Toward Market-Based Universities

Hardly a sector of the American economy is unaffected by the current recession; however, no matter how painful this period is, it provides an opportunity for many institutions to do the kind of restructuring that should have been done before now. And, fewer segments of our society are in greater need of financial restructuring than American higher education. Unfortunately, public colleges and universities have been the beneficiaries of public “bailouts” from the taxpayers for so long that the message of restructuring may fall on deaf ears, but in case any college administrators are interested, I have a few suggestions.

First, let us begin with the cultural mindset that every high school graduate should go to college. This fact alone creates an inflated and artificial demand for higher education and causes many young people to pursue career paths that are not reflective of their talents, aptitudes or interests, but it does serve to create escalating application numbers that help when it is time to lobby legislators and the Congress for financial assistance.

Because of this artificial and inflated demand for a college education, politicians, educators and others often promote the view that going to college is a “right” and not a commodity to be purchased like any other goods and services in our society. As a “right,” everyone is therefore entitled to have the government underwrite the attainment of that “right.” It is at this point that the cost of higher education begins its inflationary spiral, because as long as the taxpayers are there to bailout public colleges, there is no need to keep costs at a level that the consumer (college students) can afford.

Over the years, it has become painfully obvious that the cost of higher education is rapidly outpacing cost of living increases and the ability of American families to afford college; and the primary problem is that colleges are not forced to compete on the basis of affordability. In fact, about the only competition that takes place between most select colleges is the competition to see who can offer the highest salaries and “perks” to the administrative and faculty “stars” of higher education. Frequently, when a “star” is being recruited, he or she will produce an offer from one college that “comparison institutions” feel obliged to match whether they want that specific “star” or not. This “keep-up-with-the-Joneses” mentality results in salaries and benefits that are often excessive in relation to local labor market conditions, which is generally a more realistic comparison for meeting the competition.

Second, the typical fee model for higher education is incoherent. When economic times are good, state governments typically provide substantial subsidies to higher education to mitigate the need for fee or tuition increases; and when economic times are bad, public colleges typically raise their fees at a rate that is far beyond the rate of inflation, and far beyond what consumers can afford to pay. But, because “investing” in higher education is deemed so crucial, colleges and secondary education are generally first in line to make up the slack between what students can afford and what colleges claim to need to provide their version of “excellence.” Either way, fees continue to escalate. On top of all of this, many colleges take as much as a third of their fee income to underwrite financial assistance for lower income students. This Robin Hood scheme only serves to drive up the costs of college for students coming from middle and upper income households.

Third, it has never made any sense to me that it is the public interest for the taxpayers to be subsidizing the cost for students to attend some of these elite public universities. If the conversion to a market- based economy were to be pursued by public higher education, it only makes sense for those who prefer to attend the University of California at Berkeley or UC at Los Angeles to pay a higher fee than those students who attend UC Irvine or UC Riverside. If there is validity to the perception that Cal and UCLA are better than other UC campuses, let those who attend the former pay a higher toll fee for their preference.

Fourth, professional schools are in critical need of market-based approaches to their fee structure. It makes no sense for the prototypical “Joe the Plumber” to dig down deep into his pocket to produce the revenue so that the son or daughter of some middle to upper income kid can be subsidized to become “Bill the Lawyer.” To ensure that low income students with the talent to pursue education in professional areas, scholarships, loans and fee reductions should be given selectively based on academic achievement and their potential, but, enough of this indiscriminate across-the-board underwriting of public education for graduate and professional schools. We simply cannot afford it.

Finally, virtually every college in America is engaged in the pursuit of “diversity,” with their special courses devoted to identity, such as ethnic studies, women’s studies and gay/lesbian studies. These courses have outlived their usefulness, in most instances, and are counterproductive in others. They should be subjected to the most thorough and exacting cost/benefit review to determine their value and suitability for continuation. It would not surprise me to find that as much as 10-15% of the overall academic budget is devoted in one way or another to “diversity” at a time when our larger society is demonstrating that it is quite capable of achieving diversity in America without it being forced-fed as is done by the world of higher education.

The cost of higher education has escalated beyond the capacity of the market place in recent years; and the only way for this cost to be reined in is for the taxpayers to stop the massive subsidies and to let the universities be forced to adjust their salaries and other costs of doing business to what the consumer is willing to pay.

Colleges are like businesses. In fact, many of them use corporate models in many elements of their operation. Most businesses, however, have to equal or be less than their competitors when it comes to prices to the consumer. Colleges, on the other hand, claim the need to equal their competitors when it comes to salaries but have little need to compete with their competitors on prices to the consumer.

Anyone who has studied the financial relationship between public universities and the states in which they reside can only conclude that the glory days of growing financial assistance from state governments is probably a thing of the past. State assistance has been and is a free-fall decline because most of the states themselves have outgrown the tax-paying capacity of their citizens. In such a circumstance, secondary education, law enforcement, environmental protection and a host of other public policy demands will make it increasingly difficult for higher education to make an effective case for state assistance. The lesson to be learned by public colleges: get your act together and adjust to the marketplace so that more students can afford to attend college without state and federal “bailouts.”


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