Higher Education in Europe: Crisis and Opportunity Howard Davies Director London School of Economics Microsoft Government Leaders Forum Lisbon 31 January 2006

Two subjects, linked by the Lisbon Agenda – the status of EU universities – the contribution they can make to European competitiveness, directly and indirectly

Shanghai Jiaotong University Top World’s Universities by region 2005 Source: Shanghai Jiaotong University European Universities do not feature strongly in international league tables, from Shanghai …

THES World’s Top 50 Universities by region 2005 Source: Times Higher Education Supplement …to London

Total investment in higher education as a percentage of GDP 2002 Source: Education at a Glance 2005 Public, and especially private investment is lower than in the US or Australia…

Total expenditure per student on higher education, excluding R&D, $PPP Source: OECD …and expenditure per student is lower $

Unit funding per student in real terms in UK and US (private) Universities 20 years ago, expenditure on British students was above the US, now it is well below

Higher education income from UK industry and commerce In the UK, research income from business rose in the 1990s but has now flattened off Source: HESA FSR

University endowments in the US & UK 2002 in £ millions Private American universities have massive endowments

Stylised international skills projections to 2020 Fewer EU citizens will have degrees than those in the US or Australia Note: Columns may not sum to 100 due to rounding. Source: Leitch Review International Projections

 Sorbonne Declaration “strengthen international competitiveness of European higher education”  Bologna Declaration “ enhance the attractiveness of European higher education worldwide”  Creation of European University Association  Prague summit  Berlin summit  Bergen summit The Bologna Process Europe is making efforts to make its universities more attractive

International comparisons of employment and unemployment rates In spite of lower employment rates…

The Macroeconomic picture on productivity - Relative total factor productivity (US indexed to 100) Source: O’Mahoney and De Boer, 2002 …EU productivity performance still lags the US

Management practice assessment scores show greater intra-country variation than inter-country variation (% of companies, by management practice score) U.S: Average = 3.39Germany: Average = 3.2 France: Average = 3.13 U.K: Average = 3.07 The UK and France, in particular, have a tail of poor performers

Management practice scores across countries Management practice alone can account for 10-15% of the U.S. – U.K. productivity gap Source: Corporate assessment interviews; McKinsey/LSE analysis But weak management is also a major reason

Consistency with selection and vintage effects when split by competition Implications Higher competition tends to eliminate poorer managed firms so average management scores are higher Younger firms appear to be deploying better Management practices Corporate assessment interviews; McKinsey/CEP analysis Competition and new business creation are important factors…

Negative effects of labour regulations Index of firing and dismissal costs (Botero et al 2005) Regulatory “bite” significantly higher when manager has been in the job for a long time Implies regulations may enable workers and managers to block change Older workers and managers dislike change Heavy firing costs may provide them with the security to oppose change …as are labour regulations

Conclusions Many EU Universities are not globally competitive Enhanced investment in Higher Education would help with the ‘Lisbon Agenda’ Needed investment is likely to come from diverse sources, including business and individuals: both students and alumni Universities need greater freedom to charge and raise income Universities can also make a contribution to understanding the sources of competitiveness