IMPACT OF THE FINANCIAL CRISIS ON THE FUNDING OF HIGHER EDUCATION IN THE CZECH REPUBLIC IN

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1 IMPACT OF THE FINANCIAL CRISIS ON THE FUNDING OF HIGHER EDUCATION IN THE CZECH REPUBLIC IN Jaromír TICHÝ Vysoká škola finanční a správní, o.p.s. jaromirtichy@volny.cz Abstract This paper is focused on the financing of higher education and its present, very media-discussed changes, which go hand in hand not only with the adopted strategic document, a White Paper on tertiary education, but also the overall economic and social situation of the Czech Republic. It ponders the status of higher education in the unity of the national economy, it weighs the public and private resources embedded into it and shows the direction the scales tilts in the present, marked by the global economic crisis.i will investigate whether there is a correlation between changes of the total public expenses on the education in the Czech Republic and the changes of GDP of the Czech Republic in the years Keywords: public expenditure, private expenditure, GDP, funding of education, education 1 HIGHER EDUCATION AND ITS POSITION IN THE STRUCTURE OF THE NATIONAL ECONOMY Your Higher education, as is already in its introductory provision defined by the Act No. 111/1998 Coll. Universities, is the top centre of "education, independent knowledge and creative activity" and has "a key role in scientific, cultural, social and economic development of the society."[15] It is the highest level of education, closely associated with the scientific, research, developmental, artistic or other creative activities, and thus leads not only to development of the potential, but also to the skills enhancing of human capital, and is becoming one of the most reflected branches of the public sector. Although any political activity of the universities is forbidden by law, their nature, which is profiled as an integral part of the national economy, provides a significant influence on their existence and operation of the current political and economic situation of the country. Environment, in which higher education institutions 511

2 Impact of the financial crisis on the funding of higher education in the Czech Republic in operate, thus reflects the general trend, pointing beyond education itself, and puts them in a variety of roles that correspond to these processes. At present, characterized by the commercialization of education, which is supported by the emergence of private education in the last decade, the need to increase the competitiveness of individual universities appears, which forces them to conform to the system of market mechanism. This leads to a somewhat paradoxical situation - the authoritative role of the state recedes into the background and carries a large part of public financial support and higher education is forced to look at alternative sources, although the market with education is developing and number of students at public universities keeps rising - the total number of students in the academic year 2001/2002 to in 2010/2011.[1]Financing of tertiary education becomes a burning issue; the answer is linked to many sub-factors, which include not only the ratios of the national character, but especially now indisputable nature of global influences and globalization. 2 FINANCING OF HIGHER EDUCATION FROM THE STATE BUDGET - THE CURRENT STATE In the Czech Republic coexist universities of three legal forms. The state universities are the most specific form, which as government departments fall under the direct management of the relevant ministries. At the opposite pole are private universities, which establishment is authorized by the Ministry of Education, Youth and Sports (MoEYS). The state can provide state subsidies to those private schools that operate as a non-profit organization, and its drawing must be in accordance with the general regulations for the handling of state budget funds. The last group includes the type of public universities that are established and abolished by law and which are dependent on funding from the state budget directly, although this income usually does not make 100 % of the volume of funds with which these schools can operate, the public funds play a major role. The amount of this subsidy may be for higher education institutions of this kind the key factor that affects not only their performance, but also the quality of education that these universities provide. The state offers to public universities two types of support, these are contributions "for providing accredited study programs and lifelong learning" and associated activities, which are intended to support "the development of the university and accommodation and meals for students."[7]the contributions and grants are eligible to each public university, the amount is not determined by law. The amount of public money obtained by schools (which are requested in writing) depends on the overall financial performance of individual accredited programs, the number of new and existing students and recent graduates, and the results of scientific or other creative activities related to their activities. Contributions from the state depend on the longterm plan of the related Ministry. Schools do have some ways to influence their share of funds allocated to them, however the total amount of funds is decided by the state through its budget. Each year, the government approves budget expenditure and revenue limits of the chapter of Ministry of Education, Youth and Sports, which are 512

3 based not only on projected expenditure frameworks of coming years, but also from the formulation of the main priorities of this department. Strategy for allocation of funds and also based on the principles and rules for financing public schools, which are defined annually in light of long-term intentions of the Ministry of Education. Allocated funds are distributed into four basic areas. The first and largest of them is the normative part of the budget of universities, into which the financing of study programs and related activities fall. The second item focuses on college students and their social issues, such as subsidies for accommodation and meals for students or scholarship contributions. The third area subsidizes development of universities and the fourth area subsidizes the international cooperation and other activities related to general educational policy. The real amount of grants and contributions of these four segments is summarized in the following table (see Figure 1), which illustrates the status and distribution of the public school budgets in the last three years and where downward yearly trend is clearly evident. Table 1 Indicator of the budget of public universities in (in thous. CZK) [14] Indicator Budget 2010 Budget 2011 % share of total (col. 3) Annually (sl. 3 vs. 2) Budget 2012 % share of total (col. 6) Annually (col. 6 vs. 3) Budget area I ,2% -4,6% ,2% -6,7% Budget area II ,0% -2,1% ,0% -6,9% Budget area III ,8% -4,3% ,5% -10,0% Budget area IV ,9% -5,8% ,3% 10,1% Program VaVpI Total ,5% -6,7% ,7% -6,5% Indicator of budget for 2012, which is actually quantified in the table above, was determined by the methodology specified in the Principles and rules of financing public universities for 2012, which were processed by the Ministry of Education in collaboration with the Centre of educational policy. According to this document the strongest emphasis seems to be an effort to gradually reduce the number of university students[16]and concurrently develop quality and performance of public universities, while maintaining coefficients of the economic demands of the of individual study programs. 1 Operační program Výzkum a vývoj pro inovace, který je přidělenými prostředky z rozpočtu veřejných škol spolufinancován s EU. 513

4 Impact of the financial crisis on the funding of higher education in the Czech Republic in THE CRISIS AND ITS IMPACT ON HIGHER EDUCATION FUNDING RETROSPECTION Engagement of education in expenditure of the public budget is an indisputable fact the vast majority of countries. Comparison of these expenses with a total GDP also predicts the role that education plays in relation to other sectors of the national economy, and thus reveals the importance that is attributed to education in the overall economic development of the country. In times of financial and economic instability, countries look for a way how to efficiently split "dwindling" public money, so that they not only ensure the future growth of the economy, but also maintain the necessary balance in the levels of sub-sectors. The need of reformulation of the public finance system therefore appears which often leads to deeper reforms just within individual departments. Stagnation or necessary spending cuts in the state budget expenditures in times of crisis help the logical idea of decentralization of funding of public universities towards multi-source acquisition of funds, both from multinational funds and the private sources. Decrease in economy performance ultimately substantially burdens the individual, whose participation in the financing of his higher education deepens this economic "chasm". It is therefore obvious that the final formulation of the strategic document the White Paper on Tertiary Education, which outlined the development of higher education in the Czech Republic and which was adopted in an atmosphere of growing crisis of 2009, triggered a loud discussion, even though it was already processed during the two previous years, and reacted primarily on the general global trends. As noted by this document, the demand for higher education, which is presented as a guarantee of the future career (and the associated economic) success is in the Czech Republic growing. Along with its modernization and increasing dynamics, by which the attractiveness of higher education is supported caused a "sharp increase in the number students", but "it was not accompanied by a corresponding increase in expenditure, so there was the fastest decline in spending per student among the whole OECD."[6]These long-term below-average numbers, along with a significant increase in the number of students fell primarily on the quality of higher education, which was in this regard, despite its commercial success, frozen. Although higher education is the key mean for raising living standards and quality of life of individuals, and thus an important factor for GDP growth, real increase in state funds flowing to this sector is insatiable. Given the current economic situation, as well as current demographic changes, importance of public budget chapters that promote social development and health is emphasized. From the table (see Figure 2) that follows is clearly evident the downward trend of support for education from public finances due to the increasing number of university students. Graph (see Figure 3), which begins the next chapter also offers a look outside our country, and thus reveals not only that the percentage of this 514

5 expenditure is low in international comparison, but also a negligible proportion of the private sector in financing of tertiary education. Funds per one student from public finance are set out as a normative contribution, which is then multiplied by the coefficient of accredited field, this coefficient is proportionately increased especially with its technical complexity. Although the basic norm, as the table clearly shows in the first three years monitored ( ), does not change, its real value decreases. The year 2010 brings the total decline, to the extent of almost 14%. This trend given not only by the state of the economy, but also by the policy of the Ministry of Education is also reflected further - year 2011 brings more than 10% reduction in this expenditure, the balance for this year (not included in the table), according to the Ministry of Education is about -7,5%.[16]Indicator of the number of students responds to the high drop these numbers in Although the number of students does not drop in average to minus items, its rapid growth slows from 7,47% in the academic year 2008/2009 to 5,37%, respectively to 1,78% in 2010/2011. The biggest drop is recorded in students studying out of the full-time study. The effort to meet the demand for higher education for economically active persons of middle age that immediately after the acquisition of secondary education could not or would not continue their studies, is evident by the dominance in this percentage that between exceeds 10% limit and almost disappears to 0,60% in 2011 with the growing financial crisis. Table 2 Number of students vs. basic normative per one study[14] Number of students 2006/ /08 Annually 2008/09 Annually 2009/10 Annually 2010/11 Annually Fulltime study ,78% ,61% ,87% ,27% Other forms of study ,36% ,26% ,58% ,60% Total ,30% ,47% ,37% ,78% Basic norm (in CZK) Annually 2009 Annually 2010 Annually 2011 Annually ,00% ,00% ,90% ,58% 4 COMPARISON OF GDP OF THE CZECH REPUBLIC AND DEVELOPMENT OF TOTAL PUBLIC EXPENDITURE ON EDUCATION IN THE CZECH REPUBLIC For the purpose of the paper - to determine if there is a relationship between changes in total public expenditure on education in the Czech Republic and changes in the CR GDP in the selected period in each year, the ratio of the total public expenditure 515

6 Impact of the financial crisis on the funding of higher education in the Czech Republic in on education in CR on CR GDP in the 5 year period ( ) is observed, source data see Table 3. In Figure 1, there is a comparison of the development of changes in GDP of the Czech Republic and the changes development in total public expenditure on education in the Czech Republic in (previous year 100%).Public expenses on education are understood as expenses on education and training in school, preschool and school facilities spent from public funds (ie from the state budget and local budgets). Figure 1 Comparison of the development of changes in GDP of the Czech republic and changes in total public expenditure on education in the Czech Republic in (Figure 1 structured by author, data from Table 3) 5 COMMENTS ON THE COMPARISON OF THE CZECH REPUBLIC GDP DEVELOPMENTS AND DEVELOPMENT OF TOTAL PUBLIC EXPENSES ON EDUCATION IN THE CZECH REPUBLIC IN In Figure 1 the connector of the development of total public expenditure on education in the CR in observed five-year period (years ), (previous year is 100 %) is recorded. Development of CR GDP (at current prices, previous year is 100 %) is show in the graph in the same period. Source data are listed in Table 3. Development of total public expenditure on education in the Czech Republic in 2006 showed an increase in the growth rate. Correspondingly the total public expenditure on education in the Czech Republic for the following year (2007) were planned and budgeted. The trend of reduction in GDP of CZ rate of growth was forecasted in 2007, 516

7 but the CZ GDP shows growth. In the world, the influence of emerging global economic crisis were noticeable, starting in Development of total public expenditure on education in the Czech Republic in 2007 already shows a loss in the rate of growth from 9,6 % to 7,1 % and continues by decrease of the growth rate and ultimate decline of GDP in 2008 (-1,3 %, see Figure 1). Budgeting of the total public expenses on education in the Czech Republic for the year 2009, based on the GDP development in 2008 is surprisingly optimistic and budgeted change in development is almost 9% (8,57 %). This increase in the rate of growth of total public expenditure on education in the Republic was due to the influence of increase in salaries for the staff of RGS and increasing expenditures in the area of operational programs. The International Monetary Fund (unites 185 countries of the world) in its forecast in January 2009 said that global economic growth will fall in 2009 to 0,5 %, while in 2008 it reached 3,4 %. In November 2008 the estimate of growth for 2009 was still 2,2 %. Reduction in the rate of growth of GDP of the CR occurs in 2009 (2,8 % at current prices), but total public expenditure on education in the CR this year, as already commented above, increased their growth rate. This positive blip in the development of the growth rate of total public expenditure on education in the CR in 2009 was replaced by a reduction in growth rate (-0,57 %) in 2010.Subsequent positive CZ GDP development in 2010 offers an optimistic outlook for the budgeting of total public expenditure on education in the Czech Republic for the year A positive influence have the news about the unwinding of the global economic crisis. These include the Structural Funds, aimed at promoting national dimension of education support. In the programming period is in the Czech Republic focused on tertiary education Priority Axis 2 of the Operational Programme Education for Competitiveness. This operational program draws from the European Social Fund and for the Priority Axis 2 is allocated 626,6 million, ie 35 % allocation of the entire operational program. Its governing body is the Ministry of Education, Youth and Sports. It can be assumed, according to commented connectors of traces of the development total public expenditure on education in the Czech Republic and the connectors of CZ GDP development, that the prediction of GDP of the CR was more difficult by the onset of the global economic crisis thus the quality of the basis for budgeting has decreased for next year. In this paper, there is not monitored the development of budgeting of the total expenditure of chapter 333 of the Ministry of Education, Youth and Sports, but if there is any budgeting, it may be assumed that this budget will usually be exceeded. The negative impact of the global economic crisis still join other negatively acting factors such as the ongoing reform of the public finance of the Czech Republic, the demographic development in the country and also the ongoing discussion on tuition. 517

8 Impact of the financial crisis on the funding of higher education in the Czech Republic in CORRELATION COEFFICIENT OF CR GDP DEVELOPMENT AND DEVELOPMENT OF TOTAL PUBLIC EXPENDITURE ON EDUCATION IN THE CR IN To determine the relationship between changes in GDP and changes in the development of total public expenditure on education in the Czech Republic the source data are listed in Table 3, which contains the data series of CR GDP development (at current prices, previous year 100%) in the years For the correlation analysis, it is sometimes not suitable or can not be used the correlation coefficient r to monitore the dependence of the measured values, for example, because they are contained outlying values. Spearman coefficient will be used to determine the degree of dependence between two characters. Table 3 The values for calculating the correlation between the Czech Republic GDP development and the development of the total public expenditure on education in the Czech Republic in the years [8, 9, 10, 11, 12] Year The development of the GDP of the Czech Republic in the years (n. p.) 9,2 5,1-2,8 1,0 0,9 The development of the total public expenses on education in the Czech Republic in the years (n. p.) 7,11-1,3 8,57-0,57 1,0 7 SPEARMAN'S CORRELATION COEFFICIENT (ORDINAL) AND THE TEST FOR INDEPENDENCE Spearman coefficient determines the degree of dependence between two characters that takes values from the interval <-1,1> and can be interpreted as the degree of convergence of two ordinal variables. When the relationship is tested, we observe a correlation between two characters (x, y). For both characters we determine, according to the size, the order. From the number of pairs we calculate Spearman correlation coefficient. (Cyhelský, 2009, p. 100) 518

9 Table 4 Thevalues for calculating of the Spearman correlation coefficient between the Czech Republic GDP development and the development of the total public expenditure on education in the Czech Republic in the years order x order y i x -i y (i x -i y ) suma (i x -i y ) 2 28 r s 0,585 Formula for calculating the Spearman correlation coefficient: r 6 n ( i x i n ( n Where: r s Spearman correlation coefficient, n number of pairs, i the number of pairs of values for all statistical units, i x, i y sequence pairs. s i y ) 1) 2, (1) Critical value rs(,n) = 0,878 (the significance level = 0,05 and the number of pairs n = 5). Conclusionr s = 0,585 < 0,878 dependence (correlation) was not proven (we do not reject the hypothesis H 0 of independence of characters). 519

10 Impact of the financial crisis on the funding of higher education in the Czech Republic in FINANCING OF HIGHER EDUCATION IN INTERNATIONAL COMPARISON - THE WAY FORWARD Figure 2 Expenditure on tertiary education as a percentage of GDP (2008) [8] The graph (Figure 2) reflects the state of tertiary education funding in 2008, the OECD didn t supply and newer complex numbers. Even from these data is superiority of public funds evident, which is in most countries by private financing just complemented. Dominant position in the public funding of universities then has its normative component, which because of its transparency and predictability closes the door particularly to the interests political, corrupt or lobbying. Public money spent on higher education in 2008 represented less than one per cent (0,94 %) of CR GDP, private means then about 0,24 %; the Czech Republic spent 1,2% of its GDP on tertiary education in total, and thus remained below OECD average, which reaches to 1,5 %. Nowadays much-discussed emphasis on creating opportunities for private financing of this sector, which "started" White Paper on Tertiary Education, does not solve the overall under financing (which is sufficiently evident from the graph). But it is trying, according to more effectively functioning foreign systems, to conform the Czech higher education to existing social and economic conditions and thus approach the international standards. The so far existing gap (manifested in most postcommunist countries) between the private education, where the student pays all expenses of his studies, and public education, where the student is not motivated by its own share on education, on the contrary increases unequal social conditions and reduces the competitiveness of the universities. The financial disengagement of public universities students also contributes to lower efficiency of higher education because students don t take any significant responsibility for their study (they choose higher 520

11 education after finishing high school only as the "most viable option", they extend the university study without serious reasons, or after the onset of the university do not show higher ambition to successfully complete the study). The White Paper therefore proposes to take these facts into account and shrink the gap between private and public education by the new system of grants, which should also be provided to private universities from public funding and the introduction of tuition fees in public universities. The inspiration is mainly drawn from the Nordic countries, which successfully apply straight support of study by targeted social studies scholarships, study grants and student loans. Given the current economic situation in the CR, also these countries, "which thrive to involve private funds in the system significantly and still have less social barriers in access to education than the Czech Republic."[6] Bipolar effort to reform the financing of higher education, which touches on one hand the distribution of public funds and their effective implementation, on the other hand it counts with higher private funds, currently brings its "fruits" in the form of registration fee which will apply to all students at public universities, not just new students, but also those who are already studying in higher grades. Public funding for higher education is still decreasing, although its distribution is slowly shifting in the direction indicated (higher proportion of successful graduates, lower normative for newly recruited student). Despite the general dissatisfaction with this evolution can be assumed that the inverse relationship of the private cost on study increase and stagnation or reduction of public funds, which despite the efforts outlined in the White Paper is due to the unfavourable economic situation, becomes the norm, which on the other hand strengthens the shorter academic programs that are now seen as "inferior", respectively lower quality, a kind of "incomplete" education. Hopefully, this attempt at equalization of higher education (whether we talk about the social situation of students or about the relationship between the single stages of higher education) in the final result will not pass through an effect on which today's students, but also representatives of various universities react rather negatively. 9 CONCLUSION This study did not set out to characterize the higher education funding in its complexity, its purpose was rather pinpoint its current trends and their possible effects. It underlined in particular the proportion between the private and public funding of universities and touched the general trend that tries to bring public education closer to private education. Contemporary accent placed on increasing the share of private funding of higher education is not only explained by the current economic situation in the Czech Republic, but also by the attempt to create a healthy functioning competitive system of higher education (at all levels), which would be closer to a worldwide model of tertiary education. To calculate the correlation between the development of changes in CR GDP and the development of changes in total public expenses on education in the Czech Republic in the years source table 3 was constructed. The correlation 521

12 Impact of the financial crisis on the funding of higher education in the Czech Republic in coefficient was calculated in Microsoft Excel 2010application. The dependence of two statistical variables by the Spearman correlation coefficient (ordinal) was not proven. Therefore it can, according to the results of correlation analysis between changes in GDP and changes in the development of CR total public expenditure on education in the Czech Republic in be assumed that due to the global economic crisis and the crisis of public finance sources in was erroneous predictions of GDP CR in these years. Thereby the quality of the basis for budgeting of total public expenditure on education in the Czech Republic in the following years was reduced. Acknowledgement: I thank my supervisor doc. Radim Valenčík, CSc. and organizers of the conference for the space provided. REFERENCES [1] ČSÚ. VEŘEJNÁ DATABÁZE. Po čtyžáků a studentů podle úrovně vzdělávání. [online]. Český statistický úřad, 2012 [cit ]. Dostupné z: apitola_id=17. [2] DOUBRAVA, Lukáš. Reprezentace vysokých škol přijala Bílou knihu kriticky. [online]. In: Učitelské noviny, 2008, č. 20, Copyright 2010 Učitelské noviny. s. 10. [cit ]. ISSN: EAN: Dostupné z: 7e9bcb3824b3e92d041565e6b3378a9. [3] KLEŇHOVÁ, Michaela. OECD: Financování školství ve světě a v České republice [online]. In. Týdeník ŠKOLSTVÍ č. 35. S. 10. Vydává Dictum s.r.o., ročník 2011 [cit ]. Dostupné z: [4] OECD. Financování školství ve světě a v České republice. [online]. In: Týdeník školství, 2011, č. 35, ISSN s [5] KRČMÁŘOVÁ, Jana. Dvě cesty ke třetí roli vysokých škol. Srovnání konceptualizace OECD a UNESCO. [online]. Aula, 2010, CSVŠ - Centrum pro studium vysokého školství č. 4, s [cit ]. ISSN Dostupné z: pdf. [6] MATĚJŮ, Petr a kol. Bílá kniha terciárního vzdělávání. [online]. Praha: MŠMT, [cit ]. Dostupné z: kniha/schvalena_bktv/ Bila_kniha_terciarniho_vzdelavani2.pdf. [7] MŠMT. Pravidla pro poskytování příspěvků a dotací veřejným vysokým školám. [online]. Praha: MŠMT, Ministerstvo školství, mládeže a tělovýchovy Č.j.: 4632/ [cit ]. Dostupné z: vysokeskoly/financovanivs/pravidla_2006_pro_vvs_vestnik.htm. 522

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