Higher education governance in Central and Eastern Europe: A perspective on Hungary and Poland

Abstract

This paper seeks to answer the question of what motivates governments to introduce and implement reforms in higher education (HE). The political and economic reasons why some governments in the countries of Central and Eastern Europe (CEE), for the period 1990 and 2015, have invested resources in order to facilitate cooperation between employers and universities, and have introduced quality criteria in HE finance while others have not, are identified. Use of a comparative perspective on Poland and Hungary revealed important differences in HE regulations in these seemingly otherwise very similar cases, showing that what drives regulations, at least in part, is the governments’ responses to the labour market, i.e. the dynamic between students – future workers – and employers – largely multinational companies. Moreover, differences in HE regulations in the two countries are responsive to voters’ concerns. The paper thus contributes to the literature on skill formation in Central and Eastern Europe and to the literature on political economy focusing on this part of the world.

Introduction

Why have different models of higher education (HE) governance emerged in the countries of Central and Eastern Europe (CEE)? Two contrasting models of HE governance have developed in Hungary and in Poland in the first 25 years following the collapse there of communism. This difference is puzzling given the many similar features of the two countries. This article explains the emergence and the evolution of these two contrasting models of HE governance, and argues that political parties in government have been driven by political motivations when regulating HE. Rather than focusing on the administrative and financial capacity of the government, the focus here lies on the motivations of governments to pursue such reforms. As such, this provides a political–economic perspective by concentrating on the incentives of governments to act. Polish and Hungarian governments have designed reforms aimed at incentivizing businesses and students to invest in skills provided by universities in different ways. These governments sought to build and improve a relationship between employers and universities and introduced quality criteria in the funding mechanism of HE. However, the ways in which the reforms have taken place show significant variations between and within countries. The set of constraints that make the reform of HE reform – aimed at improving its fitness for purpose, and thus its quality and labour market suitability – uncomplicated has led to different HE models in Hungary and in Poland. These different HE models mirror different coordination mechanisms in these economies. Signs of coordination emerged in Hungary: a more liberal regime developed in Poland.

The point of departure of this study is represented by existing theories about comparative capitalism in the region (Bohle and Greskovits, 2012; Nölke and Vliegenthart, 2009) as well as analyses of higher education governance (Busemeyer and Trampusch, 2011; Dobbins, 2011; Kwiek, 2012). This article interprets these higher education reforms in a new theoretical framework by showing that the institutional determinants of higher education governance are more complex than has previously been shown. This is one of the first studies about the political economy of human capital formation in post-communist CEE. The paper also considers Romania as a shadow case that is better understood in the literature (Freyberg-Inan and Tarlea, 2015). It seeks to provide an understanding of the extent to which political parties in government have responded to different incentives when deciding on the reorganization of their education systems. Two aspects of the ways in which governments have adapted HE provision to the labour market are considered comparatively: first, establishing relationships with specific employers, which has required significant investment on the part of the government; and, second, the introduction of quality assurance criteria in the financing mechanism of HE using public funding.

Even though political parties in government have rarely been considered in the literature or in public debate as active players in these reforms, they do play such a role and they have the opportunity to make use of their power when regulating higher education (see also Busemeyer et al., 2013). While the role of the state has changed substantially since 1989 in CEE, somewhat ironically it continued to play an equally important role after the communist regimes collapsed.

However, political motivation cannot be regarded to be entirely separate from structural conditions in the economy, such as those determined by the labour market. I show that these political considerations – which are understood as the room to maneuver of political parties in government – are endogenous to the labour markets in these countries. Governments made efforts at coordination in order to build links between universities and the labour market. First, they introduced and financed study streams aimed at improving the goodness of fit of HE output to demands in the labour market; and, second, governments also introduced financing mechanisms intended to improve HE quality, switching the focus from input (e.g. number of students) to output (e.g. research productivity) indicators. The first aspect is more important in Hungary: the second has been more visible in Poland, thus far. This has led to different models of HE governance very much in line with different models of capitalism. An empirical analysis shows that, in response to the labour market, more forms of coordination have emerged in Hungary between employers and universities in comparison to Poland, which has evolved along a more liberal path.

Theoretical and empirical contribution

HE governance in a political–economic context

The theoretical framework developed here builds on political economy scholarship with a strong interest in skill formation, the ‘varieties of capitalism’ (VoC) framework. HE governance understood as quality assurance and goodness of fit has not, to date, been explained in the VoC framework, in either new or old democracies. I show here, in a novel way, that it can help us explain higher education dynamics in the post-communist world. One important tenet of this theoretical framework is that skill formation, understood as the processes through which individual countries create human capital – skills – is essential for the types of relationships that are established between the different political–economic institutions.

Hall and Soskice (2001) explained that modern democratic capitalist systems are not characterized by the same coordination mechanisms between the most important institutions in the economy. The authors distinguished between liberal and coordinated market economies. A liberal economy, such as the United States, is characterized by an education system that provides people with general skills. Coordinated market economies, such as Germany, provide individuals with more specific skills (Culpepper and Finegold, 1999). In a liberal market economy, individuals obtain more specific training on-the-job, while in coordinated economies these highly specific skills for the industry in which employees are active are provided by a formal education system. Hall and Soskice (2001) explain that skills provided by education institutions, by either vocational training in coordinated economies or more general education in liberal economies, are complementary to the needs of the labour market. As a result employers are also well adapted to this existing skill pool in the market. However, little is known about whether such coordination has emerged in the market economies of CEE with the exception of Hancke (2011), nor about what could explain the differences between Poland and Hungary.

I show here that similar, complementary institutions have emerged in CEE, but these have not been addressed in the literature either conceptually or empirically. I emphasize these institutions of skill formation by focusing on the critical role of the state in facilitating coordination between employers and higher education institutions and by improving HE quality. I start the analysis with the work of Nölke and Vliegenthart (2009), which characterizes the countries of CEE as dependent market economies. This is a third variety of capitalism, joining the liberal and the coordinated market economies. Rationalizing the implications of this conceptualization, Tarlea (2015) explained how skill formation in CEE can be understood within this framework. The dependent market economy model is redefined in such a way as to allow skills to play a similarly central role as in the initial varieties of capitalism formulation (Hall and Soskice, 2001). The evolution of skill formation in CEE is explained in the context of the emergence of the dependent market economy in these countries. The labor markets for highly educated individuals have been fundamentally influenced by multinational companies (MNCs) (Tarlea, 2015).

Along similar lines, Freyberg-Inan and Tarlea (2015) characterized Romania as a low-skills equilibrium-dependent market economy. They explained that the low-skills equilibrium in goods and services in Romania is determined and sustained by the higher education sector in the country; and showed that the most important employers in the market – MNCs – are key actors in supporting this low-skills equilibrium. Given the structure and types of activity developed in the region by MNCs, the relatively low quality of instruction and research in HE in Romania is complementary to the low-level requirements of firms that are active domestically. The demand for sophisticated labour is low in private and public firms, both domestic- and foreign-owned. However, the large, more productive firms tend to be MNCs (EBRD, 2014). Given that MNCs do not need very sophisticated skills, students enrolled in university do not have incentives to invest in acquiring difficult-to-obtain skills. By having these two sets of actors following their interests, the outcome is what Tarlea and Freyberg-Inan (2015) call a low-skills equilibrium where relatively low-value-added activities are carried out by a relatively low-skilled labour force (Tarlea, 2015).

The question addressed in this paper is whether this relationship between employers, universities and governments can also explain the diverging policy changes in Poland and Hungary. Indeed, in this picture of overall low equilibrium, some companies active in some countries have managed to move up the ladder of economic sophistication; others, less so. This paper engages with these theories and with their empirical implications and tests to what extent their scope conditions are more encompassing. The paper therefore engages in a comparison of two relatively similar countries – Hungary and Poland – while treating Romania as a shadow case, better understood in the literature (Freyberg-Inan and Tarlea, 2015).

The analysis relies importantly on the work of Dobbins (2011) on the Europeanization of higher education in CEE. Key trends are emphasized in that research, such as the undeniable power of the Bologna process to change the organization of universities in the region. The Bologna reforms were a good opportunity for CEE countries to prove their commitment to the European project. Nevertheless, differences have emerged among the higher education sectors, despite the highly globalized network of European regulatory institutions pushing for a more homogenous European HE landscape. This divergence remains to be explained.

The differences in how these relatively similar countries have changed their higher education sectors can be explained by the internal dynamics of the labour market and by the active role of governments in HE reform. Indeed, Kwiek’s insightful work on Poland showed how trends in HE have changed since the liberalization of the HE system was embraced, and how the hard sciences started playing a more important role once governments recognized the importance of these areas of study in the labour market (Kwiek, 2012).

Fit-for-purpose and HE quality

Widely accepted European criteria for measuring HE quality are not yet established (Leisyte and Westerheijden, 2014). As Jones and Ratcliff (1999) pointed out, the proper goals and means of education are highly context- and stakeholder-dependent, while firms active in the labour market are key stakeholders. One aspect of higher education quality is taken into account here – its fitness for purpose, which is closely linked, but not synonymous, with employability. It is a feature of HE that provides for a connection between employers and HE graduates. This link is especially vulnerable in instances in which market mechanisms have changed in fundamental ways.

Another indicator for HE quality captures the tension between enrolments and funding and this aspect is taken into account in this paper together with the introduction of quality criteria in funding mechanisms (Harvey and Green, 1993, 2009). Also documented in other work (Kwiek, 2012; Tarlea, 2015), enrolment levels in higher education have increased spectacularly in the two countries in the post-communist period. Nevertheless, spending patterns have not followed the same trend, and this has had a series of consequences for the ways in which funding was distributed locally, especially for study streams that are more expensive. Some governments have been particularly concerned about developments that influence this quality indicator, as both the Polish and Hungarian cases show.

Reforms aimed at improving the quality of HE and its fitness for purpose are more likely to be initiated and to succeed as long as political parties in power can benefit from the change, as developments in Polish reform, in the empirical part of the paper, indicate. The Hungarian case shows how parties can politicize HE governance, as the Orbán government has done by directly targeting its constituency. ¹ It implemented reforms aimed at restricting fresh HE graduates from working abroad. This found favor with voters having nationalistic views, unlike those who were cosmopolitan. The political factors driving changes in HE have changed both the design as well as the focus of studies.

This mechanism is likely to be perpetuated further. Political parties in power are also likely to benefit from the change if there is a demand in the market for higher skills, or if they can help create that demand, as some Hungarian governments did before 2010. The demand for higher skills comes from important employers in the market. Companies active domestically have changed as a consequence of market liberalization since the 1990s. A significantly important trend has been the entrance of multinational companies (MNCs) into the market. Certain measures by the government were important in attracting these foreign companies, one of them being the provision of human capital via the university system. Thus MNCs active domestically have started to play a key role in the demand side for skills. They are important as desirable employers for fresh higher education graduates and their presence is salient in these countries, which makes them important stakeholders in the higher education sector (e.g. EBRD, 2014).

A comparative perspective on Poland and Hungary

The functioning of markets in goods and services in virtually all areas has been dramatically reconfigured since the fall of communism (e.g. Stark and Bruszt, 1998; Svejnar, 1999). Interactions between key actors in given structures have determined different outcomes in reforms, including the governance of higher education. This sector has seen the most spectacular evolution in the post-communist era, with very rapidly increasing levels of enrolment, from around 15% to more than 60% across the region (UNESCO, 2016). However, the development of funding for higher education has not been similarly spectacular. One factor that has allowed for these diverging trends has been a more flexible approach to HE quality, as this empirical part argues.

Poland and Hungary have been successful in the post-communist period, both economically and politically. This has had direct consequences for the development of higher education in both countries, especially in contrast to other countries of the region such as Romania (Freyberg-Inan and Tarlea, 2015). However, developments in higher education have not followed a monotonic trend in Hungary and Poland.

The following case studies provide a narrative of the HE policies promoted by various political parties in different contexts in the two countries. I emphasize the types of incentives that parties seem to be responsive to when engaging in reforms in HE, and how these reforms have a direct, measurable impact on HE governance. I focus in particular on the relationship to an important stakeholder group in HE quality: employers. I explain why these reforms have differed in the two countries and explain the complex mechanisms driving HE reform.

Hungary

The emergence of coordination between employers and universities

To put it in its historical context, the reform of Hungarian HE began before the 1980s. Lajos (1993: 404) emphasized the bilateral intergovernmental agreements, the support of the Soros Foundation, as well as the incentives and funding for university courses taught in different foreign languages. This was important for the internationalization of Hungarian universities in the 1980s and it therefore preceded the political changes of the 1990s. At the same time, cooperation between universities and industry had already started at the end of the 1960s. Short-cycle professional higher education has a long tradition in Hungary – for example, the schools of engineering and the agricultural academies (Lajos, 1993: 404): Hungary has a dual HE system, composed of colleges and universities. Moreover, in the period following 1990 higher education enrolment has increased most in the public sector.

The first democratically elected government, headed by Prime Minister Antall, was a right-wing government led by the Hungarian Democratic Forum. Funding was not as problematic in Hungary as in the rest of the Eastern European region, especially at the beginning of the 1990s, due to a ‘relatively favourable government policy’ (Lajos, 1993: 403). But, most significantly, secondary vocational schools continue to be important and more students are enrolled in vocational schools than in other secondary schools. As Hancke (2012) also emphasized, this distinguishes Hungary from Poland, Romania and Estonia, where vocational training has almost disappeared.

The evolution of coordination

Similarly, Hungarian governments have played an essential role in building links between HE institutions and MNCs, especially in the period 2000–2010. Successive governments have played an active role in building the educational infrastructure and in fostering links with MNCs. Probably the most important aspect of the measures undertaken by the Hungarian socialist governments of Medgyessy, Gyurcsány and Bajnai between 2002 and 2010 is that they provided first the infrastructure necessary for these businesses, including the development of HE. Moreover, successive governments have actively pursued a policy of attracting foreign direct investment to this sector. Strategies for this have included state aid and subsequently lower corporate taxes, and investment in higher education. The automotive sector has become Hungary’s comparative global strength, also emphasized by PwC’s studies (PwC, 2014).

The government provided the infrastructure necessary for businesses active locally by ensuring the supply of much-needed local skilled labour (Economist Intelligent Unit, 2012). This was achieved by relying on the educational infrastructure in higher education. I show below that when Audi entered the Hungarian market it required HE graduates in engineering; the government eased the process by supplying the skills that were required. It also provided Volkswagen with financial incentives (direct subsidies and low taxation) for the relocation of the company and, subsequently, to elevate the level of sophistication of the activities it carries out in Hungary. This cooperation between the government and different producers in the automotive sector showcase the mechanisms for the creation of links between employers and higher education institutions. However, and emphatically, this does not exclude the possibility that cooperation can occur in other sectors as well. Equally, it is not always easy to create the link between employers, universities and young graduates.

Cooperation also occurred in the case of Audi. In 1993 the Hungarian government, headed by prime-minister Antall, was successful in attracting investment from Audi, a company of the Volkswagen group, to Győr in western Hungary. Between 1993 and 2014 Audi invested a total of €5.7 billion (Tury, 2014). A policy of maintaining Audi’s interest in Hungary was pursued further by the government through action taken to develop a high-skilled base of graduates tailored to meet the requirements of this MNC. As early as 2007 the Audi Hungary Vehicle Engineering Department Group was launched, as a part of the Department of Applied Mechanics at the Széchenyi István University of Győr. The university offers higher apprenticeships, similar to the German system, as well as bachelor’s degrees, master’s degrees and PhD-level training. Unsurprisingly, the department’s website is fully available in German and Hungarian, although not in English. The faculty is expected to train future employees for the manufacturer in Győr. The government’s role in this process is emphasized further, particularly since Audi does not appear to have provided financial support to the university. The government justified this incentive package by reference to the beneficial relationship that would be developed with the University of Győr (Tury, 2014, provides good descriptive evidence of this). This points yet again to the fact that Hungary evolved more clearly into a coordinated dependent market economy and that HE provision is supportive of this.

Indeed, in 2014, Volkswagen manufactured in Győr what PwC (2014) would call ‘advanced automotive’ for Audi. In this branch Audi manufactures engines, assembles vehicles and carries out technical developments closely linked to the production cycle. Engineers are expected to understand advanced processes and to be able to supervise automated production. The branch in Hungary therefore requires some highly skilled HE graduates: ‘Complete engine development exists only in Germany and in Hungary only partial tasks are being carried out’ (Tury, 2014). This is typical for a dependent market economy. While the main part of development is still being carried out at Ingolstadt, Neckarsulm and Wolfsburg in Germany, the level of technological cooperation between branches ensures that there is substantial scope for the Hungarian automotive industry to cooperate with the universities in Hungary.

A closer analysis of the investment made in business promotion shows that the Hungarian government commissioned PwC, the management consultancy, to assist with the government’s efforts to attract investment: PwC has branches in Budapest and Győr. The investment agency advertises the education level of its employees as the biggest asset of the economy: ‘The Hungarian automotive sector’s cooperation with the local education system is strong and focuses on research and development’ (PwC, 2014). This shows the strong incentives Audi had in supporting the university sector in building links to the companies active locally. However, the relationship between businesses and universities is not necessarily one without troubles, as later developments proved.

These reforms built on the work of previous governments. In spring 2008 the government headed by Ferenc Gyurcsany of the Hungarian Socialist Party (MSZP –- Magyar Szocialista Párt) had already attempted to introduce moderate (€550) fees to be paid yearly by all students as part of its deficit-cutting reform package. However, a nationwide referendum in March 2008 rejected the package and the introduction of tuition fees was banned. Thus a left-oriented government decided not to make HE budget cuts: the government was responsive to voters’ concerns regarding HE. Orbán could still benefit from the decisions that were made while the previous government was in power. This is a telling example of what Pierson (2004) refers to as the time lag between decisions being made and their effects on institutions. In fact, Daimler Mercedes started manufacturing cars in Kecskemet in 2012: the decision to build the factory was made in June 2008 while Ferenc Gyurcsány of the Hungarian Socialist Party – MSZP – was in power. Daimler responded to state efforts to develop vocational training in the Kecskemet region, according to the existing cooperation agreement with the government. As was noted in the magazine Business Week, ‘Hungary’s allure is an educated labor force that last year cost €8.61 an hour compared with €45.66 in Germany, according to the German auto industry group’ (Business Week, 2012).

This highlights Orbán’s ambivalent relationship with investors. He argues that he is supportive of large industrial investments, particularly in the manufacturing sector, but he has declared repeatedly his lack of trust in foreign investors, especially those in banking or the media; he has even acted on this by introducing a set of new taxes on these businesses, as reported by Reuters: ‘Companies hit by the taxes include Hungarian units of Deutsche Telekom and EOn, and the main local lobby group for German firms say they feel separating investors into good and bad groups is counterproductive’ (Reuters, 2012). This different attitude of the Orbán government to investors also shows that the government does not necessarily need to be a continuous supporter of strong links with the business environment. As a result the relationship between employers and universities can be particularly vulnerable in its incipient stage. The analyses on Poland also seem to identify some inconsistencies among policymakers regarding higher education.

Quality assurance mechanisms in Hungary

Hungarian HE received significant attention from close observers of European politics when, in 2010, the Orbán government started a controversial process of HE reforms, including massive budget cuts. This is an example of a non-incremental HE development, showing that the active decisions of governments influence HE spending. In this instance the government had stated that, in the longer term, higher education should be ‘self-financing’ (Fuzessi, 2013). Orbán’s cabinet was invested in May 2010, following the formation of a super majority coalition headed by the right-wing Hungarian Civic Union (Magyar Polgári Szövetség – Fidesz) and the Christian Democratic People’s Party (KDNP). In 2011 the government reduced the number of scholarships drastically, which led to a 25% drop in the number of higher education applicants in 2012 (Fuzessi, 2013). Students on government scholarships were required to sign a contract in which they promised that they would work in Hungary for a period, within the next 20 years, of twice the length of their course (Fuzessi, 2013). While this was a response of the far right to the challenges of integration in the European common market and an attempt to keep its highly educated skill pool in the country, it also provides some indication that HE can be used quite efficiently by parties to target their own constituencies. The government appealed more to nationalistic ideals and less so to the structure or the needs of the economy – such as the necessity to attract highly skilled labour at home. One reason why this has been a notoriously contested reform is the fact that the government has not incentivized the different institutional actors, choosing instead to force students to stay in the country through formal requirements.

Universities in Hungary are relatively autonomous. The Hungarian Accreditation Committee carries out the evaluations for quality assurance in HE, but the share of funding distributed according to quality criteria is low. In 2008 universities received around 15% of their funding from third-party funding, 70% came from the state and 15% from tuition fees (Vasilache et al., 2012). For Poland the respective data were 34% from business, 59% from government and 7% from abroad (EUROSTAT, 2010). Similarly, most research grants from the Hungarian education ministry stemmed from operational grants rather than competitive grants. (Vasilache et al., 2012). This shows little commitment to HE quality provision, even in a regional perspective.

Poland

The emergence of coordination between employers and universities

While the reform of HE in Hungary has taken centre stage in the region and has led to street protests, Poland has also witnessed significant changes in HE. However, the HE systems in the two countries have evolved along surprisingly different paths.

The HE sector has traditionally been structured differently in Poland compared to Hungary. Polish communist HE did not benefit from an institutional framework that would allow for cooperation between universities and firms active domestically. Moreover, both the more liberal development of HE and the more distant connection to the labour market have been maintained in the post-communist era. A skill formation system developed in the country more closely resembling a liberal education system than one providing specific skills typical for a coordinated system. A natural consequence of having a different skill formation system in place in the beginning of transition has been that subsequent decisions to reform HE had different sources, understood as stakeholders, than in Hungary. The governments in power had a more direct influence on HE governance; this was not linked directly to employers, and improving HE quality was more direct. Also, the relationship of universities to employers is less straightforward, but there is scope for cooperation. A different type of cooperation between the state and private firms active domestically has been at play in Poland historically, with universities providing general skills tailored less to the specific requirements of employers. The post-communist governments, starting with that elected in 1993, have not reversed this communist legacy.

The evolution of weak coordination

Important changes were implemented under higher education minister Barbara Kudrycka, in office between 2007 and 2013. Moreover, discussions regarding a reform of HE continue to be on the public agenda following the 2015 parliamentary elections. A member of the Civic Platform, Kudrycka introduced controversial but progressive HE reforms – a cut in enrolment, especially in certain fields. She was a member of the Tusk government, an example of an economically liberal government preparing reforms in HE likely to be supportive of the domestic economy and, most importantly, having an impact on the quality of education provision. The changes in government in this case have also had effects on the spending and enrolment ratio in the country (Tarlea, 2015). Kudrycka introduced a law designed to prevent this over-commitment of university professors by binding them to full-time employment in one university. Similar to Romania, a ranking of universities was introduced in Poland, according to which research funds would be distributed. These reforms resulted in a reshuffling of the entire HE system. Above all, however, the reform had significant implications for the quality of the education provided: one direct implication was higher spending per student. However, because parliamentary elections were approaching, Kudrycka resigned at the end of 2013 as a result of her too controversial reforms. Minister Kolarska-Bobińska took over the education portfolio after Prime Minister Donald Tusk’s reshuffle in November 2013.

The Civic Platform government understood the need to incentivize students to invest in skills rather than coerce them not to leave the country. This distinguishes it from the Orbán government in Hungary. Reforms aimed at improving the quality of higher education are more likely to be initiated and to succeed as long as the political parties in power can benefit from the change. The Civic Platform, which benefitted from the support of the somewhat urban middle class, was more likely to take the risk of implementing these controversial reforms. The controversial reform introduced by Barbara Kudrycka aimed to improve the entire HE sector and to reshuffle the equilibrium between the losers and the winners of these reforms. Even more significant, what is specific to this more liberal variety of capitalism in the dependent market economy of Poland is its top-down approach, started by the government and with no particular cooperation of employers as important stakeholders in the process. Kudrycka was particularly active in this pursuit.

Nevertheless, other similarities between Poland and Hungary have become more noticeable since the 2015 elections in Poland. In addition, far-right policies have also taken centre-stage in the country. An analogous debate to that in Hungary is also taking place in Poland regarding the right to free education. In 2016 discussions have been held regarding the appropriateness of free education for medical students: the cost of educating one medical student, by the end of their six-year studies, amounts to around 66.000 euros (11.000 per year). Maciej Hamankiewicz from Poland’s Medical Council complained that graduates in medicine find foreign countries more attractive, while Poland is experiencing an increasing shortage of medical staff (Polish News Agency, 2016).

It is a fact that the Law and Justice Party (PiS) and its leader Jarosław Kaczyński are generally suspicious of foreign influence (Foy, 2016). The discussion the need of universities to attract students, i.e. to be entrepreneurial is also salient in Poland. Kaczyński believes there is a need for new education policies (Foy, 2016). Unlike its predecessor, the Law and Justice Party represents those that have benefitted less from the transition to a market economy. These are the people at the bottom of the income distribution and the PiS government seems to be responding to these concerns as well. This shows some similarities to what takes place in Hungary.

All in all, instances of cooperation between the government and private firms in Poland are less numerous and such developments have not been as central as in Hungary. Examples of this do exist in Poland, such as the cooperation of the technology company Google with a business school in Warsaw that started in 2015 and which was intended to foster entrepreneurship in the region (Stanislawska, 2015). However, the government was less involved in this project, which has developed more organically, as a cooperative venture between a private university and a private firm. It should come as no surprise to find more instances of cooperation of local branches of MNCs with education providers in Poland, either. Indeed, the consulting firm Deloitte (2014) provides a more comprehensive overview of the different programs developed at national level in Poland aimed at improving the cooperation of private firms with universities. These programs provide a legislative framework that should allow for this cooperation, rather than the government becoming closely involved in specific relationships between universities and private employers.

This emphasizes the more liberal orientation of the country in comparison to Hungary. It also underlines once more that there is more than one way to achieve success in a democratic market economy, which is very much in line with the tradition of varieties of capitalism. Interestingly, cooperation between universities and businesses is also possible in this framework; it can happen without the government being particularly active in pursuing cooperation. Nevertheless, unlike in Hungary, this close collaboration of businesses and universities is less likely if incentives for cooperation are not present, if firms and education providers do not believe they are benefitting from direct collaboration. The case study on Hungary showed that the government was able to intervene to create incentives for cooperation.

Quality assurance in Poland

From a broader perspective, and similar to the rest of the region, Polish higher education has expanded, a consequence of the liberalization of the market for education. However, some fields have expanded more than others. Kwiek (2012) showed how the expansion era in Polish HE lasted for about 15 years, from 1990 to 2005, and that this upward trend in enrolment has slowly started to change. Most interestingly, the model of the Polish HE system has allowed for the burgeoning of private universities. This development was in contrast to the situation in Hungary, but similar to that in other countries in the region, such as the Baltic countries, Romania or Bulgaria. One consequence of this market mechanism in higher education has been the fact that universities in both the private and the public sectors have become particularly interested in attracting a large number of students (Grove, 2014): this enabled them to secure funding. A larger proportion of students is enrolled in private HE institutions than in Hungary. While Kaczyński’s Law and Justice Party was in power, before 2007, HE governance simply developed in a laissez-faire fashion.

Kwiek argues that as a consequence Polish universities have, paradoxically, become even more teaching oriented than they once were. During communism HE instruction was separated from research and the purpose of the university was to provide instruction. Therefore, the argument that universities have become even more teaching oriented is a strong criticism of HE developments, especially for the quality of education provided in these institutions. The fields that have experienced the greatest expansion are also those that have done poorly, especially when their research output is analysed. We are dealing with a university system divided between soft and hard fields, similar to the situations in Estonia and Romania (Tomusk, 2000).

Performance-based funding for research is relatively new in Europe: the very first such programs to be introduced were in Belgium in 1985 (OECD, 2010: 90; 2016; European Commission 2010). Furthermore, in 2010 no single country used a 100% performance-based system of funding. So, it should come as no surprise that performance-based funding is also new in post-communist Europe. We observed some differences between Poland and Hungary: Poland uses purpose-specific funding while Hungary relies on an input-based mechanism. This means that in Hungary 91% of funding is based on inputs, such as the number of students enrolled (Eurydice, 2011). In Poland, 70% of the total public contributions to HE are provided for specific purposes, directly linked to functions, tasks and objectives (Eurydice, 2011: 38). In contrast to Hungary, Poland was already using output criteria in the 1990s.

The introduction of a performance-based indicator was not without problems in Poland. An important reform took place in 2008 with the aim of improving innovativeness (Polish Ministry for Science and Higher Education, 2009). This was amended by the Law of 18 March 2011 (Eurydice, 2011: 86). A side effect was that it favored competition, rather than cooperation, between universities. The government is continuing its work on the performance assessment system that is meant to foster collaboration between national innovation systems and universities. However, this collaboration continues to be less substantial than in Hungary.

Conclusions

This analysis of the political and economic nature of HE reforms shows that the regulation of HE in Hungary and in Poland has been a matter of contention between political parties. Parties catering to different constituencies have pursued different policies once in government. This happened in both countries when parties targeting the middle classes pursued different reforms to those catering to lower-income individuals and families. These reforms have been relevant in political debates and have even led to street protests. Most importantly, however, change has not always been in the same direction. This nonlinearity is expected to continue in the years to come. Equally importantly, these reforms in HE have built on existing traditions understood as historical legacies in the education sector and in the relationship of firms with universities. Governments can build on pre-existing conditions, such as the inherited industrial structure together with the inherited university structure. This interplay between political parties, universities, and firms, each pursuing their interests, has determined the different HE reforms in the two countries. This relationship explains the puzzle identified at the beginning of this paper, the different HE regimes in two otherwise relatively similar countries.

The analysis shows that governments can strongly influence HE governance in a variety of ways: political parties influenced HE governance by targeting the fitness for purpose of HE – that is, its relationship to employers, as well as quality criteria in HE funding. The most important channel in Hungary has been the attempt to build relationships with MNCs in order to attract these to the country and to keep them active locally by providing the necessary human capital. This has simultaneously fostered the demand and the supply of technical skills, which has had an important positive effect on the development of HE quality in the country. It has allowed education to develop more closely alongside the labour market and thus to make HE fit for purpose. Other actions have also proved effective, such as the attempts of Polish governments to incentivize students and university staff to invest in skills, by providing funding through either tuition or better pay and a reduction of the workload of academic staff, which were important quality criteria. Even in contexts where the relationship of HE provision to the demand for skills in the labour market has been less direct, the existence of a qualified skill pool was essential in attracting business to the country, as the case of Google in Poland emphasizes.

Developments in Hungary show that the country is highly dependent on MNCs, which makes it a good and clear example of a dependent market economy. At the same time, there is strong cooperation between institutions of skill formation and universities and providers of vocational training, which shows strong characteristics of coordination. Most importantly, however, it shows that, sooner or later, skills develop very much in line with the ‘spirit’ of coordination typical of the country. Poland is also highly dependent on MNCs, but the links between universities and companies arise in a different way. Governments incentivize students, rather than companies, to invest in skills. Poland is a more liberal dependent market economy and the skills provided by universities tend to be more general, which resembles the HE system in the United Kingdom. But, most importantly, both coordination mechanisms – liberal and coordinated – can be effective in fostering skill formation in the economy. Both have their specific weaknesses, which need to be tackled with policies; and the most obvious promoter of these policies identified in this paper has been the government.

Political parties in government can have a clear vision about the needs of the labour market and they can incentivize companies, students and even university staff to invest in education, and thus to promote quality in HE. However, the political parties seem to use this understanding in order to please their voters. The extent to which parties cater to their constituencies is systematic and whether it falls along partisan lines, such as the left–right spectrum, should be analyzed in future research. Nevertheless, what can be claimed with certainty is that the support of parties in government can lead developments into one direction or another. This can become an important hurdle for HE development in the region. Somehow ironically, the state, as represented by the political parties in government, has rediscovered its role in the economy and this role can be used fruitfully. A radically different vision of the government can have dramatic consequences for HE and for the political economy more generally. This is the reason why this present paper emphasizes that it is not entirely clear that Hungary will continue on its path of coordinating businesses with education provision; nor is it entirely certain that Poland will continue on its neoliberal path. However, change is expected to occur – albeit with difficulty.

While much of the public discussion on education reform has focused on the inability of governments or on the restrictions imposed by the scarcity of public finances, or by the clear and strict guidelines of European reforms, this paper highlights how governments can and do play an important role even in such less friendly environments. One fact is here to stay: it would be extremely difficult to analyze the quality of higher education when separated from labour market dynamics and their political determinants. Other factors influence HE governance, among which are the Europeanization and the globalization processes of which all CEE countries are a part. The level of professionalism of HE officials will also play a role. Just how important these roles are should be considered in future research.