A Marshall Plan for Rebuilding Higher Education

An economic prescription for change.
By Jeffrey Sommers, Mark Blyth, James Galbraith, and Luz Sosa

a full lecture classroom

Government-supported higher education in the United States has evolved from a privilege accessible to only a select few to a more broadly accessible good, supporting a democratic expansion of knowledge in the public interest. By the mid-twentieth century, public higher education provided pillars supporting social stability after the political turbulence of the first half of the century. Additionally, public higher education was the foundation for the research and workforce-training requirements of an increasingly complex post–World War II economy. All the while, it recycled money through our economy, helping to sustain consumer demand and business growth. The recent erosion of support for public higher education, therefore, has troubling implications for democratically structured social cohesion; for the preservation, accessibility, and growth of the humanities; for social mobility; for the research and infrastructure necessary to respond to crises such as COVID-19; for our ability to sustain economic demand generally; and for our ability to remain competitive in the global economy.

These structural needs, combined with an economy that in March and April of 2020 lost 25 percent of its jobs as 36 million Americans filed for unemployment, make public support for higher education urgent for several reasons. First, public higher education is one of the nation’s largest employers. Moreover, those left unemployed as a result of the COVID-19 crisis could productively spend their time acquiring education in preparation for reentering the workforce when the economy enters a sustained recovery. Second, the substantial portion of the US economy that consists of brick-and-mortar retail, restaurants, cafés, and bars will not recover soon, at least until the development of an effective COVID-19 vaccine. The weakness in these sectors underscores the need to maintain and expand other sectors of the economy, such as public higher education. Third, given the social turbulence already observed during this public health crisis, public higher education institutions should not be shedding but rather expanding humanities offerings that help people understand our history and the role of civil society. Additionally, public higher education can provide forums and research for building inclusive societies.

Phases of Public Higher Education

For the purposes of this analysis, the history of public higher education in the United States can be divided into six phases. These stages of development reveal the growing complexity of the US economy, the growth of social mobility until the 1970s, and the subsequent slowdown of both productivity and social mobility. Our current phase, which began with the COVID-19 crisis, is marked by the possibility of significant reversals in access to and in the quality of higher education.

Phase 1 (1862–1918) saw the expansion of land-grant universities in the nineteenth century following the Morrill Acts of 1862 and 1890, which delivered to the expanding interior of the United States both practical knowledge and a university curriculum grounded in the humanities and social sciences. Charles Van Hise, the president of the University of Wisconsin, itself a land-grant university, articulated the mission of these public institutions of higher learning as combining practical education with “searching for the truth” and “improving the human condition,” which is in marked contrast to today’s near-sole focus on “workforce development” as the purpose of public higher education.

Phase 2 (1918–45) saw a moderate expansion in public higher education. The New Deal increased the public sector’s share of gross domestic product. While the New Deal itself, in part because of insufficient spending, did not end the Great Depression, it nonetheless put infrastructure in place that powered economic growth in the United States after World War II and into our present time. Still, by 1940 higher education remained accessible only to a few, with under 5 percent of the population having completed undergraduate degrees.

Phase 3 (1945–78) witnessed the post–World War II expansion of public higher education. The US economy could not absorb 15 million returning veterans. Many GIs enrolled in higher education, where they could productively gain new skills for the growing managerial and technical sectors. At the same time, broad exposure to the humanities following the emergence of fascism and Stalinism served as a prophylaxis against political extremism. Cold War exigencies saw massive funding directed toward scientific research. The launch of Sputnik in 1957 and purported “missile gaps” with the Soviet Union further fueled federal spending directed at research universities. Funding allocated to the sciences was generous enough to permit trickling down of spending to the humanities. Tuition was free for residents at many public institutions, such as the University of California and the City University of New York, and was nearly free at others. The 1960s and 1970s saw significant expansion of public colleges and universities, with many new campuses chiefly serving first-generation students. This phase saw the share of postsecondary students enrolled at public colleges and universities rising from 50 percent to 75 percent. Meanwhile, the proportion of those between twenty-five and twenty-nine years of age holding a bachelor’s degree rose from the single digits before the Cold War to 20 percent by the end of the 1970s.

In phase 4 (1978–2008) the federal government and state governments scaled back their funding commitments to public higher education while ever-greater numbers of young people poured into public colleges and universities. What had been a virtuous circle of growing manufacturing profits and wages in the post–World War II era had slowed by the 1970s with stagflation (stalled economic growth and mounting inflation). In response, Republicans looked to lowering wages and taxes in order to restore profits, and they also began to cut property taxes, most notably through the 1978 Proposition 13 referendum in California. If workers were losing power as wages failed to keep pace with inflation, then the GOP’s answer was to lower taxes. But this action was akin to “saving money” by refusing to fix the hole in one’s roof. The costs of cuts to public investments shifted to students who now had to pay ever-increasing tuition. Students worked and borrowed more as entry-level wages dropped and tuition costs soared. Moreover, upon matriculation, students were saddled with debt. Debt-service payments required access to even more credit to sustain purchases, while impeding the independence of young adults and making it more difficult for them to leave their parents’ homes. Nonetheless, debt temporarily compensated for the combined impact of stagnant wages and reduced government support for higher education. While 8 to 16 percent of corporate profits went to the financial sector in phase 3, by the end of phase 4, the financial sector accounted for 45.8 percent of corporate profits.

During phase 5 (2008–20), after the 2008 financial shock, the debt solution to pay for higher education finally failed. Faced with a proverbial fork in the road—either return to public investments generating employment, with efficiencies and capital formation to escape the debt trap, or impose austerity—many state governments chose austerity. In 2010, the GOP and the Tea Party reprised Proposition 13–style tax cutting as an economic and political strategy to deal with the crisis. They won a majority of governorships and state legislatures and then proceeded to shrink public institutions. With the power to redistrict legislative maps during a census year, the GOP gerrymandered legislatures, thus protecting their program from change. The boldest of these efforts were in a “Koch Belt” of states stretching from Oklahoma to Kansas, Missouri, and Wisconsin. These states, in essence, took their legislative agenda from Koch Industries headquarters in Wichita, often adopting legislation drafted by the Koch-funded American Legislative Exchange Council. Public-sector unions and public education were assaulted, most infamously in Wisconsin with then governor Scott Walker’s Act 10, which diluted public-sector union power, and subsequently with passage of “right-to-work” laws. State governments made dramatic cuts to public higher education, which the GOP preferred to characterize as “workforce development” rather than education. Walker’s attempt to delete “searching for the truth” and “improving the human condition” from the Wisconsin Idea in order to focus solely on worker training as the public university’s mission symbolically punctuated these sweeping changes. Phase 5 nonetheless ended with the national proportion of twenty-five- to twenty-nine- year-olds holding bachelor’s degrees rising to roughly 35 percent from 21 percent in 1980, with nearly 50 percent of this demographic having an associate’s degree or higher, and with public higher education matriculating 75 percent of postsecondary students.

Phase 6, which began this year, is still being defined. COVID-19 has caused a dramatic collapse in state revenues that has occurred more quickly than in the 2008 financial crisis. Both crises briefly brought under inspection the efficacy of financialized economies—economies in which the financial sector takes more value out of the economy than it contributes—for delivering sustained economic recovery. Both saw quick bailouts of financial markets, thanks to the power of Wall Street. Letting markets implode was politically not an option. A floor was placed under asset prices after both the 2008 financial crisis and the present COVID-19 crisis to protect the retirement accounts of the upper middle class and the wealth of the rich. Both crises saw only meager bailouts for state and local governments and labor. Workforce development “reforms” of public higher education begun under phase 5, including the elimination or the reduction in funding of traditional academic disciplines in the humanities and social sciences, are accelerating during phase 6, as some public state higher education systems propose downsizing overall as well as shifting emphasis to career training and increasing the use of standardized distance learning. Needless to say, this restructuring of public higher education targets regional campuses that disproportionately serve students of color in urban areas and first-generation white students in rural locations.

Rebuilding Public Higher Education

The US government developed the Marshall Plan to help rebuild Europe after World War II and separately provided significant aid to rebuild Japan and other parts of Asia. The devastation of the COVID-19 pandemic calls for a similarly ambitious program, but efforts to rebuild public higher education will face serious obstacles. In the long term, the problem of GOP support for supply-side tax policies—tax cuts— that starve the public sector will continue. Balanced-budget laws hinder the capacity of states to borrow to cover revenue gaps. In the short term, control of the US Senate by Republicans opposed to bridging the funding gap for states and municipalities to pay for higher education will challenge the Federal Reserve to find work-arounds for financing public colleges and universities. Moreover, the collapse in tax revenues resulting from the pandemic further curtails public-sector spending while encouraging cuts to education and adding impetus to efforts to restructure higher education for “workforce development.”

As in the Cold War, however, public universities are the only institutions that possess scientific infrastructure on the scale necessary to confront the challenges we now face—not only COVID-19 but also future pandemics as well as global threats such as climate change. The United States needs to ratchet up its research capacities with all deliberate speed to handle these incoming threats.

Meanwhile, public higher education is needed more than ever to absorb students who otherwise would have attended small private colleges, many of which are in a state of financial collapse, unable to remain viable in the face of unfavorable demographic and fiscal trends. But how can public higher education be adequately financed in the midst of the pandemic? The Federal Reserve could make direct purchases of bonds for public higher education issued at below-inflation rates of return to bridge funding gaps until tuition and state and federal tax dollars arrive. The Federal Reserve’s Municipal Liquidity Facility (MLF) could provide bridge funding for public higher education whenever tax receipts drop. The Fed’s new (spring 2020) MLF buys bonds issued by local and state governments, although interest rates need to be driven down further still for the MLF to be more widely used. While this approach can circumvent a recalcitrant Senate determined to limit the amount of federal dollars going to local and state governments, those governments could still refuse to request Federal Reserve funds.

Reconstituting the Reconstruction Finance Corporation (RFC) should also be considered. First introduced in 1932 under Herbert Hoover and expanded under Franklin D. Roosevelt, the RFC was a government-owned corporation able to finance large parts of the New Deal and the mobilization for World War II. It provided funds for rebuilding railroads, for rural electrification, for supporting manufacturing, for housing, for hospitals, and for many other purposes. It had authority to borrow for these purposes with the full faith and credit of the federal government. The RFC could fund an expanded set of research capacities in public colleges and universities to meet national security needs—for example, infrastructure for public health.

Supporters of public higher education must also assert that there is nothing new about the federal government assuming states’ debts. This practice has a history extending back to the founding of the United States, when our first treasury secretary, Alexander Hamilton (of the Federalist Party, the antecedent of today’s Republican Party), absorbed the debts of states—formerly colonies—following the Revolutionary War. The federal government converted state debts existing at higher interest rates to new federal debt at lower rates. Today the federal government could both cover state budget gaps and buy state bonds at interest rates near zero or even at negative rates.

States can also declare emergencies that place balanced budget laws in temporary abeyance if money can be borrowed at below cost. The Federal Reserve can then buy bonds from states at near-zero or negative interest rates. In short, the Federal Reserve should be pushed to act if Congress refuses to cover funding gaps.

The public and politicians should also be reminded that public higher education is a big employer, and that in eleven states a public university system is the largest employer. The economic fallout resulting from declining consumer demand combined with austerity policies directed at higher education will depress local business receipts, thereby harming everyone. Economies should run at near full employment, and we can afford to make investments in our people, economy, and health (as national defense) without increasing inflation or creating too much employment (rates over 5 percent could serve as a trigger in both cases, using the so-called U-6 measurement for unemployment, which offers a fuller picture of employment by including people who have quit looking for work and those who are working part time but want full-time employment). The Department of Treasury can create money as needed for these ends, thus obviating the need for accumulation of debts.

A federal program for reducing student loan debt to the level of past tuition paid by a student at public colleges and universities is also needed. Ultimately, we must aim for tuition-free public higher education. Public colleges and universities as well as community and technical colleges are essential for social mobility among poor rural and urban communities, enabling movement from poverty to the middle class. Federal funding should be provided to sustain these institutions at levels that both maintain educational quality and avoid passing along costs to students. This approach would support communities across the nation by increasing capital available for consumption and savings. Freed capital would increase demand for goods and services, generating employment and creating new tax revenue for local and state governments. Funding for tuition-free public higher education could come not only from the federal Department of the Treasury but also from a tax on high-speed financial transactions. Even if the treasury department could in principle fully fund tuition-free higher education, such a tax would nonetheless help limit the misallocation of capital in high-speed Wall Street trading and direct that freed capital to more socially useful areas.


Higher education has suffered for many years from tight budgets and escalating costs, while students face ever-higher tuition and crushing debt. COVID-19 has turned this squeeze into a life-and-death crisis for institutions, faculty members, and students alike. As the economy shrinks, higher education faces a crisis that threatens to shutter some private colleges and universities while also doing severe damage to public ones. And this crisis will not go away even if the pandemic recedes. If the pandemic intensifies, the crisis in higher education will get only worse.

At the same time, the mission of higher education has never been more urgent. Online education, necessary in the short run, is labor-intensive: colleges and universities need more trained and capable faculty members, not fewer, to deliver the same level of quality in education. And once it becomes possible to return to campus, America will need its public colleges and universities more than ever before. They are at the heart of our national capacity to innovate, reorganize, restructure, and recover not only from this pandemic but also from decades of industrial and institutional neglect, as well as from the social afflictions of racism, poverty, inequality, and urban blight.

In the Great Depression, such states such as Wisconsin, California, New York, and Texas maintained and expanded their public universities, as signs of confidence in the future and in younger generations. These institutions emerged from World War II as beacons of economic progress and of scientific, technological, and artistic leadership. They are no less necessary now. The right strategy in the face of our current difficulties is, once again, to support, maintain, and develop public colleges and universities of the first rank, broadly accessible to all who seek new knowledge, new skills, and new opportunities. These institutions, and their faculty, staff, and students, are the bedrock on which the next century of American greatness must be built.

This article was adapted with permission from a policy brief published in May 2020 by the Albert Shanker Institute.

Jeffrey Sommers is professor of political economy and public policy and senior fellow in the Institute of World Affairs at the University of Wisconsin–Milwaukee and visiting professor at the Stockholm School of Economics in Riga, Latvia. Mark Blyth is director of the William R. Rhodes Center for International Economics and Finance and the William R. Rhodes ’57 Professor of International Economics and professor of political science and international and public affairs at Brown University. James Galbraith holds the Lloyd M. Bentsen Jr. Chair in Government/Business Relations and is professor of government in the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin. Luz Sosa in an economics instructor at Milwaukee Area Technical College.