Universities provide key contribution to economy – Study

Finnish universities make a “very substantial” contribution to Finland’s economy, but this could increase or decrease in response to future changes in university funding, a new report has warned.

The key finding of the report, Economic Contribution of the Finnish Universities, is that in 2016 the economic contribution of Finnish universities equated to over 6% of economic output and more than 5% of employment.

This implies that:
  • • For each €1 Finnish universities generated through their direct operations terms, they created almost €8 in total benefits for the Finnish economy; and
  • • Each person directly employed by the universities supported more than four jobs elsewhere in Finland.

“They play a vital role in supporting long-term economic growth and ensuring that Finland maintains its competitive position in the global economy,” the report says. “Analysis undertaken as part of this report suggests that any changes in university funding could have disproportionate effects on the Finnish economy.”

The universities are an embedded part of the cities and towns where they are based and bring an added vibrancy to these localities, the report says. The Finnish towns and cities that have universities have experienced a population growth rate of twice the national average. Compared to non-university towns, their growth is even more marked: in some cases growing at seven times the national rate.

“They are also active contributors to the wider economic, social and commercial life of the country. For many years they have adopted a culture of knowledge exchange, collaboration and innovation. This has been vital for ensuring that the benefits of higher education and research are widely disseminated and has been a key driver of long-term economic growth,” the report says.

The universities have purposely been spread across the country in order to extend the reach of higher education to people living beyond the capital region. This has had a very positive impact on the quality of education throughout the country and is a key factor behind the strong academic performance of Finland compared to other countries.

As a group, the 14 Finnish universities had a full-time student population of approximately 148,000 students in 2016, a staff complement of around 32,000 people and a combined annual budget of approximately €2.7 billion (US$3 billion).

But the success of the universities in contributing to the economy leaves the economy vulnerable to the effects of university funding policy changes, the report argues.

In a hypothetical situation, if the universities’ core funding was reduced by 10%, this could result in a loss of 16,900 jobs and €1.8 billion ‘gross added value’ in Finland.

“Such a reduction in the economic impact might be associated with a reduction in taxation revenues of €0.8 billion and so it is likely that a cut in government funding could be counterproductive since the lost taxation receipts could well be greater than the funding cut,” the report concluded.

The report concedes that quantifying the value of universities’ contribution to long-term growth is difficult because the very high degree of integration that exists between business and academia in Finland means that a significant amount of university-business interaction occurs informally and goes unrecorded.

This means that the impact presented above is likely to underestimate the true value of this activity to the Finnish economy. Quantifying the extent of this underestimate is challenging but one approach suggests that the true value of this activity could be more than six times the estimate presented above (that is, closer to €21.7 billion than €3.4 billion).

The report was published by BiGGAR Economics, a Scottish-based company which specialises in analysing universities’ contribution to national economies.

The report was a joint project between the Confederation of Unions for Professional and Managerial Staff in Finland or Akava, the Confederation of Finnish Industries or EK, the Association of Finnish Independent Education Employers or AFIEE, the National Union of University Students in Finland or SYL, and Universities Finland or UNIFI.

In the evaluation, the main sources of impact generated by the universities are the core activities of the universities, the students’ activities, the business and innovation support the universities provide, and the graduate premium (or how much more graduates earn over their working life than non-graduates). Other sources include the health benefits and tourism.

In addition, through their staff and students, universities have many other impacts on society, such as increasing wellbeing and renewing the Finnish cultural heritage, which are not measurable in euros.

Individual impact

BiGGAR Economics has made a separate clarification on the financial impact of the University of Jyväskylä. The university was estimated to have a financial impact of €1.1 billion gross added value and to create more than 12,000 jobs.

This means that every €1 invested in the university is linked to an average added value of €6.09 in the Finnish economy. Similarly, every job at the university created on average four jobs in Finland.

Regionally, the university is very important for Central Finland. The report states that during the last 35 years Jyväskylä’s population has grown more than eight times faster than that in towns without a university.

In a press release the University of Tampere or UTA said that its share of the gross added value was 9%, which translates into €1.3 billion a year, equal to 11,600 jobs.

Every €1 invested in UTA produces €13 in return for the Finnish economy, it says. The share attributed to the so-called graduate premium was €0.4 billion or nearly one-third of the gross added value created by UTA.

According to BiGGAR Economics, which undertook the evaluation, UTA’s effect on business operations and innovations and its share of knowledge production benefiting society is €3 billion.

“The University of Tampere has a large economic footprint,” said Markku Sotarauta, professor of regional development studies. “However, the role of universities is not limited to economic volume or the production of new knowledge and competences, licensing and patenting innovation or the creation of new entrepreneurship.

“The University of Tampere draws in knowledge and skills from elsewhere and helps to apply knowledge that has been produced elsewhere to local conditions. The university also has a significant role in exposing, redirecting and translating existing but thus far unknown or unconscious local information into a dialogue and activities that shape the future, Sotarauta adds.

International comparisons

In 2014 the League of European Research Universities or LERU institutions were found by BiGGAR Economics to have €16.3 billion in income and to generate a total economic impact of €71.2 billion. That implies that LERU universities generated €4.37 gross added value for every €1.

“The LERU-BiGGAR report provides sound evidence of how research universities make essential contributions to the European economy. As such, the impact of universities should be better understood and recognised, and their economic and societal contributions should be better taken into consideration by European and national policy-makers.

“Providing universities with adequate funding will clearly benefit the European economy, contributing to Europe’s growth and competitiveness,” LERU said in a press release and has now asked BiGGAR Economics for a second report.

Göran Melin of the Stockholm-based think-tank Technopolis Group, who in 2015 was the primary investigator for the report to the Ministry of Education and Culture entitled Towards a Future Proof System for Higher Education and Research in Finland, told University World News: “Finnish universities no doubt contribute immensely to the Finnish economy, both in absolute and relative terms. However, all such data need to be benchmarked towards corresponding data in comparable countries.

“Are Finnish universities doing extraordinary well compared to universities in other comparable countries or could they do better?

“As noted many times before, for instance in the Technopolis Group's study from 2015, increased internationalisation and strengthened profiling and consolidation of the whole research and higher education sector in Finland would most likely improve Finnish universities' contribution to society even more. In any case, no university can be expected to do better with cut budgets."