THE past quarter century has seen a massive expansion in higher education worldwide and especially in developing countries. Tertiary education is a rapidly growing service sector enrolling more than 80 million students worldwide and employing about 3.5 million people. Demand pressures have been acute, the result of a population bulge in the relevant age group, increasing enrolment in secondary education, increasing incomes (and with it the capacity to pay), and rising wage premiums accruing from higher education. Meeting this escalating demand has placed public systems and resources under severe strain. And because this demand group is more urban and vocal, it also poses a major political challenge.

As countries and university systems strain under the pressure of increasing demand, new supply responses are rapidly changing the higher education landscape in most countries. The financing, provision and regulation of higher education are witnessing two major shifts. The first is from pure public to private and mixed systems; and the second, a shift from provision and regulation that has traditionally been purely domestic to greater international influence. These trends broadly mimic what has been occurring in almost all aspects of the economy.

The most obvious response to the burgeoning demand is business as usual – greater direct provision of higher education either by expanding existing institutions or creating new ones. The former has resulted in increasing enrolment in public universities, leading to the creation of ‘mega-universities’ like the National University of Mexico and the University of Buenos Aires, which enrol more than 200,000 students each. Calcutta University with 200 affiliated colleges allegedly ‘sits on the fate of some 700,000 students.’¹ However, most of the recent growth in higher education enrolment is not coming from public institutions. To the extent government expenditures have been increasing, there is a relatively greater emphasis on funds being directed at deserving students (in the forms of scholarships and loans) who can then choose where to study, and more competitive funds for institutions aimed at enhancing research capabilities.

With public universities unable to absorb the growing number of students, several alternatives have emerged. Perhaps the most striking feature of tertiary education in the new millennium has been the explosion in private provision. While the absence of any comprehensive database of private institutions of higher education makes the global growth in private higher education institutions difficult to measure, a selective country-by-country analysis suggests significant growth in the number of private institutions in recent years (Table 1).

These private institutions are helping to meet the growing demand that the public sector cannot. Private institutions are less subject to political instabilities and day-to-day political pressures that often bedevil public institutions in developing countries. They are also more nimble and able to respond to changes in demands from employers and labour markets. Yet, despite these positives, these institutions are of highly variable, and often dubious, quality. They are mostly teaching shops, and very rarely knowledge-producing institutions. Although most private provision occurs domestically, there is a small but growing trend towards international private provision through the movement of institutions and individuals across national borders.

A very different mechanism by which the private sector is engaged in the provision of higher education has been through so called ‘corporate universities’ – in-house company training and development initiatives. These have been around since the 19th century, when large companies such as DuPont and General Electric introduced ‘corporate classrooms’ to provide additional training for employees. In most market economies the direct and indirect training costs incurred by the private sector make it the largest provider of professional training. Corporations often have greater access to resources than do public universities and offer training in functional skills and new technologies that may not be otherwise available. Although most of these institutions serve only company employees, some corporate universities are opening their programmes to fee-paying students or launching subsidiary for-profit universities.²

 

Recently the new MNCs from emerging markets have become innovators in this area, having to compensate for the weakness of the higher education systems in their countries by developing ambitious in-house programmes. In principle there are many benefits when firms organize and pay for the labour market skills they need. Indeed all firms do that to some extent – in most cases relying on some variant of an apprenticeship system. However, developing countries have few large firms that can internalize the costs of these training universities. Moreover, as labour markets become more flexible, the greater turnover of employees reduces the incentives for in-house universities since the benefits of such training are not fully internalized.

The private sector also contributes to higher education through three additional mechanisms: directly funding research (indeed in Japan, doctorates were awarded by universities to dissertations which were written by researchers working solely in firms, unsupervised by academics); private philanthropy supporting gifts and endowments; and working with weak public institutions to improve the quality of instructional material and infrastructure.

 

The evolving public-private mix is evident in higher education in the United States, which is universally acknowledged as having exceptional strengths in this area. Despite large endowments, even for the best private research universities more than half of their budgets are funded by grants from the federal government in different programmatic areas. And in turn the best public research universities receive less than a fifth of their funding from state legislatures.

The state of California offers an exemplary example of this mix. At the apex are the research universities – both private (Stanford) and public (the world class University of California system with ten independent campuses and 191,000 students). The next tier is the California state system with 414,000 students, mainly teaching colleges which produce more than half the graduates in the state (including 60 per cent of its teachers and 40 per cent of its engineers). And finally the third tier, the California community college system, 2-year junior colleges and trade schools with about 2.5 million students. Federal and private funds are critical for the research universities, local funds for the community colleges, and state funds for the four-year teaching colleges. The more local the effects, the more local the funding.

 

Higher education and learning has always had a strong international flavour. Nalanda University, which flourished in the first millennium, had students from all over Asia. In the early 17th century, more than half the enrolment at the University of Leiden, then one of the world’s leading universities, was non-Dutch. Since the late 1990s, the number of students crossing borders to receive education has increased by more than 50 per cent. It is estimated that the number of students from developing countries studying abroad is likely to double before 2015 and double again by 2025.

China has emerged as the largest country of origin for international students, with nearly 350,000 students studying abroad, representing 14 per cent of the total worldwide international student population, more than the US and India combined (which have the 2nd and 3rd largest number of international students). Unsurprisingly, the destinations of most international students are universities in OECD countries with the U.S. particularly dominant, hosting more than a quarter of the world’s international students (about 600,000 visiting students) – more than the next three largest competitors (UK, Germany, France) combined.³ The vast majority of international students fund their own education and thus international education is still largely an option for the privileged.

Although the number of students from developing countries seeking education abroad has sharply increased in recent years, the phenomenon itself is not new. What is more new, however, is the reverse: foreign higher education institutions, establishing programmes in developing countries under a variety of arrangements ranging from cross-border franchised agreements, twinning agreements, joint programmes, validation, subcontracting and distance learning activities. Under twinning arrangements, after initial training in their home country, students relocate overseas to receive their final training and degree from the foreign university. Under franchising programmes, the entire programme takes place in the home country, with the foreign institution providing curricula and assessment, and certifying the programme with the university crest on the degree.

 

Even as policy circles debate the role of international education providers, several countries have been rapidly moving ahead and seeking to establish themselves as global education hubs. With Silicon Valley as the archetypal model, government efforts to set up education hubs that seek to attract international students and leading educational institutions to their country – and thereby businesses – is emerging as a new form of industrial policy as exemplified by Singapore, Dubai and other members of the GCC. Singapore has attracted sixteen leading foreign universities engaged in degree-granting programmes in the city-state by 2006.⁴ This growth has been under-pinned by generous financial incentives to attract a number of foreign universities. (For example, the government is paying Duke University US$310 million over seven years to establish a medical school in the country.)

While Singapore is pursuing a model based primarily on partnerships between foreign and domestic universities, the United Arab Emirates is focusing on attracting elite foreign institutions to build branch campuses in a ‘Knowledge Village’ in Dubai. The Knowledge Village is part of a free trade zone and aims at synergies between leading global firms and higher education institutions in a spatially concentrated zone. Indeed this strategy has emerged as an important pillar of industrial policy in today’s world.

In April 2007, the Dubai International Academic City (DIAC) was launched as the first dedicated tertiary education cluster development in the world.⁵ Dubai has raised $100 million to support this project. Other Gulf countries are also getting in the act. For instance Qatar has launched a project to build an ‘education hub’ in Doha, with programmes from mainly US universities, including Carnegie Mellon, Cornell, Texas A&M, and Virginia Commonwealth Universities.

 

Technology is driving another mechanism of availing of higher education – virtual education. Distance learning is not a new phenomenon in developing countries – students have enrolled in correspondence courses for decades, especially in teacher training programmes.⁶ But these classes had little interaction between faculty and students and were plagued by high dropout rates. However, significant improvements in technology in the past decade have transformed these programmes, drastically increasing their size and scope.

Despite skepticism on numerous fronts, especially perceived weaknesses on key components of quality education – discussion, collaboration, and reasoning skills – virtual education has been increasing rapidly. By 2006, online courses accounted for about one-fifth of all continuing and professional-education enrolments at the typical American college or university, and tertiary distance education accounted for 15 per cent of all tertiary enrolments around the globe.

 

There has been a dramatic expansion of resources available online, specifically through the use of ‘open courseware’, in which high quality ‘open knowledge’ materials, including course content, library collections, and research data is being made available online. In 2006 more than 100 higher education institutions and associated organizations from around the world launched the Open Course-ware Consortium, each pledging to place course materials for at least 10 courses online for free. By reducing constraints on access to quality content and instruction at low cost, virtual education has much promise. Nonetheless, making these resources available online does not solve the problem of access for the less privileged without addressing the availability of affordable internet access, which continues by to be a critical impediment.

 

In recent years the provision of higher education in India has increasingly shifted to the private sector with private (unaided) colleges emerging as the largest provider of higher education at the undergraduate level.⁷ Cash-strapped state governments have virtually ceased to expand the list of government aided institutions, resulting in a sharp increase in the share of ‘self-financed’ or ‘private unaided institutions’, most noticeably in professional and technical education. In contrast, enrolment at public universities is still almost 100-fold that of private universities, principally because of the onerous regulations on the latter.

The private sector has also become involved in creating ‘corporate universities’, to try and fill the gap between the skills required for employment and those produced by traditional universities. The most organized effort in this regard has been by the IT industry whose rapid expansion has led to growing skill shortages. Efforts of companies like Infosys’s Campus Connect Programme and Wipro’s Academy of Software Excellence aim to improve the quality of engineers through curriculum development and training in colleges. The IT industry apex body, NASSCOM, has been directing its efforts at standardized skills assessment and verification programme.

The public sector supply which has been stagnant since the early 1980s is, however, poised for significant expansion if the targets announced for the XI plan (2007-08 to 2001-12) come to pass. It has targeted a GER of 15 per cent (21 million students), implying an annual growth rate of nearly nine per cent or an additional enrolment of 870,000 students in universities and about six million in colleges in the next five years. To this end the central government intends setting up and funding 30 new central universities across the country, has ambitious plans in ‘technical education’⁸ and intends supporting state governments to set up colleges in the 340 districts that have extremely low college enrolments.

 

Additionally, mission oriented public sector organizations such as the Department of Space and the Defense Research and Development Organization (DRDO) are seeking to address their difficulties in recruiting qualified R&D personnel by setting up captive ‘deemed universities’. For instance the Department of Space has set up the Indian Institute of Space Science and Technology and the Department of Atomic Energy the National Institute of Science, Education and Research.

The government has been talking about establishing a Science and Engineering Research Board (SERB) to serve as the apex research agency for planning and supporting research. Ideally, such a body would identify research priorities and then fund researchers (and their institutions) through a competitive grant process. Until now at least, this talk has not translated into action. A host of funding initiatives has also been announced that follow the student instead of the institution.⁹ By providing merit scholarships to two per cent of total students in higher education, the government hopes that universities will have an incentive to compete and attract students rather than have all their costs covered.

 

Despite the brouhaha about India’s IT prowess, there have been only limited attempts at leveraging the potential of virtual education. A major handicap is that 80 per cent of India’s internet connections are in the country’s 12 largest cities (which account for about one-tenth of the population). Until cheap broadband connectivity is available to the thousands of poorly equipped colleges (and this would require public funding), India will not be able to harvest the fruits of virtual education.

International student outflows from India have been growing rapidly. In contrast to past decades when these outflows were more the result of low payoffs to skill rather than underinvestment in higher education capacity, with the rapid rise in skill premiums and the difficulties of access to quality institutions within the country, the latter has become more important. While there are many gains from these outflows, there are two significant costs. One, a large number of students, especially those engaged in research, don’t return. Despite the increasing attractiveness of India, the percentage of Indians obtaining PhDs in Science and Engineering (S&E) who had ‘definite plans to stay’ in the US increased from 56.3 per cent in 1994-1997 to 62.7 per cent in 2002-05 even as the number of Indians obtaining PhDs in S&E declined by 30 per cent (from 5014 to 3587).

And two, the process incurs very large expenditures which are almost the same as the total higher education expenditures in the country – for a tiny fraction of the number of students in the country.

The other alternative, attracting foreign higher education providers to the country, has faced strong resistance. There is no dearth of critics who fear the entry effects of foreign providers of higher education. Some fear that foreign providers – by importing curricula with little consideration of local traditions and culture – might prove to be Trojan horses of cultural imperialism. Others argue that foreign providers arguably undermine the sovereignty of the state, especially in its capacity to regulate education and its nation building functions.

 

A third concern is that since trans-national education is aimed primarily at upper socio-economic groups, foreign providers may simply engage in ‘cream skimming’, exacerbating inequities in access to tertiary education. A fourth concern is of an internal ‘brain drain’ – wage differentials between faculty at public and private (foreign) institutions would result in public universities stripped of their most talented teachers.

These concerns must be juxtaposed against a reasonable counterfactual. It is not as if the current ‘closed’ system higher education system has either sharply reduced social inequality or brought about exemplary ‘nation building’. If the choice is between students going overseas and spending money there or spending it mainly at home, the latter is surely a less worse option. Indeed a policy of allowing any university ranked in the world’s top 1000 that would be willing to commit a minimum amount of investment (say $50 million), could only improve Indian higher education given the handful of Indian universities that are in the top 1000.

 

But that is unlikely to happen. Higher education has been one of the prime casualties of the populism and fragmentation of the Indian polity with laws, rules and regulations that makes one nostalgic about the old industrial license raj. While the private sector has ramped up supply, the quality of most of the new private sector colleges (many linked to politicians) is deeply troubling. Their governance problems may be different from public institutions, but are no less acute. And by making it so difficult for quality universities (both public and private) to flourish, while opening the door wide for many dubious institutions, the Indian state is jeopardizing the supply of faculty – and the training of future generations.

The contrast with China is stark. In the last two decades the number of PhDs in S&E in India has increased by around 50 per cent (from 4007 in 1985 to 6318 in 2003) whereas in China the numbers increased from a tiny 125 in 1985 to 12,238 in 2003 (and 14,858 in 2004). The annual number of PhD engineers produced in India today is about half per engineering school per year! And it is not as if the research has benefited – in terms of publications output India’s global rank has dropped from 8th in 1985 to 14th in 2006.

The rapid increase in the number of credentialed but poorly educated young people posed significant political challenges for India in the 1970s at a time of economic stagnation. In an era of rapid growth these dangers are less apparent – but the sharp increase in their numbers and expectations, coupled with weak job market prospects for the majority of India’s graduates may well come back to haunt the country if its growth falters.

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* This paper draws on Devesh Kapur and Megan Crowley, ‘Beyond the ABCs: Higher Education and Developing Countries’, Center for Global Development, Washington D.C., Working Paper Number 139, 2008.

Footnotes:

1. Rudrangshu Mukherjee, ‘Why Autonomy? The Size of Calcutta University Makes Decentralization Urgent’, The Telegraph, 22 July 2007.

2. Motorola University (MU) exemplifies a large corporate university in a conventional MNC. Founded in 1989 by the Motorola Corporation, MU is a $100 million global service business, managing 99 sites in 21 countries on six continents.

3. The top sending countries to the United States are India and China. In 2005/06 India accounted for 13.5 per cent of total foreign students in the US while China accounted for 11.1.

4. These include the University of Chicago Business School, The French business school INSEAD, the DigiPen Institute of Technology (based in the US) and the University of New South Wales (based in Australia).

5. By mid-2007, almost twenty universities from Australia, India, Pakistan, Iran, Russia, Belgium, UK and Ireland had established campuses in DIAC, including the University of Wollongong from Australia, Middlesex University from the UK, S.P. Jain Centre of Management from India and France’s Sorbonne (its first such expansion in its 750-year history). In 2004 Harvard Medical International (HMI), a nonprofit subsidiary of Harvard Medical School, announced that it would build a campus in Dubai, its first overseas bricks-and-mortar branch since the closure of its Shanghai campus in 1915.

6. In 1996, all of the five largest distance-learning programmes were based in lower or middle-income countries (World Bank, 2000). These include: Anadolu University in Turkey, founded 1982; China TV University, founded 1979; Universitas Terbuka, Indonesia, founded 1984; Indira Gandhi National Open University (IGNOU), India, founded 1985; Sukhothai Thammathirat Open University, Thailand, founded 1978.

7. Pawan Agarwal, ‘Higher Education in India: The Need for Change’, ICRIER Working Paper No. 180, June 2006.

8. This includes setting up 8 (new) Indian Institutes of Technology (IIT), 7 Indian Institutes of Management (IIMs), 5 Indian Institutes of Science and Engineering Research (IISERs), 2 Schools of Planning and Architecture (SPAs), 10 National Institutes of Technology (NITs), 20 Indian Institutes of Information Technology (IIITs), and 50 Centres for Training and Research in frontier areas.

9. Schemes under the Innovation in Science Pursuit for Inspired Research (INSPIRE) launched in the XI Plan include (i) Scheme for Early Attraction of Talents for Science (SEATS); (ii) Scholarships for Higher Education (SHE); and (iii) Assured Opportunity for Research Careers (AORC).