Chile: Universities and the National Innovation System

The present study offers a descriptive picture of the transition suffered by the Chilean university sector from a state-regulated regime to a market-driven one, complemented by demand-side subsidies facilitating market access to lower income segments of the local population. The process started three decades back and it was originally enforced under the expectation that markets and competition could bring about a socially optimal long term transformation of the university industry, without much government intervention being required. Our enquiry shows the complex way in which economic and institutional forces have co-evolved in the transition from one policy regime to the next. The de-regulation of tertiary education markets induced a rapid process of entry of new service providers. The simultaneous introduction of demand-side subsidies extended market access to new segments of the population inducing a very rapid increase in the enrolment rate to universities, especially so in the lower two quintiles of the distribution. A major overhaul of the financial model and institutions supporting the provision of university services induced the university industry to move into a new environment in which fiscal block grants where gradually replaced by an alternative regime in which student fees, contractual income, competitive funds for R&D activities, performance-based contracts for infrastructure upgrading and philanthropic donations provide – alongside with block grants – the resources upon which the ´university industry´ presently operates. The transition resulted in a self-reinforcing virtuous circle of sectoral expansion and institutional transformation. Many observers believe (Pilar Aranet, 2007) that Chile is today in the midst of a ´growth crisis´ as it further proceeds into a more ´mature´ institutional and market structure scenario. Many problems of access, affordability, quality, accountability and production of public goods have remained unresolved from the past and require serious reconsideration in the years to come. Some of the forces that motorized the process of expansion in the 1990´s seem to be wearing out, with the economy now expanding at a considerable slower pace than in the period 1984-1998 and with the university sector showing increasing signs of oversupply. The number of vacancies left unused seems to be increasing and the signs of a growing imbalance between supply and demand, as well as between academic disciplines, are getting increasingly evident. How much this is a structural issue – resulting from an economy which in recent years has slowed down its rate of expansion - or a cyclical issue, reflecting ´teething pains´ normally associated to growth and maturity, are questions of major importance in the near and medium term domestic policy debate. Briefly summarizing our more outstanding findings we notice that :First, reflecting a pattern which can be seen in other countries – Australia, UK, US, for example – Chile exhibits a long term structural transformation of the financial model underlying the provision of university services. Fiscal block grants are gradually diminishing as a fraction of total university revenue and student fees, contractual services, competitive funds for R&D activities and for infrastructure building up efforts are gaining ground as sources of income. Fiscal block grants – AFD (´Aporte Fiscal Directo´) and AFI (´Aporte Fiscal Indirecto´) – only represent today between 1/3 and 50% of total university revenue (there is a significant variance in this respect among CRUCH universities), while revenue coming from the above mentioned alternative sources account for around 2/3 of total university revenue, again with a large variance among universities. Second, a major achievement in terms of equity can be found in the fact that the proportion of youngsters between 18 and 24 accessing superior education increased from 15% in 1990 to 38% in 2006. The reason for celebration is even stronger when we notice that tertiary education access has increased well above average in the lower two quintiles of the income distribution. The proportion of low income families sending their first member ever to university has increased considerably during the 1990´s, suggesting that a significant process of upward mobility is on the making. However, comparing with similar indicators for developed countries within the OECD, or for nations such as Korea, Ireland, or Estonia, where 2/3 of the youngsters between 18 and 24 years attain tertiary education, we notice that Chile has still a long way to go if the goal is to move from 38% to 60 or 70% of tertiary education attendance in the 18-24 years segment of the population. Third, international comparisons indicate that Chile is behind world standards in terms of R&D expenditure, innovation activities and productivity growth. It is presently spending around 0.7% of GDP in R&D and although plans are that such expenditure is to be increased to around 1.2% of GDP in the course of a decade (CNI, 2008), it is presently lagging behind in terms of skilled man power creation needed to secure an adequate use of the fiscal resources in technology-generation activities. Local universities should be expected considerably to expand their rate of graduation of PhDs if doubling the R&D/GDP ratio is to be attainable. As the University of Chile Commission argues in its recent report on ´Policies for the scientific and technological development of Chile´ ¨The country has to set itself the goal of graduating 100 doctors per million inhabitants in 2020, this meaning 1.700 new doctors annually¨Furthermore, much remains to be done in terms of quality of educational services. The quality of education has a considerable impact upon the long term behaviour of the economy as well as upon the social, political and cultural functioning of society. Market processes have not done particularly well in relation to enhancing the quality of education. A frail accreditation mechanism and an over expansion of ´low end´ new universities entering the market during the early 1990´s have negatively affected quality of services. Although this seems to be in the process of improving, with small and low quality universities abandoning the market, or being taken-over by stronger ones which will re-structure them and upgrade their functioning, quality and consumer protection through a more solid accreditation system still remain as a promise for local university markets. The ´Consejo Nacional de Innovacion para la Competitividad´ (CNIC) is at the centre of the current debate on innovation, both in terms of setting the agenda and monitoring the gradual building up of institutions and domestic technological capabilities, particularly with respect to the commercialization end of the R&D spectrum, strongly related to international competitiveness. It is easy to understand how recent confrontation with university scientists and professors could develop, as much of the academic community feels that innovation and knowledge generation activities should address a broader spectrum of issues than those specifically related to upgrading the international competitiveness of the local economy. Issues related to energy, environmental protection, desertification, health care, aging and stress, urban development and more should be set up as part of the Chilean future knowledge-generation agenda, beyond international competitiveness. Such tension can be creative and in many respects welcome. But it comes at a time in which university markets and public policy for the ´industry´ should be carefully examined if quality aspects and the balance between supply and demand for university services are adequately to be handled. This seems to be a time for reflection, design and collaboration. Natural-resource based production and exports prospects remain good. Further economic diversification is needed, however, if the country is to increase its rate of economic growth. It seems likely that further government leadership, as has previously happened with the salmon industry, will be needed to attain the required pace of economic diversification. Such process needs to be closely accompanied by the development of the portfolio of innovation funding, incentive and support measures. Fiscal resources for stepping up both quantity and quality of R&D activities and tertiary education seem to be available. No doubt this is an enviable position, strengthened by the fact that the ´base line´ of departure is already very good. Quality improvements in universities have been pursued over the past decade through various different performance-based mechanisms (FDI and MECESUP) and lessons learned. The same is true as far as R&D activities is concerned, where the Millennium Initiative, Financiamiento Basal and other competitive funds have significantly upgraded the institutional modus operandi of the local innovation system. It looks quite possible to have a significantly innovation-led agenda and the needed quantity and quality expansion of tertiary education and of R&D efforts. Institutional culture changes slowly, but it does change. Chile seems to be proceeding in the right direction as far as developing a strong National Innovation System in the years ahead. This report argues for further policy development and action in some specific areas, so that access, affordability, quality, accountability of university services and the timely production of public goods could be successfully tackled by Chile in the years to come. The very short term global and national economic outlook is flat and rocky. The sense of this Report is that this is a good moment to move ahead on the design of further restructuring and improvements to the national innovation system and to the tertiary education and research sector - and a particularly bad time for conflicts to impede getting on with it. Other important enquiries are underway by CRUCH, Government Agencies, World Bank/OECD (on tertiary education, in anticipation of Chile joining the OECD) and they are also likely to provide further advice in this respect. Chile wants to proceed into a phase of ´technological deepening´, and of public goods creation which will simultaneously improve international competitiveness and equity in the access to ´merit´ goods in areas such as health, environmental protection, energy, desertification, and others. All of the above requires ´country-specific´ tertiary education and R&D activities as a sine qua non condition for the kind of long term development path Chile has adopted. Adequate macroeconomic management is important, but it is equally important to proceed with experimentation, learning and adaptation at the meso and micro level, creating markets, institutions and domestic capabilities. The international experience indicates that after periods of analysis and design, getting on with it becomes relatively more pressing relative to perfecting the design.