02 March 2006

Debating Privatization of US Public Higher Ed

The Objectivist
Dunkirk-Fredonia Observer

Both fairness and efficiency warrant privatizing the SUNY system. Nationwide taxpayers pay through the nose for higher education. In 2004, states spent $5,721 per student at public universities. In total they spent $69 billion, thereby providing 64% of public universities’ revenue. Over the last ten years federal student aid, adjusted for inflation, more than doubled to $90 billion per year. In return, the public universities have raised tuition from 2000-01 to 2004-05 by 36% despite the fact that the consumer price index rose about 11%.

It is unfair to ask some taxpayers to pay for the education of other adults. The U.S. Commerce Department reports that college graduates make nearly $1 million dollars more over their working life than those with merely a high school degree. I’m guessing this underestimates the differences since it likely doesn’t take into account the fact that college graduates likely gain even more via higher-earning spouses. Persons with a professional degree make $3.2 million more than persons with only a high school degree. There is nothing fair about requiring taxpayers to give such valuable assets to other adults, the vast majority of whom could pay for it via loans. Since less than a third of the population 25-29 had bachelor’s degrees (2002 figure), having government colleges and universities involves a substantial transfer of money from people who don’t have the advantages of a college degree to persons who do or will. Worse yet, over half the families who attend the SUNY system are middle class or better. Why do they need educational welfare? Even if taxpayers should pay for other adults’ education, the transfer involved in state professional schools is simply obscene.

If the concern is to provide opportunities for the poor, this can be done more cheaply by giving the poor vouchers for college. This is how we give other benefits to them. For example, the poor receive subsidized food and medical care via payments to private supermarkets and physicians. It is hard to believe that anyone really thinks that taxpayers would be better off if we instead set up government supermarkets. Would you want the Department of Motor Vehicles to run Wegmans?

Nor is the government very efficient in terms of how it runs universities. For example, at SUNY Fredonia more than a third of the students don’t graduate in six years and it is not clear that this is worse than competitor state colleges. One reason for this is that many students who don’t have the skills or the work habits to graduate don’t bear the full costs of going to college, thereby wasting their time and taxpayer money. Similarly, the administrative bloat at many of these colleges and universities is truly impressive. For example, again at Fredonia, there is one president, four vice-presidents, six associate vice presidents, four deans, and one associate dean. It is hard to believe that a private institution would have so many high-level administrators.


The Constructivist
Dunkirk-Fredonia Observer

Those advocating privatization of public higher education have difficulty supporting their case. The supposed benefits of privatization—increased competition, expanded choice, lower costs, and higher quality—either already exist or are hard to find.

Take competition and choice: there are well over 3,000 U.S. colleges and universities of all kinds, all competing for students, faculty, financing, and reputation. Traditions of tenure, academic freedom, shared governance, and faculty responsibility for curricula have established the relative autonomy of these institutions from their funders—individual donors, corporations, or the state.

How about lower costs and higher quality? Total annual student fees at Hamilton College and Princeton University, from which I graduated, top $41,000 at each school. Still, they covered only 22% of Princeton’s $920 million operating budget last year (of which 14% was devoted to student aid). Hamilton emphasizes in its mailings to alumni that student fees cover less than half of its annual operating costs and that the 60% of its students who receive financial aid average $26,000.

In higher education, quality costs. Wealthier students bear these costs upfront and most graduates offset these costs with a lifetime of donations. As a result, the best private colleges and universities have used their tax-exempt status to build astronomical endowments over the centuries they’ve existed. Investment income on Princeton’s $10.8 billion dollar endowment covered roughly one-third of its budget last year while gifts and sponsored research covered another third. Hamilton has to get by with a mere half-billion-dollar endowment.

With our $80 million operating budget and $16 million endowment, it’s going to take decades for SUNY Fredonia to even begin thinking about competing with such schools. Yet to continue to operate without state funds, the economies of scale that being part of SUNY brings, and the protections of a union contract, Fredonia would have to answer a series of tough questions: how high to raise tuition and class sizes? how many fewer students to admit? how many faculty and staff to fire? how many building projects to cancel? how many student services to abolish? We’d have to offer less for more just to stay in business. Is this what privatization advocates want?

Ultimately, though, this debate is less about motives than arguments. The case for privatization rests on the notion that state funding of higher education puts undue burdens on taxpayers even as it privileges college graduates. What’s left out of this equation is any understanding that higher education is a public good that provides a high rate of return on both individual and state investments.

The individual returns on higher education are fairly easy to track—and they lead directly to the public returns. The 2000 census and subsequent samplings provide strong evidence that college graduates earn an average of $1 million more over the course of their working lives than high school graduates (and double their annual family income). According to SUNY, 80% of its graduates stay in the state; hence, all New Yorkers benefit from the work they do, the jobs they create, the goods, services, and properties they buy, and the taxes they pay.

But this is just the tip of the iceberg. SUNY Chancellor John Ryan testified to the New York legislature in January that every dollar of direct state support for SUNY generates more than eight dollars for the state’s economy and that every $1 million in grant money brought in by a full-time faculty member creates 29 jobs. In addition to being among the largest employers in many counties, SUNY schools help attract new people, businesses, and investments to New York. When you also account for “intangible” returns on public higher education—contributions of an educated and engaged citizenry, expanded opportunities for upward mobility, and fostering the creativity necessary for the state and nation to prosper in a global economy—it’s clear that SUNY deserves more funding, not less. Yet according to the NYSUT Higher Education Data Project, New York commits only 2.2% of its general fund spending to SUNY. So until Fredonia’s endowment produces revenues significant enough to offset any further reductions in state investments, privatization is just a pipe dream.


The Constructivist said...

One interesting addendum to our debate that challenges the lifetime earnings data both the Objectivist and I rely on in these columns was discussed in a New York Times column by Paul Krugman on February 27, 2006, entitled, "Graduates versus Oligarchs." In it, he argues that "a college degree has hardly been a ticket to big income gains. The 2006 Economic Report of the President tells us that the real earnings of college graduates actually fell more than 5 percent between 2000 and 2004. Over the longer stretch from 1975 to 2004 the average earnings of college graduates rose, but by less than 1 percent per year."

Krugman goes on to cite a study by Ian Dew-Becker and Robert Gordon of Northwestern University, "Where Did the Productivity Growth Go?," which shows that "between 1972 and 2001 the wage and salary income of Americans at the 90th percentile of the income distribution rose only 34 percent, or about 1 percent per year. So being in the top 10 percent of the income distribution, like being a college graduate, wasn't a ticket to big income gains. But income at the 99th percentile rose 87 percent; income at the 99.9th percentile rose 181 percent; and income at the 99.99th percentile rose 497 percent."

Krugman's larger point is that "the growth of inequality may have as much to do with power relations as it does with market forces" and that mainstream economists, even ones as smart as the new Fed chairman, Ben Bernanke, keep getting this story wrong.

If we bring Malcolm Gladwell's point in "Getting In" (The New Yorker 10 Oct. 2005) into account, the picture gets even grimmer for graduates of public regional universities like Fredonia.

Gladwell points out that students who get into, say Penn and Penn State, tend to do just as well no matter which school they choose to attend (this is from a 2002 study by economists Alan Krueger and Stacy Dale), which leads to a variety of interesting conclusions. That "million dollar lifetime earnings difference" that college is supposed to make is an average, so most likely the bonus to Fredonia graduates is much less than Penn or Penn State graduates.

These schools tend to follow what Gladwell calls a "modelling agency" approach to admissions rather than a "Marine Corps" approach. They seek out the most talented students to invest in, in the hopes that they'll get big returns on their investments over time--and diversity is literally a diversification strategy for them. Hence they define "talented" in a way different than the Objectivist does in his earlier columns.

Here's Gladwell's take: "Harvard, Yale, and Princeton chose to adopt what might be called the "best graduates" approach to admissions. France's École Normale Supérieure, Japan's University of Tokyo, and most of the world's other élite schools define their task as looking for the best students--that is, the applicants who will have the greatest academic success during their time in college. The Ivy League schools justified their emphasis on character and personality, however, by arguing that they were searching for the students who would have the greatest success after college. They were looking for leaders, and leadership, the officials of the Ivy League believed, was not a simple matter of academic brilliance." And Gladwell's point is that this strategy seems to have paid off for them.

So then he puts on his Naomi Klein mask to explain Ivy League admissions: "Harvard wants good graduates, and part of their definition of a good graduate is someone who is a generous and loyal alumnus. And if you want generous and loyal alumni you have to reward them. Aren't the tremendous resources provided to Harvard by its alumni part of the reason so many people want to go to Harvard in the first place? The endless battle over admissions in the United States proceeds on the assumption that some great moral principle is at stake in the matter of whom schools like Harvard choose to let in--that those who are denied admission by the whims of the admissions office have somehow been harmed. If you are sick and a hospital shuts its doors to you, you are harmed. But a selective school is not a hospital, and those it turns away are not sick. Élite schools, like any luxury brand, are an aesthetic experience--an exquisitely constructed fantasy of what it means to belong to an élite --and they have always been mindful of what must be done to maintain that experience."

Gladwell takes seriously the notion that elite schools are like elite brands and their choices should be seen in the same context of maximizing return on investment as those of major corporations.

The implications of Krugman's and Gladwell's points for our privatization debate are quite serious. Perhaps there are more "talented graduates" out there than the "best students" model can find. So perhaps privatization would benefit "small-cap" schools by forcing them to take on a combination of "modelling agency" and "Marine Corps" approaches to student admissions and learning. But a more likely result is that many smaller regional colleges will either fail or shrink dramatically, further reducing access to higher education and exacerbating the spread of income and wealth inequality in the U.S.

My suggestion is that state legislatures look closely at how and why they continue to funnel tax dollars to private colleges and universities. If anyone should take a hit when it comes to state support, it should be the schools with endowments over $100 million. And if state legislatures want to move toward privatization of public universities, they should look seriously at financing models that first grow those schools' endowments.

Perhaps a small "luxury tax" on private schools with endowments over a certain threshold is a potential solution, to be donated to the endowments of quality public colleges and universities in the state.

The Constructivist said...

Wondering what the Objectivist thinks of this speech by CUNY's chancellor?

The Constructivist said...

More evidence that the value of a baccalaureate degree is declining, this time from Tom Mortenson.

The Constructivist said...

Here's Michael Berube on recent calls for privatization of US higher education.

The Constructivist said...

Here's Ezra Klein on class and social mobility in the US and the world. Hat tip: Pandagon

The Constructivist said...

O, so far our debate has focused on economics. I might also point out that privatization, corporatization, and other "free market" solutions for higher education carry with them other than economic costs. Check out The May-June issue of Academe for some of them; you may find particularly poignant the argument by Terri Hasseler that

"If faculty are seen primarily as employees, they cannot be 'stakeholders'--that role belongs to presidents and trustees, who measure faculty investment in terms of loyalty to the institutional brand, including appearance at college events, participation in the marketing of the institution to incoming students, and so on. Because of the competitive education market, bad press affects the choices of students (and, more important, parents). This fact makes it difficult for faculty members to discuss campus problems in public, whether in a meeting or in the checkout line at the grocery store. Not only do we fear turning away prospective students or putting a bad slant on the institution, but we also worry about potential retribution--even if it merely involves being made to feel like a 'troublemaker.' The business paradigm demands that employees be clear about their place within the structure; behavior that steps outside of that position is not validated" (22-23).

The Objectivist said...

Dear C:

Your point is an interesting one.

Also, for those who don't know, I've been branded a troublemaker (specifically, my promotion to full professor claimed that I was someone who deliberately misrepresents the campus policy and practice - the alleged result being that I've impugned SUNY-Fredonia's reputation).

However, privatization may pose a greater threat of restricted speech than a public institution since the owners and administrators have greater legal and moral rights to condition employment and promotion on faculty not publicly criticizing the institution.

However, and this may be starry eyed market theory, institutions can compete for faculty by different degrees of protection of free speech. For example, a school that wanted top-flight faculty (e.g., Amherst, Williams, and Princeton) would be well served by protecting free speech, even where it harms the university. In contrast, some schools, e.g., some Catholic schools, might value having faculty not criticize certain ideas, arguments, or features of the institutions.

In any case, at least the rules would be clear and negotiated over.

However, I do take it that allowing a person to take certain positions or criticize their institution as a mere condition of employment to be bargained over does not result in the same protection as public institutions would provide.

I guess I think that the private institutions would give a greater variety of settings than the current state-influenced systems. For example, there might be more schools without tenure so persons who are unhappy with their school could more easily transfer rather than fighting the school they're at. Also, schools would specialize more rather than trying to be all things to all people.

However, I did find your point to be an interesting one.

The Constructivist said...

O, what do you think of Inside Higher Ed's coverage of your promotion dispute?

Do you seriously think that there's more free speech in today's corporate world than today's academic world? As universities become more corporatized and "brand-conscious," do you feel media pressure, unions, or organizations like AAUP or FIRE have the best chance of protecting academic freedom?

The Constructivist said...

Now Cliopatria has picked up the story--perhaps new media pressure is the best way to go?

The Constructivist said...

O, this story from the 9/11/06 issue of Time leads me to believe that under a fully privatized university system, you would have been fired rather than promoted (as the key things that were in your favor--traditions of academic freedom protected by tenure, for instance--would be the first on the chopping block in a for-profit higher ed system).

The Constructivist said...

O, No Nym over at BitchPhD linked to this review of a recent book criticizing admissions policies at elite institutions of higher education in the United States. When even The Economist is pointing out that private institutions put their bottom lines above, say, meritocracy, perhaps you would be willing to comment on how fully privatizing the US higher ed system wouldn't exacerbate this problem?

The Constructivist said...

O, Andrew Delbanco reviews several recent books on the class politics of higher education? Is this a problem in your view? If you agree with me that it is, would privatization be more likely to exacerbate or solve it?

The Constructivist said...

BusinessWeek on the dangerous wealth of the Ivy League makes me believe the state should get out of the business of funding private education!

The Constructivist said...

The pace of pieces hitting on issues I raised is picking up....