The Capitalisation of Universities: What Is It Worth?

Science politics discussion flared up In October when Minister of Education and Culture Sanni Grahn-Laasonen gave an interview where universities were promised additional capitalisation worth hundreds of millions of euros.

There were some communicative challenges in the situation. The news article by Lännen Media (“Western Media”) reported it as a Uturn from previous politics. It was not quite that. Apart from the capitalisation being a part of the government platform, it was also a part of the parliamentary election objectives of the Coalition party, on the order of a billion.

What was new was that funds from state property, possibly much more than the 46 million of the government platform and the matching funds of 150 million euros related to the ongoing fundraising, would be transferred to the balances of universities. That the minister emphasized basic research in her interview was excellent. This was lacking in earlier documents; Bengt Holmström’s Nobel Prize may have come just at the right time.

The capitalisation was inevitably compared to the earlier budget cuts. At the time of the budget session in August, it was presented as compensation. At that time, discussion focused on the widely frowned upon additional cut of the summer 2016 that was a result of a strange interpretation of the competitiveness pact. As had been stated by many voices by the time this text was being written, the returns of the named capitals are not nearly enough to cover for the dent that was made by the cuts in 2015-16.

On the other hand, the capitalisation of universities is slightly different from just funding the running costs. And in principle it is probably possible to do other good things for universities than just reverse all the previous cuts.

If we try to separate things from each other and cut out all the superlatives, what are we left with?

According to a widely held perception, it is useful to invest in universities not just because of science but also because of the entire society. The returns of universities’ own capital have thus far also made it easier for them to tread on the rocky roads of state economy and enabled new openings. Universities are freer to decide about their use than they are when they negotiate about performance agreements with the state.

There are also pitfalls. Independence is slow to grow from capital: investments need to be good and interest needs to grow on interest. The appropriate range of inspection is decades rather than years.

If the returns on investments are consumed in order to stay alive, as it appeared in the financial statements last year, the nest egg will not grow. If this situation becomes permanent, investment activities will soon be the “fourth mission” of universities. This is not a part of core know-how or a sustainable solution due to the general risks of investment activities. The state should not be allowed to start dumping the prices of degrees, publications and other performances just because some universities have money of their own.

The capitalisation can be realised in many ways. Now it is being tied to structural development, which tightens the grip the state has on universities. Are there other options? Universities should be able to react to changes in the field of science. Political steering poses the risk that instead of scientific changes universities will follow the policy changes of the steering authority too closely. Hopefully the minister’s words about basic research live on in the working group that is preparing the project.

This is also the time for a public discussion. If it should later be revealed that the purpose of the manoeuvre is, for instance, to create a two-caste university system where the connection between research and teaching will, in some units, be broken, the atmosphere around the reform may become significantly worse.

Is the capitalisation not a good thing, was the question in October. It may be, hopefully as good as possible. If the worst pitfalls are avoided, the conclusion in terms of the supervision of interests is relatively straightforward. The capitalisation needs to be done as well as possible, but at the same time we also need to continue fighting for universities to be sustainably acknowledged in the state budget again.

October 20, 2016

Petri Koikkalainen
Chair, The Finnish Union of University Researchers and Teachers

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