Fiscal crisis and the future of higher education

By Michael Devaney and William Weber

Most products are private goods. I pay 100 percent of the cost of a steak dinner because I receive 100 percent of the benefits from its consumption. Services such as national defense and police protection are public goods because the benefits accrue to society at large.

Other services such as higher education are both a public and private good. In theory, the students' share of tuition should reflect private benefits such as higher future income and a richer life from being better educated. Taxpayers pay a share because society benefits from a more productive, better informed citizenry.

Over time, universities have gradually displaced the academic public good with a variety of noninstructional private services. The consequence of this displacement is a boom in for-profit educators like the University of Phoenix and taxpayer defunding of higher education costs. If the benefits are to be privatized, so must the costs.

One of the most important public good aspects of higher education was the common frame of cultural reference that once was the general education core. Over the last 50 years the National Association of Scholars reports a 75 percent decrease in the number of mandatory core courses and a decline in student mastery of history, mathematics, the natural sciences and foreign languages.

Critics claim that higher education has abandoned objective standards in the study of individuals and human society in favor of a politicized radical theory hostile to Western values. Media coverage of courses with titles like "Queer Theory" and "The Poetics of Palestinian Resistance" leave many parents and taxpayers shaking their heads.

In the past, scientific research by universities was a public good. The Bayh-Dole Act now allows public and private universities to patent and license scientific discoveries funded with public tax dollars. A dramatic increase in technology licensing has prompted concern that research universities are abandoning basic research that benefits the public in favor of more commercial research that should be financed by private investors.

Given the left-leaning politics of academia, many question whether universities are capable of providing objective research on hot-button issues like global warming or school vouchers. Much public policy analysis now originates at off-campus think tanks and private research institutes.

Free speech is one of the most important public goods produced by universities. More recently, critics have argued that political correctness on college campuses has compromised First Amendment rights. In July, the Bush administration directed the Department of Education to circulate a letter to public and private universities stating that higher education cannot regulate faculty and student conduct in a manner that "impairs the exercise of rights protected under the First Amendment ... including those court precedents interpreting the concept of free speech."

On average, the states increased real per-capita spending during the 1990s by 28 percent. The binge was accommodated by growth in state tax revenue, a decline in welfare expense, stable Medicaid costs and new revenue from casino gambling, lotteries and the tobacco settlement. After Sept. 11, 2001, tax revenue plummeted and states slashed higher education budgets. In 2002, only Oregon experienced midyear higher education cuts larger than those in Missouri.

Like virtually all public universities in the latter half of the 1990s, spending at Southeast Missouri State University reflected the revenue bubble. However, according to the Official Manual of the State of Missouri (Blue Book), the rate of increase in non-instructional payroll from 1995 to 2001 was nearly twice the rate of increase in faculty payroll: 25 percent versus 13.5 percent. Faculty positions actually declined to 365 from 367 while noninstructional jobs increased to 731 from 604, a net gain of 127 positions. The ratio of non-instructional employees to instructional employee rose to 2.0 from 1.6.

Who is to blame? University faculties are responsible for fragmentation in the general education core. As the public good is displaced, lawmakers are better able to rationalize higher education cuts. Administrators and trustees are to blame for failing to anticipate the bubble and continuing to spend tax dollars to subsidize services and capital projects unrelated to their higher education mission.

Finally, it is easier for state legislatures to shift budget shortfalls to the families of college students than it is to raise taxes or cut other state services.

Despite the rhetoric of family values, America has become a family unfriendly society. Married couples with children are twice as likely as childless couples to file for bankruptcy. They are also far more likely to face foreclosure on their homes. According to the Federal Reserve, between 1983 and 1998 the price of housing for married couples with children rose three times as much as it did for childless people.

The increase is primarily a consequence of parents with children bidding up the price of homes in safe neighborhoods with good public schools.

Predictably, Americans are responding to the higher cost by having fewer children. Between 1980 and 2000 the percentage of women between age 40 and 45 who had no children or only one child doubled.

Accumulating U.S. budget deficits along with shortfalls in Social Security, private and public pension programs and Medicare must be paid by tomorrow's workers. A decrease in the birth rate will not only exacerbate these problems but precipitate many others, including a decline in home values.

If turn about is fair play, a shrinking pool of future taxpayers saddled with large college debts may choose to privatize the Social Security and Medicare programs of geriatric baby boomers.

In the future, state legislatures will likely continue to shift higher education costs to families. Public universities can respond by raising tuition, finding alternative financing, cutting non-instructional services or reducing the quality and quantity of academic programs.

The current maze of cross subsidies will be replaced with a system that prices academic programs consistent with their cost while many non-instructional services will be privatized. Rather than managing internal bureaucracy, the primary job criteria for university administrators will be their skill in external fund raising.

For the most successful universities the future is now.

Michael Devaney and William Weber teach in the Donald Harrison College of Business at Southeast Missouri State University.