Background Paper The Learning Generation Tertiary Education and the Sustainable Development Goals In Search of a Viable Funding Model Jamil Salmi This paper was prepared for the International Commission on Financing Global Education Opportunity as a background paper for the report, The Learning Generation: Investing in education for a changing world. The views and opinions in this background paper are those of the author(s) and are not endorsed by the Education Commission or its members. For more information about the Commission’s report, please visit: report.educationcommission.org. An extended version of this paper is forthcoming as a book under the title, Tertiary Education and the Sustainable Development Goals. Tertiary Education and the Sustainable Development Goals: In Search of a Viable Funding Model Jamil Salmi Prepared for the International Commission on Financing Global Education Opportunity 9 November 2016 Global Tertiary Education Expert [email protected] www.tertiaryeducation.org * Experto internacional en reformas y transformación de la educación superior. [email protected] www.tertiaryeducation.org Table of Contents Executive Summary ............................................................................................................ 5 Background ................................................................................................................. 5 The Changing Context: New Challenges, New Opportunities .................................... 7 The Contribution of Tertiary Education: Theory vs. Reality .................................... 11 Designing and Implementing System-Wide Reforms ............................................... 15 Ensuring Financial Sustainability .............................................................................. 19 Role of the Donors .................................................................................................... 24 Introduction ....................................................................................................................... 28 1. The Changing Context: New Challenges, New Opportunities ..................................... 32 Introduction: Knowledge and Innovation as Drivers of Economic and Social Development ............................................................................................................. 32 Changing Labor Markets in the Digital Era .............................................................. 33 The Evolving Tertiary Education Ecosystem ............................................................ 38 New Forms of Accountability ................................................................................................... 38 Globalization ................................................................................................................................... 44 New Providers and New Education Technologies .............................................................. 48 Political Commotions ................................................................................................................... 57 Conclusion: Challenges and Opportunities ............................................................... 58 2. The Contribution of Tertiary Education: Theory vs. Reality ........................................ 60 Role and Benefits of Tertiary Education ................................................................... 60 The Reality of Tertiary Education in Developing Countries: Long-Standing and New Challenges ................................................................................................................. 76 Unequal Performance ................................................................................................................... 78 The Determinants of Performance......................................................................................... 100 3. Designing and Implementing System-Wide Reforms ................................................ 105 Ignition phase .......................................................................................................... 106 Elaboration of a vision for the future of the tertiary education system ................... 108 Formulation of a set of strategic measures .............................................................. 111 Increasing Access and Equity ................................................................................................. 111 Improving Quality and Relevance ......................................................................................... 119 2 Strengthening the Research System ...................................................................................... 131 Launch of the reform ............................................................................................... 137 Ensuring the Sustainability of the Reform .............................................................. 142 Principles of Good Governance ............................................................................................. 143 4. Ensuring Financial Sustainability ............................................................................... 149 What is at Stake? ..................................................................................................... 149 Elements of a Sustainable Financing Strategy ........................................................ 150 Strategic Decisions Influencing Financing Requirements ...................................... 151 Development of the Non-University Sub-Sector .............................................................. 153 Distance Education Institutions and Virtual Education .................................................. 156 Development of the Private Sector........................................................................................ 157 Removing Systemic Barriers and Achieving Synergies ................................................. 162 Resource Mobilization Options ............................................................................... 167 Increasing Public Resources.................................................................................................... 169 Cost Sharing and Student Aid ................................................................................................. 171 Income Generation ..................................................................................................................... 186 Innovative Models: Social Innovation and Tertiary Education Funding ................... 189 Resource Allocation Mechanisms ........................................................................... 191 Formula Funding ........................................................................................................................ 191 Performance Contracts .............................................................................................................. 192 Competitive Funds ..................................................................................................................... 192 Vouchers........................................................................................................................................ 195 Conclusion ............................................................................................................... 197 5. Role of the Donors ...................................................................................................... 199 What Works: Lessons of Experience from Donor Interventions ............................ 199 Holistic Project Design ............................................................................................................. 199 Incentives ...................................................................................................................................... 203 Sustainability................................................................................................................................ 203 Roadmap for Donor Support in Tertiary Education ................................................ 204 The Role of Donor Agencies .................................................................................................. 204 Conclusion: the Reform Imperative ................................................................................ 208 References ....................................................................................................................... 210 3 Annexes........................................................................................................................... 220 4 Executive Summary Background Notwithstanding the crucial developmental role of tertiary education, for several decades traditional human capital theory challenged the need for public support of tertiary education on the grounds that graduates captured important private benefits that should not be subsidized by taxpayers. Influenced by this argument, many multilateral and bilateral donor agencies focused their support on basic education rather than investing as well in the expansion and improvement of tertiary education systems in developing countries. In the 1990s, however, a growing body of research demonstrated the importance of going beyond rate-of-return analysis to measure the full value of tertiary education as a fundamental pillar of sustainable development. By focusing primarily on the private returns of government spending, rate-of-return analysis failed to capture the broader