Higher Education Would Benefit From an Economic Perspective

It is often said that the United States has the best system of higher education in the world, and certainly North Carolinians take pride in their universities. But readers of these pages know that the image often differs from the reality.

While there are some excellent courses, all too frequently students are getting trendy and shallow courses such as those described in CJ’s Course of the Month. As George Leef has written, academic standards are falling, even while grades are going up. Today, college graduation is more a rite of passage than a sign of accomplishment.

How do we get our universities to adopt a more rigorous curriculum and provide young people with an education that values liberty, limited government, and free markets? These are questions that the Pope Center for Higher Education Policy has asked and will continue to address.

I recently joined the center as its executive vice president, coming to Raleigh not only from a different part of the country, Montana, but also from a different realm of policy issues — the environment. For more than 20 years, I was a senior fellow and director of communication for PERC, the Property and Environment Research Center in Bozeman, Mont.

PERC is an unusual environmental organization. Located in a broad valley surrounded by snow-capped mountains, PERC is dedicated to improving environmental quality through property rights and markets. This concept surprises some people, but PERC economists know that it is the absence of property rights and markets that leads to pollution and environmental deterioration. Property rights generally foster good stewardship. As Aristotle wrote more than 2,000 years ago: “What is common to many is taken least care of, for all men have greater regard for what is their own than for what they possess in common with others.”

The chief reason that we have air and water pollution is that air and water usually have no owners; there is overfishing because the ocean waters are a commons; and land that is owned by the government is often managed poorly because politics dominates.

There is much more to say about this “tragedy of the commons” and why markets benefit the environment rather than harm it (I have written about this topic for many years), but let me move on to higher education and comment on how economics can shed light on its problems, too.

We do have owners of colleges and universities, and there is a competitive marketplace for postsecondary education. But the ownership, especially of public universities, is dispersed and the marketplace is not as competitive as it could be.

In a traditional marketplace, consumers are sovereign. Their choices determine what is produced. Producers seek profits, and they stay in business only if they can provide products whose costs a sufficient number of consumers are willing to cover.

But, for the most part, universities are not expected to make a profit. They do need funds, but they get them from many sources — the state budget, endowments, donors, federal grants. Thus students’ (and parents’) preferences don’t carry as much weight as customers’ preferences do at Wal-Mart or Macy’s.

Furthermore, many students are not paying the full cost of their education, due to financial aid or state-supported tuition, so they are not as savvy consumers as they would be if the had to pay the full cost. But then no one really knows the costs of a student’s education! That’s because tuition is basically the same for each student at a school, even though the costs of teaching students might differ drastically by discipline and by level of study. Upper-level classes are usually much more costly than lower-level classes. Some students might get less than they pay for (large classes taught by graduate students), while others get more (high-quality laboratories and small classes).

A “bottom line” (that is, a profit motive) would force universities to match their costs with their revenues. Instead, there is a constant tug-of-war inside universities, as different groups, primarily faculty groups, vie for funds. The widely used term is “shared governance,” but what this often means is that faculty push to replace important courses or laboratories by politically correct fluff. Faculty can do this because they bear little or no cost if the quality of students’ education goes down. This would not be the case if profits (and thus salaries) depended on
satisfying astute consumers.

I recently learned that the Board of Governors of the University of North Carolina system is developing a study to find out what “the people of North Carolina need from their university system.” It might be a good idea for the “managers” to try to find out what the “owners” — the public — want in their schools, but there is a lot of ignorance on the part of both.

In most markets, the owners would look to the consumers to see what they want because the only way to make a profit is to satisfy customers. But the “owners” of the North Carolina system have little ability to get this information. Consumers are not driving the system; “shared governance” is. We need to get the students back into the equation. One of the goals of the Pope Center is to do just that — to help the universities serve their customers. If they do that well, the owners should be pleased, too.