Performance-based funding for higher education: how well does neoliberal theory capture neoliberal practice?


Neoliberal theories—whether the new public management, principal-agent theory, or performance management—have provided the rationale for sweeping reforms in the governance and operation of higher education. This paper expands our understanding of neoliberal theory and practice by examining a leading neoliberal reform: performance-based funding (PBF) for higher education in the USA, Europe, Canada, Australia, and elsewhere. Our analysis of PBF examines not only its impacts but also its origins and implementation. Neoliberal theory has been used not only prospectively to design and argue for certain public policies but also retrospectively to analyse the origins and implementation of neoliberal policy. Hence, this paper examines this retrospective neoliberal analysis in order to determine how well neoliberal theory helps us understand the origins and implementation of neoliberal policy: in this case, the socio-political forces that gave rise to PBF; and the political and organizational features of the processes by which PBF was implemented.

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  1. 1.

    We include performance agreements in which governments advance funding to institutions in return for promised performance outcomes (Jongbloed et al. 2018).

  2. 2.

    Economic theories and their derivatives, such as neoliberal theory, are often used not just as descriptive generalizations or causal explanations but also as guides to policy action. The economic theories may be applicable only to certain cases in certain ways but not infrequently they are treated, particularly by policy entrepreneurs or policy makers, as fully encompassing the phenomenon being addressed and as general prescriptions for action. In that case, the theory is often no longer seen as subject to empirical test and refutation and as needing to be complemented by other theoretical understandings of the phenomenon in question. Particularly at that point, economic theories and their derivatives are sliding toward becoming belief systems or ideologies.

  3. 3.

    This quotation and others that cite Dougherty and Natow (2015) appear in The Politics of Performance Funding. © 2015 Johns Hopkins University Press.

  4. 4.

    Our arguments here draw on critical, postpluralist theories of political power (Lukes 2005) and the theory of the state (Block 1987; Carruthers 1994; Skocpol and Amenta 1986).

  5. 5.

    These sentiments of higher education officials can be seen as instances of the softer version of DiMaggio and Powell’s (1983) “coercive isomorphism.” Faced with resource dependencies, higher educational official align their beliefs with those of their funders. There is no explicit mandate but there are “informal pressures exerted on organizations by other organizations upon which they are dependent” (DiMaggio and Powell 1983).

  6. 6.

    This and other quotations that cite Dougherty et al. (2016) appear in Performance Funding for Higher Education. © 2016 Johns Hopkins University Press.

  7. 7.

    These general impacts obscure more localized effects. PBF is associated with larger impacts on degree production, graduation rates, and retention rates in the case of institutions that are more highly resourced and less dependent on state support (Birdsall 2018) and more selective in admissions (Favero and Rutherford 2019).

  8. 8.

    These findings largely come from surveys of faculty members’ perceptions and have not been conclusively corroborated by studies of actual behavioural patterns (Butler 2010; Glaser et al. 2002).


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This paper draws on a working paper issued by the Centre for Global Higher Education at the UCL Institute of Education (Dougherty and Natow 2019). We wish to thank Steven Brint, Floyd Hammack, Stephanie Mignot-Gerard, Thomas Rabovsky, Barbara Sporn, and two anonymous reviewers for the Centre on Global Higher Education for their very helpful comments on earlier versions of this paper. All remaining errors are ours alone.

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Dougherty, K.J., Natow, R.S. Performance-based funding for higher education: how well does neoliberal theory capture neoliberal practice?. High Educ (2019) doi:10.1007/s10734-019-00491-4

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  • Performance-based funding
  • Performance funding
  • Neoliberalism
  • Accountability
  • Principal-agent theory
  • New public management