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Private Universities as Niche Providers

By Alexander Dilger

In Germany, private universities are still niche providers, because the state universities are financially better off and generally able to attract the better students and professors. Private elite universities would require conditions that are not currently given, but hybrid solutions could offer a niche that would also be academically interesting.

Private Universities as Niche Providers© Universitäten Witten/Herdecke
According to the German Rectors' Conference, as of 2nd September 2009 there were 88 state recognised private universities in Germany - not including 40 church universities, which are more comparable to the 236 state universities and not taken into account in the following discussion. This means that private universities make up a substantial 24 percent of all universities, and despite some spectacular closures the trend is increasing. When it comes to their share in the country's 1,980,626 students however, the situation looks rather different - the 82,975 students at private universities amount to only 4 percent. But the private universities are not only smaller; they also less often have the right to award doctorates. They frequently offer only a single subject or a small range of subjects, which are usually also inexpensive. There are no private universities covering the full range of academic study. In offering Medicine and Dentistry, the University of Witten/Herdecke already forms a notable exception, but beyond that it has only a faculty of Economics, which is very popular at private universities, and a faculty of Arts and Humanities. On the whole, private universities in Germany must be considered niche providers, at least currently, although some niches are of course very comfortable. But the bulk not only of students, but also of funding and research is found at the state higher education institutions. This is neither a coincidence, nor is it the fault of the private universities; rather, it is due to conditions in Germany which at least for the present clearly favour the state universities, as a result of which private universities have to settle for the remaining niches.

State funding

The probably greatest advantage of state universities compared to their private counterparts is that they are largely funded by the state; private universities may in theory also receive state funding, however it is usually lower and, more importantly, less secure. On the other hand, private universities can charge higher tuition fees, which, depending on the federal state, state universities may either not collect at all, or only up to a limit of 500 euros per semester. This however means that from the student point of view the state options are either free or at least very cheap. In the face of such competition, private universities only really stand a chance in comparably cheap subjects, which is why many of them limit their offering to these. But the state-funded competitors are at an advantage even there, so private universities are left only with the aforementioned niches. A fairly large niche can be to take in applicants who have been refused a place by the state universities. The lack of market co-ordination via prices/tuition fees means that the limited nature even of public funds has resulted in rationing of supplies. The insufficient state offerings particularly in very popular subjects can therefore be supplemented by private universities, although they are more expensive and not necessarily of better quality.

In some federal states, such as North Rhine-Westphalia, state universities can become insolvent just as can private ones, at least in law. However, not only is this factually highly unlikely, it is also not overly dramatic for most creditors. As civil servants, tenured professors in particular have little to fear; they are protected not only from dismissal on the grounds of personal incapability or misconduct, except in very severe cases, but also from redundancy and even insolvency of a university. No private university can offer comparable conditions. Added to this are further benefits of civil servant status, such as exemption from the obligation to pay social security contributions; as a result, private universities cannot truly compete even where they offer significantly higher salaries. It is not even possible to meaningfully calculate how high the appropriate compensation for foregoing civil servant status would have to be, especially as these state-protected professors can earn generous additional incomes in economics-related subjects in particular. Therefore, seasoned professors rarely move from public to private universities. As in the case of students, adverse selection to the disadvantage of the private universities also occurs when it comes to professors; the private institutions find themselves having to make do with those who could not find a place at a state university. Under these circumstances it's little consolation that professors who are not good enough can be dismissed. This not an option in the case of professors with civil servant status, but they will generally have been adequately examined beforehand and provided with such incentives once in office that they are worth the labour costs, which in view of their lengthy and high qualifications are anyway minimal.


Academic expectations

A private university with high academic aspirations must hope to recognise excellent young academics early on and be the first to hire them. They will then work there at least until the first state university calls, and such advances may initially be counteracted with high payments, as state universities tend to pay younger professors less and outstanding scientists can always transfer there later. Promises of future remuneration and increased job security will however rarely retain professors, because state universities are undeniably superior in this regard. On the other hand, scientists from abroad who have no intention of staying permanently may be of interest. A possible bonus point that private universities should definitely use to their advantage are unbureaucratic solutions. Most private universities place distinctly greater emphasis on teaching, which allows them to generate higher income, than on research. This however makes them uninteresting for the most research-focused scientists, who in turn would probably be necessary to ensure highest quality teaching. Consequently, all professors appear to be rather expensive, so it becomes preferable to limit their number and instead work with teaching appointments and cheaper personnel. Managerial functions at private universities do not have to be handled self-administratively by professors, but can instead be transferred to employed managers who may at most be awarded a professorial title without the associated academic achievements as a tax-free non-cash benefit.

In fact, conferring titles is generally possible at practically no direct cost, and is therefore handled accordingly generously, also with regard to students and doctoral candidates. As a result, of course academic quality suffers, often only stabilising at the lowest acceptable limit. Higher quality and reputation might be of higher value, but this value is not easily converted into a greater willingness to pay. Firstly, developing a reputation takes a very long time; secondly, competition from state universities is far greater at medium and higher levels of quality; thirdly, a clientele that has already been turned down by the state universities fears overly high academic demands; and fourthly, in each individual case there is a preference, and therefore the greatest willingness to pay, to be awarded the desired title with excellent grades. This of course does not mean that every single private university, much less every one of their students, is of a lower academic standard than state universities or their students. There are niches other than that of good grades with low requirements. In some cases or subjects this segment may even already be held by state universities. With regard to students, excellent degrees for almost everyone do not rule out commensurate achievements by individuals, they are only no longer indicative of them, which is why particularly the better school leavers will usually prefer more selective universities. High tuition fees on the other hand allow private universities to select their students based more on social than academic criteria.

Elite universities

Other countries, particularly the USA, have private universities that are in an entirely different position. The best universities in the world with the highest academic reputations are mostly private. This leads to the obvious question why private universities in Germany cannot also be academically excellent. Of course that isn't impossible, but it would require conditions that are so far not given. Harvard, Stanford and Yale for example have foundation assets in the double-digit billions and spend a vast amount of money on top-class research, while their tuition fees nonetheless do not cover their costs and their extremely selective admission process justifies the conferral of similarly almost exclusively excellent grades. This is a self-reinforcing connection between money and knowledge coupled with an outstanding reputation of the institution, the professors and also the students. On the other hand, there are also private and even some commercial universities in the USA that sit at the other end of the quality spectrum, which due to a lack of state regulation is far lower even than in Germany.

Despite the Excellence Initiative there is still room in the niche of real elite universities in Germany. Filling this space however would require billions of euros to be spent in the long term, or better still put into permanent foundations. But in the medium term at least no financial backers are in sight. The private sector as a whole might have an interest in providing funding, but for each individual company it would at best be a public good. The state is already struggling to fund the state universities at the current level. Even the Excellence Initiative cannot match a single top international university purely in terms of volume, and anyway tends to support state rather than private universities.

Hybrid solutions

Were the state to directly and massively support private universities, they would thereby become quasi state institutions. More effective might be a system where the state went from object- to subject-related funding in higher education and paid all universities for defined services, e.g. graduates of a certain quality, although measuring this quality remains a significant problem. Even so, the state would have to continue providing basic funding for the (currently) state universities for many years. Tenured professors with civil servant status could not be dismissed; at best, they might be lent out to private or privatised universities. But according to the arguments outlined above, giving professors civil servant status is not such a bad thing in order to attract the best scientists, retain them long-term and then permit them to freely conduct research, teach and grade students' work. As long as the state universities do not lose their competitive advantages, academically outstanding private universities could most easily be established as hybrid solutions, with tenured professors teaching at private universities in addition to their official duties or while on leave. These private universities could be spin-offs of state universities, which would also represent a niche position. But without a niche of some kind, which might in some instances be highly attractive - for example in continuing education, an area that has so far been neglected by the state universities due to capacity law - private universities in Germany will not be able to hold their ground against the state-funded competition in any case.

Forschung und Lehre :: October 2009