Business issues

Endowments averaged a small loss for the 2012 fiscal year

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College endowments averaged a small loss for the 2012 fiscal year -- the third year of losses since 2007 -- highlighting growing uncertainty about a once robust and predictable revenue stream.

Don't panic amid predictions of higher ed's demise (essay)

At 30 years old, I definitely consider myself part of the Facebook generation. Zuckerberg’s brainchild hit the ‘net when I was a senior in college, and by then I was already well acquainted with e-mail, chat rooms, text-messaging, and all the multifarious precursors to today’s social media. I text, I post, I chat, I even snapchat: in these respects, I’m an utterly unremarkable member of my society.

But I also happen to be a college professor and a molder of young minds. And, far from indulging the technology-driven spirit of the times, I make my students work as students have always worked.  They read Seneca, Pascal, Tolstoy, and Schopenhauer. They are obliged to turn in papers by hand; they must come to office hours to speak with me about their grades; they are even, and this is most anachronistic of all, required to attend class.  Physical presence is key to every aspect of their learning experience, be it my hovering, breathing presence in the classroom or the office, the cohort of 30 or so warm bodies that shows up for lecture twice a week, or the more abstract form of embodiment conveyed by the weight of a book.

To believe certain commentators, however, this embodied notion of learning is on its way out in American higher education. Writing for The American Interest’s January/February 2013 edition, the recent Yale graduate Nathan Harden offers the following ominous prognostications about the future of university instruction in our digital age:

In fifty years, if not much sooner, half of the roughly 4,500 colleges and universities now operating in the United States will have ceased to exist. The technology driving this change is already at work, and nothing can stop it. The future looks like this: Access to college-level education will be free for everyone; the residential college campus will become largely obsolete; tens of thousands of professors will lose their jobs; the bachelor’s degree will become increasingly irrelevant; and ten years from now Harvard will enroll ten million students.

On Harden’s account, one of the principal reasons for this portended transformation, which is already being partially implemented by such institutions as Harvard and MIT, is that the cost of college is increasingly out of proportion with its perceived economic benefit.  As the American job market has become more competitive, the cost of a degree has increased, and only the most naïve of students still believe that a college education is a universally redeemable ticket to middle-class prosperity.  The weighing up of costs and benefits involved in earning a college degree will lead inevitably to a re-evaluation of the current higher education model.  Luxury residence halls, face-to-face interaction between professors and students, ivied brick walls -- these will all be things of the past once the much-heralded education bubble finally bursts.  What will replace them are massively populated, inexpensive online courses and lectures, prerecorded by the very best lecturers and administered by those hordes of professors and other academics not quite sexy or charismatic enough to warrant virtual celebrity.

To anyone who thinks Harden’s predictions are a little too ambitious (not to mention deeply disturbing, at least for college professors who don’t fancy the idea of working in a grading factory), don’t worry -- they most likely are. What Harden forgets -- and indeed, what just about everyone prophesying the eclipse of face-to-face interaction in a virtual world forgets -- is that human beings are, above all else, bodies, and that to lead full, happy, and meaningful lives, we need other bodies. Let’s consider the following examples of how technologies of virtualization have failed to triumph over our species’ thirst for physical presence.

1. The Giant Head.  Some older readers may recall a famous article in Reader’s Digest from the late 1950s featuring an illustration of a massive human head connected to miniscule arms and legs.  What was the thesis of that article? The tech junkies of the time believed that in the future technology would become so advanced that human beings would no longer need to use their bodies, leading to a swelling of the brain and a shriveling of our appendages.  Many also foretold a time when food supplements would replace food. Wouldn’t it be great, they asked, if instead of spending hours preparing and eating meals, we could nourish ourselves in just a few seconds?  No one at the time seemed to consider that human beings might not want to do any of this — that we might enjoy using our bodies, eating, and the like.  In the half-century since these predictions were made, restaurants have proliferated, and heads haven’t grown one bit.

2.  Live Theater.  When I was a kid, there were hardly any live theaters in my hometown of Bakersfield, Calif. Now there are about ten. Many people used to believe that movies had sounded the death knell for live theater, but today the latter enjoys just as much, if not more, prestige than it did 100 years ago. I recently had the good fortune to see Kevin Spacey’s production of Richard III. I’ll remember his performance for the rest of my life — it had never occurred to me that acting could be so visceral, so violent, so physical.  How many of us can say the same thing about movies? Again, those who foretold the demise of live theater never reckoned that people might just plain like seeing living bodies move around and speak on the stage, and that no amount of special effects could compensate for the lack of real flesh and blood.

3. The myth of social media. This myth holds that virtual, online or technologically mediated interactions are in the process of replacing face-to-face interactions.  Most people never take the time to think about what the world would be like if this were really the case. I live in a small college town, and I can assure anyone interested in such things that student interactions on Friday and Saturday nights are plenty physical —sometimes I can hear them from across the lake!  Social media does little more than provide a way of sharing information that enhances the intimacy of eventual physical contact.  Anyone who doesn’t know this doesn’t understand the technology.        

Of course, people like Harden will point to other sectors of the economy where technological innovation has erased thousands of jobs.  People don’t need information from stockbrokers or travel agents to make decent decisions about travel or investment anymore, so why should a living, breathing professor be necessary to convey the sort of information one gets out of a college education?  If that information can be distributed more cheaply thanks to virtualization, why should students be expected to bear the extra expense of classroom education?

The answer to this question is so elementary that the objection supporting it is almost hard to take seriously.  The truth is that education is not simply the conveying of information.  In fact, it is probably only marginally that.  How many people remember most of what they learned in college?  Only very few, I would guess.  The benefit of a classroom education is that it keeps students under a certain amount of mental pressure, forces them to think on the spot, and obliges them to explain themselves to other people who are physically present.  Information is afoot in these interactions, but so are wisdom, passion, empathy, and a whole host of other viscera that only an embodied teacher or student can properly convey. 

How effective, for instance, do we imagine an online church experience would be compared to the real thing? Is it reasonable to think that a virtual tour of the cathedral at Chartres would be as spiritually moving as being there?  We should also consider that many students might simply enjoy the physical classroom and their interaction with peers and professors -- or at least they might recognize that they learn better under these conditions.  The costs of classroom education may be soaring out of proportion at present, but this is not a verdict on the education itself.

So let’s ask -- what developments are behind these grim augurs of the collapse of America’s higher education model? Some of it undoubtedly has to do with politics. Many commentators on the right (and perhaps Harden is one of them) would likely cheer the dismantlement of a system whose values are often perceived as far left of center. If taking education online can put “tenured radicals” out of work, then why not welcome it? At the same time, however, just as many moderate and left-leaning thinkers have joined the chorus of those predicting the failure of higher education (for instance, see Thomas Friedman’s recent writings in The New York Times), and it would be simplistic to chalk this latest round of doom-peddling up to politics. 

The real culprit, I suggest, is what, for lack of a better term, we might call Appleism. Innocent in principle but nefarious in practice, the doctrine of Appleism holds that increases in technological capability are synonymous with increases in human happiness. Anything that can be put on a screen is better than what can be seen with the naked eye. The passage of electrons through a cathode tube is equivalent to passage from a lower to a higher state of being. Proponents of Appleism hold out technology as an intrinsic good; they are the sorts of folks who compulsively buy the latest Apple product, simply on principle

We can point to fiscal insolvency all we want, but one has difficulty believing that Harden’s and others’ vision of a fully or almost-fully online education is not also the product of society’s limitless fascination with virtualization. Proponents of the current craze ought to think carefully about the human costs of technology before enthusiastically proclaiming the end of a system that could leave hundreds of thousands of people without work, students cheated out of a quality education, and that would further contribute to the creation of a world where virtualization is always and everywhere, without qualification or questioning, heralded as an unequivocal good.

Louis Betty is an assistant professor of French at the University of Wisconsin-Whitewater.

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Moody's report shows diminished pricing power for colleges

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Because of increased competition for students, decreased household income and skepticism about value, a third of institutions predict tuition revenue won't keep pace with inflation, Moody's survey finds.

Early endowment results show college investments lost value

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Preliminary data from annual survey of college endowments show that institutions averaged a small loss in investment wealth, with institutions of all size seeing minimal returns.

Saint Benedict sees revenue grow while shrinking enrollment

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Saint Benedict decreased enrollment to shore up its finances, an unusual move at a time when many small colleges are considering growth.

NACUBO agenda for public universities dominated by efficiency and revenue growth

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Potential new revenue sources and “institutional effectiveness” initiatives dominated the agenda for public universities at the annual meeting of business officers.

Business officers focus on overlap of financial and academic decisions

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As institutions struggle to “do more with less,” business officers' annual meeting focuses increasingly on evaluation of which programs -- including academic departments -- are making and costing money and reallocating from one to the other.

Questions about U.Va.'s COO Strine show complicated loyalties of administrators

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Questions about loyalty of one of U.Va.'s executive vice presidents highlight the awkward position of top business-side administrators, who are often divided between the president and board.

Conference on PILOT agreements highlights lack of formal policy

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Formal rules surrounding agreements on payments in lieu of taxes are rare, so local politics determine who pays and how much.

Boosting higher ed performance without more state support won't work (essay)

The Committee for Economic Development’s (CED) new report, “Boosting Postsecondary Education Performance,” was not written in the spirit of Warren Buffett. Nor of Paul Volcker. More’s the pity. For if the report’s authors had acknowledged that trying to substantially boost performance without boosting investment is an unrealistic business plan, they would have seized the opportunity to change the national conversation to stimulate genuine growth and affordable, quality higher education.

Nevertheless, the CED has performed an important service in three regards. First, the report focuses on “broad access institutions,” which means “less-selective, less-expensive regional public and private colleges [and universities], community and technical colleges, and for-profit colleges.”

Too often, policy makers feature flagship publics, as if our future depends only on them. Research universities are important, particularly in graduate and professional education, creating new knowledge, and in the generally overlooked but essential role of preparing professors, the academy’s producers of value. But too much public policy privileges the already advantaged (compared to access institutions) flagships. Even the Obama administration, which has focused on community colleges, has overlooked four-year access institutions. Yet our success hinges on them.

Unfortunately, the CED report continues some policy makers’ misconstruction of for-profit universities as efficient. It is a false efficiency. As a sector, these institutions are VERY expensive to students and to the government. They have high tuition and they live largely off massive infusions of federal student aid. Disproportionate numbers of their students default on their loans at the government’s, not the corporations’ expense. That is a Wall Street bust model: high fees to average consumers, high defaults on loans for which the government and taxpayers pick up the tab.

A second contribution of the report is in emphasizing the importance of a system focus in state policy making, moving “beyond a one-institution-at-a-time approach to state policy.” Part of that focus is grounded in understanding, in contrast to too many state policy makers, that higher education is a valuable asset, pivotal to our future, not merely a cost to be minimized. With some important exceptions, most states have failed to develop policies that provide an integrated strategy for fostering affordable access to a quality higher education and ensuring a rational division of labor among institutions (a conclusion shared by Laura Perna and Joni Finney’s state policy project). The report could have extended that integration to include K-12 education, and it could have spoken more to articulation/transfer. In calling on business leaders, it could have focused on medium/small business leaders. But at least it got the systemic focus and higher education’s value as a public good right. 

A third contribution, though it likely will be lost in the rush to performance measures and “dashboards,” is the report’s recognition that “There are no proven models of state success in addressing these issues; and for that matter, one size does not fit all.” If state policymakers latch on to that phrase, internalizing the recommendation that “the strategic plan should provide wide latitude for institutional innovation through initiative and implementation,” this will be a major benefit. 

More likely, state policy makers will interpret the report to embrace a simplistic outcome measures-gone-wild approach that leads postsecondary education further down the path of the narrow numbers-blinded, short-term productivity/profit-margin-minded thinking that plagues some sectors of the corporate economy. That approach characterized Wall Street as it sought innovations (e.g., derivatives, subprime mortgages) to boost “productivity.” 

That sort of net-tuition-revenue-maximizing thinking is moving many colleges and universities away from the lower income students who are the country’s growth demographic, in pursuit of students able to pay more, with less financial aid. The CED critiqued this mentality in business, in its report, “Built to Last: Focusing Corporations on Long-Term Performance.” But it offers no cautionary note for higher education.

The new CED report misses a major opportunity to seize the historical moment. The country desperately needs enlightened business, academic, and government leaders to acknowledge that doing considerably more with no more resources is an emperor that has no clothes.

Instead, the report offers “new normal,” magical thinking as realism: “Realistically, however, given the severe budget pressures facing the states, the prospects of significantly greater public funding of postsecondary education in the short to medium term are poor.” It recommends that: “It is critical, therefore, that postsecondary institutions strive to boost their performance through productivity gains and innovation without relying heavily on new money to underwrite improvements.”

New normal thinking is provided despite noting that “public colleges and universities in some states are turning away large numbers of applicants because they cannot provide enough classrooms and instructors to handle them.” The number (about 400,000) in community colleges alone is staggering (see report of Center for the Future of Higher Education). It is provided despite the acknowledged value created by higher education that would justify increased investment. And it is provided despite the fact that the historical higher education transformations it identifies (e.g., land grant colleges, and post-WWII G.I. bill and building community colleges and four-year access colleges) required significant public investment

Although state support is at historic lows, the report suggests the U.S. already spends enough on postsecondary education, citing high average expenditures as a percentage of GDP compared to OECD countries. Yet this average ignores the steeply stratified U.S. pattern, with access universities getting the short end of the stick). The issue is inequity and “growing imbalance,” not inefficiency. The CED report could have called for redistributing appropriations on the margins to favor access institutions. It could have called on states to maintain their level of investment, rather than continuing to hack away at postsecondary budgets in an austerity strategy that undercuts our future. And it could have called on businesses to invest in the limited/nonexistent endowments of access institutions, instead of further feathering the endowment nests of the elites.

Such new-normal advice is ironic coming from a group including corporate leaders from the financial sector and companies serving it. Three-plus years ago, the nation boosted, or stimulated, Wall Street with a bailout that had no strings. Yet the CED’s CEOs’ formula to boost performance on College Street entails no infusion of monies while tightly attaching strings to colleges, though, unlike Wall Street (or Detroit), they have increased their productivity amid, in relative terms, declining state appropriations, downsized full-time faculty, and high demand from students/customers.

Increased productivity trends are particularly evident in broad access institutions. They have re-engineered their production of education: hiring increased proportions of part-time, contingent faculty; extensively using on-line distance education; experiencing record student demand and enrolling most of the national increase in student population, thereby significantly increasing student/faculty ratios. All with less public investment. Access institutions are already doing a lot more with a lot less.

What would Buffett say to the boost-performance-with-less-investment advice? Or Volcker? The time is ripe for an enlightened set of business leaders to take up the mantles of these elder business statesmen. Both have put on the agenda the need for more revenues. Buffett proposes that additional monies should come from the wealthiest Americans paying their fair share of taxes. Volcker has also supported new taxes, but also proposed the “Volcker rule,” restructuring and regulating the financial sector.  

The CED could have proposed two sets of measures. One would increase the tax rate on the wealthy and close tax loopholes benefiting the largest corporations.  The U.S. individual income tax rate for the wealthy is historically low, lower than for middle and working class Americans. Collected corporate taxes (versus the formal tax rate) are also low. Indeed, reports have highlighted the “Dirty Thirty” Fortune 500 companies that pay no taxes (or get refunds), contributing to federal and state budget deficits. The CED could have called for closing tax loopholes that enable companies to pay little or nothing despite increased profits. That might have been hard given that “Dirty Thirty” companies such as G.E., Wells Fargo, Fed Ex, Honeywell, American Electric Power, and Tenet Health Care, are on its board and committees. But it would have been fair.

A second set of measures would restructure the financial sector and higher education’s priorities. In the former, a financial transactions tax could serve as a disincentive to the proprietary trading activities that led to the collapse. Some revenues could be directed to schools and access institutions. In higher education, just as the Volcker rule separates proprietary trading from the traditional functions of banks to protect the core and the customers, colleges and universities should refocus monies on their core, academic functions, to the benefit of students, reversing 30 years of reduced shares of expenditures going to non-educational programs and personnel.

In not proposing such “disruptive innovations,” the CED report guarantees that the system will continue to operate on a C.O.D. basis -- collecting on the delivery of education, from students. That will further shift the burden to middle- and lower-income families, rather than requiring the wealthy and large corporations to bear their fair share of investing to boost access to affordable, quality higher education, for the public good.

Gary Rhoades is professor of higher education at the University of Arizona’s Center for the Study of Higher Education. He also directs a virtual think tank, the Center for the Future of Higher Education.


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