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Are "Private" Universities Really Private?

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04/10/2015
Jeffrey Selingo raises an important point about the distinction between “public” and “private” universities, but I disagree with his analysis and recommendation. Selingo points out that the elite private universities have huge endowments and land holdings, the income from which, because of the universities’ nonprofit status, is untaxed. He calls this an implicit subsidy, worth billions of dollars according to this study. “Such benefits account for $41,000 in hidden taxpayer subsidies per student annually, on average, at the top 10 wealthiest private universities. That’s more than three times the direct appropriations public universities in the same states as those schools get.”
I agree that the distinction between public and private universities is blurry, but not for the reasons Selingo gives. First, a tax break is not a “subsidy.” Second, there are many ways to measure the “private-ness” of an organization — not only budget, but also ownership and governance. In terms of governance, most US public universities look like crony capitalists. The University of Missouri’s Board of Curators consists of a handful of powerful local operatives, all political appointees (and all but one lawyers) and friends of the current and previous governors. At some levels, there is faculty governance, as there is at nominally private universities. In terms of budget, we don’t need to invent hidden subsidies, we need only look at the explicit ones. If we include federal research funding, the top private universities get a much larger share of their total operating budgets from government sources than do the mid-tier public research universities. (I recently read that Johns Hopkins gets 90% of its research budget from federal agencies, mostly NIH and NSF.) And of course federal student aid is relevant too.
So, what does it mean to be a “private” university? (Aside from this one, of course.)
[Cross-posted at Organizations and Markets.]
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Contact Peter G. Klein

Peter G. Klein is Carl Menger Research Fellow of the Mises Institute and W. W. Caruth Chair and Professor of Entrepreneurship at Baylor University's Hankamer School of Business.

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