Although participation in universities and colleges in Canada is still high, it has fallen since 2012 to below 80 per cent nationally, according to a report by Higher Education Strategy Associates.Ryan Remiorz/The Canadian Press
Dan Breznitz is the Munk Chair of Innovation Studies at the University of Toronto, as well as the co-director of the Canadian Institute for Advanced Research’s program on innovation, equity and the future of prosperity. He served as the Clifford Clarke Economist for the federal Department of Finance during 2021-22.
This essay is the third in a series, Prosperity’s Path. Successive governments have been warning about Canada’s slowing productivity for more than three decades. Now as the cost of living rises and per-capita economic output shrinks, this problem has reached an inflexion point. Dan Breznitz lays out how we got into this productivity crisis, and how we can get out.
Higher education is the main path to middle-class life, economic productivity, innovation, and a healthy democratic society. For this reason, we should all be proud that Canada’s universities have become best-in-class, and are global leaders in delivering a bang in education, research and the generation of truly important ideas. Indeed, since the Second World War more and more Canadians took the road of college education to their middle-class dreams.
So, amid Canada’s current economic malaise, if we, very much belatedly, rethink our future and reimagine a prosperous and innovative middle-class Canada, the one thing we should count on is our world-class higher-education system.
But can we?
The surprising answer is not any longer.
Like the rest of our institutions, and the government itself, we slowly starved our higher education system over the last few decades. We starved it so much that it is now on the verge of insolvency.
Posing for photo-ops, political leaders from all parties in all levels of government have been declaring their firm belief in quality, public, higher education that is accessible to all Canadians. The reality is, however, that announcements aside, all political parties across Canada have decided not to care about the future of higher education. If we look at real budget allocation per student, we find that they have stayed mostly flat, which means that inflation has significantly eroded their real value, and the same is true for financial transfers and research budgets.
In Ontario, for example, since forcing a 10-per-cent across-the-board cut on all institutions in 2019, the government has yet to manage even revisiting that decision. This adds to an avoidance of any decisions about changing the public support, which, thanks to inflation, led to a loss of over 30 per cent of government-controlled income in just the last five years. Similar dynamics have played out across most provinces and the federal government for the last several decades. The result has been a series of continuous indecisions, leading to a starved higher-education system in the hope the sector will invent ever more new sources of revenues to allow it to keep its quality and accessibility to all Canadians.
Somewhat surprisingly, unlike the government and most of our private sector, Canadian universities proved themselves to be extremely entrepreneurial, innovating and talented in expanding their business under constantly changing conditions. Since the 1990s, higher-education institutions have managed to grow their private-resource income (much of it by increasing both the number and the tuition cost for foreign students) to levels that allow them not only to offset the fall in public support, but to increase their overall funding. Sadly, this triumph of Canadian entrepreneurship and innovation only meant that our political leaders could continue to do what they love most: avoid making decisions for ever longer periods of time.
As was expected, the day of reckoning arrived. Not only has the unintended consequences of this marketization of education now come to bite us, the constant cuts and slow decline in public support has reached a stage where the majority of Canadian universities face constantly growing operational deficits and are on the verge of financial ruin.
Apart from the University of Toronto and the University of British Columbia, it is hard to find any Canadian higher-education institution that is not facing a difficult financial situation.JONATHAN HAYWARD/The Canadian Press
For example, as has been reported by The Globe and Mail, the University of Waterloo projects a $75-million deficit this year, York University’s deficit is already between $132-million and $142-million, the University of Alberta’s at $46-million, and Concordia University, even after implementing cuts of $35-million, will have a deficit of $35-million. Indeed, apart from the University of Toronto and the University of British Columbia, it is hard to find any Canadian higher-education institution, big or small, that is not in a dismal financial situation.
Thus, one of the cornerstones for our success as a society, the institutions responsible for creating the skills and ideas with which our economy can grow, our middle class prosper, and our society thrive, is on the verge of rapid decline.
As such, higher education in Canada is the perfect case to understand how our system has been failing us since the 1990s, and what needs to be done for the Canadian middle class to flourish again.
Let us start with the facts: We no longer have a public higher-education system, we have an American-style public-supported system that is underfunded and operates with the wrong incentives if our national goal is to kickstart innovation.
Prosperity’s Path: Government ineptitude and Canada’s economic malaise
Data is notoriously hard to get, and not collecting or making it easily accessible and understandable is a common strategy of governments around the world when they prefer not to know how bad things are. Thankfully, in many areas we have resourceful Canadians who do care and step in on this front. In the case of higher education, Alex Usher, chief executive of Higher Education Strategy Associates, has done us all a public service in collecting the data, analyzing it and publishing his findings. If by the end of this article you want to get even more upset about the state of higher education, just read the entirety of his 2023 and 2024 annual reports.
According to Mr. Usher’s reports, the situation is dire. Although participation in higher education (universities and colleges combined) in Canada is still high, it has fallen since 2012 to below 80 per cent nationally. Federal financial support for research in 2024-25 is at the lowest level in 25 years, and support-per-student has been declining for decades. Ontario, our richest province, is leading the charge (although in the wrong direction) and now spends only around $7,000 per full-time student. This is the culmination of a long process, which has accelerated since the financial crisis of 2008, and since 2016, public financial support for Canada’s higher education is no longer the main source of revenues.
This should lead all of us to ask three questions:
1. How, faced with this environment, did Canadian institutions manage to grow?
2. What does the decline of public support mean for the quality of education, especially as we enter a period with the largest-ever cohorts of Canadian students entering university?
3. How does diminishing support affect innovation and economic growth?
The answer to the first question is clear and exposes the utter hypocrisy of Canadian governments in both the provincial and federal levels: 100 per cent (yes, that does mean all) of institutions’ increased operation budget since 2010 came from international students’ tuition fees.
Why is this hypocritical?
The fact is, the majority of those students come from poor and developing countries, and so our politicians have cynically created a system in which a higher-education sector with dismal public funding is counting on fees from those much poorer countries’ students to make sure that the quality of education that the much richer Canadian receives is only slightly declining.
Here’s a detail to bring this home: Ontario is our richest and most populated province, and yet students from India alone channelled more money – $2-billion, in fact – into its higher-education system in 2023 than the province did.
So next time one of our federal or provincial politicians vex lyrically about the value of education or pose on the global stage to preach to poor countries about their need to invest more in it, you should send them a little statue of Saraswati, the Hindu goddess of wisdom, to remind them who pays for our education right here at home.
Now, this vast and growing number of international students (which, incidentally, was part of an official plan to grow Canada’s economy, executed without enough thought toward building the needed infrastructure to support this population growth), is now curtailed. But the hypocrisy continues with these students, the true heroes of our successful higher-education sector, who are now being blamed by our political leaders for the failure to solve our housing crisis.
That brings us to the second question about the quality of education: With higher rates of inflation, the cost of domestic tuition frozen, real public financial transfer declining annually, and educational institutions’ main source of off-setting this closed, what kind of future is there for Canadian colleges and universities just as more young Canadians than ever in our history are going to enter college?
A bleak one is the answer.
There is no need to be a business genius to see that the only way forward for Canadian universities under current circumstances is to “put more glutes in seats,” and there is also no need to become an education expert to understand the negative impact that strategy would have on the quality of education.
Welcome to the age of mediocre Canadian higher education, another brick in the wall between us and our middle-class dreams.
Prosperity’s Path: How Canada’s middle class got shafted
And then to the third question about the impact on innovation: The lack of funds will utterly disrupt the nascent attempt to encourage universities to not only commercialize more of their research, but to do so in Canada.
The situation is already bad. Currently, many universities do not even own the intellectual property stemming from their research, and hence, have no good business incentives to focus on commercializing it. Those that do are faced with a daunting task, demanding very long timeframes and very high costs.
As universities come under more financial stress, the situation will only worsen. Any manager of any enterprise that faces insolvency would tell you that the first things to cut are any high-risk, high-uncertainty, high-cost activities, especially when you have to pay for them from your own, already deep in deficit, operational budget. In short, we should assume that our leadership position in quantum computing will be transformed into a thriving American industry, similar to what has just happened in artificial intelligence.
When your government has no capacity for making strategic decisions and implementing long-term actions, you end up seeing the trains pass you by.
What should be done?
First, we need to stop being polite and publicly admit we have a problem. Furthermore, we must acknowledge that our problem is not one isolated to the education sector. The decline of education is part of the broader, systemic decline of Canada, and in order to turn the tide we need to have systemic solutions. Canada needs to have the capacity to think and act strategically.
Education.
Housing.
Innovation.
Productivity.
None of these can be fixed by writing a cheque, announcing a program or with any one-time action. Systemic problems need systemic attention, operational excellency, humility in admitting and understanding that we do not know all the solutions beforehand, and the willingness to experiment until we find what works – and then scale it up.
It takes a lot for that to happen, but we can begin somewhere small: Start making decisions and implementing them, not just announcing them.
And before we do that, we need to decide what we – Canada – want to be.