The University as Business
A 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 investing in common 1
stock. I am skeptical. A business firm chooses the price that maximizes
its net revenues, irrespective fluctuations in income; and increasingly the 2
outlook of universities in the United States is indistinguishable from those of 3
business firms. The rise in tuitions mayreflect the fact economic uncertainty 4
increases the demand for education. The biggest cost of being
in the school is foregoing income from a job (this isprimarily a factor in 5
graduate and professional-school tuition); the poor one' s job prospects, 6
the more sense it makes to reallocate time from the job market to education,
in order to make oneself more marketable. The ways which universities make themselves attractive to students 7
include soft majors, student evaluations of teachers, giving students
a governance role, and eliminate required courses. 8
Sky-high tuitions have caused universities to regard their students as
customers. Just as business firms sometimes collude to shorten the 9
rigors of competition, universities collude to minimize the cost to them of the
athletes whom they recruit in order to stimulate alumni donations, so the best
athletes now often bypass higher education in order to obtain salaries earlier
from professional teams. 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 purely
of need-just like business firms agreeing not to give discounts on their best 10
customer.