Ownership, Control, and Reform: Market-Based Approaches to Universities
The status quo is not working — it is time for a change.
By almost any indicator, American higher education is in trouble. Enrollments have fallen continuously since 2011, the longest period of sustained decline in the over 150 years since the federal government began regular data collection. Opinion surveys show low levels of public support for America’s universities. For decades, higher-education tuition fees rose faster than nearly all other prices and even more than American incomes, meaning that, amidst general affluence, college had become less affordable. Student outcomes, too, generally have been disappointing, with a majority of entering freshmen at baccalaureate schools either failing to graduate within the expected four years or ending up “underemployed,” taking jobs historically filled by those with a high school education or less.
Alarmingly, there is striking evidence of a lack of collegiate intellectual diversity and tolerance for alternative points of view, as witnessed by numerous incidents of shouting down speakers or otherwise canceling their visits. Freedom of expression, characterized by vigorous but civil debate over competing ideas — the foundational principle on which good universities operate — is in peril. Most frightening? Higher education seems impervious to change — resistant to needed reforms.
An overwhelming majority of American students attend so-called public universities, legally owned by public entities, usually state governments. But with some small but important exceptions, even so-called private colleges and universities receive a considerable amount of federal-government support, often indirectly. At private schools, many students use federally provided loans to pay otherwise-unaffordable high tuition fees, while faculty, staff, and outside donors also receive massive amounts of federal research support or other forms of indirect aid (e.g., favorable tax treatment of donations and investment income).
However, the federal government appears to be more the problem than the solution, as is evidenced by the New York Federal Reserve Bank and others suggesting that its financial-aid programs have contributed mightily to rising tuition fees. Therefore, reform of the federal financial-aid system is urgently needed, but the Biden administration is actually aggravating the problem with constitutionally, financially, and academically dubious loan-forgiveness programs. Another complication: Higher education itself has become a prime provider of money, ideas, and the training of many — largely progressive — governmental leaders, and it is thus now an almost sacrosanct ward of the state.
Hence, in the current national political environment, arguably the best hope for reform of public higher education will come at the state level. State governments “own” most of the public universities in some sense, and their governing boards are usually selected via the political process, although in a myriad of different ways (i.e., gubernatorial and/or legislative appointment; election by the public). If the U.S. is, in the late Justice Louis D. Brandeis’ phrase, a “laboratory of democracy,” are some states paving the way toward positive substantive changes in the way colleges and universities operate?
Florida in particular has been receiving a good deal of attention lately. Let by Gov. Ron DeSantis, who is highly critical of American higher education, Florida has initiated several reforms. I’ll mention just three: He is bringing in a number of conservative academics and activists to serve on the governing board of New College, a rather unique, public liberal arts college in Sarasota; he is demanding accounting from all public universities on their expenditures related to “diversity, equity, and inclusion” (DEI); and he is supporting direct state-university funding of research and teaching decidedly outside of mainstream progressive academia.
Changing the Governing Board: New College
The New College of Florida is very small — it has fewer than 700 students — with a traditional liberal arts emphasis. Like many liberal arts colleges, it has a progressive orientation that some have likened to Washington’s Evergreen State College, where race-motivated (some would say anti-white) protests a few years ago led to upheaval and dramatic enrollment declines. New College does not give out grades, instead relying solely on written evaluations. Outside evaluators such as U.S. News & World Report have historically ranked the school rather highly despite its somewhat nontraditional method of assessing student excellence, and the institution fashions itself as Florida’s “honors college” (although published data suggest few applicants are turned down for admission).
Should a state government subsidize an expensive-to-operate (on a per-student basis), small liberal arts college? Perhaps, but DeSantis has his doubts, and he wants to transform it into a classical liberal school with a decidedly more conservative orientation, like Michigan’s Hillsdale College. To that end, he has named six new trustees of the school (nearly half the board), all with a staunch right-of-center orientation.
One of the new appointees, Christopher Rufo of the Manhattan Institute, a think tank with mostly classically liberal scholars, has been particularly vocal, telling Michelle Goldberg of the New York Times, “If we can take this high-risk, high-reward gambit and turn it into a victory, we’re going to see conservative state legislators starting to reconquer public institutions all over the United States,” and adding that the school’s curriculum is “going to look very different in the next 120 days.”
Other new board appointees are somewhat skeptical, notably Mark Bauerlein, a retired, very distinguished literature scholar at Emory University who now edits the conservative magazine First Things and once served with me amiably on the board of the conservatively oriented National Association of Scholars. Bauerlein told the Sarasota Herald-Tribune, “I do believe what we see will be a lot less controversial than we’re hearing now.”
I suspect Bauerlein is right. Not all new board members think alike. Besides, changing directions radically and quickly in academia is nearly impossible, hence why some reformers think that whole institutions (like the University of Austin) need to be created from scratch in order to effect positive change. The New College faculty probably has tenure protection and may belong to the local faculty union. Does Rufo think the board of trustees can turn a woke gender-studies professor into, say, an admirer of the Enlightenment who loves David Hume, John Locke, and Adam Smith and promotes their contributions? Where does Rufo, one of 13 trustees, think the money to radically transform New College is going to come from? Already students and alumni are up in arms over Rufo’s and the governor’s announced intentions.
However, in a Wall Street Journal op-ed with Ilya Shapiro, Rufo suggested another path to reform that might be more effective: having legislators pass laws abolishing DEI bureaucracies, outlawing racial preferences, etc. Regarding the latter point, why do state governments allow state institutions to even collect data identifying students or employees by race? A cautionary note here, however: While conservative legislatures might pass anti-DEI laws, progressive ones might do the opposite, for example, requiring mandatory “anti-racism” indoctrination of all students. Be careful what you wish for.
Exposing Administrative Bloat, Especially DEI Initiatives
It is possible to expose how much university funding does not further Job One — teaching and research — but actually opposes rewarding scholarly excellence. American Enterprise Institute scholar Mark J. Perry and others have written about the vastness of DEI bureaucracies at major institutions like the University of Michigan and the Ohio State University — often numbering in the triple digits. DeSantis’ call for information from each school on DEI spending could incite legislatures or university trustees to take action to reduce or eliminate this form of spending. My extensive experience working with governing boards reveals that members are often abysmally ignorant about such spending details — and university presidents work hard to keep them from learning about politically controversial activities occurring on campus in order to enhance their own job security and income.
Indeed, the information-gathering powers of state government can be extended further. Already Florida is asking universities to provide information on gender-reassignment surgery. Using detailed Texas data, I once revealed that the University of Texas had a substantial number of very highly paid professors with few outside grants, modest research activities, and minimal teaching responsibilities — an expensive, taxpayer-funded academic leisure class. Enterprising journalists could have a field day with such information, if readily available.
Funding New Academic Centers Promoting Classical Liberal Principles and Ideas
The Florida legislature has provided several million dollars of funding for a new Hamilton Center for Classical and Civic Education at the University of Florida. Florida law states that the center’s goals include “educat[ing] university students in core texts and great debates of Western civilization” and “coordinat[ing] with the Florida Institute of Politics … and The Adam Smith Center for the Study of Economic Freedom,” legislatively created centers at Florida State and Florida International universities. The new Hamilton Center raided two of my university’s best classically liberal–oriented professors very recently and is on a big hiring spree. DeSantis seems to want to create a network of academic enclaves at major state universities to increase intellectual diversity and robust academic discourse.
Florida is not alone in lamenting a lack of intellectual diversity and trying to do something about it. For example, Texas is brimming with scholarly efforts to offer alternatives to the dominant progressive narrative. The Free Market Institute at Texas Tech University, for example, is a growing center directed by the entrepreneurial Benjamin Powell. More recently, the Civitas Institute, “committed to exploring the ideas and institutions that sustain a free society and enable individuals to flourish,” was established at the University of Texas at Austin. Also, Texas’ rather conservative governors of the last generation have generally promoted conservative appointments to state-university governing boards.
Very recently, the University of North Carolina at Chapel Hill’s governing board created a School of Civic Life and Leadership with its own dean and a substantial (at least 20) faculty of persons across the ideological spectrum, hoping to provide for intellectual diversity and civilized debate on the issues of the day.
Even Ohio, governed for many years by Republicans considered moderate by Florida or Texas standards, has shown heightened interest in state-university governance. For example, the new chair of the state Senate’s Workforce and Higher Education Committee, Sen. Jerry Cirino, tells me he is going to require that all trustees nominated by the governor fill out a questionnaire before receiving legally required “advise and consent” approval from the Senate, ending the previous rubber stamping of appointments and, thereby, perhaps reducing the naming of trustees that promote the desires of the university administration more than the broader public interest.
Not all new ideas and discoveries, nor all learning of time-honored verities, emanate from college and university campuses. If existing colleges are doing a poor job, one approach is to support new competition — new schools. The University of Austin is an especially interesting brand-new private college, aiming to promote an environment where vigorous intellectual debate along the lines outlined by the Chicago principles (championing freedom of expression) is encouraged, where the verities of centuries of learning are prominently discussed — the “Great Books,” if you will. The former president of prominent “Great Books”–oriented St. John’s College, Pano Kanelos, is president of Austin. Although the college is, at this moment, more of an idea than a reality, it has attracted the interest and support of such important scholars as Jonathan Haidt, Deirdre McCloskey, Glenn Loury, and Joshua Katz.
Additionally, as Rufo himself demonstrates, an important alternative to universities in promoting new ideas is nongovernmental think tanks — several containing important scholars espousing a classical liberal perspective often absent from traditional college campuses. Some examples include the American Enterprise Institute, Cato Institute, Manhattan Institute, Heartland Institute, Independent Institute, and Hoover Institution at Stanford University. Dozens of state-based think tanks emphasize state and local issues, including Michigan’s Mackinac Center for Public Policy, the Texas Public Policy Foundation, Ohio’s Buckeye Institute, Washington’s Evergreen Freedom Foundation, and Massachusetts’ Pioneer Institute. Some choose to specialize, such as the higher-education emphasis of the James G. Martin Center for Academic Renewal in North Carolina. The State Policy Network brings together literally hundreds of scholars from dozens of think tanks to discuss market-based solutions for public-policy issues.
The inefficiencies of nonprofit and government-owned universities are glaring compared to the more efficient and innovative market-driven private enterprises. If the power of market forces were increased in higher education, would public universities become more efficient, perhaps additionally eschewing ideologies that please administrators and faculty but turn off students? What if state governments stopped providing subsidies to the providers of higher-education services — the universities — and instead gave them only to the customers — the students? Building on a proposal for educational vouchers promoted by Milton Friedman over six decades ago, a growing number of efforts to do just that at the primary and secondary school level have seemed relatively successful and popular with students and parents — why not replicate that at the collegiate level?
Here is how that might work: Suppose a state currently gives its state universities subsidies averaging $6,000 per student. Why not implement a progressive voucher/scholarship program where students attending what we now term “state universities” receive somewhere between $2,500 and $10,000 in annual support toward tuition fees, averaging the current $6,000 per student (making the new system expenditure neutral). State-university fees would be increased from current levels because of the lost automatic state-subsidy payments. The scholarships would vary based on two criteria: financial need and scholarly performance. Very low-income individuals who were also pretty good students would get upwards of $10,000; affluent in-state students with an undistinguished academic record would get $2,500. Like traditional private scholarship programs, academic excellence as measured by grades would be positively rewarded, and perhaps aid would be extended for no more than four, or possibly five, years in order to incentivize timely graduation.
Academic excellence is not typically rewarded by the current financing system: Universities are often financially rewarded when students linger for five or six years. A merit-rewarding approach would likely lead to improved student performance. Low-income students would receive more aid than at the present, especially pleasing progressives. Popular schools will gain revenue, while schools with low reputations will lose revenue and be forced to retrench or, perhaps, to even close. The market-based “creative destruction” that Joseph Schumpeter correctly claimed is a powerful force for economic advancement would become more apparent in higher education. A number of relatively unpopular schools would die, and popular ones would prosper. Higher education: Join the real world! To be sure, likely other changes would be necessary to keep schools from trying to game the system to gain revenue — for example, provisions removing any incentives for schools to engage in grade inflation.
In such a scheme, institutions become far less “state universities” than before, as they get no direct state aid. In a sense, they become privatized, and, arguably, they should gain more freedom to change their governance structures and avoid regulations that impact only state institutions. For example, in some states, paying “prevailing” (union-scale) wages to construction workers is required at public institutions, but not at private schools. In time, the state-funded scholarships could be extended to existing private schools, obliterating the remaining distinction between public and private institutions. Perhaps states could further support privatization by matching private gifts to universities with state grants.
Why don’t we do it? Public universities would probably unleash a formidable lobbying campaign against it, involving prominent alumni and, in some states, even revered football and basketball coaches. Politicians would lose the right to appoint university trustees or, in some cases, get the much-treasured tickets to high-demand athletic events. In any case, transitioning to a new funding model would likely take several years.
Internal reform of universities is not likely to happen. Too many powerful faculty and administrative forces resistant to change have the equivalent of partial ownership or control. Changes are likely to be initiated by outside forces: legislators, governors, wealthy donors, alternative providers of education services (think tanks; non–degree granting schools offering training in high-labor-demand areas, such as computer coding) and theoretically (but not likely) accreditation agencies. We should applaud aggressive initiatives by governors like Ron DeSantis, support new schools such as the University of Austin, and explore revamping public funding to make it more consumer oriented through student-scholarship opportunities. The status quo is not working — it is time for a change.
Richard Vedder is Distinguished Professor of Economics Emeritus at Ohio University, Senior Fellow at the Independent Institute, and author of Restoring the Promise: Higher Education in America.
