Fourth Report of the Tertiary Education Advisory Commission - full report 30/58

Shaping the Funding Framework
Fourth Report
of the Tertiary Education Advisory Commission

Chapter 10: The Funding of Research

New Zealand's tertiary providers make a substantial and vital contribution to
the nation's research effort, and play a crucial role in the creation and
diffusion of knowledge. The university sector, for example, accounts for around
36 percent of New Zealand's expenditure on research and development and employs
close to half the nation's research personnel.¹⁷⁸ The eight universities also provide the vast
bulk of the research training that occurs within New Zealand and thus make a
major contribution to the country's longer-term research capability.

If New Zealand is to recruit and retain world-class researchers and develop a
vibrant and innovative knowledge society, research within the tertiary education
system, and especially the university sector, must be adequately funded. The
level of funding, however, is not the only relevant variable; it is also vital
that the funding framework provides appropriate incentives for excellence,
encourages both knowledge creation and transfer, and facilitates a high level of
public accountability.

This chapter assesses the strengths and weaknesses of the current funding
arrangements. It then outlines and discusses a series of policy initiatives for
enhancing the funding framework and thereby ensuring that the government's
investment in research within the tertiary education system is expended in the
most effective and beneficial manner. Three matters are given particular
attention.

First, there is the question of the extent to which research should continue
to be funded primarily through EFTS subsidies. In the Commission's view, there
is a strong case for tuition and research to be funded via separate bulk grants,
with a substantial part of the research component allocated on the basis of
relevant performance criteria. The Commission has developed, with the assistance
of the New Zealand Vice- Chancellors' Committee and other stakeholders, detailed
proposals for a PBRF (Performance-Based Research Fund). The Commission favours a
'mixed-model' approach, and its proposals are outlined later in the chapter.

Second, the Commission believes that there is a need for a greater
concentration of research effort within the tertiary sector, as well as improved
linkages between tertiary providers, industry and the wider community. While
commending the current initiative to establish Centres/Networks of Research
Excellence (CoREs), the Commission is of the view that two different types of
policy instrument are required: the first, which was referred to in Shaping
the Strategy as Model A, involves world-class research at the
creation/discovery end of the spectrum irrespective of discipline, theme, extent
of collaboration or nature of research outputs; the second, which was referred
to in Shaping the Strategy as Model B, also involves world-class research
but has a number of additional elements, including an emphasis on leveraged
funds and collaborative networking, and a focus on the nation's strategic
goals.¹⁷⁹ The issues surrounding CoREs,
and the various policy options, are discussed later in this chapter.

Third, consideration is given to the case for establishing a separate fund
for meeting the costs of research infrastructure. Having assessed the advantages
and disadvantages of such an approach, the Commission is of the view that a
separate fund should not be created.

Additionally, the Commission believes that there is a need to enhance the
quality of research training, and post-graduate education more generally.
Proposals to achieve this objective are outlined in Chapter 11.

The Commission is mindful that tuition and research in the tertiary education
system are closely interconnected activities. Accordingly, major changes to the
funding framework of the kind proposed - and especially the creation of a PBRF -
will need to be implemented with care, with providers being given adequate time
to adjust to the new funding environment.

Given that the proposed changes would have significant distributional
impacts, both at the institutional and subinstitutional levels, their
implementation would be much less disruptive if new government funding is
available.

Indeed, in the Commission's view, it would be much less beneficial to
establish a PBRF in the absence of any new funding. Moreover, it would be
important for the proposed changes to the funding of research to be properly
co-ordinated with the findings of the review of cost and funding categories that
the Commission has recommended. These and related issues are given further
attention later in this chapter and in Chapter 16.

10.1 The Strengths and Weaknesses of the
Current Research Funding Arrangements

The current arrangements for funding research in the tertiary education
system are outlined in Appendix 2. These arrangements have a variety of
strengths of which four deserve particular mention.

10.1.1 Strengths

First, the administrative and compliance costs associated with the allocation
of EFTS subsidies are low, and significantly lower (per dollar allocated) than
would be the case under a performance-based funding system. Second, tertiary
institutions have access to a range of funding sources and are thus not solely
dependent upon public funding, or a single granting agency. This serves to
enhance institutional autonomy and academic freedom. Third, whereas the funds
allocated by granting agencies are typically designated for specific projects or
programmes of research (and are thus tied to particular activities or outputs),
the funding allocated through EFTS subsidies is delivered to tertiary
institutions as a bulk grant; it is thus 'non-targeted' or 'unrestricted', in
the sense that it can be allocated with a relatively high degree of discretion
by the relevant institution. The unrestricted nature of EFTS research funding
confers a number of advantages. For instance, it can be used to support:

• new academic staff who are not sufficiently well established to compete for
  external funding;

• those disciplinary areas (especially in the humanities and social sciences)
  where little external research funding is available;

• new areas of research which may have difficulty attracting funding from
  granting agencies; and

• academic staff in their role of 'critic and conscience of society'.

Fourth, the current funding regime reinforces the close links between
research and tuition, especially at the post-graduate level. In this context, it
gives support to the provisions in s254(3)(a) of the Education Act 1989 which
require that degree-level teaching be undertaken 'mainly by people engaged in
research'. Finally, it is important to note that New Zealand's universities
produce much high-quality research and have world-class researchers in many
fields. Equally, productivity (as measured by the number of scientific papers
per $ million, citations per $ million, and papers per researcher) within New
Zealand's research sector, including the universities, is relatively high by
OECD standards.¹⁸⁰ Against this, there is
also evidence that research output, having risen significantly during the
early-to-mid 1990s, has levelled off in recent times and is declining as a
proportion of world publications.¹⁸¹ It
is possible that the reasons for this are at least partly related to the funding
constraints affecting the tertiary education system and deteriorating
student-staff ratios. Additionally, New Zealand performs poorly relative to
comparable jurisdictions in relation to the number of patents generated per
million people.¹⁸²

If changes are made to the way that research within the tertiary education
system is funded, it will be desirable to retain the existing strengths
including adequate discretion at the institutional level over the internal
allocation of research funding and the preservation of a high level of
researcher-led inquiry. Similarly, it will be important to ensure that
transaction costs are kept as low as possible, and that the relationship between
research and tuition is not undermined, certainly at the post-graduate level.

10.1.2 Weaknesses

Despite these recognised strengths, the current policy framework has been the
subject of wide-ranging criticism.183 It is not possible here to consider all
the relevant concerns in detail, but the main problems are summarised below.

The first set of difficulties relates to the insufficient level of funding.

1. By international standards, the total quantum of funds (both public and
   private) available for research within New Zealand's tertiary education system
   is very modest. For instance, leading universities elsewhere in the world
   typically secure significantly more funding per annum for research purposes than
   the combined research revenues of New Zealand's eight universities. Likewise, it
   has been estimated that Australian universities receive (from all sources)
   nearly double the volume of research funding (in real terms per EFTS) compared
   with their New Zealand counterparts.¹⁸⁴
   Moreover, in early 2001 the Australian federal government announced plans (under
   the 'Backing Australia's Ability' initiative) for substantial increases in
   expenditure on research within the university sector over the next few
   years.¹⁸⁵ Various other countries with
   which New Zealand competes for high-quality researchers (for example, Britain,
   Canada and the United States) have also been increasing investment in research
   within their higher education systems. In the absence of corresponding measures
   in New Zealand, our universities risk falling further behind many of their
   overseas counterparts, making it even harder to recruit and retain researchers
   of international standing.

2. The sources of funding available to researchers in the tertiary education
   system, especially from nongovernmental sources, are limited. This reflects the
   small size of New Zealand's manufacturing and industrial sector, and the
   relative absence of industries - - such as computing, defence, petro-chemicals,
   pharmaceuticals and aerospace - that tend to invest heavily in research and
   development. Similarly, there are few domestic charitable foundations that
   provide significant funding for research purposes.

The second set of problems relate to the way in which funding is currently
allocated.

1. The lack of incentives for research excellence within the EFTS system
   - the current EFTS funding regime provides few direct incentives for research
   excellence. For instance, degree providers receive 'research top-ups' through
   the EFTS system irrespective of the quality or quantity of research being
   undertaken by their academic staff. Likewise, the volume of research funds
   generated by an institution depends primarily upon the number of degree-level
   students it can attract rather than the quality of its research-active staff
   (as, for instance, judged by independent peer review). Against this, the
   research funding available from the various contestable pools provides strong
   incentives for quality. Also, it is important to note that individual
   researchers are motivated by a range of considerations that have little to do
   with particular funding systems, including their reputations, a professional
   commitment to excellence and the pursuit of the truth, and the systems of
   promotion.

2. The lack of public accountability for research funding - the current
   EFTS funding regime is characterised by inadequate transparency and public
   accountability. Admittedly, TEIs are required to produce annual Statements of
   Service Performance, and these should include an account of their research
   performance. But, such accounts are typically brief, with any quantitative data
   (for example, in relation to the volume and type of publications) being at a
   high level of aggregation. Unlike their Australian counterparts, New Zealand
   universities are not required to produce annual Research and Research Training
   Management Plans (RRTMPs).

3. The lack of concentration of research funding - the research funding
   available to the tertiary education system tends to be spread rather thinly
   across all the various disciplinary areas rather than being highly concentrated
   in particular fields, multidisciplinary teams or institutions. There are a
   number of reasons for this. First, the existing contestable pools have very
   different mandates and there is little overlap with respect to their areas of
   responsibility. Accordingly, there is only limited scope for co-ordinating the
   allocation of funds between the competing research providers. Second, and more
   importantly, the majority of the available research funds are largely
   student-driven, and so strongly influenced by the level and pattern of student
   demand. The new CoRE initiative would obviously assist in facilitating a greater
   concentration of research effort in certain fields. It is likely, however, that
   there would be only four to six such Centres, at least in the first instance.
   Moreover, given the very limited annual funding that has so far been allocated
   to these Centres, the overall impact of this initiative would not be great.

4. The volatility and short-term nature of most research funding - by
   international standards, most of the research funding available to tertiary
   providers is relatively short-term in nature. For instance, much of the
   projectbased funding is limited (at least in the first instance) to a maximum of
   two-to-five years.¹⁸⁶ This compares to
   nine-to-twelve years for some research projects in comparable jurisdictions.
   Equally, the funding generated through the EFTS system and student fees is
   subject to significant fluctuations in the level, structure and pattern of
   demand. This reduces the degree of certainty and predictability over funding
   levels, both at the institutional and sub-institutional levels.¹⁸⁷ Such arrangements, of course, do not represent a
   major impediment for funding relatively short-term, small-scale research
   projects (for example, of the kind which are common in the humanities and social
   sciences), but they certainly create greater difficulties for funding expensive,
   longer-term projects, especially those requiring significant investments in
   research infrastructure.

5. The large imbalance between disciplinary areas in the allocation of
   contestable (or targeted) research funding - only a very modest proportion
   of the funding currently provided by research granting agencies (for example,
   FRST, HRC and the Royal Society) is devoted to the humanities, social sciences,
   law and commerce, despite the fact that a large proportion of research activity
   within the tertiary education system occurs within these areas.¹⁸⁸ There are a number of reasons for this:
   • priority has been given to the physical and biological sciences in the
     funding allocated through Vote Research, Science and Technology;
   • the existing funding pools are better geared to supporting research
     undertaken by teams (of the kind that are common in the sciences) rather than
     research by individual scholars (which is the more usual pattern in many other
     areas of academic inquiry); and
   • it has been recognised that, in relative terms, the current funding
     categories within the EFTS system discriminate against the physical and
     biological sciences.

   It is worth noting in this context that there are no separate research
   funding bodies (or substantial ringfenced funds) for the humanities and social
   sciences of the kind that exist in some other jurisdictions. The Commission is
   aware that some of the issues surrounding the funding of the social sciences are
   currently being examined by the Social Science Reference Group, but for reasons
   of timing has not had the opportunity to give proper attention to the Group's
   proposals.

6. Inappropriate and inadequate subsidy rates for research training -
   although post-graduate students are funded at a higher rate than
   under-graduates, the anecdotal evidence from many providers suggests that the
   current subsidies often fall far short of the costs of provision. In the
   interests of avoiding excessively high fees (and thus deterring large numbers of
   capable students), universities have been forced to cross-subsidise many
   post-graduate programmes (especially those in the sciences and engineering) from
   their under-graduate programmes. This has placed universities at a disadvantage
   relative to those providers (such as polytechnics) that have few post-graduate
   students; all the more so given the increasingly competitive environment that
   has developed since the early 1990s.

7. Weak incentives for private-sector funding of research in the tertiary
   education system - the current funding framework provides only modest
   incentives for leveraging private sector contributions. For instance, there are
   no significant systems of matching funding available of a kind similar to the
   Co-operative Research Centre model in Australia or the British LINK scheme.
   Against this, it must be acknowledged that there have been various initiatives
   over recent years to strengthen the linkages between tertiary providers and the
   business sector, such as the Enterprise Scholarship scheme and the Technology
   New Zealand scheme (including the Technology Industry Fellowships).

In order to put these problems into a wider context, the Commission asked the
New Zealand Vice-Chancellors' Committee to undertake an international survey of
research funding mechanisms for higher education. Six countries were included in
the survey: Australia, Britain, Israel, Finland, Hong Kong and the
Netherlands.¹⁸⁹ By comparison with the
countries reviewed, New Zealand's funding arrangements for the tertiary
education system were found to be distinctive on a number of counts including
the following.

• There is a relatively narrow focus on funding projects and placements, and a
  corresponding lack of attention to developing or supporting new organisational
  arrangements, such as centres of excellence, shared infrastructure funds,
  co-operative research centres, business incubators, post-graduate research
  schools and collaborative arrangements between higher education institutions,
  business and the community.
• There is a relative lack of funding predictability and stability.
• There are no separate funds for supporting investments in research
  infrastructure.
• There is limited emphasis placed upon quality and accountability.

It was also noted in the review that a growing number of countries have moved
over the past decade or so to separate (to varying extents) the funding of
research from the funding of tuition, and to allocate a significant proportion
of research funds on the basis of various measures of research performance.
Indeed, a recent report by researchers at the Centre for Higher Education Policy
Studies in the Netherlands indicates that a majority of the 11 OECD countries
surveyed currently fund the core costs of research and tuition through separate
allocative mechanisms.¹⁹⁰

10.1.3 The Commission's View

The Commission has given detailed attention to the question of how research
in the tertiary sector should be funded. In so doing, it has consulted
extensively with the New Zealand Vice-Chancellors' Committee and other relevant
stakeholders. A Research Working Group, including representatives from a wide
range of tertiary research providers and funders, was convened in mid-2000 and
has met periodically to consider a variety of policy options and proposals.
Commission members have also taken the opportunity of discussing the issues of
research funding with a variety of international experts.

As a result of its initial deliberations, the Commission came to the
conclusion that there was a strong case for a greater concentration of research
effort within the tertiary education system (in the interests of enhancing
quality and building a greater research capacity). It recommended that the
government establish a series of CoREs. This recommendation was subsequently
accepted by the government in early 2001, with new funding being allocated in
the 2001 budget. The CoRE programme is now in the early stages of
implementation.

The Commission believes, however, that more significant changes are needed to
the way research in the tertiary education system is funded if the goals and
priorities outlined in Shaping the Strategy are to be achieved, and if
the problems identified earlier in this chapter are to be addressed. The case
for the Commission's proposals is outlined in the remainder of this chapter.

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Footnote(s):

178

Ministry of Research, Science and Technology (2000), p. 8.

179

Shaping the Strategy (2001), p. 25.

180

Ministry of Research, Science and Technology (2000); Salter, A. et al.
(2000).

181

Ministry of Research, Science and Technology (2001b). It is important to
note that the relevant measures include the scientific publications not merely
of tertiary providers but also of Crown Research Institutes and other research
providers.

182

Gluckman (2001).

183

See Boston (1999), Ministry of Research, Science and Technology (2000), and
Peters (2001a).

184

Boston (1999). Similarly, an analysis by Auckland University, based on 1998
data, found that the research income per EFTS of the top eight universities in
Australia was NZ$4,708 while that of Auckland University was NZ$2,797. See
Gluckman (2001).

185

Kemp (2001).

186

It must be acknowledged, however, that most research programmes are renewed
based on performance.

187

There are different views within the sector over the seriousness of this
problem. Some contend that the high level of autonomy enjoyed by TEIs provides
adequate scope for the re-deployment of resources in order to retain
high-quality research teams (and their related projects) that might otherwise be
put at risk by a sharp fall in student enrolments in the relevant disciplinary
areas. Against this, it is argued that most institutions have very tight
budgets, and thus only limited capacity to support researchers who are
negatively affected by rapid fluctuations in the level or pattern of student
demand.

188

Only a small percentage of the funds allocated from Vote Research, Science
and Technology in 2000 was distributed to projects in the humanities and social
sciences. See Ministry of Research, Science and Technology (2001a), p. 49.

189

Peters (2001a).

190

Jongbloed and Vossensteyn (1999).