Changing Higher Education

The State of the Union on college costs

So let me put colleges and universities on notice: If you can’t stop tuition from going up, the funding you get from taxpayers will go down. Higher education can’t be a luxury. It is an economic imperative that every family in America should be able to afford.

Barak Obama, State of Union 2012

Does this speech signal that the time has finally arrived when the government - which pays a good part of the bill - will step in to limit the rapid and seemingly never ending growth of tuition? In normal times, the answer would likely be "yes" given that politicians from both sides of the aisle have been introducing bills that would cap tuition in one way or another for almost a decade.  Thus, we might expect to see a quick moving bipartisan effort.

What does society have to pay for a student to get a bachelor's degree?

Jorge Klor de Alva and Mark Schneider have just published a paper -Who Wins? Who Pays?: The Economic Returns and Costs of a Bachelor's Degree- that will certainly cause considerable controversy and discussion. While there are many aspects of the specifics of the study that undoubtedly will be challenged and refined in the future, in a very real sense the great significance of the paper is that it introduces a perspective to the ongoing discussions of higher education that is new and critically important. 

National and state governments obviously are struggling  to come to grips with the new era of constrained budgets.  As they have tried to simply continue the old paradigms of higher education and its support into this era of constraint, results have generally been quite negative.  Resulting higher education cuts have led to significant decreases in the numbers of students who can be accepted and educated in most state systems. Often the cuts have been deepest at institutions that serve primarily lower income students.  On the private side, the recession has pummeled many endowments, and the sector depends on annual tuition increases that average inflation + 3.5%, a model that faces increasing resistance. Federal student aid support to all sectors is facing increasing scrutiny, with some of Obama's goals for increases being scrapped before the budget wars really start.

One of the major problems that all of the individuals, agencies and legislatures face as they seek to find new and sustainable directions for higher education that serves its various constituencies is simply lack of data, which then leads to a lack of understanding of the implications of aspects of current funding paradigms.  

College real return on investment continues to fall

The College Board has recently published an interesting report entitled Education Pays 2010: The Benefits of Higher Education for the Individual and Society.   As have similar reports in the past, this shows the enormous financial benefit to the individual of gaining a bachelor's degree (or higher) - as compared to someone who does not get a college degree. It also looks at a number non-financial benefits as a function of educational attainment - health, job satisfaction, unemployment rates, etc.  All in all, a very interesting report that makes a good case for the benefits of post-secondary degrees.

A Chronicle of Higher Education article discusses some of the controversial elements of the report.  However there is an additional aspect of the report that I have not seen mentioned that caught my attention. Without in any way challenging the report's conclusion that a college degree is highly desirable, comparing salary data from this report with similar data from the previous report in this series Education Pays 2007 leads to a somewhat less upbeat conclusion.

The salary data in the current report comes from 2008, that in the previous report, from 2005.  Comparing the 2008 median earnings for bachelor's degree holders ($55700 in 2008 dollars) with similar numbers for 2005 ($50900 in 2005 dollars), we see a percentage increase in median earnings of 9.4%.  Unfortunately, the Bureau of Labor Statistics data tells us that the CPI increased 10.2% over that period. That is, adjusting for inflation, one sees that the median real earnings for bachelors degree holders decreased over this three year period by about 0.7%.  

Unfortunately, this trend in real income for bachelor's degree holders is not an artifact of the recent financial downturn. As I discussed in an earlier post Real income vs educational level - a problem for higher education(July 25, 2007), mean real income of bachelor's degree holders fell by almost 4% during the period 2000-2005, and lifetime expected real income for bachelor's holders has been essentially flat since 1979, declining by about 1%.  Thus, for all intents and purposes, the median real income for a bachelor's degree holder has been flat for the last 30 years.  

Figure 1.6 of Education Pays 2010 shows related data over the period 1971-2008 for workers 25-34 years of age by gender and educational level.  From that figure, this long term stability of real median income for bachelor's holders is obvious- as is the reality that the real median income for everyone with less than a bachelor's degree has seen a large and steady drop over time.  Thus median financial benefits to  bachelor's degree holders have not increased in real terms over times, but only in comparison with those who do not hold at least a bachelor's degree. 

It is interesting to compare these results regarding the essentially constant median financial benefits of a college degree with the rising costs of obtaining that degree. The College Board's Trends in College Pricing 2009, tells us that average published real tuition and fees at private colleges went up 7.7% and at public institutions,  9.8% during the period 2005-2008, the times between the two Trends reports.Thus, the cost of the degree was rising  in the upper double digits, while the returns on the degree dropped by about .7%.

Over the longer term, using the data from Trends again, one finds that the average published real tuition and fees  has increased over the 30 year period 1979-2009 for private institutions by 154%, and for public institutions, 186%. Of course, one can argue that actual tuition and fee increases were not really that large because of grants, etc, and that is certainly the case.  However,  I argued in Perspectives on the elephant of college pricing that the actual increase in price to the student is probably at least half of the published increase- still a very large number. It is a particularly large number given that the median real economic value of the degree has been flat. Overall, on average, people are having to invest more each year to get a return that is essentially constant in real dollars - a falling return on investment.

Of course, all this is about medians and averages. The Education Pays reports also give information on the distribution of incomes around the medians, and it is quite broad. At the upper end of the distribution, the 75th percentile for bachelor's holders lies above the median for master's degrees, very close to the median for Ph.D's; at the lower end, the 25th percentile of the distribution lies near the middle of the distribution for high school graduates. Thus many of the economic conclusions that one might reach looking just at median incomes become much less sharp and clear if one looks at the breadth of the distributions.  

All of this taken together suggests that a dropping return on investment driven by continually rising tuitions is creating a situation in which it eventually will no longer make financial sense to get a college degree - except  for graduates that manage to get jobs that pay above the median (we might call them the Lake Wobegon group).

For better or for worse, there are ways for a student to increase the probabilty of being in the Wobegon group. PayScale puts out an annual College Salary Report that demonstrates quite clearly that median starting salaries for college graduates vary greatly by subject of degree and by institution of degree.  Thus, not surprisingly, the actual return on investment is likely to be be influenced greatly by the traditional variables of discipline and institution. Attention to these variables is likely to become increasingly important to students and their families as the median return on investment of a college education continues to decline 

Thus when I read the College Board report, I was delighted to see all the good things that correlated with college degrees. I also was intrigued to see that for 35 years or more, employers have defined the real annual median financial worth of the bachelor's degree to be essentially constant - despite the enormous changes in number and demographics of bachelor's recipients over that time, and the growth of the knowledge economy. But I was troubled to see that the median real return on investment of a bachelor's degree continues to fall in a monotonic fashion due to  continuing increases in the cost of attending college. This, coupled with the broad distribution of incomes around the mean for bachelor's recipients, suggests that a time will arrive when it clearly will make no financial sense to get a bachelor's degree unless one both studies a field that is likely to lead to a well paying job and attends an institution highly regarded in that field.  That will certainly cause some changes in higher education as we know it!  

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.

Joint ventures at the for-profit/non-profit interface

In these troubled financial times, should a non-profit higher education institution consider teaming up with a for-profit partner to create new sources of revenue?  Inside Higher Education reported on an interesting presentation by Michael B Goldstein at the recent meeting of the National Association of Independent Colleges and Universities that suggested this might provide an important lifeline for institutions under financial pressure.

Goldstein noted that several smaller non-profit colleges with severe financial problems have had to sell themselves to for-profit entities.  Although the institutions survived, they did so by relinquishing control to others. Examples of such institutions are Grand Canyon University, originally a Southern Baptist college, which was sold to Significant Education LLC (also behind the similar purchase of  Chancellor University, new home of the Jack Welch Management Institute) to become the first for-profit Christian college; Post University, which was bought by Generation Partners; and Ashford University, originally sponsored by the Sisters of St. Francis, now owned by Bridgeport Education.  A somewhat related fate befell the College of Santa Fe, which is now owned by the city of Santa Fe, but leased by Laureate Education (Update on the College of Santa Fe- Laureate deal, July 30, 2009).  Indications are that the for-profit sector continues to be quite interested in acquiring fully accredited non-profit institutions, and, unfortunately, there are an increasing number of accredited  institutions whose financial situations make them prime targets for acquisition.  

Goldstein suggests that there is a “middle track” possible to exploit the higher education interests of investors: forming joint ventures with a for-profit venture.  Such a joint venture can enable the college to tap into the capital markets to build some new revenue producing academic programs without ceding control over the academic core of the programs.  He suggests that the appropriate model for such a venture is to create a new, independent entity such as an online program or new institution.  Within this entity, core academic functions would be handled by the college, while the new entity would handle non-academic services, such as student support, marketing and finance.  The new entity itself should be controlled through majority ownership by the college so as to assure that all aspects are handled in ways that are appropriate to the brand of the college.  An underlying goal of the approach, according to Goldstein is” This enables you to pick the best capabilities of the various partners, so you don’t have to build it or do it all yourself.”

Two models of this approach discussed were the recent (and much discussed) partnership between the National Labor College and the Princeton Review's Penn Foster Education Group, and the partnership between Tiffin University and Altius Education to form Ivy Bridge College. Ivy Bridge College enables students to earn associate’s degrees online.  It is accredited by commission of the North Central Association of Colleges and Schools, and has transfer agreements with almost two dozen four year colleges.

A slightly different approach, but ultimately in the spirit of Goldstein’s quote above, has been used by Laureate Education in some of its dealings with non-profit higher education institutions(Interesting activity at the for-profit/non-profit interface: Laureate, Jan 14, 2008). In 2006, Laureate and some Turkish partners agreed to take over technology, student and human resource services, and financial management for Istanbul Bilgi University.  The “win” from Bilgi’s perspective was that it joined Laureate’s global network of universities, thus opening up study abroad and exchange opportunities for its students.  In addition, resources came to Bilgi to allow it to expand in Turkey and possibly beyond.   Also in 2006, Laureate partnered with Liverpool University and Xi’an Jiatong Univesity to set up the Xi’an Jiatong-Liverpool University in Suzhou, China.  Academic programs are under the control of the two university partners, and finance and management is provided by Laureate.

Kaplan also has a number of arrangements with non-profit higher education institutions that are not dissimilar in goal and philosophy to the approach suggested by Goldstein (Interesting activity at the for- profit/non- profit interface: Kaplan, Jan 7, 2008). In particular, in Asia, Kaplan has partnered with a number of primarily English institutions to enable them to offer degrees in Asia without the expense of setting up stand-alone programs with all of the costs of student recruitment, management at a distance, etc.  Again, Kaplan is providing what it can do best (capital, management, infrastructure), while the universities provides what they can do best (academic content), and everyone is benefiting.

There is actually a fair amount of evidence that, under the right conditions, with the right partners, Goldstein’s advice is on target.  Getting partners who have strengths that compliment yours is the key component of a win-win situation. 

Two market-state visions of the future of higher education

 Joseph Aoun, the president of Northeastern University, recently published a very insightful article entitled Two different leaders, two different visions in the Huffington Post.   His two leaders are Nicholas Sarkozy, the president of France, and Luke Ravenstahl, the mayor of Pittsburgh.  Their visions allow us to consider how education may be viewed in different versions of the developing market-state as described by Philip Bobbitt (Welcome to the market state, Feb 2006).

Sarkozy recently announced that he wants to invest more than $29B in France’s universities and research, with a clear rationale and goal:

France is giving herself unprecedented resources in order to have world’s best universities because with the world’s best universities we are preparing ourselves to win the competitiveness battle.

Ravenstahl, on the other hand, announced that he wants to tax college and university tuitions. His rationale and goal are also clear:

It’s time for everybody to pay their fair share, especially if we are to complete our financial recovery. We can no longer afford to provide city services to those who are not paying their fair share.

The money is needed to help cover $15 million in higher pension costs, plus contribute $1 million to Carnegie Libraries to keep neighborhood branches from closing.

As Aoun points out, these two leaders provide a very different conception of the role of higher education in the world.  Both fit the view of the Bobbitt’s market state, which I have discussed often before, but with very different perspectives. Sarkozy believes that higher education is a critical resource to be used by the state in its global economic battles, and so serves as a public good requiring state support.  Ravenstahl’s proposal reflects a belief that higher education is a private good which should be expected to pay its way, and not depend on special breaks from the state. The role of the market is clear in both proposals, and neither is proposing to treat higher education in the traditional nation state role as being worthy of state support because it provides a general, unspecified public good such as producing better citizens. 

Bobbitt suggested that each market state will be some combination of three possible forms: (1) a mercantile state-i.e. one that endeavors to improve its relative position vis-à-vis all other states by competitive means, or (2) and entrepreneurial state, one that attempts to improve its absolute position while mitigating the competitive values of the market through cooperative means, or (3) a managerial market-state, one that tries to  maximize its position both absolutely and relatively by regional, formal means (trading blocks, etc.).   As I point out below, the Sarkozy approach is consistent with some of the characteristics Bobbitt describes for the managerial state, while that of Ravenstahl fits characteristics of the entrepreneurial state.

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Sarkozy consistently has made reform of research and higher education a key element of his government’s programs.   For whatever value rankings have, the 2009 ARWU rankings of world universities shows 11 top 100 institutions in Great Britain, 5 in Germany, and only 3 in France – a result that cannot find favor in the Elysee Palace!  An article in the Economist described the situation in French higher education in the following way:

There are no tuition fees, nor is selection of students on entry allowed, apart from the required baccalauréat. Lecture halls are swamped; first-year medical students camp out early for scarce places. Campus libraries close at weekends. As many as 52% of undergraduates fail after their first year; and 90,000 students quit university each year without a degree. France's brightest students compete for places at the elite, fee-paying universities, known as the grandes écoles, instead. And the best researchers snap up well-financed jobs abroad.

Even softening this statement a bit by taking into account the usual British/French competitive spirit, one can imagine why Sarkozy has made higher education reform a high priority. 

A major goal of the proposed reforms has been to make changes that will lead to improved economic results for France.  To that end, many of the reforms seek to bring about closer links between universities and business. That view, plus some reforms that potentially might lead to inequalities between institutions and students, have resulted in massive opposition from faculty, students, and administration. This opposition led to a 4 month higher education strike by those groups last spring.  Most of the participants seem to actively decry some aspect of the current system, but nevertheless are dead set against change. 

Reactions by these groups to Sarkozy’s recent promise of increased investment (in them) have been decidedly mixed. In part, this is because one goal of his proposal flies in the face of egalite:

create around ten campuses where we excel, with the resources, critical size and links with industry allowing them to rival the world’s best universities.

Thus, Sarkozy must not only find the financial resources to improve the system, but must face major political obstacles to bring about needed organizational change.  It is not easy to build a robust world-class educational system, even when you start with all of the strengths of the present French system! Nevertheless, this top-down approach to educational reform in support of competitive economic position reflects well what Bobbitt described as:

an omnicompetent government characteristic of managerial market states.

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On the other hand, Pittsburgh already is in the enviable position of having 2 universities in that ARWU top 100 ranking (U. of Pittsburg and Carnegie Mellon). Almost as good as all of France! Taxing the tuitions of those and other higher education institutions will not destroy them, of course.  It will make it harder for them to maintain – and increase - the levels of excellence that they currently have.  So why would the city take that approach to filling in a hole in an underfunded pension fund? There are certainly local conditions that explain part of it, such as Pittsburgh’s declining population and serious, multi-year budget problems.

But Pittsburgh is going to need its higher education complex to be even more robust if the city is to find increased traction in an increasingly complex world.  Wikipedia (recently - changes often of course) described Pittsburgh’s economy as “largely based on healthcare, education, technology, robotics, and financial services.”  With the possible exception of financial services, those areas sound like the core strengths of Pitt and Carnegie-Mellon.  It is hard to imagine that these areas would have become the drivers of the Pittsburgh economy in the absence of those two universities – and it is highly unlikely that these areas of the economy will be able to increase in vitality if Pitt and Carnegie-Mellon are not thriving themselves. Pittsburgh already has what France is striving to create – a thriving, creative higher education system. That system will be very hard to rebuild if it is damaged to solve an unrelated problem.

Nevertheless, in the emerging market state, higher education must expect that it will be required to supplement its current indirect role in the economic health of its region and its nation with a more explicitly direct role. Paying taxes might be one such direct role, but is unlikely to be the most effective, for reasons stated above. Fortunately, in late December, Mayor Ravenstahl announced that he was dropping plans for the tax in order to pursue an undefined partnership of the city with higher education and the business community that will address the financial health of the city.  This type of collaborative partnership, if pursued actively and effectively, could become one model for the type of direct market-state role that best fits the strengths of higher education. That is a much better way to use American higher education to help balance budgets than taxing their resources!

Bobbitt described the entrepreneurial state as being characterized by, among others, decentralization, economic evaluation of all policy, and encouragement of the locality as laboratory.  In a laboratory, of course, some experiments will be badly designed, and this looks like one of them.  The economic evaluation was short sighted and would most likely have led to larger future deficits for the city.  On the other hand, the experiment still will be a success if some new and more effective coupling of higher education to government and business emerges. Certainly this local experiment would not have been tolerated in the more centralized managerial state – a tuition tax would be national, nor not at all. But it will probably be through such local clashes that models of effective partnerships that serve the demands of the market state will be developed.  

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Aoun steps back from the focus on these two leaders to look at the wider scale of the world, and finds much of the rest of the world on one side, and the US on the other.  As noted before in these posts, many other countries (think much of Europe and Asia) have articulated policies outlining the role of higher education in their economies, and even in their foreign policies.  As a consequence, they are creating strategies to strengthen their systems of higher education so that they can play their desired roles.  The US, on the other hand, seems to assume that its higher education system will always be globally pre-eminent and that the enormous role it has played in both the economic vigor of the US, and the shaping the external perception of the US will continue unabated without attention.  At the same time, there are ample signals that the pre-eminence of American higher education is rapidly eroding.  Some of this erosion is to be expected – higher education is a growth area around the world as living standards increase.  However, other aspects of the erosion can be attributed to the fact that we as a nation are simply not paying attention to the long term. 

Bobbitt warns of a danger associated with an entrepreneurial state:

The entrepreneurial state may become so intoxicated with its own absolute position that it fails to prepare itself – by not deferring consumption in order to invest in infrastructure – for relative challenges from states whose competitive drive is masked by the improved wealth positions of all major players.

Sounds like a fair warning in this case!

 

For-profit higher education moves to fill gaps left by state budget shortfalls

 
 UB Daily for December 23, 2009 pointed me in the direction of a very interesting article in the Times-Herald, which covers the Sonoma and Napa regions in northern California. The article is entitled “Private Universities Covering the Gaps in Higher Education.” The gaps of the title are those resulting from the crippling state budgetary cuts to public higher education in California, and the “private universities” that are rushing in to alleviate the problems are all in the for-profit sector. Although several for-profits are mentioned, The University of Phoenix is the focus of this article. 

According to the Times-Herald, a northern California official of The University of Phoenix reports that they are seeing increased enrollments due to two cut-related effects: inability of students to get needed courses in community colleges, and inability of students to transfer between different state institutions. The Times-Herald reports that In order to meet these needs:

University of Phoenix officials are working on a strategic plan with nearby Solano Community College to assure its students have good access to the school, said Jo Hoffmeier, University of Phoenix vice president of community relations and product safety....The local University of Phoenix campus is also working to improve its alliances with California State University campuses nand University of California at Berkeley to assure access to as many students as possible, Hoffmeier said.

Thus, the University of Phoenix is working proactively with the public sector to maximize opportunities for students under changing conditions in higher education.   I believe that this type of public-private cooperation is going to be increasingly important in meeting the learning needs of future students. Strong support for this belief can be found in a recent USC doctoral dissertation by Lauren Cooper.   

Cooper’s  USC dissertation is entitled Market-state-based planning for nation-state style prosperity: Reinventing the higher education “promise” to create a “win/win/win” for California.  In it, she argues that higher education capacity discussions need to shift from a demand-driven model to a workforce-driven model.   Using primarily projections made by the Public Policy Institute of California for the number of college degree-holding workers required to satisfy industry needs in California in 2025, Cooper shows that there is likely to be a massive shortfall of such workers by 2025 if long-standing growth rates in the UC and CSU systems are maintained.  (In fact, the current budgetary mess in the state has led to shrinkage of both systems, so Cooper’s analyses can be considered “best case”.) Cooper’s projections show that to fill in the CSU portion of the 2025 shortfall, the system will need to open 12 new campuses prior to 2025 - an unimaginable outcome given the finances and political situation in the state.   Cooper concludes, therefore, that the public sector alone cannot meet future workforce needs:

As components of the higher education system, the UC, the CSU, community colleges, and private and for-profit universities will each need to play a significant role in the future success of the state....Reorienting the state’s current trajectory will require nontraditional thinking and innovative solutions to change the current course.

As Cooper notes, in much of the world, for-profit higher education is stepping in to meet capacity problems that cannot be met within government's budgets.   It is neither surprising - nor unreasonable - that we increasingly see a similar movement in the United States as the state is progressively less able to meet educational needs.  

In the situation described by the Times-Herald, it seems that the negative effects of state budget cuts have lead to the positive result that the for-profit University of Phoenix is working collaboratively with various components of the California public higher education system to help meet student needs.  The differing viewpoints held by the partners in these collaborations suggest that the interactions have the potential to be positive for all sides, especially if they lead to discussions of some of the critical questions for higher education.  Among these questions might be: what should be the goals of higher education in this changing world?; how can the cost of providing higher education be contained?; and, what are the most effective approaches to student learning?  

However, in order for these various players to produce a real “system” of higher education that meets the needs of the students and the workforce needs of the state, as suggested by Cooper, a number of things must happen.   Most important, and perhaps most difficult: transferability of course credits must be assured amongst the various institutions.  This is not unlike the problem being faced in Europe with the Bologna process.  Successful broad transferability requires a focus on learning outcome measures, rather than on inputs or student hours in the classroom.  As Europe is showing, it is possible for a very diverse set of institutions to agree on desired learning outcomes for various educational steps.  The focus now is on the difficult task of creating outcomes measures that are recognized by all parties.   The Bologna process, although primarily involving public institutions, does include a number of for-profit institutions.  Thus,  there is no reason that a similar process involving Cooper’s players could not succeed here in California (or other states).  This would enable the coupling the strengths and resources of the different sectors in order to meet the challenges of providing high quality education in times of constrained resources.  

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.

What now for globalization?

The future of capitalism is here, and it is not what any of us expected.

Lowell Bryan and Diana Farrell in  the McKinsey Quarterly

                                                                                        

I have written often in these posts about the effects of globalization and the rise of the market state on higher education.  Given the economic events of the past year, some recalibration of understanding of  these forces is obviously in order.  This post describes some of my immediate thoughts, starting with a re-visitation of the work of Philip Bobbitt that underpins the arguments made in several of my previous posts.

In his influential 2002 book, The Shield of Achilles, Philip Bobbitt described the global transition from a nation-state form of organization (in which the state seeks to provide for the welfare of its citizens) to that of a market state (in which the state seeks to maximize the opportunity of its citizens). This transition is being driven by large global forces that include technology, changing demographics, and the rise of global marketplaces for goods, knowledge, and currencies.  He suggested that there are three models that define the main characteristics of the new market state, and that states will eventually have to make decisions that will lead them primarily towards one or the other of these. The three models are (p 283)

(1) a mercantile state–i.e. one that endeavors to improve its relative positions vis-a-vis all other states by competitive means, or (2) an entrepreneurial state, one that attempts to improve its absolute positions while mitigating the competitive values of the market through cooperative means, or (3) an managerial market-state, one that tries to maximize its position both absolutely and relatively by regional, formal means (trading blocks, etc.). 

Each of these different models has its own strengths and weaknesses and strategic implications. The Entrepreneurial Market-State is rather libertarian, looking for minimal state intervention in the economy and the private lives of citizens. “Privatized health care, housing, pensions, and education, as well as low taxes and low welfare benefits all characterize such states.” (p671). The US fits into this category.  The Mercantile Market –State “relies upon a strong central government to protect national industries, subsidize crucial research and development, and steer certain important enterprises toward success.”   “Opportunities available to the consumer…are sacrificed to the long-term opportunities of the society.”  In addition, “These societies are able to maintain social cohesion...in part because income disparities are suppressed, variations in take-home pay between manufacturing workers and service workers are rationalized, and elaborate social welfare subsidy systems, including public housing and access to education, are put in place…” (all p.671) Ensuring social stability might be said to be the goal of the Mercantile Market-State.  Many Asian economies fall into this category. Finally, there is the Managerial Market-State. This form is characterized by “free and open markets within a regional trading framework, a government that provides a social safety neat and manages a stringent monetary policy, and a socially cohesive society.”(p.672) “Strong national unions negotiate contracts across whole sectors of the economy rather than by individual company or factory.” Assuring social equality is one of the major goals of this form. Much of Europe falls into this category.  Bobbitt predicts strong competition (or perhaps conflict) between these different forms of market state as each seeks to become the constitutional archetype of the market-state.

More on the “tipping point” for globalization of US higher education

The ongoing and very widespread economic problems are having a major impact on higher education, as I noted in a previous post.  Two recent articles in the New York Times provide some interesting examples of the problems.  The first, Tough Times Strain Colleges Rich and Poor, outlines some of the steps being taken to meet plummeting revenues.  They include, of course, deferring construction, hiring freezes, lay-offs, and cutting back on need-blind admissions goals. Students, feeling the economic pressures from all sides, are looking more favorably at  lower-cost public higher education, but there they are finding that states are cutting back on funding due to the hard times. Several states, including California, are considering, or planning to limit freshmen enrollments because of these cuts. 

The second, Beyond the Ivied Halls, Endowments Suffer, describes difficulties several universities are having with “alternative investments” in their endowments, including real estate partnerships, venture capital, and hedge funds.   Such investments have grown in popularity over the past years because of their potential huge gains, and university endowment managers have plunged into these alternative markets in a major way:

Endowments with more than $1 billion in assets reported 35 percent of their holdings in these types of investments on average last year.

Unfortunately, such investments are typically not very liquid, and often require periodic additional investment.  In these times, liquidity can be a problem, and additional investments become difficult if not impossible.  As a consequence, several major universities (including Harvard) are trying to sell some of their alternative investments, and having to accept greatly discounted offers in the process.  Does this sound familiar in other contexts?

All in all, this is developing into a very serious problem for higher education that is unlikely to be solved in a satisfactory and appropriate way by simply cutting costs.  Nor does it seem likely that a “government bailout” of higher education will occur.  More serious thought about the future of American higher education is called for, including, as I have previously discussed (here, and here), changes in mission and organization.

Disruptive innovation and the market state lead to a collision between for-profit and non-profit medical education

There are those in non-profit higher education  who think that for-profit higher education moves in a different sphere, and can safely be ignored.  A news article today showed that that assumption is increasingly less correct, and showed a form of competition that certainly looks like it arises from a mixture of Clayton Christensen’s disruptive innovation and Philip Bobbitt’s market state.

But let’s begin earlier in the week with another, seemingly unrelated news article.  At the end of July, DeVry Inc. announced the purchase of U.S. Education Corporation, which owns Apollo College (not related to the parent of U. of Phoenix), and Western Career College.  Both of these entities are in the health care area, preparing students

“ for careers in healthcare through certificate and associate degree programs in such rapidly growing fields as nursing, ultrasound and radiography technology, surgical technology, veterinary technology, pharmacy technology, dental hygiene, and medical and dental assisting.”

There are over 8700 students at the two institutions. 

According to DeVry, this purchase fills a strategic need:

“The high quality programs and experienced management teams at USEC, Apollo College and Western Career College provide us the perfect opportunity to further expand our program offerings in the high demand healthcare industry"

That is, DeVry sees a good future in the healthcare industry, and is ramping up its offerings and strengths in that area.

Among the healthcare industry holdings of DeVry is Ross University, a medical school and veterinary medical school on the Caribbean isle of Dominica.  The medical school has about 6,500 graduates, and boasts of the opportunities offered its students:

“We are also proud to offer more clinical rotation spots in the United States than any medical school in the world, with over 5,000 opportunities available at more than 70 institutions nationwide.”

Which finally brings us to today’s news.  The New York Times reports that New York City’s Health and Hospitals Corporation, which runs the city’s 11 hospitals, has signed a 10 year $100M agreement to provide clinical rotations for students of a for-profit medical school in the Carribean.  The for-profit school in the news this time is St. George’s University School of Medicine on Grenada (remember our invasion of Grenada to protect medical students? The same.).  And the contract has a very interesting clause, according to the New York Times:

“The contract also bans the hospitals from providing clerkships to other Caribbean medical schools — a critical provision to St. George’s, which has faced heightened competition in recent years, particularly from Ross University on the island of Dominica, part of DeVry Inc., a publicly traded educational company, since 2003.”

Thus the growth in strength in the healthcare area of DeVry has increased pressure on one of its for-profit competitors, St. George’s, and the resulting competition has spilled into the world of the non-profit competitors

At last, the Democratic alternative to the McKeon tuition cap proposal

“I think higher education doesn’t win elections, but no candidate wants to be accused of ignoring the issue of college access.  It is important to have something in your list of policies that is relatively catchy, simple and credible.”
Robert Shireman, president of the Institute for College Access and Success, as quoted in insidehighereducation.com

I described in an earlier post (Price and Cost in Higher Education: price and the political-economic system, Jan 11, 2007)some of the political forces that make higher education access an increasingly important priority of government. I also noted that this powerful trend had to be accommodate within the reality that shrinking federal resources preclude additional government outlays to increase access. My earlier post described some of the approaches being proposed to accomplish both of these ends.   One of these approaches, championed by Republican Rep. “Buck” McKeon, called for penalties for colleges whose tuition increases exceeded the CPI increase by some amount- caps on tuition increases, in effect.   

Now that the Democrats have taken over the Congress, I have been awaiting the Democratic alternatives for solving this problem.  It is now beginning to take shape. The Chronicle of Higher Education headline captures this bold new Democratic thinking:

Congress Looks to Expand Tuition Tax Credits, May Tax Higher Education to Cover Costs

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.

Supplement to Price and Cost in Higher Education: Price

In Price and Cost in Higher Education: Price I discussed briefly debt load for graduate students.  This note adds a bit of detail to that discussion.

Kenneth Redd of the Council of Graduate Schools reports that in 2003-2004, 43% of minority students were taking out loans to finance their graduate study, with the average annual loan being about $19K.  Thirty four percent of white graduate students were taking out loans, averaging about $18K annually. Upon completing the doctorate, 65% of minority students had outstanding debt, with an average of $51,263, while 51% of white students had an average cumulative debt of $51,648.  These numbers are roughly twice as large as comparable numbers from a decade ago.

Bad as this situation seems, it is better than in some professional schools.  Equal Justice Works recently published a study of debt loads of graduating law students. They found that more than 80% of all law students borrow to support their education.  Upon graduation, students in public institutions had an average debt of $51K, while those from private institutions had an average debt of $79K. While these debt numbers are not prohibitive compared to the $135K median starting salary for an associate in a big law firm in a large city, they are overwhelming for someone looking at public interest law, where starting salaries are in the $36K-$44K range.  This is clearly a situation in which the cost of education is having a significant social impact.

Price and Cost in Higher Education: price and the political-economic system

In a previous post (Price and cost in Higher Education: Price, Jan.  2007) I looked at some data on tuition price increases over time, and the resulting debt load that many students have taken on. In this post, I want to talk, once again, about the ongoing global transition from  nation-states to a market-states (see Welcome to the Market-State,Feb. 20, 2006).   In this instance, I will focus on how that transition might relate to price in higher education.

Bobbitt describes the governing contract of the nation state as: the government (the State) commits to improving the lives of its citizens (the Nation), and in return, the citizens agree to sacrifice to support the state.   In the market state, the government only seeks to maximize the opportunity - rather than the welfare - of its citizens, and individuals then thrive or fail based on their ability to grasp the opportunities offered by the global marketplace.  As a corollary, since the market state is offering less of a guarantee of success to the citizens than does the nation state, the citizens in the former are less prepared to sacrifice on behalf of the state.  One consequence of this change is that there are increasing demands that tax loads decrease, with the result that the state has less revenue in a market state environment.

In the nation state, highly educated people across a broad spectrum of fields are considered to provide intellectual capital of great value to the state (see Metrics of Academic Excellence in the 21st century, Feb. 27, 2006).  However, in a market state, the state focuses its attention on creating educated people in more narrowly defined fields that are deemed to be of importance in order to meed some perceived need of the state.  Higher education overall is considered to be of primary value to the individual, rather than to the collective.  A recent Chronicle of Higher Education survey captures the changing societal view of this public good/private good perspective. The survey showed that 2/3 of adult Americans now believe that families and students should pay the largest share of the costs of higher education.  Similar surveys in the 1960s showed that most Americans believed the converse, that the federal government should pay the largest share of the costs of higher education.  Thus the transition to a market state lowers the responsibility of government to take the lead in paying for higher education.

However, there is a counter trend contained in the market state that gives the state a very large stake in higher education.  As the knowledge economy continues to expand, access to higher education becomes central to the principle of maximized opportunity that undergirds the market state contract.  However, as we saw in Price and cost in Higher Education: Price, increasing price is decreasing access to higher education.  As a consequence, the state needs to find ways to counter the effects of increasing higher education price in order to maintain legitimacy.  As a further constraint, it must do so without significantly increasing its costs of supporting what has increasingly become a private benefit.  And in any case, because of its lowered tax collections, the state is greatly constrained in the financial incentives that it could apply to increasing access even should that be desirable. 

Price and cost in Higher Education: Price

The issue of the rapidly increasing price of higher education has been much in the news of late. Increasingly, one hears calls from Washington for limits on price increases in the name of accessibility.  One hears responses from university groups that focus on rising costs, and the necessity of reflecting those rising costs into the price. (See my comments and links in Report from the Secretary of Education's Commission on the Future of Higher Education, Aug 10, 2006)

In fact, I believe that the calls from Washington are but a part of a broader, long term political-economic trend that inevitably will lead to controlling price in higher education.  If this interpretation is correct, then there are serious issues to be addressed, because I do not believe that costs in higher education can be controlled in a significant way by making trivial administrative changes.

In this post, I review some data on this contentious issue of price. In a subsequent post,  I will place the issue of price of higher education in a larger context of changes in the global political-economic scene, and discuss some ways in which I believe that control of price might occur.  In a yet-later post, I will consider the question of cost, and brainstorm about possible ways it might be controlled.

Globalization and Higher Education

I have just written a short piece for the Navigator, a magazine of the USC Center for Higher Education Policy Analysis, about globalization and higher education.  For convenience, I have pasted it in below (with references replaced by links), but the entire Fall 2006 issue in which it appeared can be accessed in PDF.

Globalization is a much used term in the world today, but its meaning is not particularly precise.  The differences between globalization and internationalization are also not consistently defined, with the two words are sometimes being used interchangeably although they generally refer to rather different concepts.  In the world of higher education, a dizzying variety of definitions of both words are to be found.

Rather then try to define what the words should mean in the abstract,  I find it provides an interesting perspective to use these words in the way that Samuel Palmisano, Chair of the Board and CEO of IBM recently did in describing historical periods in the development of the modern corporation. “Internationalization”, in Palmisano’s view, describes the hub and spoke industrial networks of the last half of the 19th and early 20th centuries.  These networks focused on home country manufacture with international distribution, and in many cases international supply of raw materials.  “Globalization”, on the other hand, describes a late 20th century process in which corporations have modularized the production process, and use new modes of information technology and the relative absence of protectionist national barriers to find the most effective and efficient global means of producing and assembling the individual production modules.  In between these two periods was a time of “multinationals”, which sprang up when protectionism in the 1920's and 1930's made the spokes of the international companies ineffective - companies had to move from home country manufacture with international distribution to local production distributed in attractive markets.

A preliminary report from the Commission on the Future of Higher Education

The Commission for the Future of Higher Education has just released a draft report, which was apparently prepared by staff, not the Commission members.  Thus we can expect that the Commission will wade in and carry our a significant rewriting.  So, rather than respond to the draft (other than to say that I find some of the things in it to be right on target, and others to be just silly), I will describe a few things I would like to see in the final report.

First, a discussion of the changes they see in the world, and why those changes put our higher education system at risk. There are surely many things wrong with our system of higher education (and those of all of our competitors, for that matter), and we are unlikely to have the enthusiasm or resources to fix them all.  What threats do they believe their solutions are protecting us against? At present, we cannot judge the utility of their solutions, since we do not know the problems for which they are solutions

Second, what should we be teaching students in today’s world? If we want to do outcomes testing of learning, we had better be real sure we are testing for the desired outcomes, because the test will become the driver. Reports show that offshoring is creeping up the educational-attainment ladder.  The key issue seems to me to be, what do today’s students need to learn so that they have a good chance of being successful in the increasingly globalized competition for jobs?

A Nation-State Institution in a Market-State World

The other day I Googled Amarket-state higher education Bobbitt@, and came up with several interesting hits. One of these was a 2004 speech by Peter Scott, Vice Chancellor of Kingston University entitled The Impact of Globalization on Universities.

Scott begins by addressing the very pertinent question Awhy are universities afraid of globalization?@ He describes the present situation as one in which Amainstream university response to globalisation ..(ranges).. from reluctant acknowledgment that globalisation is inescapable...to a steely determination to resist its alleged corruption of the university=s core academic and public-purpose values.@ After providing a convincing list of reasons for this fear, Scott then goes on to describe what he believes will be the impact of globalization on the university. His analysis on all points is very useful, and well worth reading.

For me, Scott=s most thought provoking point begins with the statement that most universities have been created as a consequence of policies of States. As such, he argues, the university=s identity is ultimately aligned with the interests of its State. Of course, those interests have changed over time as constitutional organization has moved from the Princely State through the Nation-State, and universities have changed in response. Consequently, he concludes, the modern university is in myriad ways closely defined by the aspirations and organization of the Nation-State, and, in particular, its own Nation-State.

Our issue, then, is that the university of today is a Nation-State institution in a world transforming into a Market-State!

How would a Market-State change Higher Education?

How would a transition to a Market-State (Welcome to the Market-State, Feb.20, 2006) manifest itself in higher education?  Two quotes capture a good part of the core meaning of such a transition. The first comes from James Duderstadt, the former President of the University of Michigan, in “The Future of Higher Education in the Knowledge-Driven, Global Economy of the 21^st Century”:
“It is important to remember that most of our institutions were the result of public policy and public investment through actions of governments at the national and regional level. …Yet today, in the United States and many other nations, public leaders are increasingly discarding public policy in favor of market forces to determine priorities for social investment.”

The second comes from a Commonwealth of Learning/UNESCO report written by Robin Middlehurst and Steve Woodfield “The Role of Transnational, Private, and For-Profit Provision in Meeting Global Demand for Tertiary Education: Mapping, Regulation and Impact"(p.6):
“The tertiary education context in which students, providers, and national Governments now operate, is changing rapidly as a result of demographic trends, the complex effects of globalization on economies and societies, and a shift in the role of Government in public services – from provider, to facilitator, regulator, and partner.”

Metrics of Academic Excellence for the 21st Century

What metrics of excellence will society use in determining the quality of research universities in the 21st century?  Will they be the same as those used to define the great universities of the 20th century? That is the question I addressed in a piece I wrote as input for our 2004 strategic planning process. It is  called Change and the Research University.

Welcome to the Market-State

From time to time, I will bring to your attention some book that has greatly influenced my thinking about the future of research universities. One of these is The Shield of Achilles, by Philip Bobbitt, Knopf, 2002.   In the interests of full disclosure, I must state that Philip came to speak several times to the planning group drafting our 2004 Plan.

Bobbitt is the A. W Walker Centennial Chair of Constitutional Law at the University of Texas. He has also held academic positions at Oxford(history) and King's College (nuclear strategy), and served in several senior positions on the National Security Council. He brings this breadth of experience to bear in this book on a deep analysis of the evolution of constitutional order - the compact between the governors and the governed - from the early 1400's into the present.

Bobbitt is among those who believe that the constitutional arrangement called the nation-state is dying . The social compact of the nation-state, in Bobbitt's terms, calls for the state having as mission the improvement of the welfare of its people, and being accorded in return the ability to call on its citizens for sacrifice to preserve the state. Modern technologies, demographics, and markets have made this compact increasingly difficult to sustain, however. For example, States can no longer control their currencies, their economies, their borders, or their cultures. This does not signal the end of the State, however, but rather that a new constitutional order will appear - in fact, is already appearing.

From time to time, I will bring to your attention some book that has greatly influenced my thinking about the future of research universities. One of these is The Shield of Achilles, by Philip Bobbitt, Knopf, 2002.   In the interests of full disclosure, I must state that Philip came to speak several times to the planning group drafting our 2004 Plan.

Bobbitt is the A. W Walker Centennial Chair of Constitutional Law at the University of Texas. He has also held academic positions at Oxford(history) and King's College (nuclear strategy), and served in several senior positions on the National Security Council. He brings this breadth of experience to bear in this book on a deep analysis of the evolution of constitutional order - the compact between the governors and the governed - from the early 1400's into the present.

Bobbitt is among those who believe that the constitutional arrangement called the nation-state is dying . The social compact of the nation-state, in Bobbitt's terms, calls for the state having as mission the improvement of the welfare of its people, and being accorded in return the ability to call on its citizens for sacrifice to preserve the state. Modern technologies, demographics, and markets have made this compact increasingly difficult to sustain, however. For example, States can no longer control their currencies, their economies, their borders, or their cultures. This does not signal the end of the State, however, but rather that a new constitutional order will appear - in fact, is already appearing.