More on the Case for the Public University as a Public Option

May 3, 2012Mike Konczal

Josh Barro has an editorial at the Daily, Making U. Pay, about the college affordability cost crisis.  Barro:

What the University of Florida (along with every other American college and university) really needs is cost discipline...Colleges still need to employ a lot of highly skilled workers, and college costs are tied to their wages, which rise faster than inflation...colleges and universities have failed to mitigate this phenomenon. For example, over the last few decades, the typical public four-year college has seen a sharp expansion of its support and managerial staff — from 5.5 per 100 students in 1987 to 7.5 per 100 in 2007...

Unfortunately, consumers do not have the necessary incentives to impose cost discipline in the market. The perceived necessity of a college degree to find a middle-class job gives students few options but to pay up...State legislatures, too, should put pressure on public colleges and universities not to increase staffing relative to student populations, and to respond to budgetary strains with cost control instead of tuition hikes or reductions in enrollment...Colleges and universities should take greater advantage of technological advances that could finally improve productivity in the education sector, such as distance learning and video instruction...

These reforms, different though they are, have one aim in common: creating incentives for all actors in the market to make higher education not just cheaper, but more efficient. That may sound unromantic, but it’s necessary to maintain educational opportunity for all.

I agree with most of the piece.  Barro doesn't take his argument in this direction, but, with the risk of dragging Josh into a social democratic quicksand pit, it's useful to reframe this discussion as one of reclaiming a "public option" in higher education.  Much of the discussion on the technical efficiency of the public provisioning of merit goods focuses on scale and compulsion, which is relevant for higher education, but there's also advantages in cost control and baseline quality.  By holding down tuition, the public university can act as a check on runaway price inflation in the private university market.  Considerations about dynamic efficiency - improvements in quality - seem not as relevant here in the formal education market: private sector tuition is exploding as fast as public tuition.  If we are concerned that boosting demand through price subsidies is captured by incumbent suppliers, then boosting access through reducing tuition on public universities should negate those rents.

Dynamic efficency is very important when it comes to the online and future sectors of higher education.  However public options help here as well: having a strong baseline of quality is important for vetting the actual efficiency improvements of these new institutions.  Public options solve a certain type of informational problem.  If prices are lowered, it can be difficult for the government and citizens to tell if it is because market innovations have allowed for lower cost production or because they are providing services of a cheaper quality.  The private market is more incentivized to provide new benefit options and offer greater flexibility when they have to compete against a baseline product.  This creates the incentives mentioned above, but these incentives work more towards actual quality improvements instead of rent-seeking when they are competing against a public baseline.  We know for-profit schools are a bad deal because they statistically underperform public community colleges while having larger debt burdens.  Online education at California looks to have equally high drop-out rates. This was part of the important intellectual firepower over the debate on "vanilla products" that erupted during the early parts of Dodd-Frank, brought over to the education sector.

Tim Noah wondered to Matt Yglesias if we should impose cost controls on colleges; I think we should instead do what we know has worked - make sure a public option is available to all, and have a private market develop alongside it, filling in the efficiency gaps wherever they are.  I forgot to link to this, but Aaron Bady had a powerful defense of the California Master Plan, the mid-century public higher education model, when we did a bloggingheads a few weeks ago:

 

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