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INTERNATIONAL HIGHER EDUCATION

Declining Demand and Private Higher Education: The Portuguese Case

Pedro N. Teixeira
Pedro N. Teixeira is a professor in the Department of Economics, University of Porto and is on the staff of Center for Higher Education Policy Studies (CIPES), and is PROPHE Affiliated Researcher. He is also a Fulbright New Century Scholar 2005-06. Address: Faculdade de Economia, Universidade do Porto, Rua Dr. Roberto Frias, 4200 Porto, Portugal. Email: pedrotx@fep.up.pt.

IHE devotes a column in each issue to a contribution from PROPHE, the Program for Research on Private Higher Education, headquartered at the University of Albany. See http://www.albany.edu/dept/eaps/prophe/

Changing Patterns of Demand
The decline in private higher education has become a timely policy issue in several countries with a strong private sector. The situation is striking since this occurs in countries where private institutions emerged in a context of fast expansion of the overall higher education system and where there was no apparent lack of demand for new programs and institutions. It is therefore interesting to analyze what happens to private higher education when the demand changes, either due to economic or demographic factors.

This phenomenon is illustrated by the Portuguese case. From the mid-eighties onwards there was a massive expansion of higher education in general, and an even faster expansion of private higher education. However, by the mid-nineties the situation changed. The stabilization and then the slight decline in the number of applicants to higher education, plus the steady expansion of public institutions, reduced the number of potential candidates to private institutions. During the last decade, many private institutions have experienced significant difficulties and some of them had eventually closed down.

The decline of enrolments in Portuguese private higher education seems to be the result of several forces. First, there is the demographic decline, which surfaced later in the Portuguese case since mass education emerged later than in most?Europe. Secondly, there are the bottlenecks in lower levels of education that reduce significantly the number of potential candidates to higher education. Despite several policy initiatives, a significant portion of Portuguese students do not finish compulsory education and less than half of the corresponding age cohort finishes secondary education. Thirdly, there is the issue of regulation. During the period of expansion, private higher education was allowed to develop in an almost uncontrolled manner. However, recent governments seemed keener in making private institutions more accountable and this forced some institutions to be more restrictive in their admission procedures.

Vulnerabilities of Portuguese Private Higher Education
The current difficulties faced by private higher education are also partly explained by its own profile. During the heyday of expansion there was a strong propensity to focus on cheap and popular degrees that positioned private institutions as demand-absorbing, as it frequently happens in countries that experienced recent expansions of the private sector. Likewise, private institutions have become strongly concentrated from a geographical and disciplinary point of view. This has led to saturation in certain areas and made it more difficult to find alternative ways to attract students. The situation was made worse by the fact that, despite the increase in the level of cost-sharing, public institutions remained a much cheaper and prestigious alternative that students preferred to private ones.

The scale of the problem has forced private institutions to rethink their profile. The initial response was either of denial or to regard the problem as a temporary one. Many institutions expected that the demand would recover and ignored the further decline of enrolments in pre-higher education levels. Eventually many institutions realized that the problems were persistent and started to contemplate some changes. One of the major possibilities has been a restructuring of the private higher education landscape through a process of mergers and acquisitions. The very few cases available thus far suggest that the merger strategy is far more complex than the acquisition one. There are even examples of mergers that have been reversed after an experimental period, confirming the difficulties in bringing together institutions with different organizational identities and that had previously regarded themselves as competitors. Most changes seem nevertheless more directed towards downsizing the scale of the private sector, namely by closing down programs or campuses that failed to attract a minimal number of students.

However, there are signs that many institutions have learned insufficiently from their recent misfortunes. Many of them kept flooding the Ministry of Higher Education with proposals for new programs, apparently disregarding the fact that this would only shift applicants from existing programs to new ones without changing the overall context of declining demand. On the other hand, and although it seems logical that most institutions would reduce their staff numbers in face of declining student numbers, there are indications that the reduction in the former has been more than proportional leading to increases in the average faculty's workload. Moreover, many institutions, in order to cut costs, have also moved from more qualified and expensive faculty to less qualified and expensive one. This is hardly a route towards stronger credibility and attractiveness.

Hard but Necessary Changes
Molded in times of fast expansion, private institutions seem to experience great difficulties in developing strategies to face an adverse context in student demand. Although there is a reasonable reserve of potential growth in the number of candidates to higher education, due to the high dropt-out rate in the educational system prior to higher education, one cannot reasonably expect that changes in this front will produce sudden results. Since it seems unlikely that the tight market in terms of student demand will change significantly in the forthcoming years, private institutions risks becoming increasingly cornered on the few low-cost areas to which there is still some unfulfilled demand in the public sector. Thus, although in many countries private higher education may still thrive by positioning itself as a demand-absorbing sector, in some countries it will have to rethink its mission and profile, as painful as it is, if it wants to survive.

These developments should provide also some food for though to governmental authorities. The Portuguese experience suggests that allowing private institutions to expand in an uncontrolled way may be damaging even for themselves. The system should be steered in a way that stimulates the private sector to develop sustainable and diverse institutions that are not excessively driven by demand-absorbing short-term strategies. This will require a more rigorous assessment of private higher education projects in terms of staff, facilities and academic orientation, instead of the usually prevalent pattern of lax regulation that stimulates opportunistic behavior and adverse selection.

[Online] Available: http://www.bc.edu/bc_org/avp/soe/cihe/newsletter/Number44/p14_Teixeira.htm