International Institutefor Educational Planning

N.V. Varghese

Running to stand stillHigher education in a period of global economic crisis

Research papers IIEP

Running to stand still: Higher education in a period of global economic crisis

Running to stand still: Higher education in a period of global economic crisis

N.V. VargheseHead, Governance and Management in Education, IIEP (UNESCO), Paris

International Institutefor Educational Planning

The views and opinions expressed in this booklet are those of the author and do not necessarily represent the views of UNESCO or IIEP. The designations employed and the presentation of material do not imply the expression of any opinion whatsoever on the part of UNESCO or IIEP concerning the legal status of any country, territory, city or area or its authorities, or concerning its frontiers or boundaries.

The publication costs of this study have been covered through a grant-in-aid offered by UNESCO and by voluntary contributions made by several Member States of UNESCO, a list of which will be found at the end of the volume.

This document is a revised version of the paper presented at the Global Higher Education Forum (GHEF) 2009, held in Penang, Malaysia, 13–16 December 2009.

Published by: International Institute for Educational Planning (IIEP)7-9 rue Eugène Delacroix, 75116 Paris, Franceinfo@iiep.unesco.orgwww.iiep.unesco.org

Cover design: IIEPTypesetting: IIEPPrinted in IIEP’s printshopiiep/web/doc/2010/09© UNESCO 2010

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Contents

List of abbreviations 6

Abstract 7

1 Introduction 8

2 The crisis and its spread 92.1 Are Asian countries less affected by the crisis? 10

3 The economic importance of the higher education sector 11

4 The impact of the economic crisis on higher education 124.1 The government and public policy response 124.2 Higher education institutions and their responses 134.3 Households and their responses 14

5 Did the higher education sector contract during the current economic crisis period? 165.1 Did student enrolment decline? 165.2 Did cross-border enrolment decline during the crisis period? 17

6. Towards an explanation 19

7. Concluding observations 21

References 23

6

List of abbreviations

CEC Council for Education in the CommonwealthFDI foreign direct investmentGDP gross domestic productOECD Organisation for Economic Co-operation and DevelopmentR&D research and developmentUCAS Universities and Colleges Admission Service

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Abstract

The world’s leading economies are experiencing the worst fi nancial crisis since the Great Depression. Output has shrunk, jobs have been lost, and unemployment has been mounting, causing untold misery and pushing millions of people below the poverty line. This paper analyses the impact of the economic crisis on higher education.

The higher education sector receives revenue from, and its expenditures contributes substantially to, income and employment generation in other sectors. This economic role of higher education becomes all the more important during crisis periods, when other sectors tend to contract. Policy responses to education in a period of crisis will vary among countries. Some governments cut higher education budgets, some maintain them at the same level, while others increase them. Many higher education institutions are in the process of restructuring – laying off employees, freezing recruitment, and readjusting student support systems to survive the crisis.

Yet, one positive trend is that higher education enrolments are surging and cross-border education expanding, despite the budgetary constraints brought on by the crisis. This paper argues that supportive public policies, a successful institutional restructuring process, and positive household responses (capacity and willingness to invest) have contributed to this surge in enrolment. What is more important to note is the fact that the higher education sector, once an easy target for budget cuts, appears to be more protected during the current crisis period than in previous ones. It can be argued that this refl ects a major change in attitude towards investing in higher education – a greater recognition of the contributions of higher education and research to economic growth and national competitiveness. Thus, education, especially higher education, is now seen as part of the solution and is being included as an element in recovery plans and stimulus packages.

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1 Introduction

The intellectual capital generated by the higher education sector is increasingly understood to be an integral part of the global knowledge economy (Kuber and Lennon, 2008). Investments in research and development (R&D) activities are of growing importance for maintaining economic competitiveness. Hence, public authorities and private corporations are increasingly investing both in R&D and in expanding higher education. Public policies have promoted the universalization of tertiary education in the developed countries (OECD, 1999), massifi cation in the middle- and upper-middle-income countries, and fast expansion in the least developed economies. The current economic crisis seems to have put a stop to this trend, and the system is struggling to maintain the same level of commitment and investment in higher education.

This paper attempts to analyse the impact of the fi nancial crisis on higher education. How have countries responded to the crisis? How far has the crisis affected investments in higher education? Based on currently available information, we show that responses have varied among countries. While some governments have effected budgetary cuts, some maintained budgets, while others increased allocations in selected areas. In most instances, higher education institutions are restructuring by downsizing – cutting jobs, student support facilities, and study programmes – to cope with the crisis. However, interestingly, higher education enrolments are surging and cross-border education expanding, despite the fi nancial diffi culties resulting from the crisis. We argue that a wider recognition of the positive contributions of higher education and research to promoting economic growth, and a reprioritization of household expenditure, helped to protect the higher education sector from severe adverse effects of the crisis.

The paper is organized as follows. The following section provides an introduction to the nature of the fi nancial crisis and its spread across countries. Section 3 discusses the economic role of higher education, focusing on the income and employment generated from expenditure by the universities. Section 4 analyses the responses to the crisis by governments, institutions, and households. Section 5 highlights some trends in domestic and cross-border higher education enrolment. Section 6 attempts to provide an explanation for the observed trends of expansion in higher education. And the fi nal section makes some concluding observations.

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2 The crisis and its spread

The leading economies in the world are experiencing a fi nancial crisis that is considered to be the worst since the Great Depression of the 1930s. Although the crisis began in the United States, it is the most synchronized recession of all time – spreading quickly to other countries with a global impact. World Bank President Robert Zoellick noted that ‘the crisis has become truly global, and no country can escape it’ (‘Defend MDGs against the economic crisis’, 2009).

According to estimates of the Organisation for Economic Co-operation and Development (OECD, 2009), the current crisis will witness the steepest decline in growth in 60 years. The developed economies are expected to shrink by 2 per cent in 2009, and global trade is expected to contract. Job losses have been reported across the globe, and unemployment has been increasing steadily. According to the International Labour Organization (ILO), job losses may reach 51 million before the crisis has passed. The unemployment rate in the USA rose to 8.1 per cent in February 2009; by October it reached 10.2 per cent. In the developed world, the unemployment rate is projected to hit 10 per cent in 2010 (‘Unemployment: When jobs disappear’, 2009). For OECD countries at the end of 2009, even with the so-called ‘Great Stabilization’, it was 9 per cent (‘The world economy: The Great Stabilisation’, 2009). By March 2010, Spain had the highest unemployment rate of a major European economy, with 19 per cent (Saltmarsh, 2010.)

The crisis has spread to the developing countries mainly through declining exports and commodity prices, reduced trade fl ows and foreign direct investment (FDI), a depreciation of domestic currencies against the dollar, and declining aid fl ows. It is estimated that the crisis will push an additional 57 million people below the poverty line.

The demand for export goods from developing countries declined, leading to reduced demand for raw materials, especially by China, from many Asian countries. Exports from countries such as Indonesia have shrunk by about 70 per cent since October 2008. Not only that, but commodity prices have declined, reducing income from exports. In 2008, American imports from middle-income countries declined by 3 per cent, by 6 per cent from low-income countries, and by 12 per cent from sub-Saharan Africa. African budgets moved from a 3 per cent gross domestic product (GDP) surplus in 2007 to a 3 per cent defi cit in 2009 (‘The global crisis and the poor’, 2009).

Many less-developed economies depend on the fl ow of external resources either as aid or FDI. With the decline in income and increasing budget defi cits in the developed countries, aid (which has already been declining in the recent past) may be further reduced. It is estimated that aid will have declined by $20 billion in 2009. The FDI, too, declined by 10 per cent in 2008 (Naude, 2009) and is estimated to have declined from $929 billion in 2007 to $165 billion in 2009 (‘The global crisis and the poor’, 2009). Further, the appreciation of the dollar increased the debt burden of developing countries.

Job losses have been mounting. Temporary workers are more severely affected than permanent workers, and migrant workers more affected than domestic workers. In recent years, the OECD countries have hired an increasing number of temporary workers largely to avoid complex hiring and fi ring regulations. Consequently, for example, nearly 95 per cent of the lay-offs in Japan since October 2008 involved non-regular workers (OECD, 2009). A recent report indicated that nearly 100,000 Indians holding H1B visas will lose jobs in the USA. Migrant workers within the country

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Running to stand still:Higher education in a period of global economic crisis

– moving from rural to urban areas – are severely affected. Nearly 20 million domestic migrant workers in urban locations in China lost their jobs in 2008. Malaysia cancelled 55,000 visas of foreign workers from Bangladesh to save jobs for the natives (‘The global crisis and the poor’, 2009).

Meanwhile, income from remittances in 2008 was very high in many developing countries, such as India ($45 billion), China ($38 billion), Mexico ($26.2 billion), and the Philippines ($18.3 billion). In some small countries remittances constitute a signifi cant share of GDP, for example: Tajikistan (where they account for 45.5 per cent of GDP), Maldova (38.3 per cent), Tonga (35.1 per cent), and Lesotho (28.7 per cent). It is estimated that the current crisis may lead to a possible drop in remittances to developing countries of close to $40 billion, or 20 per cent (Cali and Dell’Erba, 2009). In 2009, for example, remittances in Mexico fell by 11.9 per cent, 5.3 per cent in Bolivia, and 4.5 per cent in Honduras (IMF, 2009).

2.1 Are Asian countries less affected by the crisis?Economic crises are traditionally associated with public sector borrowing and budget defi cits. The East Asian economic crisis of the late 1990s was an exception to this rule, since it was the private sector that was responsible (Stiglitz, 1998). The current economic crisis, like the East Asian economic crisis, is the result of unregulated operations of the private sector. It seems that the corrective measures undertaken in the wake of the Asian fi nancial crisis have helped the Asian economies to face the latest turmoil with greater confi dence and on a much stronger footing, according to the President of the Asian Development Bank (Kuroda, 2009). For example, most job creations in 2008 came from Asia, and the region accounted for 57 per cent of new jobs created. The world’s lowest unemployment rate of 3.8 per cent was to be found in East Asia, followed by South Asia (5.4 per cent), and Southeast Asia and the Pacifi c (5.7 per cent). The unemployment situation in Africa continues to be high. The EU and developed nations reported 900,000 net job losses. Although the economic growth rates in the largest countries of Asia – China and India – declined, they continue to grow at reasonably high rates, helping other countries to limit the negative effects of the crisis.

A fi nancial crisis results in declining national income, which reduces the state’s fi scal capacity to support education. Job losses, increasing unemployment, declining remittances, and a decline in future job prospects in turn reduce a household’s capacity to support its children’s education. In this way, a crisis period may lead to the contraction of educational activities.

How far can higher education be affected by the current economic crisis? This is the question addressed in the subsequent sections of this paper.

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3 The economic importance of the higher education sector

The contribution of higher education to economic growth, through its role in knowledge production and human capital formation, is well known. However, the immediate contribution of the sector to expanding economic activities – income and employment generation – is perhaps less understood. While the former role of higher education is of great importance (and is more relevant in the long run), the latter is particularly important in the short run, especially during periods of economic crisis when income and employment generation are severely constrained.

Higher education is an important part of the economic infrastructure in any country. The sector contributes to generating employment, attracting export earnings, and providing income to many. These contributions become more important during a crisis period, when other economic sectors may be contracting. For example, according to Universities UK (Kelly et al., 2009), the total revenue earned by the higher education sector in 2007/2008 in the United Kingdom was £23.4 billion; and the sector spent £19.5 billion in total on goods and services. This produced primary and secondary effects on income and employment generation in other sectors of the economy. The primary effect is more evident, since it relates to those sectors which directly interact and transact with the higher education sector. The secondary effect, or ‘knock-on effect’, relates to those sectors that are indirect benefi ciaries (in terms of income and employment generation) of the higher education sector expenditure.

The contribution of higher education to GDP in the UK in 2007/2008 was around £33.4 billion, or 2.3 per cent of the GDP. Out of the total income, £5.3 billion came from overseas students, international conferences, and work conducted for overseas businesses. The off-campus expenditure of international students studying in the UK is estimated to have been £2.3 billion, and another £135 million from the international visitor expenditure (1.6 million business and visitor bed nights) was earned from renting 0.13 million bed spaces available in UK universities. All these generated an equivalent of 314,600 full-time jobs in the UK.

It is estimated by Kelly et al. (2009) that the wider impact, taking into account the primary and secondary effects, is more than £59 billion output and 668,500 full-time equivalent jobs. The revenue from the higher education sector exceeds that of many other sectors, including agriculture (less than £20 billion) and the pharmaceutical industry (£15 billion). Further, the multiplier effect of investment/expenditure by the higher education sector works out to be around 1.35 – that is, for every £1 million spent on higher education, £1.35 million was generated by universities for the economy. The report notes that, when compared with other sectors, ‘higher education was one of the most effective sectors in generating GDP per £1 million unit of expenditure and per capita GDP’ (Kelly et al., 2009: 20).

Although similar estimates are not readily available for other countries, we might expect the economic contribution of higher education to be along similar lines. The estimates outlined above indicate the potential relevance of the sector to income and employment generation in the economy, especially during a crisis period when all sectors are contracting.

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4 The impact of the economic crisis on higher education

The impact of the economic crisis on higher education in individual countries will depend on: (a) the government and its public policy response; (b) higher education institutions and their responses; and (c) the households and their responses.

4.1 The government and public policy responseDuring periods of economic crisis, the avenues of revenue for the government may dry up and the government may fi nd it diffi cult to extend the current levels of funding in real terms. The priority area for public intervention may be to stimulate the economy to revive the market. These obligations may ultimately lead to reduced public funding for education. At the same time, there are instances where the governments make special efforts to protect the education sector. The public policy response will depend on how the government values the contribution from the education sector.

The limited information available indicates that government responses to higher education during the current crisis varied among countries. The responses can be broadly categorized into three: (a) policies to reduce the public funding of higher education; (b) policies to increase public funding; and (c) policies to maintain the system at the same level of funding.

Policies to reduce the public funding of higher education

A review of policy measures indicates that budget cuts are envisaged in many countries. Interestingly, most of the countries which suggested budgetary cuts for higher education are in Eastern Europe. For example, Estonia’s budget cut for higher education involves a 3 per cent cut on teaching grants and 1 per cent on research; in Hungary the cut is 7 per cent; in Poland, it is 6–7 per cent. The Lithuanian Government, too, has indicated a cut of 10 per cent of the higher education budgets (‘Europe’s responses to economic crisis’, 2009). Latvia is planning to effect salary cuts and staff reductions in all of its 34 higher education institutions and to halve the budget for higher education in 2010 (‘Latvia: EUA warns of inadequate spending’, 2009).

Among the Western European countries, Italy is expected to cut the higher education budget 10 per cent in 2010. As for the United States, although no national fi gures are available, many states are effecting budget cuts on higher education (NEA, 2009).

Policies to increase public funding

Many governments plan to increase allocations to higher education. These include both countries that are among the least affected by the crisis (such as Norway) and those that are being severely affected by it (Spain and Mexico). For example, the Spanish Government stipulated in its strategic plan (Estrategia Universidad 2015), approved in 2009, that allocations to higher education will increase by 4 per cent for scholarships for students in the fi rst and second cycle degrees, and it allocated €85 million to adapt structures and study programmes to the new European higher education framework. The Finnish and Norwegian Governments are also planning to increase allocations to higher education; in the latter case investments will target doctoral programmes a well as infrastructure.

The impact of the economic crisis on higher education

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The German Government plans to increase funding especially for infrastructure and for science and technology. It seems that the overall public funding for higher education in the UK may not decline. Indeed, the 2008 Research Assessment Exercise indicates that public funding for teaching will increase by 3.2 per cent and for research by 4.5 per cent in 2009–2010. Further, the universities will also benefi t from the €71 million ‘Economic Challenge and Investment Fund’ created to enable universities to respond to the needs of employers and individuals during periods of crisis. However, for the year 2010/2011, there may be a budget cut of $342.5 million, although this should not affect STEM (science, technology, engineering, maths) subjects (Spencer, 2010).

The Mexican Public Education Secretariat and the rectors of 128 Mexican public higher education institutions launched a new programme in 2009 to encourage students to continue pursuing their higher education goals during the fi nancial crisis. To curb drop-out rates and dissuade students from postponing their studies, the programme includes discounting tuition fees and increasing federal scholarships. The Mexican Government has pledged to increase the number of federal scholarships from 234,000 to 310,000 in 2010, resulting in an additional $180 million allocated to higher education (‘Mexican universities take steps to help recession-beset students’, 2009).

The Governments of India and China, too, are planning to increase allocations to higher education during the crisis period. Chinese Premier Wen Jiabao emphasized his government’s commitment to education, which he said ‘will take a prominent position as we seek to mitigate the impact of the global fi nancial crisis on our economy ... Education has become the cornerstone of national development’ (Wang, 2009).

Policies to maintain the education system at the same level of funding

A review of the available information makes clear that, of the countries seriously affected by the economic crisis, not all have decided to cut higher education budgets. Among the countries that plan to maintain current levels of funding to higher education are Switzerland and the Netherlands.

It is likewise the case that not all the countries which increased budgetary provisions were among those least affected by the crisis. Thus, it seems that the decision has depended on the way public authorities view and value the role of higher education. Based on these trends, it can be argued that it is not the intensity of the economic crisis per se, but the way public authorities value higher education and its contribution to economic and social development that most infl uences the decision to maintain, cut, or increase budgets for higher education.

4.2 Higher education institutions and their responsesThe responses of higher education institutions are closely aligned to the public policies on funding higher education. However, many public universities are autonomous and have their own resources in addition to government funding. The economic crisis has affected institutions in several ways. First, the funding support from the government may be on the decline. Second, there may be a decline in donations and voluntary contributions received by the universities. For example, in the US, Ohio State University’s endowment fell by 11 per cent between 2007 and 2008 (Okoben, 2009). Third, many universities which invested their savings in various ventures have taken losses. In the UK, for example, Oxford and Cambridge Universities lost millions of pound; in the US, Yale lost fully a quarter of the value of its investments. Fourth, income from student tuitions and fees, too, tends to decline during crisis periods.

Many universities are resorting to downsizing. Many are freezing job recruitment, cutting jobs, cutting student support systems, and at times study programmes (Varghese, 2009). For example,

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Running to stand still:Higher education in a period of global economic crisis

in 2008, Arizona State University eliminated 500 jobs and closed 48 programmes of study (Richard, 2009); the University of Florida eliminated 430 staff positions; and the University of Nevada laid off 100 employees. The crisis has been used by some universities to make a transition towards using temporary teachers. The unwritten policy seems to be to hire more adjunct teachers and put full-time teachers in an ‘oversight’ role (Schrock, 2009). All of these measures will affect the quality of higher education offered (Lewin, 2009a).

In the UK, the message seems to be that universities that do not fundamentally review their activities and restructure during the crisis ‘will not exist in the future’ – in the view of the UK’s most senior funding chiefs (Baty, 2009a). Most UK universities are in the process of restructuring their programmes of study, staff recruitment procedures, and student support systems to cope with the crisis.

As for private institutions of higher education, they are affected because their income derives mainly from student tuitions. Many households are not in a position to bear the fi nancial burden of their children’s education, since members of the family have lost their jobs and the family has lost its income. During the period of the East Asian economic crisis, many parents shifted their children from high fee-paying private colleges and universities to public universities. This has happened to a great extent in Indonesia and the Republic of Korea (South Korea), where fees in private universities are very substantial. This has led to a decline in enrolment in private colleges. In response, some private colleges in Indonesia reduced fees to retain the students, while the Government introduced student support systems to encourage students to stay in private universities (Varghese, 2001a).

Some private universities in South Korea were very badly affected by the crisis and faced an insolvency situation in 1998. During periods of falling incomes, it is diffi cult to maintain staff in private institutions. Since students are attracted to the private universities partly because of their renowned faculty, it was feared that cutting staff might reduce student numbers and the income of the university. Therefore, some private universities adopted a policy of retrenchment of administrative staff, while academic staff was protected during the crisis period (Yu, 2001).

One positive aspect of a fi nancial crisis situation is that teaching becomes more attractive owing to the high degree of unemployment prevailing in other sectors. As Bray (2008) notes, teaching is found to be a stable job during a crisis period, thus more people want to be teachers. The availability of a larger number of people to enter the teaching profession gives institutions more scope for recruiting better staff, and that under more fl exible conditions of work.

Some countries introduced student support schemes to reduce drop-out, as was discussed in the case of Mexico. Many schemes were extended to students enrolled in private institutions. Such provisions helped private universities to survive the economic crisis. In the Russian Federation, for example, high-achieving students are admitted to state-funded seats in the universities and also receive a monthly stipend. However, many private students found it too diffi cult to pay their tuition fees during the crisis period, and thus the Government made a decision to transfer these students to state-funded places. In May 2009, more than 26,000 students were transferred from private to state-funded institutions in the Russian Federation (Lazareva, 2009).

4.3 Households and their responsesThe current economic crisis fi rst affects white-collar workers, who are the main clientele for higher education. Given the extent of job and income losses, many families may no longer be in a position to afford higher education for their children. This is more so the case of children studying in public and private institutions which levy high fees. Further, scholarships are on the decline, part-time jobs

The impact of the economic crisis on higher education

15

are disappearing, and student loans are drying up. For example, Sallie Mae, the largest provider of student loans in the USA, lost $1.6 billion during the crisis, and the company is shying away from extending student loans. The Education Resource Institute (TERI), the largest insurer of student loans in the USA, fi led for bankruptcy protection in 2008 (Schwartzmann, 2009). Such factors may reduce the demand for higher education.

The net impact on the demand for higher education may be the result of an interplay of several factors. Households can respond in a variety of ways. They may, for example: (a) consume less of everything including education during a crisis period; (b) re-prioritize their budget to keep the investment in education of their children intact; (c) demand more of higher education as an investment in the future of their children; (d) demand education due to declining opportunity costs during periods of unemployment; or (e) make a substitution between public and private institutions during the crisis period.

Now let us analyse the trends in enrolment in higher education in order to assess how responses from these actors were translated into social demand for higher education.

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5 Did the higher education sector contract during the current economic crisis period?

5.1 Did student enrolment decline?The available information on trends in enrolment in higher education since the beginning of the crisis period indicates that enrolments are on the increase. For example, in the USA, between October 2008 and 2009, the percentage of 18- to 24-year-olds enrolled in higher education increased from 39 to 41 per cent (‘College enrolment: Boom times’, 2009). India is going ahead with its massive expansion plan to reach its enrolment target – a gross enrolment ratio (GER) of 30 per cent by 2020. This implies the opening of more than 27,000 additional institutions of higher learning (‘India: 27,000 institutes of higher learning needed’, 2009). In Europe, too, one notices that enrolment is growing in the higher education sector. In the UK, for example, the competition for university places has increased due to a 7.8 per cent surge in the number of applicants in 2009.

The Ministry of Education and the National Development and Reform Commission of China jointly issued a circular calling for a year-on-year increase of around 5 per cent in the enrolment of graduate students for master’s degrees in 2009 and a year-on-year increase of 1.7 per cent in the enrolment of doctoral candidates. It was pointed out in the circular that, with regard to graduate education in 2009, the rate of doctoral candidate enrolment should remain basically stable, while the rate of enrolment of graduate students for master’s degrees should increase at a moderate pace (‘Enrollment of graduate students’, 2008).

Another trend one notices is that students are favouring different courses in higher education. For example, a US car mechanics’ association reports that repair shops have seen their business jump signifi cantly in the current recession. People are repairing their old cars since they cannot buy new ones. These types of jobs – and training related to such jobs – are getting priority in the students’ choice of higher education courses. The Princeton economist Alan Blinder notes that during periods of fi nancial crisis, those whose services can be delivered onsite get a premium over those whose work is over a wire. He notes, ‘You can’t hammer a nail over the Internet. Nor can the Indians fi x your car, because they are in India’ (Crawford, 2009).

Because of the grim employment situation resulting from the crisis, the ‘employment myth’ for those with a college degree is broken. Some students in China have simply quit (from taking the exam) and are looking for careers or programmes that give them an immediate job rather than pursuing higher studies in the universities (‘China expects a sharp drop’, 2009). In the UK, too, the so-called ‘Mickey Mouse’ subject areas are no longer preferred by students. They look for employment-oriented courses of study.

To sum up, the trends from all the regions indicate that enrolments in higher education are on the increase. This is true of the most affected and least affected countries. The student choices have changed. They look for more skill-oriented areas. Even when the students change their choice, they still remain in the system and contribute to an increase in enrolment in higher education. We will examine the possible reasons for the surge in enrolment in the next section.

Did the higher education sector contract during the current economic crisis period?

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5.2 Did cross-border enrolment decline during the crisis period?The sources of funding for cross-border education come from external sources (scholarships by host countries), national fellowships, student loans, and household support (private funding). A report by the Council for Education in the Commonwealth (CEC, 2006) indicated that the largest source of funds for cross-border studies is private or self-funding. With the crisis, fellowships from external sources are less available, national fellowships may decline, and possibilities of student loans for study abroad are not easily available. Therefore, the fi nancial burden of cross-border higher education is increasingly transferred to households. It may be expected that, given the crisis situation, the demand for cross-border education may decline, as happened during the East Asian economic crisis.

The trends in the cross-border fl ow of students indicate that it is increasing during the crisis period. The number of overseas students applying to UK universities in 2009 has risen almost 17 per cent compared with 2008, according to the Universities and Colleges Admissions Service (UCAS). The number of students applying from Pakistan and Italy show the highest increase – of 69.3 per cent and 63.6 per cent, respectively (‘UCAS: A continued increase in international applicants’, 2009).

In the USA, international student enrolment increased 8 per cent (to 671,616) from 2008 to 2009. The fl ow of students from all regions to the USA increased. Students from Africa increased by 3.6 per cent, Asia by 9.1 per cent, Europe by 4.4 per cent, Latin America by 5.1 per cent, and the Middle East by 17.7 per cent (IIE, 2009). The fl ow of international students to Australia, another favourite destination for cross-border education, is also on the rise.

India and China are contributing substantially to the surge in cross-border enrolment in many host countries, including the USA. India maintained its top rank as a sending country, with students from India increasing by 9.2 per cent (from 94,000 in 2007/2008 to 103,000 in 2008/2009). Indian students studying abroad crossed the 100,000 mark for the fi rst time. The number of students from China increased by 21 per cent (from 81,000 to 98,000), from 2007 to 2008, and from the Republic of Korea by 9 per cent (69,000 to 75,000) (IIE, 2009), from 2008 to 2009.

The statistics on the number of Indian students studying in Australia – for some time a favourite destination – are revealing. It was expected that the Indian market for Australian education might collapse following attacks on Indian students in Melbourne and Sydney (which, it may be argued, were partly due to the high level of unemployment among native Australians during the crisis). A drop in student visa applications was also predicted after the Australian Immigration Department tightened the rules on permanent residency status for foreign students (Maslen, 2009). However, the latest report shows that Indian students in Australia increased by a remarkable 37.3 per cent (from 79,600 in 2008 to 109,000 in 2009) (Ghosh, 2009). This indicates that the urge to study abroad is strong enough to overcome perceived threats to individual safety.

The ‘overseas-study fever’ in China (Hvistendahl, 2009) is on the rise despite the slowing domestic economy. According to the US Institute of International Education’s latest statistics (released November 2008), the number of Chinese students studying in the USA increased by 13,404 compared to the previous year – an increase of nearly 20 per cent. A high household savings rate, a diffi cult job market, and a steady currency (the yuan) continue to keep foreign study popular in China (EOS, 2009). On the other side of the coin, China has announced that it will award scholarships to 1,021 foreign applicants for a master’s programme in Chinese language teaching, in an effort to cultivate teachers able to meet increasing overseas demand to learn the language (‘China: 1,000 scholarships’, 2009).

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Running to stand still:Higher education in a period of global economic crisis

In Thailand, studying abroad is increasingly popular, with the favourite destinations being New Zealand and Australia. Many leave the country to attend English language courses which will enable them to apply for degree programmes in universities abroad.

During the East Asian economic crisis, the number of students going abroad for studies declined in many countries. The decline was sharp in the case of Malaysia (Lee, 1999), for the same reasons as elsewhere – a fall in the value of the national currency (the ringgit). Family incomes could no longer support studies abroad, fellowships and scholarships became rare, and there were restrictions on acquiring foreign currencies. Universities in Australia and Britain, especially, saw a drop in Malaysian students during that period. This again increased the domestic demand for higher education in a country that has traditionally sent a large number of students abroad.

Given that the fi nancial crisis began in the USA, it is not surprising to fi nd that, within a year of its onset, fewer American students were going abroad to study, as a Forum on Education Abroad survey (published in November 2009) has shown. The meltdown negatively affected the study abroad programmes of two-thirds of the 165 organizations participating in the survey (Head, 2009).

Overall, however, trends indicate that the demand for cross-border higher education continues to grow. It is estimated that, by 2020, the 15 to 19-year-old population in India will be around 127 million, and, in China, around 85 million. With the continuing expansion of the middle class in these countries, the demand for cross-border education can be expected to continue to increase in the coming years (‘Global competition for Chinese students’, 2010). Traditional host countries are eager to welcome cross-border students, at times easing visa conditions, since they bring money to the cash-starved universities which are affected by the crisis.

Another trend we notice in cross-border education is the development of ‘education hubs’ or a ‘new global regionalism’ where students from Asian countries go to study in other Asian countries. This part of cross-border education is expanding in some locations, while declining in others. For example, countries such as Japan and Malaysia have introduced courses delivered in English that are attracting a large number of students. Hong Kong, which has traditionally offered courses delivered in English, attracted around 10,000 applicants from mainland China in 2009.

However, many hubs in the Gulf region, notably in Dubai, have been suffering greatly as a result of the crisis. Many branch campuses of universities such as Michigan State, Carnegie Mellon, Cornell, and Georgetown Universities (in Dubai), and the Rochester Institute of Technology (in the United Arab Emirates) are in diffi cult times. Many expatriates have lost their jobs and left the country, reducing the number of prospective students (Lewin, 2009b). This downward trend in cross-border higher education seems limited to the Gulf region.

19

6. Towards an explanation

We have seen that an economic crisis may lead to reduced funding by public authorities, reduced support by families, and declining institutional support. All of these constrain expansion of the system and may result in declining enrolments, as has happened in previous crises. However, during the current crisis period, the empirical evidence, limited though it may be, indicates that enrolments have continued to surge. How do we explain this trend?

The reasons may be many. First, although there have been budget cuts, there has been a general tendency during this crisis to protect education budgets more than budgets of other sectors (UIS, 2009), which is at least partly due to the strong support the sector receives from decision-makers. Therefore, the conditions of supply of higher education services may not change substantially. Further, the continuation of student subsidies, as well as household savings, may sustain the social demand for education in the short run.

Second, increasing levels of unemployment of higher education graduates reduce the opportunity cost of higher education. That is, continuing one’s higher studies becomes less costly in this situation. For example, when, in late 2009, the overall US unemployment rate hit 10 per cent, and the rate among 16- to 24-year-olds passed 19 per cent, many young people decided to seek higher education and training rather than sit idle while looking for a job. Similarly, during the East Asian crisis of the 1990s, unemployment was the major reason for increased enrolment in higher education institutions in Thailand (Varghese, 2001b).

Third, in some cases governments introduced new scholarship programmes – a very attractive option when unemployment levels are high. It is better to attend a university and get a scholarship than drop out and sit at home. The increase in enrolment in higher education in the USA can partly be attributed to the more generous state and federal ‘Pell grants’, which President Barack Obama increased in 2009 (‘College enrolment: Boom times’, 2009).

Fourth, dropping out becomes more expensive during crisis periods since the employment opportunities for dropouts are fewer. A reduced drop-out rate at the secondary level increases the pool of students eligible and seeking higher education. Many people use the crisis period as an opportunity to retrain and improve their competitiveness and job opportunities after the crisis has passed.

Fifth, an important factor infl uencing the surge in social demand for higher education is relatively higher household incomes and paying capacities. It is important to note that most of the world’s economies were growing at high rates before the crisis hit. This increased the amount of disposable income in households even in less-developed countries. The growing share of the middle class indicates the fi nancial capacity and willingness of households to invest in the education of their children. The commitment to education is greatest among the middle class. During periods of crisis, many middle-class households re-prioritize their budgets to protect educational investments. Thanks to past savings, the initial years of a crisis period may not see a reduced household demand for higher education. This is a strong element in continued social demand for higher education even during a crisis period. However, if the crisis continues for a long time, the capacity of households to invest in education will decline and in turn affect the social demand for higher education.

Apart from these reasons for a general surge in demand for higher education, there may be reasons specifi c to a surge in cross-border higher education. Cross-border education seems to be

20

Running to stand still:Higher education in a period of global economic crisis

a benefi ciary segment of the higher education sector during the current economic crisis primarily owing to fl uctuations in exchange values of currencies. For example, the British Council notes that more overseas students choose to study in Britain during the crisis period because of the weaker pound sterling – which lost value against currencies of almost all the competitor countries. Such currency depreciations can make study abroad cheaper for international students.

This is the opposite of what happened during the East Asian economic crisis. The crisis and its impact on the declining value of domestic currencies against the dollar adversely affected enrolment in cross-border higher education. It led to the dropping out and returning of students to their home countries without having completed their courses, and to a decline of new entrants. For example, in 1999, a large number of Korean and Malaysian students returned, especially from Australia and Britain, mainly because of the drop in the value of their countries’ currencies against the pound sterling and Australian dollar. It was reported that there was a decline of 80 per cent in visa applications from Malaysia to Australia between 1997 and 1998 (Lee, 1999; Yu, 2001). This, in fact, was one of the reasons for the surge in enrolment in domestic universities.

Another reason for the increase in cross-border education is the relaxation of visa rules. According to the US Institute of International Education, the number of Chinese students studying in the USA increased by 13,404 from 2007 to 2008, and by 17,000 from 2008 to 2009, an overall increase of 21 per cent. The sudden surge seems to be due to the greater ease of obtaining a study visa. It is believed that, in the face of the ongoing fi nancial crisis, the US Government hopes to encourage students from foreign countries to come to study in the USA by relaxing visa regulations. Overseas students bring the USA huge economic benefi ts through tuition fees and living expenses. The enrolment of overseas students has become an important supplement to the US economy (‘Number of Chinese students studying in the US increases’, 2008). The overall contribution of international students to the US economy in 2008 was $17.8 billion (Rajghatta, 2009).

Finally, one of the important changes that has taken place in higher education is that, in many countries, state subsidies have been reduced and cost-recovery measures been introduced in public universities. In fact, one notices that cost-recovery measures are very commonly found in public universities even in the least developed countries of Africa. These measures have shifted the burden of higher education to the households. Similarly, private higher education has become an accepted alternative to public universities, and it now accounts for a good share of higher education enrolment in many countries. In this case, too, the fi nancial burden is transferred to the household level. These two factors – the privatization of public higher education institutions and private higher education institutions – make the household sector the most important determinant of demand for higher education. Therefore, budgetary cuts by the government may have a less negative effect on enrolment in higher education than in previous crises.

21

7. Concluding observations

The present economic crisis will make the achievement of some of the Millennium Development Goals diffi cult. It may contribute to a slowing down of poverty reduction and an increase in inequality. It is estimated that a 1 per cent decline in economic growth rates of the developing countries will push an additional 20 million people into poverty. The World Bank estimates that between 0.2 to 0.4 million children will die every year between now and 2015 than would have perished without the crisis. ‘Progress towards a richer, more equitable world has been set back years’ (‘The global crisis and the poor’, 2009).

The Nobel Laureate Joseph Stiglitz, currently Chairman of the United Nations Experts Commission on the Global Economic Crisis, points out that the current crisis is global, and that a global crisis requires a global response. He therefore argues for a globally coordinated stimulus package (Stiglitz, 2009). The World Bank argues for the inclusion of health and education in the fi scal stimulus plan and for establishing a vulnerability fund by assigning 0.7 per cent of the stimulus funds to the poor countries, to be distributed through international agencies. All of these efforts would help protect the higher education sector.

One of the important changes seen during the present crisis has concerned the attitude towards education funding. Traditionally, education in general and higher education in particular has been an easy target for budget cuts during diffi cult economic times. Public emotions were not aroused when funding levels were lowered for universities. This has changed now. The voice against effecting cuts in higher education budgets was very strong during the current crisis period. The common sentiment today, as Bray (2009) notes, is that education is important and that budget cuts to education present an obstacle to the current generation that will result in a loss in future economic development.

The European University Association President argued against cutting budgets to universities, since universities are drivers of economic growth and important for economic recovery. The President of the European Commission warned against any cut in public or private spending on higher education and research. Likewise, many world leaders affi rmed their faith in education and strongly argued for protecting the sector from the shocks of the crisis. The funding agencies, including the President of the World Bank, argued strongly for protecting the sector. These voices against any budgetary cuts in education helped protect the sector and survive the crisis.

We have seen that, with favourable public support, government policy, and household fi nancing of education, the adverse effects of the crisis on higher education may be fewer than what one might have envisaged at the onset. However, given the infl uential role of the paying capacity of households in educational decisions in the current crisis context, there remains the danger of widening inequalities in access and subsequent polarization of societies (Prakash, 2009) in the absence of strategic state interventions to regulate educational provision and the distribution of opportunities. It is also feared that ‘a global redistribution of brains’ may take place as academic job security diminishes and if the advanced countries do not adequately fund and protect the higher education sector (Baty, 2009b). The ‘reservoir’ of middle-class savings – which has proved crucial to maintaining demand for higher education during the present crisis – may dry up if the crisis continues; indeed, the sustainability of household funding in the long run is doubtful (Mok, 2009).

22

Concluding observations

One of the challenges for the education sector is that the real effects of the crisis will be felt with a time lag, after they have manifested in the economic and employment sectors. Moreover, the education sector may experience a sort of ‘hysteresis’, i.e. the effects of the crisis may continue to be felt even after economic recovery has kicked in. Therefore, one needs to act sooner rather than later, so as to avoid the possible adverse effects in the future.

To sum up, it seems that three sets of factors helped the higher education sector during the current crisis period: (a) the growing recognition of the crucial role that higher education plays in development – and the consequent support the sector received from those who infl uence public policy – helped to prevent cuts to higher education budgets; (b) the market-friendly reform in higher education pursued during the structural adjustment regime and during the period of globalization shifted the fi nancial burden of higher education from the state to the households; this helped reduce the adverse effects of budgetary cuts in higher education; and (c) economic growth, in particular the increasing share of the middle class and their household incomes, and their commitment to invest in their children’s education, helped to sustain the demand for higher education.

Finally, in a period of crisis, everyone is running to stand still. If you do not run fast enough, others will take your chances and you may be left behind. Therefore, the only way forward for governments is to maintain the status quo, if not to actually increase allocation; for institutions to restructure and revitalize higher education; and for individuals and households to invest in education and training to improve skills and competencies so that the short-term unemployed do not become the long-term unemployables.

23

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The booklet

This paper analyses the impact of the 2008 global economic crisis on higher education. An analysis of public policy responses to the crisis indicated that these varied among countries – some governments cut budgets, some increased them, while others maintained allocations at the same level. In most instances, institutions of higher education were restructured – employees retrenched, recruitment frozen, and student subsidies reduced. Despite these diffi culties, and contrary to expectations, higher education enrolments expanded and cross-border student mobility increased during the crisis period. In analysing reasons for the expansion of student enrolment, this paper shows that higher education was relatively better protected during the current crisis period than in previous ones. This development, the paper argues, refl ects the recognition of the contributions of higher education and research to economic growth and the consequent inclusion of higher education as part of recovery plans and stimulus packages.

The author

N.V. Varghese is currently Head of the Governance and Management in Education Unit at the International Institute for Educational Planning (IIEP-UNESCO) in Paris. Prior to joining IIEP in 1999, he was Professor and Head of the Educational Planning Unit at the National Institute of Educational Planning and Administration (NIEPA) in New Delhi. He has published books and articles in the areas of educational planning, fi nancing and quality of education.