Public funds are hard to replace, even in the US

‘Going private’ is no financial panacea, say Barry Glassner and Morton Schapiro

September 11, 2014

UK universities hear that all they need do to build a private Utopia is copy their US cousins and raise money. If only it were that easy

As direct state support for universities in the UK has dwindled, strategists have whispered one word in the ears of vice-chancellors: privatise.

It’s something that university leaders in the US have been familiar with for years, and as a recent article in these pages (“Student finance: the lessons we must learn from American history”, 21 August) noted, there are lessons to be learned from the American experience.

In recent decades, US state governments have repeatedly cut their allocation to higher education. James Duderstadt, president of the University of Michigan from 1988 to 1996, quipped that during his tenure, Michigan’s Ann Arbor campus went from being state-supported, to state-assisted, to simply state-located. And that was before the financial crisis.

But what does “going private” actually involve? It means turning to alternative funding sources: tuition fees; government and corporate support for research; income generated by technological transfer; smarter use of the campus estate; and philanthropy, which is seen by some as a panacea.

Of course there is no panacea, and each of these potential sources of income is complex.

Consider tuition fees. This is the main source of income for most US universities, and institutions often set the “sticker price” as high as possible, then allocate financial aid on the basis of need and, increasingly, merit.

The result is that private institutions spend considerably more per student than they receive – even from students who pay full fare. And when public institutions began to charge higher fees (around the time of Duderstadt’s term), they struggled to match the private institutions’ policies of tying tuition charges to family income – an essential safeguard to avoid university becoming a bastion of privilege.

Funding for research is another area of significant revenue for the most prestigious public and private universities, but the imperative to maximise the return on investment means that the majority of funding is rather narrowly distributed among the research elite.

As for revenues realised from tech transfer, we all hope for a home run, but few of us get one.

When you do hit the ball out of the park (as Northwestern University did with the drug Lyrica, earning the university its largest payday in history), it is transformative. But it’s foolish for universities to count on this, as remarkable successes happen all too rarely.

For a smaller institution, a more realistic place to look for private income is the estate itself. Although the campus of Lewis & Clark College in Oregon is frequently listed as one of the most beautiful in the country, until recently it was largely unoccupied from mid-May until September. This summer, the place has been buzzing with conferences, weddings and other events. This generates income, but it also comes with costs, for things such as staffing and upkeep.

That leaves us with fundraising. UK universities have long been told that all they have to do to build a private Utopia is to copy their US cousins and raise money. If only it were that easy.

Most public universities in the US have struggled to replicate the success of private institutions with long traditions of giving. When you enrol at Northwestern or Lewis & Clark today, you know that you’ll be expected to support your alma mater financially after you graduate. But for many institutions, that is only a recent expectation. Fortunately, the US tax system encourages it. Despite that, for even the greatest of the public universities, philanthropic income is a fraction of that enjoyed by the top liberal arts colleges and the private research elite.

The truth is that replacing government funding hasn’t been an easy task in the US, and we suspect that it will be even more difficult in the UK, where there isn’t a large and successful private not-for-profit higher education sector leading the way. With small steps, it is possible to work to change revenue streams. But in the meantime, don’t stop lobbying for state support. And take it from us: merely wishing for the “good ole days” doesn’t bring them back.

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