PROCUREMENT OF GOODS AND SERVICES BY IRISH UNIVERSITIES: A SPATIAL ANALYSIS

In an increasing number of ways could the economic impact of universities be examined, an issue this blog has previously discussed. Nevertheless, one of the ways which has widely been adopted by many scholars is an economic model called the Keynesian multiplier. Introduced in the 1930s by Richard Kahn, a British economist, the Keynesian multiplier theory shows that, a university, like any other production activity, undertakes its business through the purchase of inputs which in turn produce outputs.

A general assumption held by the literature is that, “an injection of expenditure into a university leads to expenditure by that institution on staff salaries and goods and services, which together with spending by students coming into the local area raises output and hence income in the area” (Huggins and Cooke, 1997). These increases in income in the region lead to subsequent rounds of spending by those benefiting from the expenditure. What is usually referred to as the Keynesian multiplier process is exactly this induced effect.

Indeed, universities purchase goods and services to support academic, research, and public service programmes, as well as activities such as operations and maintenance. Items purchased vary from scientific equipment, medical equipment, to classroom and office furniture, and to building services and other professional services. Universities purchase goods and services needed from businesses located locally, regionally, nationally and internationally. This leads the question of what percentage of the purchase has been made, say, in the same region, as this issue is directly related to the potential economic impact of any given university on its region.

In this article, we intend to show the spatial distribution of procurement of goods and services by the seven Irish universities in the academic year of 2010-11. Of the seven Irish universities, three are located in Co. Dublin (DCU, TCD, UCD), with each of the rest four being situated in Co. Cork (UCC), Co. Galway (NUIG), Co. Kildare (NUIM) and Co. Limerick (UL) respectively.

Data used in the analysis has been sourced from a number of organisations, in particular the HEA and the IUA. The total expenditure of universities on goods and services with breakdown details was provided by the HEA, which has relevant data between 2001-02 and 2010-11. The IUA kindly provided the top supplier information, referring to the largest purchases made by universities in 2010-11.

It should be reminded that the exclusion of purchases in the lower value range, the majority of which are supposed to be placed with local businesses, would underestimate the local impact of universities. Using the FAME database, the registered address of most suppliers was added, while we had to exclude those suppliers whose address was difficult to specify. Finally, the purchases that have been categorised as ‘Capital’ have also been excluded.

Although data used in this article was provided by the HEA and the IUA, its analysis and interpretation is the sole responsibility of the author. Neither do the findings of this article necessarily represent the views of these organisations.

Table 1 Summary of top suppliers to Irish universities, 2010-11

  No. of top suppliers Largest purchase (€) Smallest purchase (€) Average purchase (€) Median purchase (€) Total purchases (€) Total expenditure (€) Total purchases as % of total expenditure
DCU 104 2,641,758 27,513 177,488 74,827 18,458,777 41,987,000 43.96%
NUIG 104 1,860,953 79,664 303,941 175,376 31,609,871 71,075,000 44.47%
NUIM 106 2,664,908 25,668 141,570 58,795 15,006,403 29,202,000 51.39%
TCD 124 2,799,452 87,138 301,516 167,958 37,387,925 82,587,000 45.27%
UCC 98 2,835,664 80,728 310,350 164,804 30,414,296 75,703,000 40.28%
UCD 99 4,434,444 137,061 439,045 302,004 43,465,472 104,695,000 41.52%
UL 96 2,816,779 33,371 194,095 74,903 18,633,134 61,140,000 30.48%

Source: Author’s own elaboration.

Table 1 above presents a summary of the data. The number of top suppliers included in the analysis ranges from 96 for UL to 124 for TCD, accounting for, as might be expected, only a modest share of total number of purchases. To collect the full list of suppliers in the future would strengthen the representativeness of the sample. In the academic year of 2010-11, the largest single purchase made by Irish universities was found in UCC (€2,835,664). Among the selected purchases – which are the largest ones for each university – the smallest purchase was made by NUIM (€25,668). The total purchases covered by the list of top suppliers vary from €15,006,403 for NUIM to €43,465,472 for UCD. Table 1 also shows that the data analysed here accounts for relatively high shares – at least 30.48% – of the total expenditure by universities.

Figure 1 Spatial distribution of purchases by Irish universities, 2010-11, %

Image

Source: Author’s own elaboration.

Here is a kind note to explain what regional, national, and international refer to in figure 1. By regional we mean the same region of the university; for example Co. Dublin for UCD or Co. Limerick for UL. National is used to measure the purchases made by the university somewhere outside its own region but still within Ireland. Therefore, the total of ‘regional’ and ‘national’ refers to the purchases made in Ireland, with ‘international’ meaning any purchase from overseas. For each university, the sum of these three numbers is 100.

As shown in figure 1, there is a clear divide between Dublin-based universities and those located outside Dublin in terms of purchasing activity. For UCD, TCD and DCU, the majority of purchases were made within the Dublin area, while for the rest universities, regional businesses only secured a much smaller share of university procurement. It is probably not surprising, given the economic dominance of Dublin in the Irish economy. Indeed, for universities such as NUIG, NUIM and UCC, a very large share of their national purchases – outside their own region but within Ireland – were placed with businesses in Dublin. International businesses accounted for less than 7% of total purchases made by all but two universities, namely TCD and UL. Further analysis is required to fully understand the relationships between these two institutions and internationally based firms.

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A REVIEW OF HEA FUNDING MODEL

In early June, the HEA released the “Higher Education System Performance 2014-16”, the first annual system performance report in which the HEA presents how Irish HEIs are delivering those national objectives set out for them in the “National Strategy for Higher Education to 2030”. The performance based framework for the system governance of higher education in Ireland undertaken by the HEA is designed to serve multiple purposes, from the delivery of national priorities, to the increase of the visibility of performance of the system to government and the wider public, and to the identification of institutions’ strategic niche and mission.

 

One of the key issues addressed in the report relates to the reform of funding model, as means of improving the accountability and efficiency of the system. Although the overall level of funding of HEA-funded HEIs has been declining since 2007/08, the percentage share of public expenditure on tertiary education institutions in Ireland is still much higher than the OECD average, as well as, to a less extent, higher than the EU21 average. As shown in table 1 below, after a rapid increase from 1995 to 2005, peaking at 84.5% in 2005, Ireland’s public expenditure as a proportion of total expenditure declined to 82.6% in 2008 and further to 81.2% in 2010. The number for OECD average was only 68% in 2010, and for the EU21 average it was 76.4%.

 

Table 1 Percentage of share of public expenditure on tertiary education institutions

1995 2000 2005 2010
Ireland 69.7 79.2 84.0 81.2
OECD average 76.7 75.6 70.9 68.0
EU21 average 86.3 85.5 81.5 76.4

Source: HEA (2014).

 

It is projected that the overall level of funding of HEIs will continue to decline further in the coming years to 2016. There are a few measures which have been announced in the hope of maintaining funding levels. Firstly, the government expects privately paid student contributions will amount to 19% of total institution income by 2016, through ways such as an increase in the student charge. Secondly, the HEIs are hoped, if not required, to diversify the sources of funding for research, in particular by doubling funding from EU competitive research funds through the Horizon 2020 programme. To be more specific, Ireland aims to win €1.25bn of competitive funding from the EU over the next seven years, which seems, even in the HEA’s view, to be a highly challenging target.

 

Thirdly, the HEA calls for further changes to the funding model in order to support implementation of the reform agenda for higher education, changes which would shift funding towards performance based. In its newly published report, the HEA describes its funding allocation model consisting of three inter-related elements: a formula-based core funding element, a strategic funding component, and a new element of performance funding. In general, the performance is measured under the headings such as: widening access and improving student experiences; teaching and learning; research performance; and engagement with industry and community.

 

The introduction of the performance funding is arguably the most interesting aspect of the new model, an element that could encourage competition and improve efficiency. In many countries, such as the UK, this component has been implemented for a while. After a few times of modification, the public funding for research in the UK is now administrated under a ‘dual support’ system – partly from the Higher Education Funding Councils and partly from other sources such as the Research Councils and charities. In general, the majority of teaching and research grants for UK universities are from the Funding Councils, which calculate the level of teaching funding for each institution according to some formula based on its student numbers and mix between different subjects (similar to the core funding in Ireland).

 

Research funding is allocated in a more complex way of the Research Assessment Exercise (RAE), a method of assessing the research of UK HEIs from 1992 and which has been succeeded by the Research Excellence Framework (REF) in 2014. This exercise is said to have set up a ‘competitive mechanism’ within the higher education sector for the distribution of scarce research resources. Based on a peer review process, RAE rates the quality of research conducted in UK HEIs and counts the numbers of research-active staff. Consequently, funds will be allocated in accordance with the quality (from 1 to 5*) of the work undertaken.

 

Many studies have examined the results of RAE in English universities, and confirmed significant variations between them. In 2001, for example, as high as 90% of subject areas in the prestigious Loxbridge group (London, Oxford, and Cambridge) achieved ratings at level 5, compared to only 7% of subject areas that were rated at level 5 in the new (post-1992) universities. An overall finding is that new universities in the UK only secure a rather small share of the total research subsidy, grants, and contracts, while the majority still flows into established universities which are more research-intensive.

 

In comparison to the UK model, the performance funding model being undertaken by the HEA is rather different. On one hand, unlike in the UK where all institutions are benchmarked against the same standards, the performance indicators vary from one institution to another in Ireland and are thus non-comparable. It all begins with a process of strategic dialogue between the HEA and each institution, in which the two bodies align the missions, strategies and profiles of individual HEIs with national priorities, and then agree on how to measure its performance against its strategic objective indicators of success and to allocate funding. Those performance indicators are in detail presented in a so-called “Mission-based Performance Compact” between individual institutions and the HEA. In essence, Irish HEIs are benchmarking against their own performance and objectives, rather than against the other institutions.

 

On the other hand, the HEA approach is more comprehensive than the REF exercise as it not only considers the research capacity of individual institutions but examines a wide range of activities in which HEIs participate. Therefore, it seems more like a different version of ‘Strategic Plan’ that individual institutions have developed, only this version has been a collective output between the institutions and the HEA. It is, indeed, important that each Irish HEI is improving its performance and impact towards a higher level than its previous ones. An issue remaining unresolved is that, without an universal benchmarking framework of the whole sector (e.g. the research quality measurement in the REF), it is difficult for individual institutions to build up a roadmap to compete against other institutions, as well as global ones.

THE STUDY ON IMPACT OF UNIVERSITIES: A COMPLICATED ISSUE

Whilst the research project I am currently working on mainly seeks to examine the economic impact of universities and other third level institutions in Ireland, it becomes more and more clear that the focus needs to be broadened to consider the context within which the institutions are situated.

In fact, the measure of economic impact could be conducted, and interpreted, either in a relative or absolute way. In many cases, the absolute impact, e.g. of universities, may simply be used to refer to a series of numbers which show what their outputs are. These studies mix the concept of output with that of impact. Useful as it is, it fails to capture how those outputs (research projects, publications, public lectures, exhibitions, etc.) play a role in the society after being produced. Admittedly, it is itself an ambitious, if not impossible, task to aim to systematically measure the role of university outputs in the society, not to mention many would disagree significantly what the word ‘role’ actually refer to.

Differently, the relative impact, again in the example of universities, may refer to benchmarking a number of universities or comparing universities with other types of organisations. In this approach one may imagine even more complexity and, sometimes, confusion.

Scholars have come to appreciate the diversity of universities, an important element one could observe by searching not necessarily in a global scope but within the same region. The diversity might be shown in many forms, such as number of students and staff, amount of research grants, historical background and missions, academic disciplines, relationships with industry and government, as well as the wider social context.

For some, it becomes a question whether it is useful at all to benchmark universities as their significant difference may deny any implications derived from the comparison. An institution-by-institution approach has been suggested, but it has its own problems and limits. Nevertheless, it is key to justify the selection of institutions which one would like to compare.

To compare the impact of universities with other types of organisations is an interesting but even more difficult thing. Many previous studies which have done so need to view universities the same as business units, which is at best partly true. Universities, one may argue, are fundamentally different from businesses, as the former ones are non-profit organisations while the latter ones pursue profits. The argument could go on and on, but it seems true that the inter-sectoral comparison needs more cautions when interpreting.

A geographical perspective has also been added into the study on impact. There are many reports commissioned by individual universities investigating their impact on the local, regional, and national level. Normally, it is the objective of this kind of project that defines the geographical boundary of the comparison.

In the research team we have discussed about working out a review which intends to scan the extant body of impact studies of universities. This review, in our perspective, is necessary as issues mentioned above have evolved significantly and started to call for an ever more comprehensive understanding.