The Diminishing Quality of Ontario’s Universities: Can the System be Fixed?

The following remarks were delivered by HEQCO President and CEO Harvey Weingarten on October 18 at the C.D. Howe Institute.

Talk to the C.D. Howe Institute
Harvey P. Weingarten
President, Higher Education Quality Council of Ontario
Toronto, Ontario
October 18 2011

Canada has a good, likely very good, public postsecondary system.  But, the importance of a robust, high quality and productive postsecondary sector is so critical to the future of Canada that we should aspire to nothing short of a great system.  That’s what other nations are shooting for.

What can hold us back?  Jim Collins reminds us that “good is the enemy of great”.  Because we are good, our greatest enemy is complacency and thinking that what we have now is good enough.  Canada beats other countries in providing access to higher education.  The enrolment gains in Ontario have been particularly impressive.   Now, we have to beat the rest of the world on quality.

A high quality university system has never been more critical to the futures of those living in Canada and to the province and country.

For the individual, higher education is the ticket for economic prosperity and social mobility.  Those with postsecondary education have higher employment levels, are more buffered in times of job loss and earn more than those without these credentials.  Economic analyses demonstrate repeatedly and convincingly that the dollars spent going to apprenticeship training, college or university are some of the best investments that anyone will ever make in their lifetime, even accounting for tuition paid and foregone earnings.

A highly educated workforce is essential to Canada’s knowledge-based economy.    As the noted labour economist, Robert Reich, has said:  “The thing about the 21st century economy that distinguishes it most sharply from the economy that preceded it is the central importance of people’s minds and skills”.  Canada is more dependent on R&D done in its higher education sector than almost any other OECD country.  Individuals with postsecondary credentials place less burden on the health care sector and are more engaged in their communities.  In short, a highly educated citizenry is the foundation for the quality of life Canadians desire and the wealth that must be generated to sustain it.

Given the central importance of higher education to the future of a country and its citizens, it would be particularly troubling to conclude that the quality of what goes on in our universities is diminishing.  Yet this seems to be exactly the case.

The trends are for classes to get larger, for courses to be less available, and for more and more of the teaching to be done by sessional and itinerant instructors.  Surveys such as the National Survey of Student Engagement reveal that our students are less satisfied and less engaged with their university experience and their professors than counterparts in the USA. Perhaps the most telling evidence for diminishing quality is the fact that university presidents, individuals who normally have only good things to say about their institutions, are publicly acknowledging the erosion of quality. As Robert Campbell, president of Mount Allison University said in a recent conference on The Revitalization of Undergraduate Education in Canada: “We all … know that the character of the undergraduate experience has deteriorated in our lifetimes, especially so in the last decades”  And we know in our heart of hearts that this experience can and should be much better”.

The quality challenge in Canada is particularly problematic in light of plans by other countries to uplift the quality of their postsecondary systems.  Richard Levin, president of Yale University, in a 2010 article in Foreign Affairs predicted that “…it is more likely than not that by mid-century the top Asian universities will stand among the best universities in the world”.  In the 2011 State of the Union address, President Obama said that the USA needs to “…out-innovate [and] out-educate…the rest of the world”.  Most importantly, Obama was not hesitant to use economic stimulus money to intervene in the American educational sector to motivate needed improvements.

Why is the quality of the learning environment in Canada diminishing?
An answer to this question requires a short excursion into the world of how Canada finances its postsecondary institutions.  Consider this brief primer on university budgeting.

Each year, institutions need more money to meet three drivers of increased costs.   First, are the costs associated with growth – more students.  The demand for more and more postsecondary spots has been unrelenting since World War II and has superseded every demographic and economic cycle.  The first responsibility of a public higher education system is to provide a spot to every qualified student.  This obligation trumps almost every other consideration.

Second, institutions face annual incremental costs due to inflation.  The inflationary pressures are of two types:  increasing costs of materials and supplies and increasing costs of salaries and benefits.  Inflation in materials and supplies in higher education — known as the Higher Education Price Index — typically runs 1-2% above CPI.  As for salaries and benefits, they account for about 60-70% of the typical university’s operating budget and the annual increment has been in the order of 4-6%, depending on the year and the province.

Finally, each year, institutions face incremental costs associated with their desire to improve the quality of the learning environment.  These include:  more professors to decrease the student-to-faculty ratio; more experiential learning opportunities like co-ops; more modern and better equipped teaching and research labs; better infrastructure; strategic hiring of some faculty stars; bigger and better libraries and other information sources.

To meet these drivers of annual incremental costs – growth, inflation and quality improvements – universities turn to their three sources of revenue:

First, government grants – the money provided to them from the public purse.

Second, tuition.

Third, entrepreneurial revenue which they can obtain through businesses they run – bookstores, parking, residences – the commercialization of intellectual property created in their institutions and, of course, philanthropy.

As long as annual incremental revenues match annual incremental expenses, then everything is fine.  The trouble is this.  For as long as I have been conscious of budgeting at Canada’s public universities, that’s about the mid 1980’s, incremental revenues have never matched incremental costs.  Even in Alberta, the most prosperous province in the country and a province in which I worked for 9 years, incremental revenue through tuition and grant over a 20 year period at best matched inflation.

In Canada, there is simply no way that entrepreneurial revenue can make up the gap now or in the foreseeable future, even for those institutions that are the most successful in fundraising.  In fact, on the revenue side, institutions that have been the most successful in fundraising and which have the largest endowments have taken significant hits because of poor stock market returns and low short-term interest rates.

Now throw in escalating costs to service significant unfunded liabilities in pension plans, charges to the operating budget to service past borrowing, a deteriorating physical plant, the disappearance of mandatory retirement, the societal expectation of more and more R&D – and enhanced research represents a drain on operating budgets — and you can predict with confidence that the historical trend for expenses to outstrip revenues is going to continue.

So, what happens when revenues are not sufficient to cover incremental costs?  You continue to take more students because that is the imperative and they are a source of revenue.  Inflation is a reality.  Compensation changes are a contractual obligation.  So, the only place to compromise is on quality.  In short, the sad but inevitable consequence of the way we now manage and fund public postsecondary education in Canada is an erosion of quality.

Who is to blame? 
For some, the blame lies at the feet of government for failing to provide colleges and universities with greater funding.  To be fair, the Ontario government has directed more money to the postsecondary sector, and these funds – targeted largely to growth and financial aid – have had real impact.

Realistically, though, there is not much left in the public purse.  And for the public, and therefore for government, other public sectors – particularly health care – have priority.  Even if more dollars were to flow, a sceptic might need to be convinced that in the current dynamic these dollars would really be spent in ways to improve quality.

Are the college and university administrators to blame?  Maybe they are just bad managers?  I am the first to suggest that postsecondary institutions could be more innovative, entrepreneurial and bold.  But I have also concluded that public institutions by themselves cannot solve the quality challenge and the simple reason is this.

Public higher education is highly regulated.  Universities have essentially no control over their major sources of revenue – grants and tuition.  Their ability to participate in entrepreneurial activities is subject to government rules and regulations.  On the expense side, they do not control inflation and some of the materials they buy – such as library material and expensive scientific equipment – are controlled by monopolies that give the universities almost no bargaining power.  Their most important and costly workforce – the tenured faculty – are on lifetime contracts and the compensation environment in which their salaries are set – from international marketplace forces to the ways salary arbitrations are determined — leaves the colleges and universities with little control.

In short, it is not clear to me that even the boldest, most courageous, most radical college or university president has the necessary tools and levers to redress the prognosis of diminishing quality that our postsecondary institutions face.

So what to do?
Continue with the status quo?  We can’t.  The consequences of a lower quality system are too severe and the benefits of a higher quality system to both the individual and society are simply too desirable.   We must acknowledge, though, that the ways we managed our public higher education systems in the past are no longer particularly effective.  Change is needed — changes in the ways governments manage, intervene and fund the system and changes in the ways that institutions manage themselves, allocate their resources and are held accountable.

The challenge of diminishing quality is a problem Ontario shares with many other provinces and countries around the world.  The good news is this — other jurisdictions are experimenting with their public postsecondary systems and the results are encouraging.

There are common elements to the strategies being used by other jurisdictions to advance their higher education systems, many of which I suggest are applicable and advisable to Ontario.  These include: