The world¡¯s higher education systems are shaped by neoliberal policies. That fact is lamented by many academics, who dislike the consequences of the increased managerial oversight to which it gives rise. But is it really such a bad thing?

The term ¡°neoliberalism¡± refers to the introduction of market-like mechanisms into government organisations with the ostensible goal of making them more efficient and effective. One very significant manifestation of this in higher education is performance-based funding. This seeks to incentivise particular outcomes ¨C such as increased retention, graduation, job placement or research effort and quality ¨C by making institutions compete for additional revenue.

Many European countries (19, as of 2010), Canada, Australia and 33 US states have adopted performance-based funding programmes. But while these have prompted some beneficial institutional changes, they have also had a number of harmful unintended consequences.

Studies suggest that performance-based funding has led to higher rates of research productivity in Denmark, the Netherlands, Norway, Switzerland, the UK and Hong Kong ¨C although many of the studies do not use research designs that adequately control for other possible causes of improvement.

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Performance-based funding has also prompted institutions to assess how well they function, and thereby to improve their academic and student services. They may engage in organisational learning processes in which they investigate which students are?underperforming and what institutional processes are contributing to that underperformance.

In addition, many institutions take steps to improve student learning and persistence. These include developing new academic programmes, such as short-term postsecondary certificate programmes; increasing online education options; and enhancing student services such as advising, tutoring, and orientation programming for new students.

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There is some evidence that such initiatives have resulted in improved student performance. Some multivariate research studies identify increases in the number of learners earning certificates from short-term courses. However, performance-based funding seems to have little impact on higher credentials. A of 12 US multivariate studies found that the average effect on completion of associate and baccalaureate degrees is not distinguishable from zero. Similarly, studies of performance funding in Denmark have failed to find any significant impact on student completion.

Performance funding also has the potential to produce unintended consequences. Our research found that?after its adoption, some institutions took steps or considered taking steps to restrict the admission of underprepared students and others who may struggle academically and negatively impact on institutional performance metrics. But restricting admission conflicts with the goal of expanding access to higher education for disadvantaged students.

Another unintended consequence is the relaxing of academic standards. According to our research, this either occurred or was considered at a number of US institutions?after the adoption of performance-based funding in their states. Examples include lowering grade boundaries or reducing the requirements to obtain a degree.

Finally, US studies have found that performance-based funding can narrow the range of activities that institutions pursue by rewarding some activities more than others, reducing the diversity of institutional missions. Moreover, there is evidence that, in the UK, performance-based research funding has led academics to put less emphasis on teaching and to converge in their research topics, dropping those that might prove less useful in securing funding.

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Such unintended consequences can be avoided. Policymakers should protect access for disadvantaged students by, for example, rewarding institutions more for enrolling and graduating under-represented students.?They should also take steps to protect academic standards. Mandating reports of changes in grade distributions and degree requirements could be one way to do this.

And, third, they should support and reward processes of organisational learning and reflection, rather than simply imposing performance metrics with little provision for institutional capacity-building. Low-resource colleges and universities must be provided with additional funding to allow them to develop the means to respond effectively to performance demands.

In this way, neoliberal policies such as performance-based funding could become a more positive influence in higher education. However, as with so many policies, the devil will be in the details.

Rebecca Natow is assistant professor of educational leadership and policy at Hofstra University and Kevin Dougherty is professor of higher education and education policy at Columbia University. They have just published a working paper on performance-based funding for the?, based at the University of Oxford.

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