View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by Policy Documentation Center CENTRAL EUROPEAN UNIVERSITY CENTER FOR POLICY STUDIES OPEN SOCIETY INSTITUTE ANETTA CAPLANOVA The Reform of the System of Higher Education in Slovakia Current Status and Perspectives 2 0 0 0 / 9 1 9 9 CPS INTERNATI O N A L P O L I C Y FELLOWSHIP PROGRAM ANETTA CAPLANOVA The Reform of the System of Higher Education in Slovakia Current Status and Perspectives The views in this report are the author's own and do not necessarily reflect those of the Center for Policy Studies, Central European University or the Open Society Institute. We have included the reports in the form they were submitted by the authors. No additional copyediting or typesetting has been done to them. The transformation of the Slovak economy requires also the structural change of the role of the public sector in this process. From this perspective there is a need to rethink the system of financing and provision of „public goods“i. Based on the heritage of the communist system in our region people got used that many goods are provided „for free“ from the government budget by the public sector. They do not realize that in the last instance these are taxpayers, i.e. themselves, who is going to pay the bill. From this perspective the crucial problem of the transformation of the public sector is to reconsider the optimal way of financing and provision of those goods and services, which in former centrally planned economies of Central Europe were traditionally financed and provided by the public sector. One of them are also education services. Although education (except perhaps for a very limited number of education services spread through mass-media), being exclusive in consumption and non-rival only up to the capacity of a class-room, does not meet characteristics of the pure public good, in all countries governments play an important role in the provision of education services. On the other hand, the state monopoly in financing and provision of formal education services has been the specifics of most centrally planned economies. In the past the state monopoly was justified by ideological reasons. After 1989 these reasons disappeared. In the process of thinking about the reform of education systems of these countries we consider it useful to look into the theory for the rationale for government intervention in education as well as the experience of other countries in this respect. In our paper we provide brief theoretical argument for the government intervention into the education sector and then we are to concentrate on the evaluation of developments in the system of higher education in Slovakia after 1989 and try to identify its main problems and perspectives. The review is provided with some reference to developments in OECD countries as well as to findings of the economics of education. 1. Theoretical framework for government intervention into education. From the theoretical perspective there are three factors, which can justify the government intervention into the financing and provision of education services: . Market imperfections; . Imperfect information; . Discrepancy between public and private benefits of education (externality argument); . Education as a merit good. The most important market imperfection playing the role in this context relates to the character of human capital, which is created in the process of formal education. According to the human capital theory developed by G. Beckerii resources devoted to education, since they increase productive capacities of an individual in the future, represent an investment similar to the investment into the physical capital. However, compared to the investment into physical capital there are crucial differences. The physical capital acquired by the investment can be resold, i.e. can also be used as a collateral for the loan incurred during the investment. On the other hand, if one invests into the increase of his knowledge and abilities, it increases his value on the labor market, but he cannot provide his future human capital as a collateral for loan helping him to finance this investment. In the system without government intervention 1 those individuals, who do not possess financial assets needed for the payment of education services, would have problems to finance their education. Imperfections of capital markets are one reason for governments to try to correct them via intervention, which can take up different forms. Governments can guarantee loans of private financial institutions for education, can provide loans themselves, or can finance education from tax revenues in the form of grants and subsidies. Imperfect information relates to the fact that when making consumption decisions about education services, consumers are not well informed about available options. These are parents of future pupils, who make consumptions decisions (especially at lower levels of education). This situation can lead to inefficiencies in two respects: parents do not possess enough informationiii, or they can chose an alternative, which would be the best one for themselves, but not necessarily for their children. Moreover, the „good quality” education is a relatively subjective term. However, there are many opponents of the idea that the state should be able to make better decisions than families themselves. The imperfect information argument justifies the government intervention in the form of the provision of low costs, accessible information on education options to help families to make better decisions, but cannot justify exclusive public provision and financing of education. Education does not bring only private benefits to individuals and their families, but means also social benefits for the society as a whole. For the explanation of this notion we can use a simple example. Let us assume the situation, when an individual A, who is a university graduate, develops the new treatment for a previously incurable disease. It brings benefits, perhaps in the form of money and fame, to him, but also to those, who previously suffered from the disease (e.g. individual B). His invention as well as human capital accumulated in the process of formal education brought benefit not only to A, but also to the society as a whole. If A financed his education only from his private resources, when deciding about the quantity of education services he will consume, he would take into account only his own expected benefits from education and compare them with expected private costs of education services. To make A to take into account also external benefits of his education it would necessary to make B to pay to A for the value of benefits he will receive due to A’s education. Since these benefits are as a rule spread among number of individuals, the market itself does not lead to the efficient solution and without government intervention the quantity of education services consumed will be lower than optimal. Thus the difference between private and social (frequently referred to as external) benefits of education is another reason for governments to intervene into the provision of education services and to compensate individuals for external benefits of their education to the society as a whole. The optimal solution would be to provide the subsidy to A, which would be financed from taxes of those, who bear benefits of A’s education. However, because of the free rider problemiv, practically this solution would be very difficult to implement. Consequently, the compensation for external benefits can be made from overall tax revenues. In spite of difficulties with the quantification of precise value of external benefits of education, economists agree that it is negatively correlated with the level of education, i.e. it is higher for lower levels of education and decreases at higher levels. This argument can serve as one of the reasons for subsidies at lower levels of education being only rarely questioned, although there are many debates about the appropriate level of financing of higher education. Education is considered to be a merit good, i.e. it is considered to be in rational individual’s own interest to consume some quantity of education services. Since, individuals do not always act rationally, there is the government, who, in similar cases, can be provided 2 with the right to interfere into their independent consumption decisions and force them to consume the specific quantity of education services.v However, this argument is also more relevant for lower levels of education than for higher education, which is our concern in this paper. Also it does not provide the rationale for public financing of education. 2. The Slovak system of higher education – the potential for reform. 2.1. Monopoly of the state in higher education Current situation in the Slovak system of higher education is influenced by the heritage of the previous political and economic system. Its characteristic feature has been the almost exclusive monopoly of public institutions of higher education.vi From this perspective since 1989 there has been little change. In spite of the continuing monopoly of the state in the area of higher education, as regards formal position of institutions of higher education institutions there have been many changes in recent years. In 1990 a new Law on Higher Educationvii was passed, which officially abandoned the previous ideological and political control in this sphere. Basic academic rights and freedoms were introduced at universities, academic senates as self- governing bodies were reestablished and the independence of universities was increased. These changes brought about also new problems. One of them might be the problem of creating the balance among influences of different university groups in decision-making processes. In recent years in the area of higher education Slovak governments followed the policy of establishment of new public institutions of higher education mainly in regions outside the capital.