Changing Higher Education

Free college tuition is a lovely, but dangerous idea

"Free college tuition" is rapidly becoming a rallying cry in the permanent presidential campaign which now drives all policy discussions. It is easy to understand why. Tuition and fees in both the public and private sectors of higher education have been climbing much more rapidly than inflation and family income for over four decades. Even families well up in the middle class are finding the cost of higher education increasingly prohibitive, greatly limiting educational choice and opportunity. Higher education debt has become one of the largest debt categories for individuals and families, and is negatively impacting career choices, initial home ownership, automobile purchases, etc. The heart of the American Dream- educational and economic mobility-is threatened. 

This issue of educational and economic mobility is indeed critical,and deserves to be at the center of  serious policy discussions. The problem is that free college tuition,as catchy and simple and attractive as the idea is, is not a viable solution to that problem in any proposal that I have seen.

California still not addressing the workforce gap - plus ca change

Five years ago in a post, I described a thesis study by Lauren Cooper on potential solutions to the looming workforce gap in California. Her analysis was based primarily on projections of California workforce needs in 2025 made by the Public Policy Institute of California (PPIC). Dr Cooper's analysis of the CSU - level workforce shortfall suggested that CSU needed to open 12 new campuses by 2025 to meet needs - an unlikely solution to the problems given the finances of California.

PPIC has just published an updated California workforce projection, this time aiming at 2030 needs. The new projections are similar to the earlier ones:

Our projections indicate that the demand for college graduates will outpace the supply by 2030, if current trends continue. The gap is substantial, with the economy needing 1.1 million more college graduates than the state will produce. But if the state, its educational institutions, and its people are able to improve educational outcomes, California and its residents will experience a much more successful future, with higher incomes, greater tax revenues, and lower use of social services.

Pretty much what we saw 5 years ago. Very few steps have been taken over this period to improve the situation, despite some strong efforts by Governor Brown to create movement.

The key to a better future for California residents is obviously the California public university sector. Thus far, that sector has proclaimed loudly and consistently that it cannot increase the number of graduates significantly without proportional increases in budget, i.e. it cannot find more effective and more efficient ways of educating students. This position is of very questionable merit, since numerous institutions around the country have rethought their educational approaches in order to increase participation without sacrificing educational outcomes - and in many cases have improved educational outcomes in the process.

But the bottom line remains, California's future prosperity is largely in the hands of a public higher education system that thus far has fiercely and successfully defended the status quo, supported by regents who view their job to be to protect the university rather than the State and its citizens. Surely, there is a responsible adult somewhere in the mix.

"Baumol's cost disease" is the answer to a different question

In 1966, William Baumol and William Bowen looked at the origins of rising salaries for live performances (music, theater, dance), and noted that an underlying issue was that such performances could not easily be made more efficient - productivity could not be increased (Baumol and Bowen, Wikopedia). The oft-quoted ( and quite convincing) formulation of this concept is that a Beethoven quartet must be performed by exactly the same number of musicians today as was required in the 19th century, and that the quartet requires roughly the same amount of time to perform. No increase in productivity over two centuries! This inability to increase productivity should, according to simple economic arguments, lead to flat incomes - rising income usually is a result of increased productivity. However, despite this, salaries in the performing arts had risen over time. Baumol and Bowen concluded that this occurred because it was necessary to keep salaries on a par with those in industries that were seeing productivity increases in order to keep workers in the performing arts. This "push" of salaries in industries without productivity increases is called Baumol's cost disease.

Very often, when someone poses the troubling question, " why is college so expensive?", the response is simply "Baumol's cost disease", said with an authority that suggests that should settle the discussion. In fact, used in this way, Baumol's cost disease is like the magician's gesture that is designed to get the audience's attention away from place where something important is happening. In reality, customer's don't care about the cost of making a product, they are concerned about the price they must pay, and that difference leads one down a potentially fruitful path of reflection about both Baumol's formulation, and critical issues in higher education.

What will The College of 2020 look like?

Prediction is very difficult, especially about the future

Niels Bohr

(Note: the following was first published as an invited contribution on The College of 2020 in parts 1 and 2. I reproduce it here for the benefit of my readers by permission of the editors of the College of 2020)

What will the College of 2020 look like? It probably will be similar in at least one way to the College of 2011 -there isn't any one archetypical College of 2011 and there won't be any one archetypical College of 2020 either. US higher education consists of about 4,500 accredited colleges of 2011 with an incredible diversity of sizes, approaches, missions, and resources. I would expect the same to be generally true in 2020, with some important caveats: I think there will be significantly fewer accredited colleges in 2020, and the mix of sizes, approaches, missions, and resources will be quite different from today.

These changes will be driven by two forces that push from different directions, but each leading to increasing fiscal constraints on higher education. On the one side, local and national governments are finding it increasingly difficult to support higher education at traditional levels. There a world-wide movement towards decreasing the role of government in providing social goods, and the US reflects that movement. In addition, other governmental costs such as health care, prisons, and retirements are growing rapidly and squeezing out areas such as education. On the other side, all of higher education utilizes a model whose costs over the last 30 years have steadily grown about 3% a year above CPI increase. In the tuition-dependent private sector, tuition has grown apace, i.e. roughly CPI plus 3% every year for the past three decades. The costs of higher education are reaching a point where government, parents, and students are beginning to question if the product is worth the price. The answer is increasingly "no" for private institutions that have lower brand value, but the "no" likely will move upstream in the value ladder over time as costs increase until only a relatively small number of high brand value private institutions are immune. On the public side, the answer is increasingly, "no, not given our fiscal constraints" no matter what the brand value of the institution.

Are we approaching a mutation in higher education?

As mass consumption gives way to the wants of individuals, a historic transition in capitalism is unfolding.

So begins an interesting article in a recent McKinsey Quarterly written by Shoshana Zuboff.  Zuboff's premise is straightforward:

Every century or so, fundamental changes in the nature of consumption create new demand patterns that existing enterprises can’t meet. When a majority of people want things that remain priced at a premium under the old institutional regime—a condition I call the “premium puzzle”—the ground becomes extremely fertile for wholly new classes of competitors that can fulfill the new demands at an affordable price.  

She argues that we are at such a point now.  Increases in educational and living standards, complexity of society, and longevity have lead to parallel increases in desire for individual self determination, and new interactive technologies provide a means to respond to that desire.  According to Zuboff, this combination will lead to a mutation in capitalism that demands new business models with new purposes, new methods, and new outcomes:

This shift not only changes the basis of competition for companies but also blurs—and even removes—the boundaries between entire industries, along with those that have existed between producers and consumers.... 

Winning mutations—those that create value by offering consumers individualized goods and services at a radically reduced cost—express a convergence of technological capabilities and the values associated with individual self-determination.

Global higher education funding and the great recession

I highly recommend a very interesting recent paper by John Aubrey Douglass of UC Berkeley, entitled Higher Education Budgets and the Global Recession: Tracking Varied National Responses and Their Consequences.  He looks at the impacts of the current recession on education funding and policy in a number of OECD and other countries, including the US.  His conclusion, as captured in his abstract, is rather disheartening, to say the least:

Preliminary indicators show that most nations have not thus far resorted to uncoordinated cutting of funding for higher education that we generally see in US state systems. Their political leaders see higher education as a key to short-term economic recovery, long-term competitiveness, and often their own political viability –particularly in nations with upcoming elections. Further, although this is speculative, it appears that many nations are using the economic downturn to actually accelerate reform policies, some intended to promote efficiencies, but most focused on improving the quality of their university sector and promoting innovation in their economies. One might postulate that the decisions made today and in reaction to the “Great Recession” by nations will likely speed up global shifts in the race to develop human capital, with the US probably losing some ground.

One of the special difficulties in the US, as Douglas sees it, relates to the fact that 75% of all post-secondary students here attend state-controlled public institutions:

In short, how state budgets go, so goes US higher education; whereas most national systems of higher education financing are tied to national budgets with the ability to borrow and leading to different policy responses – with most OECD nations delaying budget cuts to higher education or, in some instances, actually increasing their investment and enrollment rates.

 Although there is considerable focus in this paper on the US in general and California in particular, it presents very informative and useful snapshots of the impact of the recession on higher education in a number of countries around the globe.

While this report paints a very depressing picture, the OECD report Education at a Glance 2009 shows that 2006 tertiary educational expenditures per student in the US were the highest in the OECD, and a bit over twice the average for OECD countries.  Although it is increasingly clear that global higher education funding trends are not in our favor, it is equally clear that we will remain for some period the leader in expenditures per student. Thus, we have the resources to continue to be highly competitive - if we use our resources more efficiently and effectively.  As noted by Douglas, many of our competitor nations are using this downturn to accelerate needed educational reform.   We should do the same, instead of demanding more resources to support the status quo (see the previous post, The canary in the higher education coal mine).

 

 

The business model for higher education: I. What doesn’t work?

 

The economic downturn has led to numerous calls from a wide variety of sources for higher education to make hard choices and to think more strategically about cutting costs.  Thus far, there have indeed been many hard choices made in both public and private sectors (see e.g. the recent report by the Association of Public and Land-Grant Universities).  These choices almost universally reflect necessary short-term responses to the immediate situation. However, for both good times and bad times, history has shown that the current business model of higher education requires annual net tuition increases that are well in excess of increases in family income or CPI (Perspectives on the elephant of college pricing, Nov 19, 2009).   Clearly, such large increases cannot continue indefinitely.  Consequently , creative long-term strategies ultimately will have to be devised that lead to a significant re-imagining of the higher education landscape - one that results in a sustainable cost/price model that supports the multiple missions of higher education.   

Higher education as an urban/national/global services industry

I strongly believe that any post in a higher-ed blog that prominently displays a picture of a bottle of good New Zealand Sauvignon Blanc has a high probability of being worth reading. A recent post in GlobalHigherEducation adds considerable support to that theory.  Kris Olds and Susan Robertson, the co-editors of said blog have reprinted a contribution that they wrote for the UK Higher Education International Unit’s most recent newsletter.  The subject is an increasing emphasis on the international aspect of higher education as an economic engine of national economy.  The reason for the photo of the NZ Sauvignon Blanc being prominently displayed in that article is that a recent report in GlobalHigherEducation shows that trans-national higher education brings more money into New Zealand annually than do international sales of their (justly) vaunted wines.  Olds and Robertson also point to reports from other countries showing similar high economic impact of the globalization of their higher education systems.

Losing the world’s best and brightest: America’s new immigrant entrepreneurs, Part IV

The title of this new report from the Kaufman Foundation tells you a lot about its conclusions.  The authors, Vivek Wadhwa, AnnaLee Saxenian, Richard Freeman, and Alex Salkever used a Facebook based approach to interview over a thousand foreign national students at US institutions of higher education.  The report does not claim to be definitive in any way: it was not designed with random choice of interviewees, does not have a longitudinal component, etc.  However, it does make some very important points that will probably resonate with many of us who come into contact with international students on a regular basis.

The title also lets you know that this is part of a Kaufman Foundation series looking at immigrant entrepreneurship in the US.  As stated in the press release for this report:

Immigrants have contributed disproportionately in the most dynamic part of the U.S. economy—the high-tech sector—co-founding firms such as Google, Intel, eBay and Yahoo. In addition, immigrant inventors contributed to more than a quarter of U.S. global patent applications. Immigrant-founded U.S.-based companies employed 450,000 workers and generated $52 billion in revenue in 2006.

Many of these immigrant entrepreneurs arrived in this country as students, were trained at US institutions of higher education, and stayed here to follow their dreams.  Thus, the future plans and aspirations of  members of the current generation of international students are likely to have important implications for the health of the US economy in the future.  This report has good news and bad news on that front.

Who are our customers for education? II. Society as customer.

(Continuing the discussion of Who are our customers for education? I. The employer as customer.)

"Society" has traditionally been a major "customer" of higher education.  At different times and places, higher education has been called on by society to do such diverse things as help create and/or maintain national identity, display national cultural and intellectual excellence, create societal mobility,  preserve the societal status quo, contribute to economic growth and improved living conditions, fend off and counteract  foreign ideas and influences, and provide critical expertise in times of war.  Thus,  the expectations of society as customer have and will vary according to time and place.  In return for meeting these expectations, higher education (at least the non-profit side) generally has been well rewarded by society. Much of higher education globally traditionally has been run by the state, and thus received the great majority of its support from the state.  Private non-profit institutions have received de facto state support through tax breaks of a variety of types, and are typically eligible for some types and levels of state support.  Thus, the challenge is not to determine whether or not society is one of the customers of higher education- it is - but to define in this rapidly changing and globalizing world what "society" is, and what it expects (and will expect) of higher education.  Further complicating the issue is that "society" has many levels, ranging from governmental structures at one end of organizational complexity to individuals at the other, and the relationships between these, and intervening, levels is also changing rapidly.

Who are our customers for education? I. The employer as customer.

My son Wade has an MBA, which often leads (and enables) him to look at issues with a somewhat different perspective than I.  He recently suggested that it is possible that we in higher education were defining our customers incorrectly.  Perhaps, instead of viewing students and their parents as our customers for education, we should view the future employers of our students as our real customers.  Since I am always advising groups for which I consult to move up one level in abstraction in their thinking, I recognized that this really what my son was suggesting to me.   In this post, I want to follow up on this suggestion, with one addition to his definition of customers: I want to define the real customers of higher education as both future employers, and society generally.  This addition of society to the list of customers enables a broader discussion of the role of higher education in a changing world.

THE EMPLOYER AS CUSTOMER
Let me begin by focusing on the “future employers” component of this definition, turning later to the “society” component.  This customer focus is quite consistent with my earlier post that described higher education as being in the knowledge chain management business(What business are we in?, March 1, 2006).  In that post, I argued that a role that would take on increasing importance for higher education was that of moving new knowledge quickly to potential end users. (That post also discusses other critical aspects of knowledge chain management, such as creation of new knowledge.)  And the best known way to move information, skills and knowledge from one place to another is through an educated person.  Thus, this view changes our relationship with our students, because our graduates become a key part of the knowledge supply chain which moves knowledge from the creators and explicators to the users. In addition, it may create a different kind of long-term relationship with our graduates than now exists.

Offshoring Executives, not Executive Jobs

The January 12,2007 Los Angeles Times has a fascinating article entitled “Cisco’s executive migration.” Cisco hopes to have 20% of its senior managers working at its Globalization Center in Bangalore by 2010.  They will be a “mixture of rising stars from San Jose and Bangalore and  talent plucked from acquisitions and competitors worldwide” - a very international mix.  IBM, it turns out, already  has about 150 executives living in emerging markets.  This includes their Global Procurement office, now located in Shenzhen, China, which moved last summer with its American vice president in tow.   

The author of the article, Rachel Konrad, says that all of this shows that “moving resources to far-flung parts of the world has evolved from cost arbitrage to strategic imperative”.  This conclusion is very much in keeping with the conclusions of Hagel and Brown that I discussed in What has offshoring got to do with higher education?

Anna Lee Saxon, dean of the School of Information at UC Berkeley is quoted as saying,” People are finally realizing that the only way to create cultural capabilities, linguistic skills and personal social relationships is to move executives abroad.”  We in universities should know (but often seem not to) that an extended stay abroad  is the only way to accomplish the same goals with students.  Education in this age of globalization will certainly call for greatly increased emphasis on a period spent in another culture - at least if we want to turn out the kinds of graduates that Cisco and IBM are looking for.  See also my extended comments on time abroad in Modularity in university higher education: Education . 

Offshoring moves up the education ladder

The Los Angeles Times reported on March 6, 2006 that advanced education is providing less of a buffer against offshoring than had been supposed. The article quotes Alan Blinder, a Princeton economics professor and former Vice Chairman of the Federal Reserve, as estimating that one-third of the total jobs in the US were susceptible to offshoring. Regarding the role of education in providing protection, he is quoted, “More education has been the right answer for the past decades, but I am not so convinced that it is the right course” for coping with the upheavals of globalization. (See related article by Blinder in Foreign Affairs, March/April 2006)

What business are we in?

A key question for every corporation over the recent decades of turbulence in the national and international marketplace has been "What business are we in?" As conditions changed, those corporations that really understood their business were best able to emerge in a strengthened situation. Often, companies decided that their existing understanding of their businesses were too restrictive. An oft-cited example of such a case is UPS, which realized its business was not simply delivering packages in its familiar brown trucks, but rather provision of logistics processes to a diverse spectrum of customers.  They are supply chain managers for companies of all sizes worldwide, working intimately with companies to design every aspect of their supply-chain.  In doing so, UPS moved from being a simple shipper of goods on request for corporations, to being a partner with corporations in the production and sales (and repairs) of their products. This partnership enables the corporations to better focus on their core businesses, and has enabled UPS to flourish. (A nice description of the UPS role in the changing world is given by Thomas Friedman in The World is Flat, p 141-150.)

Universities have tended not to ask what business we are in. Or perhaps the answer seemed to be too obvious - " what we are doing now is our business." As we look to the future of universities, however, this obvious answer simply will not enable us to imagine a broad enough spectrum of possible futures. As conditions change, what opportunities should we embrace, which should we ignore? What components of what we do today are to be strengthened, and which might be phased out?

This will be my first take this important question, and is intended to begin exploration of various models rather than provide a proposal for action. The model that I discuss here might be called the “UPS model”, or, more specifically, the Knowledge Chain Manager model.

What has offshoring got to do with research universities?

Globalization is a fact of life for almost every large sector of the world economy. How this globalization will affect higher education is an ongoing theme of these blogs. One very visible component of globalization has been the outsourcing and offshoring movement. One generally thinks of this as a way to cut costs, and as such, this seems like a movement unrelated to the research and teaching missions of the university. However, a very interesting new book by John Hagel III and John Seely Brown, The Only Sustainable Edge, presents a different take on outsourcing and offshoring that could well have major implications for the way universities think about globalization.