European Universities Must Get Their Act Together
Published on: Sep 12, 2006
Summing up
The gap between social and private returns is not large enough to warrant more public investment in higher education. In spite of the expected rise in demand for higher education, governments in Europe should not allow supply to expand to meet demand through a battery of central planning and steering instruments. Politicians from the left and the right also form a ‘cordon sanitaire’ against structural reforms by misguided equity and accessibility arguments. Due to ‘glass’ ceilings on academic excellence many top academics flee to the US. Students are not challenged enough and drop out massively. European governments produce ‘one size fits all’ higher education systems that fail to adapt to an increasingly international and competitive market for higher education. Lack of transparency implies lack of competition between universities. In Europe, cartels are now firmly embedded through non-level playing fields between private and public institutions. Inappropriate methods of funding give rise to ever-rising overhead costs and status-seeking university bureaucrats wasting scarce resources on nonsense projects. We therefore propose the following reforms:

1. Allow universities to charge substantially higher tuition fees and also allow them to differentiate them by type of course depending on demand and costs. Allow universities to give discounts or scholarships to the smartest students, especially if they are from poorer backgrounds. Uniform fees reward bad students and harm good students. Smart rich students will be happy to pay for quality in view of high expected returns. The objective is increase university budgets, attract the best students and improve the quality of teaching. If fees function as signals of scarcity, there will be less mismatch of supply and demand of graduates.

2. Provide students with income-contingent loans where graduates repay their according to a percentage of future earnings. The objective is to provide insurance and guarantee universal access at low public costs and to avoid, but also stop students from taking disruptive, part-time jobs. The government may wish to fund default out general funds or make participation obligatory.

3. Only subsidise studies whose social benefits exceed private benefits. Think of pure science which is needed to maintain fundamental research, art history or archaeology. Do not subsidize market-oriented, ‘status’ or ‘signalling’ studies like business economics or law as they are popular and graduates will earn a lot. Uniform subsidies induce excessive enrolment in fields with little social value and not enough in fields that have large private value. Universities that attract lots of smart students require fewer government subsidies.

4. Improve incentives for students and professors. Allow universities to select only the smartest and most motivated applicants irrespective of their social-economic background. Only give access to student loans and scholarships if students perform well. Introduce strong incentives for teachers and make sure that the best academics teach. Encourage universities to introduce tenure-track appointments where regular assessment of both teaching and research performance play a role in salary, tenure and promotion decisions. Base research budgets on academic performance and potential and allocate them by independent academics of a high reputation.

5. Foster competition among universities at home and abroad and accredit foreign institutions. Abolish historical funding and cross-subsidies that hinder fair competition. Both private and public institutions should compete on the same terms by allocating subsidies directly to students through vouchers. Intervene if scale and funding on basis of student numbers induces monopolistic behaviour, bureaucratic waste and grade inflation. Universities should publish students’ dropout rates, enrolment durations, exam marks, student evaluations, scientific publications, evaluations of scientific visitation committees and so on.


1 Based on B. Jacobs and F. van der Ploeg, European Political Science, 52, 5, 288-303, 2006.