Education makes up about 5 % of the Gross Domestic Product of the United States, and about half of that goes into higher education. This may seem a little high, but it's in the same ballpark as the two celebrated education powerhouses - Finland (which spends more on education than the USA but less on higher education) and South Korea (for both about the same as the USA). Education costs money, and since what gets done depends on what gets funded, we all need to pay attention to the business model.
The Business of Education
Every year, Inside Higher Ed surveys college and university business officers to find out how they think business is doing. This year, the mood is gloomy: "Chief business officers increasingly agree that higher education is in the midst of a financial crisis," reported Inside Higher Ed. And some business officers "... are also starting to lose faith in the idea that they can overcome revenue shortfalls using the often-cited strategy of increasing enrollment."
The mission of academia is often divided into teaching, research, and service, although these categories overlap substantially. Historically, the primary business was teaching college-age students, and for most institutions, that is where the money is - especially in a nation that sees education as the door to opportunity. But in recently, both the birth rate and immigration has slowed, so there are fewer youngsters to enroll. Meanwhile, as public education is increasingly seen as a private good rather than a public one, states are increasingly disinclined to fund higher education, and tuition has gone up in consequence, making it more difficult for many youngsters to get in, or to stay in if they get in.
So while business officers told Inside Higher Ed that their institutions would seek to increase funding and enrollment, many were pessimistic about success. Nearly half anticipated trouble at their own institution within five years. So the conversation moved to cutting expenses. Proposals were largely aimed at instruction: replacing tenured retirees with non-tenure-track faculty, encouraging early retirement of faculty, even increased teaching loads and moving more classes online. There was some discussion of radical restructuring - abolishing programs or merging with other institutions. There was little discussion of the sort of costs that groups like the American Council of Trustees and Alumni complain about, like administrative feature creep and inefficiency.
Interestingly, while most business officers said that their operations were transparent and they shared information with faculty leaders and even the public (but not so much the students), few thought that faculty input was helpful. On the other hand, most thought that their senior administration and their board - i.e., their bosses - were helpful. A former president of the American Association of Universities grumped about business officers who didn't want faculty input: "That flies in the face of what we know about effective organizations." He added that, "Clearly most faculty members understand they're not going to be the final decision makers, but I don't think it's unreasonable for them to want to be part of developing proposals, not just responding to them as a fait accompli." He went on to describe his own experience: "I canít lead if I donít have trust. When you lay out the numbers and are transparent, you build trust," he said. "I needed that trust with faculty members. When I came to the university, we needed to improve graduation rates dramatically, and that meant doing something new. No one is going to do something new just because a new president says we need to. They'll do it because they trust you. And that has to be gained."
Towards graduating students, the business officers were optimistic about student retention. This included training faculty pedagogical techniques and peer mentoring. Expanding the pool of potential students - including historically neglected populations like ethnic minorities, older people, working-age people needing retraining, non-citizens, etc. - was not discussed. This may be a missed bet, for the Center on Education and the Workforce recently found that almost all jobs created during the recovery went to people with at least some college education. The old blue collar and clerical jobs are going away, and that means that a lot of people are going to need an education if they aren't going to be permanently sidetracked.
Academics are prone to complain about the business side of academia, and how academia should not be run like a business. The reality is that every institution requires resources, and the business side of that institution involves obtaining and distributing those sources equitably and consistent with the mission of the institution. The problem arises when academic decisions are made for financial reasons, which is why faculty should be involved in all decisions with academic components. But that means that faculty have to be prepared to take the financial side seriously.
Public, Private, For-Profit
Education has always meant money, and that has always attracted odd characters. When there was a lot of money, there were a lot of odd characters. For example, soon after the G.I. Bill was passed in 1944, veterans were targeted by predatory schools, leading to years of headlines, congressional investigations, and various reforms (not all of them good).
One problem with for-profit education is the attitude of many entrepreneurs. The traditional view of corporate ownership was that the primary mission of the Acme Widget Corporation was to manufacture quality widgets cheaply, with the usual tradeoff issue between quality and price. An investor was someone who, for whatever reason, invested in the company and got a share of the profits in return. But the fact that the company had investors did not change the mission of the company, which was to manufacture widgets. Enter Machiavelli. In 1970, Milton Friedman (apparently with a pen name) proposed that the primary purpose of Acme Widget was to make money for its investors. What Friedman was objecting to was the idea that corporations had any social responsibilities; thus Acme Widget was not in business in order to fight inflation or advance great causes. But as far as Friedman was concerned, Acme Widget didn't seem to be in business in order to make widgets, either. (He did briefly suggest charities, like hospitals and schools, as a possible exception.) What Friedman's intentions were aren't clear, but the column may be an unconscious parody of how many corporations work - at least, many corporations that wind up splattered over the business pages. And that includes charitable for-profits, like hospitals and schools.
This is what faculty mean when we say that academia should not be run like a business: the business of academia is scholarship, not to collect cash.
But in recent years, the prospect of running for-profit schools have led to wild promises - and headlines about institutions that collapse and leave their students in the lurch. James Surowiecki of The New Yorker wrote that "The fundamental problem is that these schools made promises they couldnít keep. For-profit colleges are far more expensive than community colleges, their closest peers, but ... their graduates have lower earnings and are more likely to end up unemployed. To make matters worse, these students are usually in a lot of debt." Of course, as a leader in both non-profits and for-profits observed, non-profits have exhibited similar problems. Still, a recent GAO report found that for-profits have disproportionately more of these problems and the different demographics of their student bodies does not entirely explain the discrepancy.
(One demographic are veterans, who are more likely to enroll in for-profit institutions. They come with federal dollars, which makes them a target for predatory institutions who, according to one observer, see veterans "as nothing more than dollar signs in uniform." Part of the problem is that traditional schools are neglecting veterans. There are exceptions, such as USF, which is currently rates a silver award from Military Friendly for being "one of the most veteran and military friendly campuses in the nation.")
Curiously, one recent study of for-profits found that
Whatever the case, for-profits face the same problem that non-profits and public institutions face: declining enrollments and a greater competition for students. In theory, this should force institutions to improve their performance in order to compete for students - and force more dubious institutions out of business. Whether this happens in practice is another matter, but institutions that intend to survive and thrive have a strong incentive to improve their performance - and not be shy about tooting their own horns.