[Chapter on]

Privatisation of Education

Blaas/Hackl/Mahnkopf/Toliou/Acocella

Second Draft
March 2008

Do not quote

1. Introduction ...................................................................................................... 2
2. General issues .................................................................................................. 3
2.1 Functions of education ............................................................................. 3
2.2 Education as a public good ...................................................................... 6
2.3 What is Privatisation of Education?....................................................... 10
3. European Education systems.......................................................................... 12
3.1 Statistical Overview ............................................................................... 12
3.2 Diversity of Education Systems in the EU and Common Shocks ......... 16
4. Transformation of Universities ...................................................................... 17
4.1 Typology of responses to the new environment and shocks.................. 17
4.1.1 Private funding of tertiary education: Fees .................................... 17
4.1.2 Private institutions.......................................................................... 18
4.1.3 Deregulation................................................................................... 21
4.1.4 New Public Management ............................................................... 22
4.1.5 Competition state ........................................................................... 23
4.2 Is there a common pattern of transformation of universities?................ 24
5. Conclusions and Perspectives ........................................................................ 24
6. References ...................................................................................................... 25

1
1. Introduction

For several years now education seems under pressure, with regard to its content, its
organisation and funding. National education systems are challenged with regard to
their teaching and learning. “Are students well prepared for future challenges?”1 the
OECD is asking and assesses every three years the knowledge and skills of students
near the end of compulsory education. In countries that participate in this exercise it
comes near a national disaster in case their rankings are low. At the same time
national governments have ceased to regard education as a core public activity but
stress the individual responsibility. Consequently, privatisation (or marketisation),
deregulation, and liberalisation have spread in different forms and to different extents
on the different levels of the educational systems of EU member countries, from pre-
elementary to higher education and vocational training institutions. This is the topic
of the current chapter.
Education is an extremely complex matter. In order to sort out this complexity we
start by first discussing the functions of education (Section 2.1) and by looking at
education as a public good (section 2.2). Furthermore, also the privatisation of
education has many dimensions. For example, it may entail a shift from public to
private funding of educational institutions, or it may take the form of contracting-out
of educational services to private entities, etc. A way to classify the various
dimensions of education privatisation is presented in section 2.3.
The main parts of this chapter (sections 3 to 5) focus on higher education, though on
occasions also other levels of education are dealt with. One reason for this focus is
that it is impossible to do justice to privatisation of education as a whole in one short
chapter, and this should be obvious by the considerations of section 2. Given the
available space it seems therefore necessary to select only one level2 of education for
further analysis. Second, students and teachers in higher education do exhibit and are
also required to a certain extent to show (international) mobility, which exposes
educational institutions on this level to increasingly more (international) competition.
Private providers of higher education are often considered better organised to
succeed in this competition. And since the global education market is estimated at $

1
www.pisa.oecd.org: The OECD Programme for International Student Assessment (PISA)
(12.02.2008)

2
2.000bn3, it is not surprising that private education firms are highly active to enter
the market and to find profitable investment strategies within the market, where the
trade in higher education alone is estimated to be at approximately $ 55bn (1999
figures). Thirdly, we focus on higher education because, at least in the EU, private
expenditures as a percentage of total education expenditures are higher than in other
levels of education, For pre-primary education the share (in 2004) was 12,1%, for
primary and secondary education 6,3%, but for tertiary education the percentage
already reached 16%.4
Hence, the empirical and statistical view of education expenditures given in section
3.1 and the presentation of the diversity of education systems in Europe in section
3.2 concentrate on the tertiary level of education, as does the discussion of the
various privatisation paths which have been followed in Europe (in section 4.1). The
question whether there is a common pattern to be detected in these manifold paths is
being dealt with in section 4.2.
Finally, in section 5, some conclusions will be drawn. We want to assess the impact
of different forms of privatisation and marketisation in educational services on the
different functions which education has to fulfil in a democratic society. Is it possible
to identify an impact on quality and efficiency increases due to privatisation,
marketisation and liberalisation in the different educational systems? Do privatisation
policies “result in a more equitable access to education for all students and in
improved social cohesion to the people seeking education”?5 And last but not least, is
it appropriate to consider the privatisation of (higher) education within certain limits
a “problem” at all?

2. General issues

Before we move on to the empirical sections on (higher) education systems in

European countries and their various privatisation paths, we want to clear the ground
for this exercise by discussing some general issues relevant in this context.

2.1 Functions of education

2
Many authors (e.g. OECD 2007) distinguish three levels of education, (1) pre-primary level; (2)
primary, secondary and post-secondary non-tertiary level; (3) tertiary level.
3
EduVentures 1999, quoted in Whitfield 2001: 60
4
OECD 2007, 220 (Table B3.2a) and 221 (Table B3.2b). The average is calculated for the 19 EU
countries which are members of the OECD (see footnote ).
5
Blaas 2007, 6, following Belfied/ Levin 2002, 35.

3
There is a general agreement that education fulfils social, economic and political
functions. Since privatisation may have an influence on all different functions it
seems appropriate to briefly discuss these functions.

Social functions

The close relationship between school education and the nation state has been
analysed from different perspectives. According to Talcott Parsons’s functionalism
schools, beside the family, are the main agents of socialisation6. Through schooling
individuals are integrated into society by internalising its norms and values and they
are socialized to conform to them. Education installs ethics, moral obligations, values
and behaviours which are elementary for the orientation of the individual. Within
complex and interpersonal processes human beings acquire the norms, beliefs and
attitudes necessary for the realisation of his/her self-potential and latent talents.
A further social (and political) function of education seems to be that without a
decent education there is no chance to escape the lower social strata. The general
conclusion of empirical enquiries into this question is that, the more difficult the
access to education is for lower social groups, the higher is the probalility and the
danger of a segmentation of society into relatively poor and relatively better-off
parts. Therefore one might consider the general and free access to education as a
prerequisite to more socio-economic equality and less segmentation.

Economic functions

The economic function is clearly dominating the current debate. Due to the key role
of knowledge in innovation and therefore in economic growth, and due to the
collective and social dimensions of sharing knowledge in its different kinds,
education helps to increase the productivity of labour and enables the individuals to
participate in innovations of all kinds. Modern growth policy consists to a large
extent of public support for research and development.
The goal of the EU to become the economically most viable region in the world has
consequently been translated into strategic areas of European policy, among which

6
Parsons 1964

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education policy seems to be quite prominent. The countries of the European Union
have accepted as a primary goal to establish the EU until 2010 as “the largest
knowledge-based market”. To approach this goal, education has to deliver primarily
skills which are demanded by the market, and the national education systems have to
be mutually compatible in order to facilitate inter-employability.

Political functions

The political function of the education system consists in enabling the individual to
perceive his/her democratic civil rights of participation in political decisions. In this
function the education system contributes considerably to the stabilization of a
democratic society.
In order to be able to fulfil this political function education systems must be guided
by the “education ideal” of the philosophy of the late 19th century. According to this
ideal education leads to “Selbst-Erkenntnis” (self-cognition) and “Welt-Erkenntnis”
(world-cognition). As a consequence, education would produce individuals critical to
their own life and personality, but also critical towards established knowledge and
powers.

Inconsistency of functions?

Thus, modern democratic societies are faced with a plurality of goals and contents of
education processes, but since the days of the European Enlightenment, the political
and the economic functions of education have proved to be inconsistent.
Education in the sense of teaching human beings to take over individual
responsibility aims at the rational perception of interests, at the improvement of the
individual’s ability to judge and to participate in the organization of the present and
the future society. This kind of the education can be acquired via communication
competences and is oriented towards the change of social behaviour.
On the other hand education in the sense of professional formation aims at the
qualification for external (social) purposes: to acquire a professional position,
income, social status or social recognition. It is acquired via the acquisition of
certificates and it is oriented towards the adaptation of individual needs onto the
given social order (Baethge 1970).

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The individual as the self-reflecting, responsible homo politicus and the individual as
the highly productive worker in the firm may be incompatible, at least at some
instances or under certain circumstances. In other words, education functions may be
inconsistent as they lead potentially to behavioural conflicts.

2.2 Education as a public good

Adam Smith already discussed at some length whether “institutions for the education
of the youth” are to be funded from the public purse or from student fees.
Concerning universities he strongly advocated the latter because funding from fees
which “the scholar pays to the master”7 would improve their morale, standards and
efficiency. For the same reasons Smith also advocates fees in fundamental education
although so moderate “that even a common labourer may afford it”. But in contrast
to universities fundamental schools are to be established by the public and their
teachers paid partly by the public. Fundamental education deserves serious attention
of government – “though, perhaps, no other public good might result from such
attention beside the prevention of so great public evil”.8
This hybrid nature of education, already somehow suggested by Smith, is being
mirrored by the perception of education as a non-pure public good. In economic
terms a public good is characterized by (1) non-excludability, which means that no
one is ecxluded from consumption of the good by a market price; and (2) by non-
rivalry, i.e. the fact that two or more individuals are able to simultanously consume
the good. However, pure public goods are rare. While it is not possible to exclude a
citizen from the benefits of a country’s dams or its financial stability, it is possible to
exclude car drivers from using a road via road-pricing, and it is possible to exclude
students from access to education by asking (high) tuition fees. Nor is strict non-
rivalry possible in the system of education (rivalry starts when capacities are
exhausted). Education may be seen therefore as a mixed good (with characteristics of
private and public goods).
As a result, neo-classical economics is quite ambivalent when considering the public
good character of education. Partly, this ambiguity refers to the problem of applying
conventional models of production to education: outputs in education, as in the

7
Smith, 1993, p 420
8
ibid, p.435-6

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public sector as a whole, are intangible in many respects. This makes it difficult to
define a supply function in the conventional sense. The fact that educational
organisations, as other public sector organisations, produce goods that are free at the
point of use means that prices of outputs are not determined by market forces.
From an economic perspective it can be argued that markets may fail to produce
educational services adequately. The traditional economic argument for state
provision of education rests upon the presence of positive externalities which lead to
an undersupply of the good. As with “pure public gods” such as knowledge or
financial stability, prices cannot work to bring about market equilibrium. Triggering
an excess in demand and an insufficiency of supply, positive externalities require
state intervention.
Although it has proved very difficult to quantify the importance of these
“externalities” or “spill-overs” which occur in education, it has been demonstrated9
that societies benefit from increased spending on education through better health,
more social cohesion and more informed citizens10. Furthermore, higher education
expenditures feed back into public budgets via increasing incomes and income (and
other) tax revenues.
However, these positive effects do not seem to prevent neo-liberal economists from
claiming that education should be a private matter. In an article published as early as
1955 on “The role of government in education” (which has been reworked and
included in his famous book “Capitalism and Freedom”) Milton Friedman set the
stage for this kind of argumentation. According to his argumentation not all
government actions are justified by the substantial “positive externalities” or
“neighbourhood effects”. With regard to the major roles governments are playing in
legislating, financing and administering compulsory schooling Friedman concluded
that finance and administration could readily be separated and schooling being
“denationalized”: “Governments should provide a minimum level of schooling,
granting the parents vouchers redeemable for a given sum per child per year to be
spent on ´approved´ educational services” (Friedman 1955/ 1998)11. In such a way
the emergence of “competitive enterprises”, that is a variety of schools and
universities, some of which operating for profit, some operating as non-profit

9
OECD, Education at a Glance, The returns to education: links between education, economic growth
and social outcomes, p. 144 ff
10
OECD/CERI, Understanding the Social Outcomes of Learning, Paris 2007
11
http://www.schoolchoices.org/roo/fried1.htm (14.02.2008)

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institutions, should be fostered. “The role of the government would be limited to
assuring that the schools met certain minimum standards such as the inclusion of a
minimum common content in their programs, much as it now inspects restaurants to
assure that they maintain minimum sanitary standards” (ibid.). And although neo-
liberal economists support private education, they concede that public education has
to ensure that “the common core of value deemed requisite for social stability” is
provided “as a means of training youngsters for citizenship and for community”
(Friedman 1955/1998).
This is a very confined understanding of higher education as a public good, but it
will turn out that with his instrumental and restrained understanding, Friedman
anticipated and paved the way to nowadays changes in the meaning and experiences
of education. According to this view, a system of state schooling is justified only to
propagate common culture norms and ethical values in order to increase the
efficiency of production and exchange, largely by reducing transaction costs
(promoting social cohesion, reducing tensions between different groups).
The theory of “human capital” as expounded by the neo-liberal economist Gary
Becker (1992) postulates a chain of relations of causality between training,
productivity and income. The human capital approach was developed in the 1950s
and 1960s when private and social rates of return from different levels of education
were studied. It first gained importance in education policy discussion due to the
“Sputnik Shock”. Education was considered an investment in a particular capital that
also increased national competitiveness. Together with the social demand approach it
provided the basis for educational planning12 and policies that resulted in an
enormous expansion of higher education. Later, despite its numerous deficiencies,
this approach was frequently used to oppose education free of charge, arguing that
individuals should bear the costs of investments in themselves.

Having recourse to the ”human capital”-approach, the OECD in its latest “Education
at a Glance”-Report assesses the effectiveness of investments in education by
calculating and comparing private and public returns of investment in education for
11 OECD countries.13 Certainly, OECD economists are aware that the extent of

12
Blaug, Mark, Introduction to the economics of Education, London 1970
13
„To measure the return used here is the internal rate of return, which is effectively an interest rate
that measures the economic returns to an investment. This rate equates the costs required to attain
the next highest level of education with the present value of lifetime stream of additional earnings
associated with the higher level of attainment. This indicator is analysed from two different points

8
earnings differentials among individuals of similar educational attainment is likely to
be determined by a wider range of factors. Labour markets reward skills other than
those indicated by education attainment and national earning dispersions are
influenced by gender, race, or age discrimination that is by non-skills related
recruitment considerations. Nevertheless, according to the OECD earning
differentials are supposed to be a key measure of the financial incentive available for
an individual to invest in further education. Even more important, the OECD results
are interpreted as evidence, that “for the achievement of the tertiary level of
attainment during initial education, the public rate of return is in all cases lower than
the private rate of return (…). When the individual goes back to full-time education
in mid-career, and bears the direct costs of tuition and forgone earnings, public rates
of return for completing tertiary education are lower than private rates of return in all
countries (...)”(OECD 2007: 152).

Since the late 1980s in the UK and, with a time lag of almost a decade, up from the
mid 1990s, in continental Europe changes in education (as well as in social) policy
occurred that implemented concepts within educational reform programmes that are
by no way brand-new. Some have been promoted by neo-classical economists for
nearly 50 years, such as voucher systems aiming to allow for the “free choice of the
individual”, subsidised loans to finance higher education, the administration of
educational institutions by private enterprises operating for profit or by non-profit
institutions of various kinds, tuition fees charged by state universities in combination
with the restriction of government subsidies and numerous legislative proposals to
“modernise” the management of educational services.
Since the end of the 20th century the UK succeeded in becoming the model for a
“new education economy” on an emerging global education market. Currently this
model is exported both to developing countries and to other OECD countries
(Hatcher 2000a, Ball 2007). In Western European countries it took several decades to
accustom the public, academics, teachers, parents and students to the idea that
government is gradually withdrawing from managing educational institutions.
Central and Eastern Europe (CEE), exposed to radical changes and influenced by
neo-liberal policies of international organisations (such as World Bank and IMF) the

of view: rates of return to the individual (….), which reflect only the individual’s earnings and
costs, and rates of return to government (….). The return to government includes higher income
tax and social contributions collected, as well as costs borne by the government” (OECD 2007:
150).

9
social agenda - healthcare, pensions, higher education and other public services -
changed more radically. “While in Western Europe the emergence of the private
sector in education is both marginal and often revolutionary (…), in most CEE
countries it might be even considered as one of the more realistic options available –
in the situation of the chronic under funding of public institutions and, in many
instances, their structural inability to face new challenges( ) (Kwiek 2007: 17).
With regard to the functions of education a tendency that can be observed in the EU
(and beyond) is to concentrate or even restrict public education to its economic
function, while the function of socialisation is increasingly left to (ever more
stressed) families and the political function of education is nearly ignored.
With the creation of a new “education economy” in particular higher education is
more and more viewed as a “scarce good”, which will be “produced” and
“consumed” more efficiently under conditions of competition. Furthermore, the
widely different national systems of education in Europe “started to emerge as a
significant obstacle to the new European political agenda encompassing the
principles of free mobility, cross border employability, etc. in societies at large as
well as in their respective higher education system” (Zgaga 2007: 27). Consequently,
unification and privatisation come up as essential guide lines of a EU education
policy.

2.3 What is Privatisation of Education?

In this section we go back to the more narrow conception of education as a service.

This seems appropriate when the issue is privatization. Privatization has been defined
as (Belfield/Levin 2002, 19) “ … the transfer of activities, assets and responsibilities
from government and public institutions and organizations to private individuals and
agencies.”
In our context, “education privatization” is a general term including a large number
of different educational programmes and policies. We might think of privatization in
three variants, namely
(1) private provision of education;
(2) private funding of education and
(3) private regulation, decision making and accountability.

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Private provision

Here privatization means the change from state or public provision of educational
services to the provision and management of education by private agencies and
organizations, for example by religious groups, by charities, by for-profit firms, and
other interested parties.

Private funding

In this case privatization means that parents and students pay directly for educational
services rather than indirectly through taxes and government expenditures. In most
practical cases, however, families and government bear the costs of education
together. If, for example, universities charge tuition fees, these cover usually only a
certain fraction of total costs, and they have therefore to be complemented by public
funds.
Hence, privatization in this sense occurs when a portion of total funding is paid by
private households instead of by the government.

Private regulation, decision-making and accountability

The third variant of education privatization refers to the definition of quality

standards of educational services. This occurs when the (private) consumers of these
services, i.e. the students and their families, determine directly (“voice”) or indirectly
(“exit”) the satisfactory standard of services instead of governments via regulations.
Thus, a further aspect here is the freedom to choose the educational institution
according to the preferences of the student or the family.
However, even in cases where private individuals play a significant role in defining
the quality standards, schools and universities are seldom completely free in their
operations. In most cases the educational institutions have to meet state
accountability requirements.

Combining variants of privatization programmes

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All three types of educational privatization may be implemented simultaneously, but
they may also balance each other. For example, the private provision of education
may be complemented by strict government regulations concerning the teaching and
materials used in school. On the other hand, also substitute relationships exist
between different forms of privatization. As an example one might think of a system
where either vouchers are offered to enable children to attend schools, or to grant
parents tax credits in order to finance school fees.
The combination of public and private characteristics may result in quasi-markets for
education, in which governments keep on playing an important role in terms of
setting quality standards, while (private and public) suppliers operate in a regulated
competitive environment.

3. European Education systems

3.1 Statistical Overview

In order to get a first impression of public and private expenditures on education in

Europe we have a look at the data and findings of the OECD study “Education at a
Glance 2007” (OECD 2007).

Overall expenditures on education

According to this study was the (simple, not-weighted) average of overall

expenditures on education as a percentage of GDP of the EU19-countries14 5.4% in
2004, which is slightly below the OECD average of 5.8%.15 Significantly higher
expenditure rates have been observed in Denmark and Sweden, and well-above the
average rates (at least 6% ) in Finland, France, Belgium and Poland. Six of the EU19
countries spent less than 5% of GDP on education, the lowest figure being 3,4% in
the case of Greece.

14
For many indicators the OECD study presents also an “EU19” average. It is calculated as the
unweighted mean of the data values of the 19 OECD countries that are members of the European
Union for which data are available or can be estimated. These 19 countries are Austria, Belgium,
the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Italy, Ireland,
Luxembourg, the Netherlands, Poland, Portugal, the Slovak Republic, Spain, Sweden and the
United Kingdom.

12
On the other hand has Greece been successful to increase the expenditure ratio
significantly in the long run (by 1,1%-points from 1995 to 2004), a performance
which only Denmark has been able to come near (1%-point), albeit on a higher level
of the expenditure ratio. Many other countries experienced falling or stagnating
expenditure ratios. For example, in Austria, Ireland and Spain the increases in
expenditure on education between 1995 and 2004 tended to fall behind the growth in
national income, in countries like the Czech Republic expenditures did not increase
significantly with economic growth. This seems to be at odds with the target of the
EU to become a “knowledge-based society”, with “human capital upgrading” being
the most important objective in the near future.
The judgement might be different when the changes in the structure of education
expenditures are analysed.16 On average in the EU19, tertiary education expenditures
have experienced a much stronger growth (1995-2004) than expenditures for non-
tertiary education (58% versus 34% in real terms). This is true for all EU19 countries
except the UK and the Netherlands, and particularly in some new member countries
like Poland and the Slovak Republic tertiary education expenditures have more than
doubled (in real terms) during this period.
In spite of these positive developments, the EU19 average of expenditures for tertiary
education as a percentage of GDP remains still at 1,3% (2004), while this share is
almost 3% in the USA. Therefore, the European Commission states that “funding for
universities is far too low compared to our major competitors, both in education and
research” (EC 2006). This “education gap” might also be underlined by enrolement
rates in tertiary education, which are at 57% in Europe as compared to 81% in the
US.

Public and private expenditures on education

On all three levels of education which are analysed by the OECD study, public
sources are dominant in the EU19. In 2004, public funding represented 91,1% for all
levels of education combined; while private funding, including subsidies attributed to
payments to education institution received from public sources, represented less than

15
OECD 2007, 205; Table B2.1.
16
OECD 2007, 207, Table B2.3

13
9% 17. In pre-primary education, public expenditures on education amount to 88% of
total expenditures on average in 2004, in primary, secondary and further non-tertiary
education the share is about 94% and in tertiary education the percentage is 84% (see
Table 1).

17
OECD 2007, 219, Table B3.1

14
Table 1: Shares of public and private expenditures on educational institutions (%) by
the level of education (2004)

Distribution of public and private sources of funds for educational institutions after
transfer from public sources, by year

Pre-primary Primary, Tertiary education

education secondary, post-
secondary non-
(for children 3 tertiary education
years and older)

Public All Public All Public All

Sources private Sources private Sources private
sources* sources* Sources*

Austria 70.0 30.0 95.3 4.7 93.7 6.3

Belgium 97.1 94.9 90.4 9.6
Czech Republic 87.3 12.7 88.6 11.4 84.7 15.3
Denmark 81.1 18.9 97.8 2.2 96.7 3.3
Finland 91.1 8.9 99.2 0.8 96.3 3.7
France 95.8 4.2 92.7 7.3 83.9 16.1
Germany 71.8 28.2 81.9 18.1 97.9 2.1
Greece 93.8 6.2 97.9 2.1
Hungary 93.9 6.1 94.7 5.3 79.0 21.0
Ireland 96.4 3.6 82.6 17.4
Italy 90.8 8.2 96.1 3.9 69.4 30.6
Netherlands 96.2 3.8 94.1 5.9 77.6 22.4
Norway 86.3 13.7
Poland 87.1 12.9 97.6 2.4 72.9
Portugal 99.9 0.1 86.0 14.0
Slovak Republic 79.0 21.0 85.1 14.9 81.3 18.7
Spain 82.5 17.5 92.5 7.5 75.9 24.1
Sweden 100.0 n 99.9 0.1 88.4 11.6
United Kingdom 94.9 5.1 86.6 13.4 69.6 30.4
EU19 average 87.9 12.1 93.7 6.3 84.0 16.0

OECD average 80.0 20.0 91.8 8.3 75.7 24.3

*
Including subsidies attributable to payments to educational institutions received
from public sources

Sources: OECD 2007, Tables B3.2a and B3.2b

15
In tertiary education, there are significant differences between countries, ranging
from about 70% in Italy and UK to almost 98% in Germany and Greece. However,
public sources lose gradually out for private sources. In tertiary education18 and on
average of the EU19 countries, public expenditures have gone up by 54% from 1995
to 2004, while private expenditures have increased by 184%. Consequently, the share
of public funding of tertiary education was decreasing in most countries with only
three exceptions, the Czech Republic, Ireland, and Spain.
Compared to other OECD countries such as the US, Australia, Japan and South
Korea, where more than half (in the case of South Korea even more than three
quarters) of the expenditures on tertiary education institutions are covered by
individuals, business and other private sources, the proportion of private expenditure
in EU19 countries is still low. However, the rise of private expenditures for tertiary
education was much higher in the EU19 (1995-2004) than in these countries.19

3.2 Diversity of Education Systems in the EU and Common Shocks

[ ...... ]

In the last decade in all countries of the European Union enrolment rates in tertiary
education continued to increase. In 2005 more than 18 million students were enrolled
in the 27 member states of the European Union as against approximately 15 million
in 1998.20 Presently on the EU average more than 50% of the relevant age groups
enter tertiary institutions.21 In the same period expenditure on tertiary education on
the EU(19) average varied between 1.1% and 1.3% of the GDP.22 In a number of
countries spending per student at the tertiary level has fallen as expenditure did not
keep up with expanding student numbers.

A demand for tertiary education that exceeded supply coincided with financial
stringency. All over Europe - due to the idea of a lean state and government and/or
the imposition of the Maastricht criteria - rigid budget policies prevailed. On this
basis privatisation in tertiary education, differing by national tradition and

18
OECD 2007, 221, Table B3.2b
19
ibid.
20
www.epp.eurostat.ec....
21
According to Martin Trow’s much quoted definition higher education has become universal
22
OECD, Education at a Glance, 2003-2007 ???

16
circumstance with regard to the policy approach adopted, became an accepted feature
in Europe.

4. Transformation of Universities

Drawing on the reports23 about the experiences in different European countries this
chapter develops in the first section a typology of privatisation strategies in higher
education, while in the second section observable commonalities are discussed.

4.1 Typology of responses to the new environment and shocks

4.1.1 Private funding of tertiary education: Fees

In most countries steps were taken to increase private funds for universities, at first
by expanding contract research, later by generating income from teaching. With the
exception of some niches, the European member countries had either abolished
student fees in the course of the expansion of the welfare state or during the state
socialist period in CE countries or fees have remained very moderate. From the
1980s onwards fees have been advocated by human capital theorists on grounds of
the individual benefits from education. In the 1990s expert groups installed by
governments (Dearing Report 1997 UK, Attali report France?) recommended fees as
the option to fund the continuous increasing demand for education.

In the CEE countries universities suffered from extreme underfunding after the
collapse of the former regimes. In these countries access to tertiary education had
been limited by a defined number of available places and competitive entrance
exams. Students that were accepted did not pay fees and their living and housing
were subsidised. Free of charge tertiary education was in most cases even guaranteed
by constitutional law. Thus, the system had preserved its elite character. In the course
of the transformation process both the demand for education as well as the demand
of institutions for extra-budgetary funds rose. Universities began to receive – in
addition to the number of students that was defined and (increasingly poorer) funded
by governments – students that had to pay for their studies. To circumvent the still
valid legal ban on fees these students were formally admitted as evening or part-time

23
Acocella/Tomassi 2007; Toliou 2007; Hackl 2008

17
students. Despite strong recommendation by World Bank, OECD and other
international organisations the introduction of fees for all students and grants on a
mean-test basis has not been considered by politicians. It seems that there is a deep
rooted conviction that a meritocratic selection process conforms to equality rather
than fees accompanied by mean-tested grants. In most CEE countries this two-track
financial regime has been introduced at the beginning of the 1990s. It represents the
first step in introducing fees in Europe, and it still prevails.

In the old member states of the European Union fees were introduced almost a
decade later – e.g. in 1998 in the UK, in 2001 in Austria, and 2007 in Germany. They
are either not substantial (Austria) or accompanied by subsidised loan schemes (UK).
However, this should not imply to underrate the financial burden on students. Study
fees are not the only costs; public subsidies for living costs, too, are increasingly
reduced or granted only on a loan basis.

The growing individual costs of higher education and the increased higher educated
labour supply will reduce individual rates of return from tertiary education and may
well cease to be an argument for private investments in tertiary education in the near
future.

4.1.2 Private institutions

As it has been the case with fees, private tertiary institutions, too, have not played a
significant role in the countries of the European Union. Traditionally higher
education institutions have been public, although – due to differences in state
formation - their organisation differed as did other branches of public administration.
The close links between the nation state and the university (Kwiek 2006) resulted
from its function to educate the political elite. Technical and vocational skills,
needed by the private sector, developed outside the universities and were
incorporated into universities rather hesitantly. Only in the last century technology
and science became the leading disciplines and again half a century later the private
sector a major employer of university graduates.

Apart from Catholic universities in some countries, most prominent in Belgium and
the Netherlands, private universities first became a political issue when governments

18
reformed universities in order to improve and democratise them24. In this context,
ideas on “alternative models of universities” emerged. In the mid1970s in the UK
libertarians, neo-liberals and academics, averse to the changes that had taken place,
established the University of Buckingham, an institution independent of direct
government support. Approximately ten years later, for similar reasons – disillusion
with reform, seeking an alternative approach to teaching and learning, and neo-
liberal support – in Germany the private university Witten/Herdecke was founded.
Again almost ten years later a new series of private institutions emerged all over
Europe. Now governments began to pave the way for the establishment of private
institutions - as an answer to demand that could not be met by the existing
institutions, neither in quantity nor for reasons of their education profile.

With ever more graduates getting jobs in private companies university education had
come into pressure: neither their specialisation nor the content of the courses nor the
university type of learning and teaching seemed adequately to prepare for the labour
market. In most countries a diversification of programmes and courses had taken
place since the 1970s (establishment of polytechnics, Fachhochschulen or similar
non-university higher education institutions), and the relevance of the courses to
acquire qualifications demanded by the market continued to be a topic, and new
areas that required higher education emerged.

Austria, which had not diversified higher education in the 1970s or 1980s came
under pressure at the beginning of the 1990s when preparing her accession to the
European Union. Vocational education, also for positions in development and middle
management, still took place mostly at the secondary level. It was assumed that due
to the Directive 89/48/EEC 25 these graduates would face disadvantages at the
European labour market. Consequently, in 1993 a “Fachhochschule” sector has been
established. Rigid budgets (Maastricht criteria) encouraged the adoption of a law that
envisaged privately run institutions, subsidised by the federal government based on a
funding formula. In Austria, these were the first private higher education institutions,
although in many cases they are actually owned and run by regional governments.
This points to a blurring between public and private institutions (see also below, the

24
After student protests on account of strongly rising student numbers.
25
Directive for a general system for the recognition of higher education diplomas awarded on
completion of professional education and training of at least three years’ duration, 89/48/EEC of
21 December 1988

19
Greek case). Finally, in Austria, a law permitting and regulating the establishment of
private universities followed in 1999.

However, neither Directive 89/48 EEC nor the Maastricht criteria necessarily
entailed the creation of private institution when creating a non-university sector.
Finland that established such a sector in the same year as Austria chose to up-grade
existing institutions. In the two cases, the country’s economic performance, the
political viability of a selective institutional upgrading and the acceptance of the
existing model of higher education governance were decisive for the decision for or
against private institutions.

In Italy and Greece, a demand unmet by the existing universities stimulated the
establishment of private institutions.26 In this context the case of Greece is of special
interest. Access to universities is regulated via a competitive national entrance exam.
According to the Greek Constitution27 higher education is only to be provided by
state institutions. For this reason, too, traditionally Greece ranked high in her number
of students studying abroad.28 To be recognised in Greece, foreign degrees had to
pass a procedure on equivalence administered by a special body. In the 1990s private
schools which already offered higher education but were not officially recognised,
affiliated with foreign universities in Europe and the United States. Upon non-
recognition of a degree obtained from such an institution, the case was taken to the
ECJ that ruled that non-recognition violated against EU law.29 The Court based its
decision on articles 48 (free movement of workers), 52 (freedom of establishment),
126 (cooperation in education) EC treaty and on the above mentioned Directive
89/48 EEC. This is not the context for a legal discussion but for analysing the
political aspects: The decision makes clear that the recognition of degrees and
qualifications is no longer a national prerogative and state institutions have no
monopoly. Private and public universities of a member state may supply their
services in another member state. From the legal point of view of the receiving
country, they are in both cases private institutions. This may indicate that multi-level
governance may involve a blurring between public and private.

26
For private education in Italy see Acocella/Tomassi 2007; for Greece see Toliou 2007.
27
Article 16 (5)
28
According to Eurostat the percentage of all students studying in another EU member state is for
Greece with 6% above the EU average (2%)
29
Vagias vs. DI.K.A.T.S.A, decision no. 2808/1997 of July 8, 1997

20
An unmet demand for higher education together with practice orientation,
diversification, and educating more and more for the new private sector demands
enhanced the establishment of private higher education institutions in transition
countries, notably for teaching subjects like business studies, languages, law etc.
Today, in Poland, for instance, the number of private institutions exceeds that of
public ones, although with regard to student numbers the latter still dominate.30

In sum, despite the fact that most European countries still adhere to the idea that
higher education is to be financed to the larger part publicly and most institutions are
still seen as public ones, in the 1990s private institutions gained ground. Three
developments that enhanced this development may be identified: Firstly, a
“vocational drift”31 of higher education with new skills demanded by the market,
secondly, an quantitatively unmet demand for higher education, notably in transition
countries, and thirdly, a blurring between public and private in the course of EU’s
“creeping competence”32, or as the legally responsible public entities do no longer or
not sufficiently meet the demand.

4.1.3 Deregulation
In addition to private funds and private institutions in tertiary education, the 1990s
were a period of intensified educational reforms, many of which took place in the
course or parallel to the Bologna process. That latter envisaged a new degree
structure but enhanced new governance structures, too.

The continuous expansion of tertiary education coupled with financial bottlenecks

did not in the first place entail the introduction of fees or the establishment of private
education institutions. Rather, governments in Europe began to modify their steering
and funding regimes. “Institutional autonomy” but also “accountability” and
“efficiency” became the catchwords. However, it was a rather longsome process with
new legislations, White Papers and expert reports.33 Thus, when the Higher
Education Ministers of France, Germany, Italy and the UK met in May 1998 at the

30
OECD Reviews of Tertiary Education. Poland, OECD 2007, p.18-21
31
In the course of diversification the term “academic drift” was coined, it was then called “vocational
drift”.
32
A term coined by Pollak, Mark A., The End of Creeping Competence? EU policy-making Since
Maastricht, in Journal of Common Market Studies (2000), Vol.38, pp. 519-38

21
Sorbonne in Paris in order to create a European area of higher education it was not
only to attract more talents from abroad to European universities but also to unite
against internal opposition against ongoing reforms.

A European Higher Education Area: The Sorbonne Declaration of 1989 was quickly
amplified and concretized. A new text, the Bologna Declaration, was drawn up and
adopted in 1999 by all EU member countries and in the meantime by many other
states. Although the efforts concentrated primarily on teaching and learning, the
commitment to a common European area of higher education entailed that
universities must be free to act within this area without being contrained by their
national character. It is for this reason that the Bologna Declaration effected and
reinforced “institutional autonomy” and the denationalisation of universities. The
other requirements of a “common area”, mobility of students and staff, and
recognition of qualification have already been promoted by the Commission via the
ERASMUS Programme and the Directives. 34

4.1.4 New Public Management

“Institutional autonomy” is a concept used specifically in the context of university
governance and implies deregulation and decentralisation. Deregulation means the
reduction of laws and rules on the state level and decentralisation means the transfer
of responsibilities, including that for regulation, to the institutional level.
“Institutional autonomy” is defined by accountability, a restrain that tightens with
restricted public spending and rigid efficiency criteria.

In EU member states where universities traditionally have been tightly regulated by

laws – as it has been the case in most Continental countries – the reforms first
emphasized to strengthen “institutional autonomy”. This policy could also count on
support from the academic community as it always held “autonomy” in high esteem.
In member states where institutions traditionally enjoyed a high degree of autonomy,
as it was the in the UK, policy measures centred on accountability and efficiency.
The latter became, of course, also part and parcel of the reforms in the first
mentioned countries.

33
UK - Dearing Report 1997, France - Attali Report 1998

22
Beginning with the 1980s, new public management increasingly gained ground in
public administration, which was renamed public management as a means to link
“institutional autonomy” and financial control. Its tools – steering by outcome,
indicators, quality control, regular assessments, and performance contracts – were
incorporated in higher education reforms.35 Today they are an inherent part in the
discourse on higher education, both at the national as well as on the European level.

4.1.5 Competition state

In the mid-1990s Hirsch36, Cerny37 and others observed that the state’s objectives
were concentrated increasingly on locating economic activities in its own territory
and the term “competition state” was coined. “Rather than attempt to take certain
economic activities out of the market, to ‘decommodify’ them as the welfare state
was organized to do, the competition state has persued increased marketisation…”38

Concerning education three developments may be associated with these

developments, firstly, the stress on what has been called “vocational drift” and
“employability”, secondly, the creation of so-called centres of excellence and a
thirdly,‘hierarchisation’ of institutions and selling in the sphere of education.

As it has been mentioned above, the increase of students in higher education went
along with educating for an increasing number of areas and up-grading the training
for vocational activities. But traditional academic disciplines, too, were subject to
reforming their curricula, to define learning outcomes, increase flexible modes of
learning in order to demonstrate the employability39 of their graduates. This policy
fits with the consideration that a well trained labour force is a decisive importance
when companies choose a site.

Similarly, the location of top research institutions in a territory is of prime

importance in competition policy. In Europe – with some exceptions – universities
traditionally were thought to be peers. At the beginning of this millennium the

34
Hackl, Elsa Towards a European Area of Higher Education: Change and Convergence in European
Higher education, EUI Working Paper RSC No.2001/9
35
A good example is e.g. Austria’s University Act of 2002.
36
Hirsch; Joachim, Vom Sicherheitsstaat zum nationale Wettbewerbsstaat, 1995; Cerny 1997
37
Cerny 1997
38
Cerny, p….
39
This concept became a leading principle in restructuring the university studies in the course of the
Bologna Process.

23
situation began to change and the creation of centres of excellence or elite
universities became a must.40 The identification of institutions or research areas was
led by the idea of the competition state and happened in close cooperation with
representatives of the economy.

Selling of education and research was, as already mentioned, in the first place pushed
by financial stringencies. However, it developed from an appreciated innovative way
to conduct university (sometimes rewarded by extra public funds), to a must, to
normal performance. Therefore it represents a good example how commodification
proceeds. In the meantime universities not only look for wealthy students from
abroad, but they sell their expertise and institutional knowledge as well. Most
advanced is in this context the UK.41 But ideas spread quickly and think tanks in
other countries, as for example in Germany42, are also active in this direction.

4.2 Is there a common pattern of transformation of universities?

[ …. ]

5. Conclusions and Perspectives

[ …. ]

From a democracy-theoretical perspective all sorts of education, including

elementary, primary, secondary, post-secondary non-tertiary as well as higher
education, should be considered as a “public good”, accessible to all, since its
benefits extend populations groups, generations and even across borders; it prepares
individuals to act as free and responsible citizens who will stabilize and promote
democracy. Therefore, public education should differ from vocational, particular and
practical forms of knowledge; it should have a universal reach and provide the
individuals with capabilities “to actively take part in creating a public sphere – of
communication, information, (political) argumentation and speech – at the national
level and beyond” (Lohmann…..). Furthermore, in a mature democracy, the key role
of education as an instrument of fostering equal opportunities has to be considered.

40
„Die Rolle der Universitäten im Europa des Wissens“( KOM (2003) 58
41
Ball 2007
42
Quaißer 2007

24
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