University of Warwick, a well-funded example

Universities in the European Union seriously lag their US counterparts. Richard C. Levin, President of Yale University says America may produce 25 percent of the world's economic output, but it accounts for 40 percent of global spending on higher education and 35 percent on R&D. In 2005, it devoted 2.9 percent of its GDP to postsecondary schooling, while the EU, Japan, China and India spent less than 1.3 percent. Meanwhile, of the world's top 20 universities, between 12 and 16 (depending on how you count) are American.

- See Newsweek article by Richard C. Levin: The West Need Not Panic

The current issue of the CESifo Economic Studies, an influential economics journal published by Oxford University Press (OUP) on behalf of the German Ifo Institute for Economic Research, is devoted to the state of university education in the EU.

The Ifo Institute says that in an increasingly globalised world, high-quality brainpower is a formidable tool to stay ahead of the competition–if you can nurture it, that is. In this regard, the EU paints a pretty mixed picture. A number of scholars review the reasons for this and explore options to improve the picture.

The following is a brief overview of the nine articles making up this issue.

Reforming European Universities
Most European universities suffer from stifling government regulation, have to make do with much lower funding than their North-American counterparts, and do not rank high amongst the top universities in the world. In the meantime, the booming economies of China and India will nurture world-class universities in the coming decades. Rick van der Ploeg and Reinhilde Veugelers argue that European universities need more autonomy to select students, reward staff, design new programmes, attract more funds and compete better. To get there, reforming European universities should be based on the best available empirical analysis.
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The Factors of Success at University
What determines good student performance at university? Elena Arias Ortiz and Catherine Dehon use a Belgian university as a case study. As suspected by many, they find that the students' socioeconomic background plays a significant role. Specifically, the mother's level of education and the father's occupational activity seem to predominate. The same results are obtained for European and non-European students. Nevertheless, when foreign students' of integration is taken into account, the authors' analysis shows the existence of a "European elite" that comes to Belgium looking for a diploma and that does much better in their first year than Belgian students.
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Heterogeneous Grading Standards and University Funding
At first sight, allotting funding to universities according to their performance appears to be quite a reasonable approach. But when performance of a university is measured in terms of the grades its students attain, some perverse effects become evident. As Manuel Bagues, Mauro Sylos Labini and Natalia Zinovyeva show for Italy, university funding schemes based on students' academic performance do not necessary favour universities that generate higher value added: university departments that rank higher according to the proportion of students that pass its examinations actually tend to be significantly worse in terms of their graduates' performance in the labour market.
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Do Institutions Matter for University Cost Efficiency?
Efficiency analyses of higher education institutions have so far focused primarily on the identification of inefficiency and less on the explanation of differences in efficiency performance. Gerhard Kempkes and Carsten Pohl attempt to correct this by studying the impact of institutional factors on the efficiency of 67 publicly financed German universities. They find that university costs and outputs are correlated with institutional settings such as the university's management structure or its staff body. Furthermore, econometric evidence suggests that universities which are located in states with a comparatively liberal university legal framework are more efficient than those universities operating under more restrictive state regulation.
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What it comes down to

Funding Systems for Higher Education
The performance gap between European and US universities is at least partly due to lower spending on higher education in Europe. Some governments have attempted to remedy this not by increasing funding but by raising efficiency. However, as Stijn Kelchtermans and Frank Verboven have found for Flanders (Belgium), there are significant drawbacks to regulatory reforms that mainly aim to reduce costs. In the end, the question of how to raise total spending on higher education cannot be avoided.
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The Impact of the Bologna Process
While several aspects of the Bologna process deserve wide public support, the reduction of the length of the first cycle of studies to three years in several continental European countries, where it used to last four to five years, is less consensual. Ana Rute Cardoso, Miguel Portela, Carla Sá and Fernando Alexandre have found that, while the programs that restructured to follow the Bologna principles were subject to higher demand than comparable programs that did not restructure, the effect varies across fields of study and with program size.
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The Provision of Higher Education in a Global World
Mobile students and graduates react to the institutional framework of higher education and on their turn induce changes in governmental policies. Gabrielle Demange, Robert Fenge and Silke Uebelmesser show that mobility of part of the population results in a situation where the optimal instruments of a closed economy (as opposed to one open to migration) are no longer necessarily viable. The aim of their article is to derive policy implications as to the optimal financial regime and quality level of higher education in the presence of migration opportunities.
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Investments in Tertiary Education
Many countires want to improve their tertiary education. That calls for ascertaining what determines investments, both from the point of view of prospective students and from the institutions that are to educate them. Romina Boarini, Joaquim Oliveira Martins, Hubert Strauss, Christine de la Maisonneuve andGiuseppe Nicoletti explore these determinants and outline the resulting policy implications.
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Science and the University
Science and the university have long gone hand in hand but, asPaula E. Stephan points out, much has changed in recent years. She outlines three changes in this relationship, focusing both on the consequences for the university and on questions of research interest to those interested in higher education: (i) increased incentives to publish; (ii) changes in the reward system, and (iii) increased reliance by governments and communities on universities and institutes as a source of economic growth.
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