The Privatization of State Universities: It Makes Sense

State-university presidents have complained for years that their schools are slowly being privatized. They are right. For example, real per capita state-government appropriations for higher education (adjusting both for inflation and population growth) fell 19 percent from fiscal year 2008 to 2012. From the mid 1970s to today, according to Postsecondary Education Opportunity, the proportion of our personal income going for state appropriations for universities has fallen well over 40 percent (from about $10.50 per $1,000 in personal income to under $5.90).

State university presidents argue that this has contributed importantly to rising tuition fees, and to a decline in the resources of public schools relative to private ones. They also point out this has implications for quality, noting that the number of state universities in the list of top schools on the US News & World Report list has declined significantly over time.

Political observers note that higher education has lost some of its clout, in part because the opinions and behavior of campus leaders varies sharply from that of the mainstream population. For example, take affirmative action. A new Rasmussen poll shows a majority of Americans oppose university affirmative-action programs, and only a small minority actively support them. Yet universities decry the slightest criticism of these programs. The forthcoming U.S. Supreme Court review of the University of Texas policies therefore take on added interest and meaning. Also, of course, rising tuition costs, huge highly paid administrative bureaucracies, intercollegiate athletic scandals, and other developments have eroded the near reverential views many Americans historically have had towards colleges and universities.

While those in the higher-education community decry the reduced public support of state universities, I think one can make the case that this is a good move from the broader American public-policy perspective. Here are the arguments:

1. A primary argument for state universities is that they allow a low-cost (or at least a low-price) path to economic opportunity to Americans of modest means—a way of achieving the American dream. Yet the proportion of recent college graduates from lower-income families has been in decline for decades, and Daniel Bennett and I are finding evidence that large-scale higher education (most of it public) may be a force in reducing equality rather than increasing it—the Law of Diminishing Returns is working with some ferocity. This is generally consistent with arguments Charles Murray has developed in his important new book, Coming Apart.

2. The conventional wisdom that more spending on higher education by governments facilitates economic growth simply does not fit with the American evidence regarding state appropriations. The notion that higher education has enormously positive spillover effects of an economic nature is, at the minimum, highly problematic. If the main benefits of a college degree accrue to the recipient, why shouldn’t that person finance that investment herself/himself, as she or he would do with other large investments?

3. Relating to the previous point, the growth in higher-education enrollments have led to an excess supply of college graduates, leading many of them to take jobs that really don’t require a college degree–janitor, taxi driver, bartender, etc.

4. The prestigious state universities that are the pride and joy of American public higher education have largely lost sight of the mission to serve the poor residents of their state; the university founded by Thomas Jefferson, the University of Virginia, has the same very low proportion of Pell Grant students amongst its students as Princeton, and actually a lower proportion than Yale (11 percent vs. 13 percent). With a multibillion-dollar endowment and large out-of-state enrollments, schools like the University of Michigan and UVA are more like private universities already than the public’s perception of a state university.

State governments have an unsustainable budgetary imbalance. The aging population and an irrationally inefficient health-care system are causing financial chaos that will hardly diminish over the next few years. Taxpayers are fiercely opposed to higher tax burdens. The federal government’s huge unfunded liabilities are going to have to be addressed. Public-spending belt-tightening is required, or massively higher taxes that would rob our nation of its economic leadership, or a combination of both. In this environment, the reduction in higher-education support is not only understandable, but also desirable.

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