as Business, Students as Customers
‘Modernity comes with a price’
by Richard A. Posner
number of colleges and universities have announced steep tuition
increases for next year—much steeper than the current,
very low, rate of inflation. They say the increases are needed
because of a loss in value of university endowments heavily
invested in common stock.
I am skeptical. A business firm chooses the
price that maximizes its net revenues, irrespective of fluctuations
in income; and increasingly the outlook of universities in
the United States is indistinguishable from that of business.
The rise in tuitions may reflect the fact that economic uncertainty
increases the demand for education. The biggest cost of being
in school is forgoing income from a job (a factor in graduate-
and professional-school tuition); the poorer one’s job
prospects, the more sense it makes to reallocate time from
the job market to education, in order to make oneself more
The close economic similarities between the
business and university sectors are often obscured by the
fact that university faculties are dense with critics of capitalism.
Further, enterprises that operate in the not-for-profit form
are supposed to have motivations fundamentally different from
those of for-profit enterprises, to justify their tax exemptions.
But how realistic is that?
The American university sector is distinctive
in being largely private in support and even more so in behavior;
in contrast, almost all foreign universities are public. Even
our state universities compete vigorously with one another
and with private universities; they are, increasingly, only
quasi-public. The University of Illinois at Urbana-Champaign—Illinois’s
flagship public university—receives only 30 percent
of its funding from the state.
What “not for profit” means in
the world of higher education is simply that a university’s
surplus of revenue over expenses does not go to shareholders
but is added instead to endowment or invested in new projects—much
as a surplus is used at a for-profit firm, especially one
that doesn’t pay dividends.
Not-for-profit enterprises often compete
as fiercely as
their business counterparts. Consider the universities’
competition for students. It might seem that a profit-maximizing
university simply would charge the highest tuition the market
would bear and then admit anyone willing to pay it. But this,
in fact, would not maximize profits. For students, the market
value of higher education depends significantly on the quality
of their peers—as a signal of worth to potential employers
and because students learn from one another and make valuable
contacts for the future.
To increase the perceived quality of the
education and the prestige of the institution (things valued
by alumni and other potential donors and by those who grant
research contracts), universities compete to attract professorial
stars. The result is a great variance in faculty salaries,
both among and within universities—and departments.
One thing stars negotiate for is a reduced teaching load.
The slack is picked up by poorly paid graduate students and
by non-tenure-track adjuncts with low salaries and no benefits.
Some of the stars teach very little, and some do little research
as well, instead moonlighting as commentators on events of
the day in the popular media. One might think the university
would fear damage to its trademark, but most of them treasure
their celebrity academics. They advertise the university.
The celebrity professor is an entertainer—though purists
may question the appropriate ness of tax exemptions for universities
that double as entertainment companies.
Ways in which universities make themselves
attractive to students include soft majors, student evaluations
of teachers, governance roles for students, elimination of
required courses. Sky-high tuitions have caused universities
to regard their students as customers rather than as kids
requiring an intellectual challenge. Just as business firms
sometimes collude to lessen the rigors of competition, universities
collude to minimize the cost of athletes whom they recruit
in order to stimulate alumni donations—so the best athletes
often bypass higher education in order to take advantage of
professional sports offers. And until they were stopped by
the antitrust authorities, the Ivy League schools colluded
to limit competition for the best students, by agreeing not
to award scholarships on the basis of merit rather than of
need—much as if business firms agreed not to give discounts
to their best customers.
Major universities have become hundred-million-dollar
enterprises, and they behave accordingly and are managed accordingly.
Gone are the days when a university president was a retired
scholar of note. Now presidents are former provosts (those
that are not former Secretaries of the Treasury) and provosts
are former deans, climbing the promotion ladder of academic
The professionalization of the university
is part of a broader trend, first identified by the German
sociologist Max Weber, toward bringing an ever-greater range
of human activities under the direction of rational principles.
Almost everything nowadays is “rationalized”:
businesslike, rule-bound, disenchanted. The loss of enchantment—of
idealistic, romantic, charismatic, or otherwise “primitive”
or unrealistic methods of coordinating human endeavor—is
the source of incessant diatribes against the university’s
loss of soul.
The loss is real, but we should not overlook
the gains, which include wider access to higher education,
the dismantling of many discriminatory and archaic practices,
and increased breadth and sophistication in many fields of
research. The university sector has modernized; but modernity
comes with a price.
A. Posner is a judge of the U.S. Court of Appeals for the
Seventh Circuit and a senior lecturer at the University of
Chicago Law School. His most recent book is Public Intellectuals:
A Study of Decline (2001).