As state legislatures around the country start cutting budgets, they face a puzzler—what is the proper subsidy (if any) for higher education?
The answer to this question may hinge on another: whether higher education can be considered a “public good.” Two writers for the Chronicle of Higher Education recently weighed in on the issue. Sandy Baum, an economist, and Michael McPherson, a former college president, say that education is partly a route to a job and to personal satisfaction and therefore a private good, something that most individuals should pay for themselves. But they argue that it is also a public good—they do not want state legislatures to shirk their responsibility to support education.
I have a rather iconoclastic take on this question, one that I shared recently in an article in Independent Review. Perhaps higher education, as currently provided, is indeed a public good—but a bad one.
First, let’s look at what these terms from economics mean. Most goods and services traded in the marketplace are private goods. You pay the costs and you receive the benefits. With higher ed, you pay for training that (among other things) enables you to earn more money over your lifetime. You benefit personally and directly.
But education may also make you a better citizen and enable you to work more cooperatively with other people and produce and even invent products that create opportunities for others. To the extent that it benefits the public in general, your education is a public good.
Many, including Baum and McPherson, say that because it is partly a public good your education deserves public support. The reason is that public goods are not just “things that are good for the public,” as the name may suggest. Rather, they are goods or services that have beneficial effects that are hard to capture in the marketplace.
National defense is a classic example of a public good. A company might want to sell jets and armaments to defend a country’s borders. But who will buy them? Once those defenses are in place, everyone within the borders of that country is protected. Thus, no one has an incentive to pay his or her share. Most people, the argument goes, will “free-ride” on the expenditures of others. Knowing this, few companies will invest in defense, and national defense will be undersupplied. Thus, the government must step in.
The argument that education will be undersupplied runs parallel to the argument about national defense. The extra public benefits of education (such as contributing to a well-run community) aren’t something that most people are willing to pay for (because the buyers don’t benefit directly). Thus education will be undersupplied and presto! the government must step in.
But a few years ago, David Haddock, a law-and-economics professor at Northwestern University, discerned a big hole in the discussion of public goods.
He said, let’s assume that the fundamental theory is right—these goods are undersupplied and governments need to fill in the gap. But where, he asked, is the evidence that the government will supply public goods better than the private marketplace?
Haddock went back to papers written by Gordon Tullock in 1971 and Richard Stroup in 2000 to reveal that the government has a public-goods problem, too!
Here is the issue: In a democracy, citizens own the government. They both provide public goods and use them. So it’s up to the citizens to make sure that the goods are properly provided. This means not too many and not too few, the right amount of the right quality at the right cost. But—here’s the rub—monitoring is just too difficult for individual citizens to do. In the same way that few people are willing to pay for F-16s, few are willing to provide the effort required to make sure that the government provides quality education.
It is not exactly news that special interests influence the government provision of goods and services. We’ve all seen the headlines about corrupt politicians and businessmen who have dined too well at the public trough. Some readers may remember the furor over the Defense Department’s $600 toilet seats; controlling any government service is a challenge. These calamities happen because most of us are free-riders when it comes to the job of serving as watchdog for the “public good.”
Troubled by this, David Haddock held a conference in 2008 on what he called “bad public goods” (sponsored by the Searle Center on Law, Regulation, and Economic Growth, then at Northwestern University). It was full of examples of government provision that failed to live up to the high hopes raised for it—such as flood control, national defense, and environmental cleanup.
Publicly provided education was among those examples. Education, like other public services, is rife with special interests and political payoffs. For years, the Pope Center has written about the scandals, administrative bloat, dismal results, and excessive costs that plague our public universities. Indeed, the education that college graduates receive is sometimes so one-sided that it may reduce graduates’ contributions to a well-run community rather than increase them. Higher education looks a lot like a bad public good.
But higher education has some good qualities that K-12 education does not. For all its faults, higher education is much more responsive to the wishes of students and their parents than K-12 education. The evidence I laid out in my report and subsequent article showed that while public education can be called a bad public good, higher education is much less bad.
And the reason, in a nutshell, is that it is less public. That is, higher education has more characteristics of a market.
Even though about 75 per cent of all college students go to public universities, those universities do not have monopoly power the way K-12 public education does. They compete with one another, as well as with many private colleges. Furthermore, unlike younger children, college students attend school where they want (and don’t have to attend at all); they pay at least some of the costs themselves; the choices are varied, and there is a lot of information available about colleges and universities (not always accurate, however). All these factors help keep higher education focused on providing what students and their parents demand.
But government appropriations weaken those forces. Students at public universities pay less than the full cost of their education and therefore are less savvy consumers than they would be if they paid full fare. They are also less committed to becoming serious students and many never finish. Administrators get a lot of their funding from state and federal governments, rather than from students and that affects their incentives: students’ education becomes less important. Research often dominates teaching; inexperienced students teach undergraduates; special interests often hold sway. Such factors lead to many of the deficiencies that the Pope Center reports on.
So, this spring as state legislators wield the knife, they should not feel too bad about doing so. There will be some surprising benefits to the cuts they will be called on to make. Not only will wasteful expenditures that have built up during the good years be curtailed, but some of the legislature’s moves will change incentives.
The cuts that reduce state support (as well as any tuition increases that follow) will shift the balance of funding in the direction of students. That will lead administrators and faculty to concentrate more on the education side of their business.
Of course, those cuts will be met with objections, but the changed incentives could accomplish a lot of good. In fact, they may turn education from a public bad to a valuable combination of public and private good, as Sandy Baum and Michael McPherson say it ought to be.