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
Check against delivery
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:
  • Government incentives and policies to steer the system, not to micromanage the institutions.
  • Funding for achievement of outcomes, not on inputs.
  • Clear and transparent accountability mechanisms for monitoring and rewarding performance.
  • Breaking down the silos between different types of postsecondary institutions in the system.
  • And finally, introduction of a policy of greater differentiation of institutions within the system.
What is a policy of differentiation?
It certainly means more than simply the fact that institutions are different.
For institutions, differentiation means that they value different things and pursue different objectives.  As such, they have organized themselves in different ways so as to best express their values and realize their distinctive desired outcomes.  A good example of institutional differentiation is the distinction between the research-intensive universities and the liberal arts undergraduate colleges in the USA.
For government, a policy of differentiation means that they do not have the same expectations of all universities in a system.  Because the government expects different things from different universities they fund them differently to achieve outcomes that are tailored to that institution’s mission and they hold them accountable to different performance objectives.
Differentiation celebrates and encourages diversity of institutions rather than driving all institutions to a homogenous sameness.  Differentiation takes advantage of the distinctive strengths of different institutions.    A policy of differentiation focuses on the benefits to the students and public, not on what is easy or hard for institutions.   A policy of differentiation engages governments and institutions in a productive dialogue that uplifts the entire postsecondary system by enabling each institution to do what it does best even better, even as differences among institutions are heightened.
Right now, the Canadian university system is highly undifferentiated.  Read the academic plans and mission statements of Canada’s universities; they all read more or less the same.  They have the same organizational structure and they almost all pursue the dream of becoming a serious – dare I use their language — world class research university, an objective a minority of them will ever achieve.  Governments also do not differentiate.  They apply the same performance metrics to all their universities.  They use a generic funding formula that applies equally to them all.
Even for an institution that wishes to differentiate by building on its strengths —  for example, to develop higher quality or more innovative undergraduate programmes — it is not clear that there are any financial incentives to help them down this road.
There are many benefits to a university system becoming more differentiated and we have outlined them in a paper we wrote for the Ontario government last year.  That paper also provided a set of principles and a practical roadmap of how the Ontario system could move down a road of greater differentiation and realize its benefits.  I will not rehearse the arguments here.  But, our summary statement was this:
“…greater differentiation of Ontario’s university sector is one of the most powerful levers available, especially in times of resource constraints, to achieve public goals of greater quality, competitiveness [and] accountability…”
Aside from differentiation, another particularly good starting point to improve quality is to do what so many other countries are doing – to articulate what students should know, understand and be able to do upon graduation and, most importantly, to actually measure whether those desired learning outcomes are being achieved.  In general, a shift in focus from what we put into the system to what we actually get out of the system, and funding accordingly, is a game changer.
Provincial governments will have to lead, or at the very least facilitate, the reform of higher education.  But, when governments get serious, clever and purposeful about an issue and commit to disciplined execution of a sensible plan, they can make the public sector dance.  The impressive improvement in K-12 education in Ontario is testament to this capacity.
As we strive to enhance quality, let’s remember that informed public policy is better public policy.  We need to consider the best evidence, best research and best international practice.  These are the exact elements the Higher Education Quality Council of Ontario brings to the discussion.
Among all Canadian provinces, Ontario is particularly well positioned.  If Ontario were as successful in improving quality as it has been in improving access, this province would have one of the best public postsecondary systems in the world.
We should be optimistic about our ability to achieve that goal.  Many of the elements are in place. We have good institutions and a willing government.  We understand why quality is so important.  We have a history of success.  We acknowledge that we have a problem.
Now let’s get on collectively, with purpose and determination, to get it done.
Thank you for listening.

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