The True Genius of America at Risk: Are We Losing Our Public Universities to De Facto Privatization?

Going Quasi-Public

Reviewed by Henry M. Levin

Katharine C. Lyall and Kathleen R. Sell.
Westport, Conn.: Praeger Publishers, 2005

The historical role of public universities constitutes the “true genius” in the title of this book, and what is “at risk” is the erosion of their public mission as they have had to rely increasingly on private sources of support. The authors are disappointed that these changes did not emerge from public debate and discourse but from a pragmatic attempt to alleviate the gap in public funding. They give many examples of universities shifting to greater reliance on private funding, often abetted by the states. In exchange for reduced public support, the states have encouraged or allowed some universities to raise tuition, reduce student access and need-based aid, and seek funding agreements with private entities.

One example is the “privatization” of the business and law schools of the University of Virginia. In exchange for a negotiated payment to the university, this model allows the professional schools substantial autonomy to set hiring policies as well as tuition and to keep 90 percent of their revenue collections in a franchise-type arrangement that capitalizes on the brand identity of the parent institution. Following a different model, the state of Colorado has shifted from direct institutional subsidies to vouchers that provide greater institutional freedom to set tuition and financial aid policies. The authors argue that in most cases the privatization drift has been ongoing and gradual as budgetary pressures push institutions toward incremental solutions that embrace greater privatization.

The overall challenge arises primarily from the decline in public funding, constrained tuition for state residents, and the loss of faith in the public benefits of higher education. It also arises because of a perception of government waste relative to private operation. However, the authors reject this perspective by suggesting that in terms of numbers of students served per dollar of public investment, the public university has kept pace with productivity increases in the private economy. There are a number of problems with this measure, which is based on the use of more part-time faculty, larger classes, online courses, and other interventions that have reduced costs but have not been evaluated for their effectiveness.

The authors’ proposed solution is that there must be a deliberate effort to forge a new kind of institution by recasting the public universities as public purpose universities. These would be quasi-public entities with better business practices and planning, more collaboration with other institutions, and more responsibility to broaden their boards to represent a wide range of public interests. Such an entity would have great flexibility in meeting its obligations with the state. Public support would provide 30 percent of funding; student costs 20 percent, a portion that is rising; and income from donors, alumni, and others the remainder. Student access would be paramount, as would be responsiveness to state economic and labor market needs. The public purpose university would not give up research but would shift to applied research that benefits the state, meaning that fewer public universities would make it into the top research ratings.

In many respects, what the authors propose looks much like the restructuring of Virginia’s public higher education system, which was approved after the Lyall and Sell book went to press. All of Virginia’s higher education institutions are eligible for three differentiated levels of increased autonomy in exchange for agreeing to meet specific performance goals regarding student access, institutional collaboration, student transfers from two- to four-year entities, and systematic and strategic planning. Financial incentives are also provided for performance on these measures—an exchange of greater flexibility and autonomy from the state for meeting specific responsibilities and levels of public performance.

So far, so good, but there are at least two important elements missing from the discussion. The first is that the costs of education will continue to rise because of the “Baumol cost disease,” or the phenomenon that in labor-intensive sectors of the economy such as teaching or performing arts, human interaction cannot be replaced by new technologies. Therefore, there is little or no growth in productivity over time. There is no evidence that this cost disease has been stemmed by rising productivity in higher education even when technology, online learning, larger class sizes, and more part-time faculty members are added. There has been little evidence that quality has been maintained; instead, there have been increasing complaints from faculty members and employers of deterioration in student outcomes. Cheaper may not be better as the United States faces increasing economic competition from China, India, and other nations. Nor will privatization cut costs without reducing services and educational offerings. Public purpose universities, in themselves, will not solve the problem of inexorably rising costs, despite the putative promise of technology.

Second, the book does not discuss who will pay the student share of rising costs in a nation of stagnant earning levels for much of the parent population. It would have been helpful if the authors had considered alternatives for addressing this question, especially the possibility of income-contingent loans or the Australian version—a graduate tax. Under such a plan, all students are eligible for loans that are repaid over their working lives with an annual tax surcharge on income received above a certain threshold. The financing of student costs is still the issue that has not been addressed in the public-purpose-university forum.

The quest for autonomy as a means of addressing financial challenges may be short-lived. Presumably, it provides government institutions of higher education with much greater flexibility to raise tuition and to seek funding from private sources and establish “profitable” educational and training programs—particularly through e-learning and special programs such as executive programs or those that enable looser admissions with the use of adjunct (cheaper) faculty members—while maintaining brand identification, ancillary business enterprises, and new products and services in the name of higher education. What it does not do is overcome the cost disease or address the fact that rising tuition and other costs still require a way of getting someone to finance them.

Henry Levin is William Heard Kilpatrick Professor of Economics and Education at Teachers College, Columbia University, and director of the nonpartisan National Center for the Study of Privatization in Education.

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