"When a subject becomes totally obsolete we make it a required course." — Peter Drucker
For-profit educational services. Capitalizing off of instructional training. Bankrolling tutelage on a gravy train. Go ahead and sneer; cringe and shudder — get it out of your system. Oh the horror, running a profitable business that includes many of the facets of a traditional higher education.[1]
Perhaps this is one of the reasons that a disproportionate amount of the Ivory Tower is socialistically inclined; subconsciously they may fear that the market value of their research, teaching and professional existence subsists among relatively strange bedfellows, those whose productivity fluctuates along the poverty line.
A flatter world
Will distance education and online courses replace the intimacy of round table discussions with high-caliber teachers? David Gelernter, a professor of computer science at Yale, does not think so. Based upon my own experiences I would have to agree. However we both believe a free market in degree granting, one liberated from political regulation and business myopia, is just around the corner.
The proliferation and enthusiasm of such degrees is due in part to the fact that they can often times be earned in a more convenient medium, for a fraction of the cost and in a time-efficient manner. Say goodbye to commuting, as well as student fees you never took advantage of. Nor will you have to rearrange your life so you can attend a class whose instructor instills information that could have just as easily been gleaned from a $50 textbook.[2] As the late Peter Drucker succinctly put it, "Universities won't survive. The future is outside the traditional campus, outside the traditional classroom. Distance learning is coming on fast."[3]
Out with the old, in with the new, right? How will the traditional educational model, built for agricultural and industrialized economies, based on residential living, survive an ever-expanding mouse-accessible information age? Is the cultivation of inquisitiveness only available for four interest-bearing payments of $19,999 at State U.?
Are there drawbacks? Like any other undertaking there are always opportunity costs; activities you forfeit in order to pursue alternatives. By enrolling into an online program, Utopia will not spring forth from earth's bosom nor will you sleep on cloud nine. You will still get flat tires and computer viruses, maybe even a headache or two.
Is college as an institution of higher learning going to survive? The top-tier, the Ivies (both public and private), the flagships, those with enough political and economic pull will all perhaps survive into the future. Perhaps various departments such as those comprising STEM (e.g. science, technology, engineering, math), Law or Medical school — perhaps any and all, but as Peter Drucker succinctly put it, residential life will, sooner rather than later, go the way of the Dodo.
The point of all this is that many universities and colleges are simply not organized to run like a profit-making business. Rather than focusing on revenue generating specialties, they overextend and misallocate resources — ultimately beyond their fiduciary capacity thus find themselves asking for handouts (e.g. donations). This is not to say that the modern institution as a whole will be done away with, but rather they will inevitably be forced to confront the subsidy bubbles that insulate assorted pursuits. How they deal with the reality of market forces will ultimately determine whether each institution lasts.[4]
Get Rich Quick Schemes
Why go to college in the first place?
For some individuals, attending college is viewed simply as a quick and easy way to hit a monetary jack-pot. Like many other illusions of grandeur, it is reminiscent to the unscrupulous business plan of South Park's Underpants Gnomes:
- Attend College
- ???
- Profit!
Feeding this spurious dream are State subsidized loans which encourage and create distortions in the labor market, not to mention the reallocation of productive capital. Arguably it may be difficult to compare today's Van Wilder University with the "classical" schools of Oxford or Cambridge. Nevertheless, for the academic school year 2005-2006, the average tuition, fees, room and board of attending a four-year public institution: $12,127. For a four-year private institution: $29,026.
One of the justifications for the price tag is that, in the long run, a college-educated individual would make more money than someone without said education. And since being wealthier "benefits society at large," efforts promoting this lifestyle should be undertaken. However, as Neal Zupancic points out, this is a non sequitur as the causal relationship is not directly connected. This fallacious logic however, did not prevent State intervention from Senator Claiborne Pell who in 1972 pushed legislation which subsidized student loans - under the inauspicious name, a Pell Grant.
Relatively cheap financing (due to these subsidies) coupled with lower admission standards has led a surge in student populations at State universities across the board. Despite alternate financial sources (such as federal grants and private donations), per capita spending has significantly decreased over the past five years.[5] While the demographics may shift, the attendance trend is not decreasing for the foreseeable future.
Value by fiat
The central underlying element to Senator Pell's reasoning was skewed: those with college educations earned more money not because of the framed stamped and signed parchments hanging on the living room wall, but because they had some kind of intellectual training that gave them a competitive and productive edge over their non-educated brethren. And for the better part of 30 years, this "go to college and become rich" mentality has been successfully drummed into the minds of several generations of not only boobus Americanus, but much of the developing and industrialized world too.
Arguments regarding sub-standard educations aside, the fiscal outlook of those involved in following the accredited institution route has been documented and demonstrated to be a Pyrrich victory, as noted by Christopher Westley. Not that these individuals are unsuccessful upon graduation, but that they become broke, indebted and even bankrupt — all in the pursuit of a hyped Potemkin lifestyle.
Old habits die hard
Much like health care or even voting (e.g. what is the market value for a single vote, close to zero?), the industry of higher education has been sheltered from market pressures.
Campuses across the country, especially those run at large State institutions are inefficient planned economies — microcosms of socialism in action.[6] As Rothbard's law predicts, the University is not specializing in what it does best. Like an octopus, its tentacles end up in many unrelated pies in which scarce resources are diverted to enterprises and endeavors that stray from what its human capital does best: research and scholarship. The administration[7] involves itself in a smorgasbord of activities that range from acting as surrogate parents and landlords to maintaining campus hospitals and transportation services. Monopolizing food services, dorm-room cleaning (which now apparently involves class-warfare) and even landscaping - no enterprise is too small to be left alone nor too big to be undertaken.[8]
For instance, cell phones have dramatically altered one traditional revenue stream of many universities -- that of long-distance phone calls. As a result, some colleges have raised other student fees to compensate for the budget shortfalls. Or, as Rothbard's adage literally rings true, several universities are now offering their own cell phone plans to counter this trend.
What can stymie the high costs of operating a college?
Despite the sizable endowments, grants and discretionary donations that many research universities have, the return on investment from licensing internal innovations is next to nil. This coupled with increased annuities wrought by tenure systems has potentially delivered a crippling blow to an entrenched order.
The tenure-system was originally created to secure academic freedom for professors — offering flexibility and openness to speak and research freely without fear of repercussion. (See the Hoppe debate.) However from a financial perspective Stephen Kerr notes that, "raising an employee's salary creates an annuity for his or her organizational lifetime. Furthermore, since future increases are normally calculated as a percentage of salary, erroneously increasing someone's pay will tend to become geometrically expensive over time."[9] In other words, a firm should reward productivity, not tradition or longevity. Therefore performance-based contracts can be used in place of a tenure system, an idea now-embraced by numerous college presidents as well.
Many colleges, particularly those that are State-managed, must change their business models with the times. This is not some pie-in-the-sky ultimatum; according to a recent survey of college presidents by The Chronicle of Higher Education, many "are more preoccupied with financial issues than educational ones." One plausible solution to these monetary quagmires has an irksome kick to it, "53 percent of the respondents said they believed that tenure for faculty members should be abolished in favor of long-term contracts, but those who had been professors with tenure supported it more than those who had not."
Over the past decade, many state universities have learned that they must locate alternate sources of funding as they can no longer solely live off the State dole. In fact, whether they like it or not[10], many of the flagship State-funded institutions are marginally becoming privatized. For instance, through a charter initiative adopted last year, the University of Virginia (along with Virginia Tech and William & Mary) now has the freedom to modify tuition rates and operate free of numerous state regulations such as those pertaining to procurement, capital outlay, finance and personnel. This quasi-privatization is a step in the right direction, as it should provide better accountability to those who actually finance educations. And it should be noted that these budget shortfalls are not regionally isolated instances on the East Coast.
Specialization
While some commentators suggest that specialization is for insects, a large portion of school rank and reputation is weighted in research, which directly correlates to publishing in peer-reviewed journals (i.e. impact factor). For example, numerous departmental performance appraisals require that tenured or tenure-track professors spend the majority of their time on original research and publishing -- and the residual is spent teaching (i.e. publish or perish).[11] In many cases this creates a negatively dichotomous relationship between meticulous research and supportive instruction. Unfortunately, many bright researchers lack the personality or training needed to be effective instructors and vice-versa (thus one of the main differences between research universities and teaching). Because of this, many universities hire individuals who have longer curriculum vitae's than they do vibrant personalities. However, this bittersweet yin-yang has its own sense of irony, as specialization and the division of labor are the most promising solutions to an otherwise ruinous situation.
The University is a firm
To counteract budget hemorrhaging the administration could cut extracurricular programs, spin-off departments into independent entities and deregulate services. For instance, a student recreation facility could be privatized.
Unfortunately (from a profit-based business perspective), many recreation centers are not self-sustainable as they are subsidized through universal student fees. So regardless as to whether or not a student utilizes the numerous services offered by these recreation centers, they stay afloat despite any (in)efficiency. Furthermore, because of how they are subsidized, their organization is no different than Amtrak, USPS or Fannie Mae. In fact, the economically centralized nature of these recreational facilities makes them, in some ways, no different than a top-down command economy found in many developing countries or the former Soviet Union.
While these facilities may employ the use of tools to "rationalize" performance, it is not an appropriate defense against claims of poor service or relatively high prices (why charge one price over another?). Economically speaking, separation into an autonomous entity, which is wholly self-sustaining, is the only long-term practical solution for determining whether or not these facilities pass the market test. Otherwise, how can managers effectively set prices? Aside from pulling numbers out of hats or mimicking the competition, the only valid measure is by allowing the consumer to vote with his wallet. It should also be noted that some university services have successfully been subcontracted to independent firms; such as custodial, medical care and stadium security. It is misleading to claim these large entities are immune to economic laws such as supply and demand and hence, can survi