Will the University Survive?

Tim Swanson
Issue CCXXII - December 8, 2009
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"When a subject becomes totally obsolete we make it a required course." — Peter Drucker

For-profit educational services. Capitalizing off of instructional training. Bankrolling tutelage on a gravy train. Go ahead and sneer; cringe and shudder — get it out of your system. Oh the horror, running a profitable business that includes many of the facets of a traditional higher education.[1]

Perhaps this is one of the reasons that a disproportionate amount of the Ivory Tower is socialistically inclined; subconsciously they may fear that the market value of their research, teaching and professional existence subsists among relatively strange bedfellows, those whose productivity fluctuates along the poverty line.

A flatter world

Will distance education and online courses replace the intimacy of round table discussions with high-caliber teachers? David Gelernter, a professor of computer science at Yale, does not think so. Based upon my own experiences I would have to agree. However we both believe a free market in degree granting, one liberated from political regulation and business myopia, is just around the corner.

The proliferation and enthusiasm of such degrees is due in part to the fact that they can often times be earned in a more convenient medium, for a fraction of the cost and in a time-efficient manner. Say goodbye to commuting, as well as student fees you never took advantage of. Nor will you have to rearrange your life so you can attend a class whose instructor instills information that could have just as easily been gleaned from a $50 textbook.[2] As the late Peter Drucker succinctly put it, "Universities won't survive. The future is outside the traditional campus, outside the traditional classroom. Distance learning is coming on fast."[3]

Out with the old, in with the new, right? How will the traditional educational model, built for agricultural and industrialized economies, based on residential living, survive an ever-expanding mouse-accessible information age? Is the cultivation of inquisitiveness only available for four interest-bearing payments of $19,999 at State U.?

Are there drawbacks? Like any other undertaking there are always opportunity costs; activities you forfeit in order to pursue alternatives. By enrolling into an online program, Utopia will not spring forth from earth's bosom nor will you sleep on cloud nine. You will still get flat tires and computer viruses, maybe even a headache or two.

Is college as an institution of higher learning going to survive? The top-tier, the Ivies (both public and private), the flagships, those with enough political and economic pull will all perhaps survive into the future. Perhaps various departments such as those comprising STEM (e.g. science, technology, engineering, math), Law or Medical school — perhaps any and all, but as Peter Drucker succinctly put it, residential life will, sooner rather than later, go the way of the Dodo.

The point of all this is that many universities and colleges are simply not organized to run like a profit-making business. Rather than focusing on revenue generating specialties, they overextend and misallocate resources — ultimately beyond their fiduciary capacity – and thus find themselves asking for handouts (e.g. donations). This is not to say that the modern institution as a whole will be done away with, but rather that such institutions will inevitably be forced to confront the subsidy bubbles that insulate assorted pursuits. How they deal with the reality of market forces will ultimately determine whether each institution lasts.[4]

Get-Rich-Quick Schemes

Why go to college in the first place?

For some individuals, attending college is viewed simply as a quick and easy way to hit a monetary jack-pot. Like many other illusions of grandeur, it is reminiscent to the unscrupulous business plan of South Park's Underpants Gnomes:

  1. Attend College
  2. ???
  3. Profit!

Feeding this spurious dream are State-subsidized loans which encourage and create distortions in the labor market, not to mention the reallocation of productive capital. Arguably it may be difficult to compare today's Van Wilder University with the "classical" schools of Oxford or Cambridge. Nevertheless, for the academic school year 2005-2006, the average tuition, fees, room and board of attending a four-year public institution were $12,127. For a four-year private institution, the sum was $29,026.

One of the justifications for the price tag is that, in the long run, a college-educated individual would make more money than someone without said education. And since being wealthier "benefits society at large," efforts promoting this lifestyle should be undertaken. However, as Neal Zupancic points out, this is a non sequitur, as the causal relationship is not directly connected. This fallacious logic, however, did not prevent State intervention from Senator Claiborne Pell, who in 1972 pushed legislation which subsidized student loans – under the inauspicious name, a Pell Grant.

Relatively cheap financing (due to these subsidies) coupled with lower admission standards has led a surge in student populations at State universities across the board. Despite alternate financial sources (such as federal grants and private donations), per capita spending has significantly decreased over the past five years.[5] While the demographics may shift, the attendance trend is not decreasing for the foreseeable future.

Value by fiat

The central underlying element to Senator Pell's reasoning was skewed: those with college educations earned more money not because of the framed, stamped, and signed parchments hanging on the living room wall, but because they had some kind of intellectual training that gave them a competitive and productive edge over their non-educated brethren. And for the better part of 30 years, this "go to college and become rich" mentality has been successfully drummed into the minds of several generations of not only boobus Americanus, but much of the developing and industrialized world, too.

Arguments regarding sub-standard educations aside, the fiscal outlook of those involved in following the accredited institution route has been documented and demonstrated to be a Pyrrhic victory, as noted by Christopher Westley. Not that these individuals are unsuccessful upon graduation, but they become broke, indebted, and even bankrupt — all in the pursuit of a hyped Potemkin lifestyle.

Old habits die hard

Much like health care or even voting (e.g., what is the market value for a single vote, close to zero?), the industry of higher education has been sheltered from market pressures.

Campuses across the country, especially those run at large State institutions, are inefficient planned economies — microcosms of socialism in action.[6] As Rothbard's law predicts, the University is not specializing in what it does best. Like an octopus, its tentacles end up in many unrelated pies in which scarce resources are diverted to enterprises and endeavors that stray from what its human capital does best: research and scholarship. The administration[7] involves itself in a smorgasbord of activities that range from acting as surrogate parents and landlords to maintaining campus hospitals and transportation services. Monopolizing food services, dorm-room cleaning (which now apparently involves class-warfare) and even landscaping – no  enterprise is too small to be left alone nor too big to be undertaken.[8]

For instance, cell phones have dramatically altered one traditional revenue stream of many universities -- that of long-distance phone calls. As a result, some colleges have raised other student fees to compensate for the budget shortfalls. Or, as Rothbard's adage literally rings true, several universities are now offering their own cell phone plans to counter this trend.

What can stymie the high costs of operating a college?

Despite the sizable endowments, grants, and discretionary donations that many research universities have, the return on investment from licensing internal innovations is next to nil. This, coupled with increased annuities, wrought by tenure systems has potentially delivered a crippling blow to an entrenched order.

The tenure system was originally created to secure academic freedom for professors — offering flexibility and openness to speak and research freely without fear of repercussion. (See the Hoppe debate.) However, from a financial perspective, Stephen Kerr notes that, "raising an employee's salary creates an annuity for his or her organizational lifetime. Furthermore, since future increases are normally calculated as a percentage of salary, erroneously increasing someone's pay will tend to become geometrically expensive over time."[9] In other words, a firm should reward productivity, not tradition or longevity. Therefore, performance-based contracts can be used in place of a tenure system, an idea now embraced by numerous college presidents as well.

Many colleges, particularly those that are State-managed, must change their business models with the times. This is not some pie-in-the-sky ultimatum; according to a recent survey of college presidents by The Chronicle of Higher Education, many "are more preoccupied with financial issues than educational ones." One plausible solution to these monetary quagmires has an irksome kick to it: "53 percent of the respondents said they believed that tenure for faculty members should be abolished in favor of long-term contracts, but those who had been professors with tenure supported it more than those who had not."

Over the past decade, many state universities have learned that they must locate alternate sources of funding, as they can no longer solely live off the State dole. In fact, whether they like it or not[10], many of the flagship State-funded institutions are marginally becoming privatized. For instance, through a charter initiative adopted last year, the University of Virginia (along with Virginia Tech and William & Mary) now has the freedom to modify tuition rates and operate free of numerous state regulations, such as those pertaining to procurement, capital outlay, finance, and personnel. This quasi-privatization is a step in the right direction, as it should provide better accountability to those who actually finance educations. And it should be noted that these budget shortfalls are not regionally isolated instances on the East Coast.


While some commentators suggest that specialization is for insects, a large portion of school rank and reputation is weighted in research, which directly correlates to publishing in peer-reviewed journals (i.e., impact factor). For example, numerous departmental performance appraisals require that tenured or tenure-track professors spend the majority of their time on original research and publishing -- and the residual is spent teaching (i.e., publish or perish).[11] In many cases this creates a negatively dichotomous relationship between meticulous research and supportive instruction. Unfortunately, many bright researchers lack the personality or training needed to be effective instructors and vice versa (thus, one of the main differences between research universities and teaching universities). Because of this, many universities hire individuals who have longer curricula vitae rather than vibrant personalities. However, this bittersweet yin-yang has its own sense of irony, as specialization and the division of labor are the most promising solutions to an otherwise ruinous situation.

The university is a firm.

To counteract budget hemorrhaging, the administration could cut extracurricular programs, spin off departments into independent entities, and deregulate services. For instance, a student recreation facility could be privatized.

Unfortunately (from a profit-based business perspective), many recreation centers are not self-sustainable, as they are subsidized through universal student fees. So regardless as to whether or not a student utilizes the numerous services offered by these recreation centers, they stay afloat despite any (in)efficiency. Furthermore, because of how they are subsidized, their organization is no different than Amtrak, USPS, or Fannie Mae. In fact, the economically centralized nature of these recreational facilities makes them, in some ways, no different than a top-down command economy found in many developing countries or the former Soviet Union.

While these facilities may employ the use of tools to "rationalize" performance, it is not an appropriate defense against claims of poor service or relatively high prices (why charge one price over another?). Economically speaking, separation into an autonomous entity, which is wholly self-sustaining, is the only long-term practical solution for determining whether or not these facilities pass the market test. Otherwise, how can managers effectively set prices? Aside from pulling numbers out of hats or mimicking the competition, the only valid measure is by allowing the consumer to vote with his wallet. It should also be noted that some university services have successfully been subcontracted to independent firms; such as custodial servies, medical care and stadium security. It is misleading to claim these large entities are immune to economic laws such as supply and demand and, hence, can survive (structurally) indefinitely without any reliable measure of effectiveness.

In the event that these facilities are privatized, the university could subsidize student membership elsewhere (e.g. through a bulk purchase of passes) — although this brings up the question as to why they do not outsource the services to local businesses such as Gold's Gym or 24 Hour Fitness in the first place.

To be fair, some recreation centers do in fact have several revenue-generating entities – for  instance: guest membership passes, renting towels and lockers, selling racquetballs, personal training sessions, extracurricular classes such as Yoga and Self-Defense, outdoor events such as weekend kayaking or caving and intramural sign-ups. However, even though this may be the case, these goods and services generally cannot finance their annual budget.

Whether it is through complete independent privatization or corporate buyout, recreation facilities could create a formal policy to wean their internal finances from the university. The end result will allow the management to implement an effective incentive program, allowing the university to adapt to their dynamic business environment.

Contemporaneously (e.g., in the Real World), due in large part to the competitive forces rendered by Google et al., Microsoft is now undergoing structural changes. How are institutions such as universities immune to the laws of economics any more than other business entities? If nothing else, a paradigm shift of some magnitude needs to occur for individuals, families, and firms that invest in college educations to demand a different kind of system, a different kind of business model.

A brief history in time

While pedagogy (the formal discipline of teaching) has been around for several hundred years, humankind has spent the better part of its existence training and otherwise instilling values, beliefs, and information into its brethren and progeny. Throughout its storied evolution and development, theoretical frameworks ranging from blank slates to statistical models have been constructed to explain and prescribe the best way to school and educate one another.

Although the Catholic Church and Jesuit Order are historically credited for organizing the first universities to train their priests, Prussia, architect of the modern Welfare state, unsurprisingly had its hand in the creation of the modern education system, including that of Higher Education. John Taylor Gatto, among others, has noted that it was Prussia that first enacted compulsory attendance at the primary school level, in a concerted effort to erect a martially disciplined and compliant populace. Rigid hierarchies of authority (teacher vs. student) were established in an effort to bridge obedience to both military commanders and technocratic civil servants. Some of these positivist methods and theories[12] trickled into higher education[13] and are extensively chronicled by proponents of the deschooling movement and Montessori approach.[14]

And while some professors lament the latest bugaboo known as the Internet, to be historically consistent they should throw sticks and stones at descendants of Johannes Gutenberg, for inventing a more efficient and systematic process of printing texts — thus eliminating a traditional role of scholastic scribes (though arguably creating in return a plethora of professions, industries and markets in the process — i.e. creative destruction). Perhaps these same instructors could venture into the terra incognita and partner with startups such as Digital Universe, or hawk their expert knowledge to the highest bidder.[15]

Necessity is the mother of invention

Numerous universities and colleges now offer lectures through podcasts covering a host of topics. Podcasting is simply a neologism for automated webcasting — a process combining traditional audio and video feeds with easy-to-use RSS syndication technology. Berkeley, Stanford, Harvard, Princeton, Purdue, and the Mises Institute itself are just a few notable entrants in this burgeoning market. [16] In fact, Podcasts have become so popular that both Yahoo and Apple (among others) have added the functionality to listen, transfer, and search for podcasts natively. It is also worth noting that companies like IBM, in an effort to streamline and make communication more convenient and efficient, have successfully incorporated podcasting into their own corporate culture.

In 2001 MIT began an initiative, dubbed OpenCourseWare, to "virtualize" all of their graduate and undergraduate programs, for free public consumption. This includes tests, lecture notes, reading lists, slides – the whole kit and caboodle. With courses ranging from biology and nuclear engineering to management and literature, the OCW service will assist the insatiable Curious George within all of us.[17] And like podcasts, other institutions have created projects similar to OCW, including notables such as Carnegie Mellon, Johns Hopkins, Tufts, Rice, and Utah State.

Wikipedia, the open encyclopedia, has, for better and for worse, become a mainstay among digerati across the globe. Despite sophomoric pranks, the "free" source is,s in many cases, just as authoritative as its leather-bound counterpart. And while this is certainly a great resource to get pointed in the right direction, it does not replace definitively published research, which the next contestant makes locating easier.

In late 2004 Google opened the doors to a new service called Google Scholar. While it is still relatively new (thus having a relatively limited index), for anyone that has used EBSCO, Web of Science, JSTOR, or a legion of other information databases, Scholar is a godsend. Not only do you get to use the familiarly quick and clean Google interface to retrieve information, but it also features advanced search capabilities to narrow queries based upon authors, publications, subject matter, and dates. Mining quotes and information from peer-reviewed journals has never been easier. Now you can not only see the various academic papers published by notables such as Mises or Rothbard, but you can also view other works that cite them (again, not a novel invention, but it is fast, accurate, and free).

Do these online resources replace a traditional 4-year education? Arguably, the social stigma from not attending a brand-name university for the most part still outweighs the costs of attending one. If nothing else, these online resources can at least complement the traditional venues; web-based education can be leveraged to the benefit of everyone involved (win-win).

Digital libraries

How much longer will you physically need to visit a library? Did you know that there are several well-funded ventures to digitally scan the contents of every book ever written?[18] Yahoo, Microsoft, and the University of California are funding an umbrella organization called the Open Content Alliance, which includes other collegiate libraries and book publishers. There is a catch, however. No matter how vast their index may become, these fastidiously scanned contents[19] indexed on their free and open OCA website are works solely in the public domain (i.e., works that are no longer copyrighted) — accounting for less than 15% of books ever published.

Not to be left out of the fun, über-publisher Macmillan is also trying to scan and sell the contents of its massive publication library (you probably had one of its books each year throughout school). And Amazon.com is now allowing users to digitally view books online (provided the publisher has opted into their scanning program). You can even buy the specific pages you want printed off and shipped to your domicile.

Despite legal threats, one firm is trudging ahead in an effort to scan every book ever written, including those still under copyright: Google Book Search. While legal ramifications have yet to be sorted out in the courts and despite Eric Schmidt's conservative 300-year estimate, anyone can take advantage of the ability to search for and locate a book they never even knew existed (including those in Europe).[20] Certainly it helps everyone save unnecessary trips to libraries and book stores. Plus it now enables independent researchers, educators of roughly 2 million home-schooled kids and people from every walk of life, to find information that would otherwise be left to obscurity: it is empowering.

Teaching an old dog new tricks

While it is not an entirely new phenomenon[21], the open access movement is worth discussing as an example of modifying business models to take advantage of new technological innovations.[22]

In the past, the vast majority of scholarly journals have used a subscription-based model that was relatively expensive for individuals to afford, a tab that institutions, firms, and libraries were expected to pick up or subsidize.[23] To bypass this cost-prohibitive nature of accessing journals, organizations such as the acclaimed Public Library of Science charge the author alone for publication costs rather than other users.[24]

The prospective research still undergoes the scrutiny of the scientific peer-review process; however, a twist is that upon publication, it also becomes immediately and freely viewable to the public at large under an open content license.

Conditions permitting, this experimental development may fizzle out. However, by certain statistical/empirical measures, this effort could be deemed a budding success if compared to its competition.[25] Originally launched in October 2003, after only 3 months of existence, PLoS Biology was assigned a high impact factor of 13.9 — "placing it above such established journals as EMBO Journal, Current Biology, and the Proceedings of the National Academy of Sciences. In fact, in ISI's category of general biology journals, PLoS Biology is ranked number 1. In 2004, PLoS Biology articles were downloaded more than 1 million times."

In addition to projects like the PLoS, other notable alternatives include an open-review process in which referees are publicly known and held accountable for their recommendations and for what they approve. While it is arguable as to whether or not this would have prevented the recent South Korean cloning fiasco, Jerry Kirkpatrick notes that "open-source" reviewing – a process similar to Wikipedia in which anyone can review and critique a publication – has gained a foothold in some circles, including the distinguished British Medical Journal, which no longer uses a closed review system.

While the jury is still out, both open access along with open review have the potential to drive down the costs and eliminate altogether another barrier to scholastic participation for professional and amateur alike.

What is a college ranking?

What makes these remotely valid? How can you rank heterogeneous, dissimilar institutions? A 3.8 GPA at one school is not at all comparable to a 3.8 at another. Each instructor has his or her own subjective evaluation of a student, course work is different in each department at each institution, resources available to students are different, the student-body diversity/dynamic is different, so how can these be aggregated, let alone objectively quantified?

In a vain attempt to show transparency and impartial legitimacy, both letter and number scores are used to quantify student assessment. Can the 93 you received on your term paper for English 101 from Professor Smith in 1991 at a small rural liberal arts academy be legitimately weighted the same against pupils in other sections with different instructors at a substantially larger urban school years later? The scale methodology is flawed, if nothing else, for the fact that you cannot use a subjectively assessed interval aggregation system to compile a nice round number.

Modern-day credentialing is reminiscent to judging at the Olympics, shrouded in sophistry and obfuscated behind a veil of superficially objective criteria. It literally is the same problem encountered when economists endeavor to calculate numbers like GDP or BCS rankings.

Part of the ranking methodology used by US News & World Report involves the tabulation and aggregation of ratings by administrators and professors at peer institutions. For instance, the typical Likert scale uses a 1-5 rating system (1 for worst, 5 for best). Each pollster has his or her own attitudinal preferences, which are subjective and relative to his or her own internal ranking system. It is therefore foolhardy and misleading to attempt to aggregate all the pollsters’ subjective views on what flavor of ice cream is the best flavor. Is it Crimson Tide Cookies 'n Cream? What about Hokie Orange Sherbert? Can one forget Knute Rockne Fudge Delight?

Several years ago, The Washington Monthly published a study, originally commissioned by US News & World Report, which criticized the nebulous methodology used to create the ranking hierarchy. It found similar problems in trying to rank disparate undergraduate programs due to their ever-varying goals, encompassing "liberal arts education; vocational preparation; pre-professional and scholarly preparation; middle-class socialization; and service and leadership development."[26]

Pedigree, the golden seal of approval

A few months ago The New Yorker published an article which detailed "the social logic of Ivy League admissions." The author provides evidence[27] for this brand-equity hypothesis (which directly correlates with status): it is the admissions process that is at the core of the elite college value proposition. That institutions such as Harvard operate using a Balanced Scorecard method to maximize their endowment[28], social rolodex (e.g., select students who have a high probability of being financially successful and will contribute to brand equity), brand perception (e.g., invest in faculty and staff that contribute to brand equity over instruction) and comparative advantage (e.g., the actual instruction which is differentiated primarily on branding, admissions and fund raising).

What is a degree worth? Whether you want to believe it or not, there is a market for brand-name institutions, just as there are markets for brand-name shoes, cars, and clothing. State accreditation acts as the modern golden seal of approval. Each institution is essentially a brand name, whose inner workings and coursework could be identical, while seemingly proprietary to those on the outside.[29] However, this Midas touch can be misleading and, in some cases, may not be worth a Continental.

Where's the beef?

Surely the financial gains of attending outweigh the aforementioned financial costs, right? Whether you are paying attention or not, your brain does not learn through some kind of osmosis; hands-on experience is arguably irreplaceable in a classroom. For example, let's look at business schools.[30]

The tie in to contemporary schooling comes from a controversial paper regarding the value of obtaining an MBA. Pfeffer and Fong found after analyzing 40 years worth of research, that MBA graduates earned little, if any, more income compared to non-MBAs.[31] In fact, they found several instances of just the opposite. To that end, Gary North suggests that higher education — and MBA School in particular – has become nothing more than a bureaucratized Mandarin Civil Service of yesteryear, which adds little to no value of those who matriculate to the institutions.

Pfeffer and Fong also found that not only do many business schools use the same textbooks and instruction methods (e.g., case studies), but "that graduates from the most competitive, elite programs achieved the greatest earnings is scarcely surprising, as these people"[32] essentially matched the customer perspective pillar ensconced by the Balance Score Card approach, they "were selected by their programs on the basis of their much higher than average capabilities and credentials."[33]

An example of erroneous use of the case-study method is the following. A group of researchers conducted a study[34] of business school students in their senior year that had a mean age of 21. Upon being split up into three random groups, these students individually played a computer simulation of sorts, wherein they became CEO of a cell phone company for 13 years. The first eight years were predetermined to correspond to historic regional coverage, and then the remaining five years expanded to nationwide via industry deregulation — all of which was warned of to the participants by way of computer messages. Performance was measured based upon market share, and each student was given course credit for completing the experiment.

This is set entirely outside the real world. Telecom CEOs do not sit at a computer terminal all day, receiving standardized messages from an omniscient entity about industry changes that will occur in the future. Furthermore, none of the students had to live with any of the consequences their actions caused. They did not have to worry about accounts payable, research and development, advertising[35], managing information systems, State regulations, and a cornucopia of issues — ranging from the most trivial and mundane (e.g., notary headers) to substantially larger ones, such as solvency. Nor did they have to go home at the end of the day and explain to their friends and families as to how their decisions may have bankrupted a company and adversely affected the lives of thousands of employees.

While this was a research project that can in fact be replicated over and over, the conclusions gleaned from the study cannot realistically be transferred to generalizing telecom CEO behavior to the real world. If you want to know how a CEO would have reacted with factors XYZ, observe how a CEO handles factors XYZ. Studying twenty-one year-old college students who have little to lose is not an accurate measurement of CEO activity.

Pfeffer and Fong leveled similar criticism at this case-study approach, "[s]tudents learn to talk about business, but it is not clear they learn business."[36] They are not the only academics to believe this either, as Mintzberg and Lampell note, "[u]nfortunately you cannot replicate true managing in the classroom. The case study is a case in point: Students with little or no management experience are presented with 20 pages on a company they do not know and told to pronounce on its strategy the next day."[37] In fact, oft-quoted management guru Peter Drucker[38] and Mises[39] revealed similar qualms with business education as a whole and entrepreneurial training in particular.

Online degrees and distance education

The poster child for this movement is the University of Phoenix. This accredited institution is the bane of existence for some establishment players – namely, tenured professors who believe the profit motive dilutes pure research and unfairly treats education as a commodity. However, prior to founding the University,  John Sperling[40] was himself a professor at San Jose State University. After leaving academia and founding the University, in an interview with Fortune  several years ago, he was told what one of his former colleagues at SJSU thought, "John Sperling represents something horrible in American education" and "I have an extreme loathing for him, and in a just world, he would be in jail."

Contrast this with a relatively balanced review from Gary Berg, dean of extended education at California State University Channel Islands — who actually took a class from start to finish to see what it was like. He found that it did indeed have several weaknesses, namely "its poor academic reputation, faculty, general education, and maintaining quality while growing at a fast rate." Yet despite these misgivings[41], he does not threaten John Sperling with jail time nor curse him for eternity.

The University of Phoenix is not alone in its quest to meet the needs of customers worldwide. The Teaching Company, Thinkwell, ALEKS, EPGY from Stanford, CTY from Johns Hopkins – the list of available services for children and teenagers continually grows, due in part to a public school system which has its head stuck in the 19th century.

In fact, there is no shortage of programs from accredited institutions of higher education as well. Stanford, USC, Pepperdine, UCLA, New Jersey Institute of Technology, University of Hawaii, Florida State, University of Illinois, Rochester Institute of Technology, even the prestigious Open University in the UK — they all have online degree and distance education programs. [42] And due to the market pressures, perhaps these same institutions will be forced to become "for profit," prompting the question: what's the difference between profit and non-profit in this instance? Therefore if the arguments from the academy were initially against non-residential education (i.e., distance and online), or charging prices for a course, or customized/tailored degree plans, or access to journals, what is left to besmirch?

Think different, give it the old college try.

Maybe not today, maybe not tomorrow, but one day you may end up demanding that a course at State U. provides 100% Satisfaction Guaranteed, service with a smile. Where is the customer service department located in traditional institutions? Adjacent to the bursar's office? Where can you formally lodge complaints or leave suggestions and recommendations, knowing that your status as a customer is truly valued? While there is certainly no shortage of snake oil diploma mills, the onus of distance education or non-traditional avenues such as online programs (or even not attending), can be judiciously scoffed at.

No matter what newfangled technology may be incorporated into our lives or what medium for instruction is used, perhaps the boldest statement of embracing change comes again from Peter Drucker: "Education can no longer be the sole property of the state." And it won't.

Tim Swanson is a graduate of Texas A&M University and currently lives in China. Send him mail.

This essay was originally published in 2006 on Mises.org.


[1] Philosophically speaking, there is no objective "thin line" or "grey area" between what kind of education one should or should not make an economic profit on. Educational training and pedagogy instruction are not immune to laws of economic scarcity. Knowledge and information can be commodities as well.

[2] While this is not to say that social studies departments are entirely comprised of unproductive existential self-loathing and Cubistic meanderings… just as NASA can be welfare for engineers and the NEA can be welfare for artists, tenure can be welfare for academics.  See also "Free market business reform " at Catallarchy.

[3] "Universities won't survive. The future is outside the traditional campus, outside the traditional classroom. Distance learning is coming on fast." Peter Drucker, I got my degree through E-mail Forbes, June 16, 1997.

[4] "Thirty years from now the big university campuses will be relics. Universities won't survive. It's as large a change as when we first got the printed book. Do you realize that the cost of higher education has risen as fast as the cost of health care? And for the middle-class family, college education for their children is as much of a necessity as is medical care — without it the kids have no future. Such totally uncontrollable expenditures, without any visible improvement in either the content or the quality of education, means that the system is rapidly becoming untenable. Higher education is in deep crisis." Peter Drucker, Seeing things as they really are Forbes, March 10, 1997.

[5] "At Public Universities, Warnings of Privatization" Sam Dillon, October 16, 2005, New York Times.

[6] Stating the glaringly obvious sans refined tact, The Onion may not be a highly cited journal of impact among tenured literati, however to quote Mark Twain, "Truth is stranger than fiction, but it is because Fiction is obliged to stick to possibilities; Truth isn't." More than any other reference in this article, none is more prescient than: University Implicated In Checks-For-Degrees Scheme

[7] The organizational design of many universities and colleges is sometimes emasculated by political and economic power struggles between administrators (e.g. President, Treasurer), the faculty, students, the board of regents, and so on. To assuage fears of a 'tragedy of the commons' (e.g. who owns certain property), a responsive hierarchy accountable or responsible for certain actions (i.e. who can be fired), must be implemented. Even non-profit organizations like the Mises Institute must have articulated goals for donors and stakeholders to judge issues of accountability — or else the organization is fundamentally aimless. Bureaucracy by Mises covers this issue (large "vertical" corporations can also suffer this ailment). See also Peter Principle.

[8] In a curious instance of the pot calling the kettle black, some colleges and universities have an odd mantra purportedly against not accumulating wealth or profiting off investments: do as we say, not as we do. For instance, did you know that Columbia and NYU are the largest landowners in Manhattan (behind the City itself and the Catholic Church)? And they each also have billion-dollar endowments. So why can't "for-profit" firms also own swaths of property and acquire wealth? For more on endowment sizes, read the annually published study from the National Association of College and University of Business Officers; as of this writing the latest is from 2003-2004.  Regarding the relatively high costs of attending (i.e., 'going broke by degree') see also "Huge college loans eating up salaries" from the Seattle Post-Intelligencer.

[9] Kerr, S. (1999). Organizational rewards: Practical, cost-neutral alternatives that you may know, but don't practice. Organizational Dynamics, 28(1), 61-70.  See also Clayton Christensen's theory of Disruptive Technology, originally published in the Harvard Business Review.

[10] Some socialists have detailed this turn of events; you will never guess what side of the issue they come down on… It also raises an interesting point as to the definitive line by which an institution is public or private, although the answer could be seen in terms of political, not economic autarky.

[11] A number of interesting anecdotes regarding Peer-reviewed Journals Gone Wild: the Sokal Affair, the Bogdanov Affair, and this troublesome report from New Scientist.  Another recent quagmire involves the journal The Lancet, a fraud which has spurred an investigation into the peer-review system as a whole.

[12] "They fail to see that education cannot convey to pupils more than the knowledge of their teachers. Education rears disciples, imitators, and routinists, not pioneers of new ideas and creative geniuses. The schools are not nurseries of progress and improvement but conservatories of tradition and unvarying modes of thought. The mark of the creative mind is that it defies a part of what it has learned or, at least, adds something new to it. One utterly misconstrues the feats of the pioneer in reducing them to the instruction he got from his teachers. No matter how efficient school training may be, it would only produce stagnation, orthodoxy, and rigid pedantry if there were no uncommon men pushing forward beyond the wisdom of their tutors." Ludwig von Mises, Theory and History, Auburn: The Mises Institute, 1985, p. 263.

[13] To the dismay of curmudgeons everywhere, unpopular instruction methods (such as long-winded impersonal lectures) are more a symptom of time constraint or lack of creativity and not some nefarious conspiracy to deprive humanity of esoteric knowledge.

[14] For more on Deschooling/Unschooling be sure to read Ivan Illich and John Taylor Gatto. Note also the slippery slope involved in trying to empirically define success in terms of what educational system is best -- it would simply be a battle of artificially defined goals; draw your own conclusions from "Literacy of College Graduates Is on Decline," Lois Romano, Washington Post, December 25, 2005.  Another related story comes from an Associated Press article "Study: Most College Students Lack Skills" which notes that among other findings, that despite graduating, many students still have a difficult time comparing credit card offers and analyzing newspaper editorials.

[15] In addition to contracting knowledge-based and information-driven work out to domestic/foreign firms, one market that is being capitalized off of is multidisciplinary online tutoring from India.  See also John Hagel's "Unbundling the Corporation" from The McKinsey Quarterly.

[16] Here is a list of courses offered through this convenient medium also dubbed, "learncasting." Slate recently published, "The Year of the Podcast," detailing where the medium currently stands in the scheme of things and where it is heading.  See also Apple's new "iTunes U" endeavor and a Forbes discussion on podcasts from Stanford.

[17] OpenCourseWare even publishes several courses in economics, all of which more or less fail the Ludwig von Mises School of Hard Knocks litmus test. But still the same, it's the thought that counts - after all, not everyone is a praxeologist.

[18] Practicing good netiquette, here is the obligatory mention of the original digital library, Project Gutenberg.

[19] To see the Kirtas book-scanning machine in action, click 'video demo.'

[20] In April of 2005, several nationalists such as Jacques Chirac suggested that Google's actions will invariably bias the scope of material found online to the Anglo-Saxon variety, "Google's plans have rattled the cultural establishment in Paris, raising fears that the French language and ideas could be just sidelined on the worldwide web, which is already dominated by English." As of September 2005, Google is now scanning books in Europe as well.

[21] ArXiv.org has been around for roughly 15 years. It stores electronic preprints for physics, math, computer science, and biology.

[22] T. J. Walker, professor emeritus at the University of Florida, has put together an extensive list of journalistic discussions on the ramifications of academic e-prints and e-publications.

[23] While Doug Bandow of Cato has recently been in the news for ethical improprieties regarding whether or not financial contributions biased his research, he questions "where the line of legitimate writing turns to something worse. When does financial support turn into ideological control?” He wonders "Is it 'journalism' if the research is helped along by a foundation whose board members have some interest in the subject?" The same could be asked of some medical research, which is under similar fire.

[24] This is not to say that the current PLoS business structure is the best or most efficient way to operate; it is merely an illustration for how academia could adopt technological innovations to conform around adverse intellectual property regimes (see Kinsella on IP). Several journals, such as Nature, reacted by allowing authors to self-archive their publication online. And regarding open-source peer review, economist Tyler Cowen recently discussed this effort and raised some interesting arguments against its practice.

[25] For comparison, the reputable journal of Science, largely considered one of the world’s most premiere journals, is estimated to have roughly the same number of total readership (about one million). Likewise, Nature, another prominent journal which has been in print since 1869, has an impact factor of 32.182 in 2004.

[26] "Quality ratings of institutions are commonly performed in light of institutional goals. Compared with hospitals and graduate programs, undergraduate colleges are more heterogeneous in their goals. Goals may include: liberal arts education; vocational preparation; preprofessional and scholarly preparation; middle-class socialization; and service and leadership development. There are also varying mixes of goals across institutions. In large institutions there is considerable variance within the institutions, for example, among different subunits ("colleges"). The great variance both across and within institutions makes it very difficult to get consensus on quality criteria or on measures for undergraduate programs in general, or even for groups of colleges or universities that might appear similar. Compared with hospitals there is also a paucity of publicly available comparable data on postsecondary institutions that are up-to-date, this necessitating more reliance on data collected directly from the schools." The Washington Monthly, "The NORC Report on U.S News and World Report."

[27] "Social scientists distinguish between what are known as treatment effects and selection effects. The Marine Corps, for instance, is largely a treatment-effect institution. It doesn't have an enormous admissions office grading applicants along four separate dimensions of toughness and intelligence. It's confident that the experience of undergoing Marine Corps basic training will turn you into a formidable soldier. A modeling agency, by contrast, is a selection-effect institution. You don't become beautiful by signing up with an agency. You get signed up by an agency because you're beautiful." Malcolm Gladwell, "Getting in, the social logic of Ivy League admissions." October 10, 2005, The New Yorker.

[28] Is donating money to an alma mater irrational? Arguably, by giving back you can in fact help increase your own brand quality and recognition through financing portions of the university model which are "ranked" (e.g., purchase more books for library, endow a chair to attract "star" researchers). Patri Friedman has a germane discussion on this issue; be sure to read through the comments as well.

[29] Be sure to read the latter portion of Arnold Kling's essay at TechCentralStation: 'Economic Man' vs. 'Status Man' which also discusses school ranking and branding.

[30] To the chagrin of business school administrators everywhere, simply having a certificate of completion does not qualify you in any form or fashion to manage or direct the operations within a firm: bona fide experience does. Experience that cannot be replaced with a textbook of definitions, PowerPoint slides, or computer simulations.

[31] Pfeffer, J., & Fong, C.T. 2002. The end of business schools: Less success than meets the eye.   Academy of Management Learning & Education, 1(1):78-95.

[32] "A straightforward interpretation of these results is that it is not education in business but selectivity that is being assessed. As Dugan et al., noted, the fact that graduates from the most competitive, elite programs achieved the greatest earnings is scarcely surprising as these people "were selected by their programs on the basis of their much higher than average capabilities and credentials" (1999: 23). This interpretation, that what matters are the personal attributes of the attendees not what they learn while in attendance, is consistent with the fact that the course of study, and even the textbooks used, are remarkably similar across schools of different degrees of selectivity, so it is hard to argue that there are important differences in the knowledge being provided in the different schools. Studies conducted by the Educational Testing Services in 1982, as well as Porter and McKibbin's (1988) investigations of curriculum across business schools, have emphasized that the curriculum is quite similar across schools." Ibid.

[33] Dugan, M. K., Grady, W. R., Payne, B., & Johnson, T. R. 1999. The benefits of an MBA: A comparison of graduates and nongraduates. Selections, 1: 18-24.

[34] Seijts, G.H.; Latham, G.P.; Tasa, K.; Latham, B.W. (2004). Goal setting and goal orientation: an integration of two different yet related literatures, Academy of Management Journal, 47(2), 227-240.

[35] For-profit firms are not the only entities trying to promote their wares. In "Those weird College ads" Mike DeBonis of Slate details numerous ad campaigns used by 2005-2006 Bowl-bound universities and colleges to attract potential students to their campuses.  This also raises another issue regarding the role of athletics at the University and the hotly contested matter of "amateur" student-athletes.  For more on these issues, see the Knight Commission Report as well as professor Donald Siegel's paper, "The Union of Athletics With Educational Institutions."

[36] Pfeffer, J., & Fong, C.T. 2002. The end of business schools: Less success than meets the eye.   Academy of Management Learning & Education, 1(1):78-95.

[37] As quoted in Pfeffer & Fong -- Mintzberg, H., & Lampel, J. 2001. Matter of degrees: Do MBAs make better CEOs? Fortune, February 19, 2001: 244.

[38] "On the whole it looks very much as if the 'integrated' business education tends to make a man unfit to be an entrepreneur by paralysing his intellectual muscles, just as the training in mere technical skills of the business school of yesterday tended to unfit a man by destroying his vision. The more emphasis there is on 'administration', 'organisation', 'policy', 'analysis', etc., the more there is emphasis on the known 'right' way of doing things and on routines rather than on the new – in short on the accepted, the safe, the bureaucratic way rather than on the way of the risk-taker and the innovator." Footnote from Ludwig Lachmann on Peter Drucker, "The Science of Human Action: Review of Mises", Economica, New Series, Vol. 18, No. 72. (Nov., 1951), pp. 412-427.

[39] "Education, whatever benefits it may confer, is transmission of traditional doctrines and valuations; it is by necessity conservative. It produces imitation and routine, not improvement and progress. Innovators and creative geniuses cannot be reared in schools. They are precisely the men who defy what the school has taught them. In order to succeed in business a man does not need a degree from a school of business administration. These schools train the subalterns for routine jobs. They certainly do not train entrepreneurs. An entrepreneur cannot be trained. A man becomes an entrepreneur in seizing an opportunity and filling the gap. No special education is required for such a display of keen judgment, foresight, and energy." Ludwig von Mises, Human Action, Fourth edition by Bettina B. Greaves (Irvington: Foundation for Economic Education, 1996), p. 314.

[40] John Sperling, showing his entrepreneurial colors, is also a venture capitalist as detailed superbly in Wired magazine, "John Sperling Wants You to Live Forever."

[41] Like the University of Phoenix, NYU has reportedly received relatively lower marks from competing institutions due in part to the fact that it hires numerous part-time and contract-based faculty. Yet ironically, this same adjunct faculty used the threat of Unionization in the spring of 2004 to gain many of the advantages conferred to full-time/tenured professors, see "Letter to the NYU Community Updating the Status of the Negotiations Between the UAW and the University."

[42] The Associated Press recently ran a story, "Online classes popular on campus as well as off" in which they detailed a growing trend in which many traditional college students - despite living on or near campus - are enrolling in distance education courses to fulfill some of their degree requirements. Among the reasons noted, include the ability to schedule around potential time conflicts (e.g., jobs) as well as simply not wanting to take a class at 7 in the morning.  The AP article also cites The Sloan Consortium which is an amalgam of "institutions and organizations committed to quality online education." Among other numbers of interest, according to Sloan, "over 1.9 million students were studying online in the fall of 2003," and that number increased to 2.6 million in 2004.  Forbes recently ran a piece, "Colleges on the cutting edge of technology," detailing the advances in computer technology - specifically wireless - which have been deployed across campuses and now enable students to stream lectures, download podcasts, and take interactive courses online.  Furthermore, in "More undergrads playing hooky when the classes go online," the Chicago Tribune recently noted that the advent of technologies such as podcasting has actually decreased attendance of many classes.  This unsurprisingly has caused consternation among some faculty members, who have started pulling the material offline in order to restore regular attendance.

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