How to Fund (2)

Posted on February 15, 2017 by Alex Usher

As I noted yesterday, in Canada we have some kind of phobia about output-based funding. In the 1990s, Ontario and Alberta introduced, and then later killed, key performance indicators with funding attached. Quebec used to pay some money out to institutions based on the number of degrees awarded, not just students enrolled, but they killed that a few years ago too (I’m sure the rumour that it did so because McGill did particularly well on that metric is totally unfounded).

Now, there is no doubt that the history of performance indicators in Canada hasn’t been great. Those Ontario performance indicators from the 1990s? They were cockamamie and deserved to die (student loan defaults as a performance measure? Really? When defaults are more obviously correlated with program of study, geographic location, and the business cycle?). But even sensible measures like student completion rates get criticized by the usual suspects (hi OCUFA!), and so governments who even think about basing funding on outputs rather than inputs have to steel themselves to being accused of making institutions “compete” for funding, of creating “winner and losers,” of “neoliberalism,” yadda yadda. You know the story.

Yet output based funding is not some kind of extremist idea. Leave aside the nasty United States, where two-thirds of states have some kind of performance-based funding, all of which one way or another are based on student progress and completion. Let’s look to wonderful, humane Europe, home to all ideas that are progressive and inclusive in higher education. How do they deal with output-based funding formulae?

Let’s start with Denmark and England, both of which essentially offer 100% of their teaching-related funding on an output basis (these are both countries where institutions are funded separately for research and teaching), because although their formulas are essentially enrolment-weighted ones like Ontario’s and Quebec’s, they only fund courses which students successfully finish. (Denmark also has another slice of teaching funding which is based on “on-time” student completion). Students don’t finish, the institution doesn’t get paid. Period.

Roughly two-thirds of higher education funding in Finland – yes, vicious neo-liberal Finland – is output-based. A little more than half of that comes from the student side, based on credit progression, degree completions and the number of employed graduates. On the research side, output-based funding is based on number of doctorates awarded, publications, and the outcome of research competitions. It’s a similar situation in the Netherlands where over half the teaching component of funding comes from the number of undergraduate and master’s degrees awarded, while well over half the research funding comes from doctorates awarded plus various metrics of research performance.

All throughout Europe we see similar stories, though few have quite as much funding at risk on performance measures as the four above. Norway and Italy both have performance-based components (mostly based on degree completions) of their systems which involve 15-25% of total funding. France provides five percent of its institutional funding based on the number of master’s and bachelor’s degree completions (the latter adjusted in a very sensible way for the quality of the institutions’ students’ baccalaureat results). Think about that for a moment. This is France, for God’s sake, a country whose public service laughs at the concept of value for money and in which a major-party Presidential candidate can advocate for 32-hour week and not be treated as an absolute loon. Yet they think some output-oriented funding is just fine.

I could go on: all German Länder have at least some performance-based funding both for student completions and research output, though the structure of these incentives varies significantly. The Czech Republic, Slovenia, and Flemish Belgium also all have performance-based systems (mainly for student completions). New Zealand provides 5% of total institutional funding based on a variety of success/completion measures (the exact measures vary a bit, properly, depending on the type of institution). Finally, Austria and Estonia have mission-based funding systems, but in both cases measures looking at research performance and student completions indicators which form part of their reporting systems.

You get the picture. Output-based funding is common. It’s not revolutionary. It’s been used in many countries without much fuss. Have there been transition teething troubles? Yes there have (particularly in Estonia); but with a little foresight and planning those can be mitigated.

And why have they all adopted this kind of funding? Because funding is an essential tool in steering the system. Governments can use output based funding to purchase institution’ attention and get them to focus on key outcomes. If, on the other hand, they simply hand over money based on the number of students institutions enroll, then what gets incentivized are larger institutions, not better institutions.

Ontario, with its recent formula review, had a golden opportunity to introduce some of these principles to Canada. It failed to so. I’ll explain why tomorrow.