More competition for funding will drive excellence in universities, whether in the US or Hong Kong

In recent weeks, there has been quite a lot of discussion about university autonomy in Hong Kong. People have raised concerns about political interference in university affairs and questioned whether the chief executive should automatically be the chancellor of local universities. Critics have accused some professors of being too comfortable and neglecting their jobs. Some have argued that universities here would be better off as private rather than public institutions in order to free themselves from government intervention or be open to competitive forces.

All major universities in Hong Kong are publicly funded. In comparison, many top universities in the US are private and are considered among the best in the world. How do the US private universities manage to perform so well?

Some may attribute their success to private donations and endowments. Harvard has a US$36 billion endowment, Yale US$24 billion, Stanford US$21 billion, and MIT US$12 billion. These universities also charge very high tuition fees. Annual tuition, not including room and board, can cost as much as US$50,000 per year.

Are these high tuition fees and endowments enough to run the universities? If we look at MIT's 2014 operating revenues, out of a total income of US$3.12 billion, 10 per cent comes from tuition fees, 20 per cent from investment returns, and 48 per cent from research funds (mostly federal). For Stanford University, 16 per cent of its income comes from student fees, 25 per cent from endowment and investment income, and 26 per cent from sponsored research. Federal dollars therefore represent a major source of income for many top private universities.

The federal government also plays a large role in public universities. The University of California system has a total budget of US$27 billion. About 11 per cent comes from the state of California, 12 per cent comes from student fees, and 15 per cent comes from sponsored research. So the financial pictures of private and public universities are not that different.

According to the US constitution, education is under the jurisdiction of the states, not the federal government. Unlike Britain, China and Japan, where the central government plays a key role in higher education, the US federal government is in a peculiar situation of not being able to do so.

In the late 1950s, when the US faced strong competition from the Soviet Union, the government realised that special measures were necessary. Federal agencies began to inject huge amounts of money to support universities. Such support came in the form of research grants and contracts. Funds flowed from the departments of defence, energy, education and commerce; the Environmental Protection Agency; Nasa; the National Institutes of Health; and the National Science Foundation.