutions have published quality indices of universities, attempting to find good proxies for these two elements: education and R&D.

•In 2004, The Times Higher Education supplements (THE) started producing a ranking of the top 500 universities.

•Shanghai Jiao Tong University (ARWU), less known at the beginning, has become well known, since it seems to proxy these two elements of quality in a superior way.

•In this paper, we use the SJTU ranking.

•The correlation of these two indices is .78

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II. Ownership

•When defining the structure of ownership of universities, it should be emphasized that there are not two, but three different types of institutions:

•Public, Private non-profit (PNP), and private for-profit (PFP).

•The first group includes all institutions for whose budgets the state is responsible. In most countries, the majority of institutions fall into this category.

•Of these 500 top universities from among 40 countries, only 12% are private.

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Leading US universities

World Rank

InstitutionClassificationYear of

establishment

1Harvard UnivPNP1636

2Stanford UnivPNP1891

3Univ California - BerkeleyPub1868

5Massachusetts Inst Tech (MIT)PNP1861

6California Inst TechPNP1891

7Columbia UnivPNP1754

8Princeton UnivPNP1746

9Univ ChicagoPNP1890

11Yale UnivPNP1701

12Cornell UnivPNP1865

13Univ California - Los AngelesPub1919

14Univ California - San DiegoPub1960

Source: SJTU .

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United States

41Vanderbilt UnivPNP1873

43Pennsylvania State Univ - Univ ParkPub1855

44Univ California - DavisPub1905

45Univ California - IrvinePub1965

47Rutgers State Univ - New BrunswickPub1766

49Univ Pittsburgh - PittsburghPub1787

50Univ Southern CaliforniaPNP1880

51Univ FloridaPub1853

58Univ North Carolina - Chapel HillPub1879

60Carnegie Mellon UnivPNP1900

61Ohio State Univ - ColumbusPub1870

68Purdue Univ - West LafayettePub1869

70Brown UnivPNP1764

74Univ ArizonaPub1885Source: SJTU .

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United States

107Univ California - RiversidePub1954

108Tufts UnivPNP1852

110Univ VirginiaPub1819

116Emory UnivPNP1836

125Baylor Coll MedPNP1900

126Mayo Clinic Coll MedPNP1972

131Univ Hawaii - ManoaPub1907

135Dartmouth CollPNP1769

138Univ California - Santa CruzPub1965

139Univ GeorgiaPub1785

140Univ Illinois - ChicagoPub1890

141North Carolina State Univ - RaleighPub1887

147Univ Massachusetts Med SchPub1962

Source: SJTU .

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United States

463Boston CollPNP1827

464Univ Maine - OronoPub1862

472Univ IdahoPub1889

474Univ Kansas Med CenterPub1905

476Med Coll GeorgiaPub1828

478Lehigh UnivPNP1865

480West Virginia UnivPub1867

481Univ LouisvillePub1798

485Univ Wisconsin - MilwaukeePub1956

487Coll William & MaryPub1693

491New Mexico State Univ - Las CrucesPub1888

497Howard UnivPNP1867

504Old Dominion UnivPub1930

507Montana State Univ - BozemanPub1893Source: SJTU .

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Leading UK universities

World Rank

InstitutionClassificationYear of

establishment

4Univ CambridgePub1209

10Univ OxfordPub1096

23Imperial Coll LondonPub1907

25Univ Coll LondonPub1826

48Univ ManchesterPub1824

53Univ EdinburghPub1582

62Univ BristolPub1876

72Univ SheffieldPub1897

81Univ NottinghamPub1798

84King's Coll LondonPub1829

92Univ BirminghamPub1900

111Univ LiverpoolPub1881

Source: SJTU .

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Leading Japanese universities

WorldRank

InstitutionClassificationYear of

establishment

20Tokyo UnivPub1877

22Kyoto UnivPub1897

67Osaka UnivPub1869

77Tohoku UnivPub1907

94Nagoya UnivPub1871

99Tokyo Inst TechPub1881

149Hokkaido UnivPub1876

150Tsukuba UnivPub1872

154Kyushu UnivPub1903

267Kobe UnivPub1902

285Keio UnivPNP1858

293Hiroshima UnivPub1929

Source: SJTU .

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Leading French universities

World Rank

InstitutionOwnershipYear of

establishment

40Univ Paris 06Pub1971/1253

52Univ Paris 11Pub1970

85Ecole Normale Super ParisPub1985/1794

101Univ Strasbourg 1Pub1567

132Univ Paris 07Pub1971/1253

183Univ Grenoble 1Pub1811

184Univ Paris 05Pub1971/1253

219Univ Montpellier 2Pub1970

251Ecole PolytechniquePub1794

264Univ Lyon 1Pub1971

271Univ MediterraneePub1969/1409

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Leading Israeli universities

World Rank

InstitutionOwnershipYear of

establishment

64Hebrew Univ JerusalemPub1918

106Technion Israel Inst TechPub1924

117Tel Aviv UnivPub1956

145Weizmann Inst SciPub1949

295Ben Gurion UnivPub1969

328Bar Ilan UnivPub1955

492Univ HaifaPub1963

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Leading Polish universities

World Rank

InstitutionOwnershipGrade

346Jagiellonian UniversityPub 11.5/100

369University of WarsawPub 10.8/100

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• There are countries in which PNPs were almost nonexistent until recently (Germany, for instance), and other countries wherein they have always existed (the US and Japan).

• The US and Japan has taken a quite different path. In these two countries, PNP institutions were already quite developed by the late 19th century.

• Moreover, in both countries, the development of PNP and public institutions occurred in parallel.

• In the US, in 1890, public institutions constituted only 22% of total enrollment. But increased during the 20th century to reach 50% in 1935, 60% in 1940, and 70% today.

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• In Japan, private institution enrollment accounts for nearly 80% of all university enrollment. However, with a few exceptions, the public universities are those ranked high.

• In Europe, the PNP sector is not developed at all, and only recently have some been established.

• The case of Germany is typical, wherein from 1980, 60 PNPs have been created.

• In the UK, only two universities are privately financed.

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• In the developing world, budget is diverted mainly to primary education, so that higher education is left mainly to financing by the private sector.

• The increase in enrollment in Latin America has been big: The rate of growth between 1960 to 1970 was 260%. In consequence, it has been compensated for by an increase in enrollment in private universities.

• In 1950, 7% of the enrollment was in private universities; in 1990 it was 40%.

- - - - - - - - -• The third type of institution is the private for-profit

(PFP) universities, all of which are quite new. While they are not numerous, it could well be that they will take off in the future.

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III. Does Private Ownership affect Quality?

Empirical Results

•The correct method to check this relationship is at the level, not of countries, but universities.

•I check on the 500 top universities, the effects of ownership, flexibility and budget on quality of universities

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• 1. Quality and Ownership

•Does private ownership affect quality?

• ownership: A dummy for the universities that are private

• also check seniority

Quality of institutions

)1()2()3(

Constant247.73

)2.82(

282.38

)19.92(

236.14

)7.83 (

Private

ownership

55.35

)35.77(

61.28

)2.35(

49.81

)1.86(

Seniority.37

)1.73(

R².02.03.05

Obs508)all(

166)US(

166)US(

Ownership and Seniority on Quality of institutions

32

• In conclusion, it appears that the results at the country level, as presented by Psacharopoulos, are also robust at the individual university level.

•In the next slides, I attempt to isolate which element implied by ownership leads to the relationship between ownership and quality.

•I focus on two main elements: flexibility and budgets.

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2. Quality and Flexibility

• One of the main differences between private and public institutions is the level of intervention by the state.

• States/governments do sometimes intervene in the universities administration.

• There are at least four levels on which governments intervene in the public institutions:

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• (1) flexibility about recruitment of scholars, and freedom in deciding on their promotions

• (2) freedom of admission of students

• (3) freedom of decisions on salaries

• (4) freedom regarding tuition fees.

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• In Table 4, I present an Index of Flexibility of public institutions in the various countries of the sample.

• On each of these four levels of government intervention, I have built an index. At each level, the ranking goes from 1 (no flexibility) to 4 (total flexibility).

• Then, I build a one-index for flexibility, which is the product of these 4 indices, and which goes from 1 to 256.

• The intuition underlying this methodology of creating this index, based on product, is that cross-effects among flexibilities are important.

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• (1) flexibility about recruitment of scholars, and freedom in deciding on their promotions

• (2) freedom of admission of students

• (3) freedom of decisions on salaries

• (4) freedom regarding tuition fees.

Poland 2 4 1 2US 4 4 4 4France 1 1 1 1UK 4 4 3 3

Quality of institutions

)1()2 (

Private

ownership

27.83

)1.32(18.90

)0.86(

Flexibility

)Sum(

7.01

)3.3(

Flexibility

)Product(.24

)3.52(

R².03.04

Obs.508508

General Flexibility on Quality of institutions

Specific Flexibility and QualitySpecific Flexibility and Quality

15.94

(2.02)

Students Admission

508

0.02

47.57

(2.38)

(3)

508508508Obs.

0.020.010.04R2

Salaries staff

27.76

(2.46)

Scholars Rcruit.

19.26

(3.64)

Tuition Fees

36.93

(1.75)

23.51

(1.10)

Private ownership

(4)(2)(1)Dependent

variable:

12.71)2.32(

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• So, it is not ownership that has an influence on the quality of universities, but rather flexibility of administration.

• Governments that leave their universities alone to make their own decisions actually give them the possibility of attaining higher quality.

• In the next slides, I analyze the effect of budgets on quality.

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3. Quality and Budgets

• The first question: Are budgets affected by ownership and flexibility?

Budget)1()2(

Constant2.31

)1.76(

2.31

)1.79(

Private

Ownership

6.55

)4.06(

-2.77

-)0.66(

Private

)dummy for US(

10.4

)2.40(

Flexibility.03

)5.11(

.03

)5.19(

R².30.32

Obs161161

Flexibility and ownership on Budgets

42

• In conclusion, flexibility is an important factor in obtaining budgets.

- - - - -

• Are budgets per se affecting quality, and what exactly are budgets permitting to finance that seems necessary for quality?

Quality of institutions

)1()2()3(

Constant232.57

)8.61(

198.26

)4.59(

209.07

)6.37(

Private-2.38

-)0.06(

Flexibility.25

)1.30(

Budget /student.002

)2.52(

.003

)0.86(

.001

)1.91(

Academic staff.03

)2.38(

.01

)1.39(

.02

)2.18(

Non academic staff.01

)4.10(

.001

)2.15(

.01

)2.71(

Professor salary.001

)3.27(R².36.44.37

44

• Conclusion

• Higher flexibility (and not private ownership) leads to higher budgets, which lead to quality

45

•Higher budgets permit to finance more ‘non-academic’ staff as well as higher salaries -

two necessaries elements for quality.

•Indeed, good universities employ much more non-academic staff and pay higher salaries

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Conclusion

•Is Privatization Necessary

to achieve Quality of Universities?

•No, but flexibility is.

 

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(I)

•The US universities have much more flexibility than the EU universities.

•In order to increase quality, governments should not regulate Higher Education

•(II)

•The most important element of flexibility is: Tuition fees.

•Tuition fees should be fixed by universities in a differential way; not by governments.