National and Regional Economics Ix

NATIONAL AND REGIONAL ECONOMICS IX.

The financial crisis and its impact on the funding of higher education in the Czech Republic in 2010-2012

Jaromír TICHÝ

Vysokáškolafinanční a správní, o.p.s.

Abstract

This paper is focused on the financing of higher education and its present, very media-discussed changes, which go hand in hand not only with the adopted strategic document, a White Paper on tertiary education, but also the overall economic and social situation of the Czech Republic. It ponders the status of higher education in the unity of the national economy, it weighs the public and private resources embedded into it and shows the direction the scales tilts in the present, marked by the global economic crisis.

Keywords:public expenditure, private expenditure, GDP, funding of education, education

1Higher education and its position in the structure of the national economy

Your Higher education, as is already in its introductory provision defined by the Act No. 111/1998 Coll. Universities, is the top centre of "education, independent knowledge and creative activity" and has "a key role in scientific, cultural, social and economic development of the society."[10] It is the highest level of education, closely associated with the scientific, research, developmental, artistic or other creative activities, and thus leads not only to development of the potential, but also to the skills enhancing of human capital, and is becoming one of the most reflected branches of the public sector.

Although any political activity of the universities is forbidden by law, their nature, which is profiled as an integral part of the national economy, provides a significant influence on their existence and operation of the current political and economic situation of the country. Environment, in which higher education institutions operate, thus reflects the general trend, pointing beyond education itself, and puts them in a variety of roles that correspond to these processes. At present, characterized by the commercialization of education, which is supported by the emergence of private education in the last decade, the need to increase the competitiveness of individual universities appears, which forces them to conform to the system of market mechanism. This leads to a somewhat paradoxical situation - the authoritative role of the state recedes into the background and carries a large part of public financial support and higher education is forced to look at alternative sources, although the market with education is developing and number of students at public universities keeps rising - the total number of 198 676 students in the academic year 2001/2002 to 338 883 in 2010/2011.[1]Financing of tertiary education becomes a burning issue; the answer is linked to many sub-factors, which include not only the ratios of the national character, but especially now indisputable nature of global influences and globalization.

2Financing of higher education from the state budget - the current state

Body In the Czech Republic coexist universities of three legal forms. The state universities are the most specific form, which as government departments fall under the direct management of the relevant ministries. At the opposite pole are private universities, which establishment is authorized by the Ministry of Education, Youth and Sports (MoEYS). The state can provide state subsidies to those private schools that operate as a non-profit organization, and its drawing must be in accordance with the general regulations for the handling of state budget funds. The last group includes the type of public universities that are established and abolished by law and which are dependent on funding from the state budget directly, although this income usually does not make 100 % of the volume of funds with which these schools can operate, the public funds play a major role. The amount of this subsidy may be for higher education institutions of this kind the key factor that affects not only their performance, but also the quality of education that these universities provide.

The state offers to public universities two types of support, these are contributions "for providing accredited study programs and lifelong learning" and associated activities, which are intended to support "the development of the university and accommodation and meals for students."[7]The contributions and grants are eligible to each public university, the amount is not determined by law. The amount of public money obtained by schools (which are requested in writing) depends on the overall financial performance of individual accredited programs, the number of new and existing students and recent graduates, and the results of scientific or other creative activities related to their activities. Contributions from the state depend on the long-term plan of the related Ministry. Schools do have some ways to influence their share of funds allocated to them, however the total amount of funds is decided by the state through its budget. Each year, the government approves budget expenditure and revenue limits of the chapter of Ministry of Education, Youth and Sports, which are based not only on projected expenditure frameworks of coming years, but also from the formulation of the main priorities of this department. Strategy for allocation of funds and also based on the principles and rules for financing public schools, which are defined annually in light of long-term intentions of the Ministry of Education.

Allocated funds are distributed into four basic areas. The first and largest of them is the normative part of the budget of universities, into which the financing of study programs and related activities fall. The second item focuses on college students and their social issues, such as subsidies for accommodation and meals for students or scholarship contributions. The third area subsidizes development of universities and the fourth area subsidizes the international cooperation and other activities related to general educational policy. The real amount of grants and contributions of these four segments is summarized in the following table (see Figure 1), which illustrates the status and distribution of the public school budgets in the last three years and where downward yearly trend is clearly evident.

Table 1

Table 1: Indicator of the budget of public universities in 2010 - 2012 (in thous. CZK)[9]

Indicator of budget for 2012, which is actually quantified in the table above, was determined by the methodology specified in the Principles and rules of financing public universities for 2012, which were processed by the Ministry of Education in collaboration with the Centre of educational policy. According to this document the strongest emphasis seems to be an effort to gradually reduce the number of university students[11]and concurrently develop quality and performance of public universities, while maintaining coefficients of the economic demands of the of individual study programs.

3The crisis and its impact on higher education funding – retrospection

Body Engagement of education in expenditure of the public budget is an indisputable fact the vast majority of countries. Comparison of these expenses with a total GDP also predicts the role that education plays in relation to other sectors of the national economy, and thus reveals the importance that is attributed to education in the overall economic development of the country. In times of financial and economic instability, countries look for a way how to efficiently split "dwindling" public money, so that they not only ensure the future growth of the economy, but also maintain the necessary balance in the levels of sub-sectors. The need of reformulation of the public finance system therefore appears which often leads to deeper reforms just within individual departments.

Stagnation or necessary spending cuts in the state budget expenditures in times of crisis help the logical idea of decentralization of funding of public universities towards multi-source acquisition of funds, both from multinational funds and the private sources. Decrease in economy performance ultimately substantially burdens the individual, whose participation in the financing of his higher education deepens this economic "chasm". It is therefore obvious that the final formulation of the strategic document the White Paper on Tertiary Education, which outlined the development of higher education in the Czech Republic and which was adopted in an atmosphere of growing crisis of 2009, triggered a loud discussion, even though it was already processed during the two previous years, and reacted primarily on the general global trends.

As noted by this document, the demand for higher education, which is presented as a guarantee of the future career (and the associated economic) success is in the Czech Republic growing. Along with its modernization and increasing dynamics, by which the attractiveness of higher education is supported caused a "sharp increase in the number students", but "it was not accompanied by a corresponding increase in expenditure, so there was the fastest decline in spending per student among the whole OECD."[6]These long-term below-average numbers, along with a significant increase in the number of students fell primarily on the quality of higher education, which was in this regard, despite its commercial success, frozen. Although higher education is the key mean for raising living standards and quality of life of individuals, and thus an important factor for GDP growth, real increase in state funds flowing to this sector is insatiable. Given the current economic situation, as well as current demographic changes, importance of public budget chapters that promote social development and health is emphasized.

From the table (see Figure 2) that follows is clearly evidentthe downward trend of support for education from public finances due to the increasing number of university students. Graph (see Figure 3), which begins the next chapter also offers a look outside our country, and thus reveals not only that the percentage of this expenditure is low in international comparison, but also a negligible proportion of the private sector in financing of tertiary education.

Funds per one student from public finance are set out as a normative contribution, which is then multiplied by the coefficient of accredited field, this coefficient is proportionately increased especially with its technical complexity. Although the basic norm, as the table clearly shows in the first three years monitored (2007 - 2009), does not change, its real value decreases. The year 2010 brings the total decline, to the extent of almost 14%. This trend given not only by the state of the economy, but also by the policy of the Ministry of Education is also reflected further - year 2011 brings more than 10% reduction in this expenditure, the balance for this year (not included in the table), according to the Ministry of Education is about -7,5%.[11]Indicator of the number of students responds to the high drop these numbers in 2010. Although the number of students does not drop in average to minus items, its rapid growth slows from 7,47% in the academic year 2008/2009 to 5,37%, respectively to 1,78% in 2010/2011. The biggest drop is recorded in students studying out of the full-time study. The effort to meet the demand for higher education for economically active persons of middle age that immediately after the acquisition of secondary education could not or would not continue their studies, is evident by the dominance in this percentage that between 2007 - 2009 exceeds 10% limit and almost disappears to 0,60% in 2011 with the growing financial crisis.

Table 2

Figure. 2: Number of students vs. basic normative per one study[9]

4Financing of higher education in international comparison - the way forward

Figure 1

Figure1: Expenditure on tertiary education as a percentage of GDP (2008)[8]

Body The graph (Fig. 3) reflects the state of tertiary education funding in 2008, the OECD didn´t supply and newer complex numbers. Even from these data is superiority of public funds evident, which is in most countries by private financing just complemented. Dominant position in the public funding of universities then has its normative component, which because of its transparency and predictability closes the door particularly to the interests political, corrupt or lobbying. Public money spent on higher education in 2008 represented less than one per cent (0,94%) of CR GDP, private means then about 0,24%; the Czech Republic spent 1,2% of its GDP on tertiary education in total, and thus remained below OECD average, which reaches to 1,5%.

Nowadays much-discussed emphasis on creating opportunities for private financing of this sector, which "started" White Paper on Tertiary Education, does not solve the overall under financing (which is sufficiently evident from the graph). But it is trying, according to more effectively functioning foreign systems, to conform the Czech higher education to existing social and economic conditions and thus approach the international standards. The so far existing gap (manifested in most post-communist countries) between the private education, where the student pays all expenses of his studies, and public education, where the student is not motivated by its own share on education, on the contrary increases unequal social conditions and reduces the competitiveness of the universities. The financial disengagement of public universities students also contributes to lower efficiency of higher education because students don´t take any significant responsibility for their study (they choose higher education after finishing high school only as the "most viable option", they extend the university study without serious reasons, or after the onset of the university do not show higher ambition to successfully complete the study). The White Paper therefore proposes to take these facts into account and shrink the gap between private and public education by the new system of grants, which should also be provided to private universities from public funding and the introduction of tuition fees in public universities. The inspiration is mainly drawn from the Nordic countries, which successfully apply straight support of study by targeted social studies scholarships, study grants and student loans. Given the current economic situation in the CR, also these countries, "which thrive to involve private funds in the system significantly and still have less social barriers in access to education than the Czech Republic."[6]

Bipolar effort to reform the financing of higher education, which touches on one hand the distribution of public funds and their effective implementation, on the other hand it counts with higher private funds, currently brings its "fruits" in the form of registration fee which will apply to all students at public universities, not just new students, but also those who are already studying in higher grades. Public funding for higher education is still decreasing, although its distribution is slowly shifting in the direction indicated (higher proportion of successful graduates, lower normative for newly recruited student). Despite the general dissatisfaction with this evolution can be assumed that the inverse relationship of the private cost on study increase and stagnation or reduction of public funds, which despite the efforts outlined in the White Paper is due to the unfavourable economic situation, becomes the norm, which on the other hand strengthens the shorter academic programs that are now seen as "inferior", respectively lower quality, a kind of "incomplete" education. Hopefully, this attempt at equalization of higher education (whether we talk about the social situation of students or about the relationship between the single stages of higher education) in the final result will not pass through an effect on which today's students, but also representatives of various universities react rather negatively.

5conclusion

This study did not set out to characterize the higher education funding in its complexity, its purpose was rather pinpoint its current trends and their possible effects. It underlined in particular the proportion between the private and public funding of universities and touched the general trend that tries to bring public education closer to private education. Contemporary accent placed on increasing the share of private funding of higher education is not only explained by the current economic situation in the Czech Republic, but also by the attempt to create a healthy functioning competitive system of higher education (at all levels), which would be closer to a worldwide model of tertiary education.

Acknowledgement: I thank my supervisor doc. Radim Valenčík, CSc. and organizers of the conference for the space provided.

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