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For Profit is the Origin and Future of Education

University Equations
For Profit is the Origin and Future of Education

Americans are willing to apply free market principles to many things, but they distrust for profit education. Is that harming our higher education system?

In spite of the protests of many, the Secretary of Education, Betsy DeVos, is announcing some all-in-all rather timid changes to the regulations of for-profit colleges. Two Obama-era rules that were claimed to hold these colleges better accountable are to be rescinded. Unfortunately, the protests are, at the very least, based on a lack of historical understanding of how higher education has come about, of how it evolves, and also of how a market economy and a prosperous society function. Mixed in is likely quite a bit of self-serving bias. Even so, we should not judge people too hard. Although the history of academia is well-documented, it is known by very few.

Both K12 education and higher education are in crisis in much of the Western world. With regard to US colleges, a much more pressing subject than the workings of for-profit colleges should be that 45 percent of those who go to college show no significant gains in learning after two years; 36 percent show no significant gains after four. In addition, to stop the analysis with just these depressing numbers is to be much too optimistic about the situation.

Firstly, these 36 percent have put themselves seriously in debt. Secondly, they have not earned an income for four years, and thirdly, they have not learned what they would have learned in the jobs they would have held. Maybe they had a good time on campus, but for at least 36 percent, going to college was far worse than useless. For another significant group of students, it was simply pointless. Therefore, to then turn around and create bureaucratic regulations for for-profit colleges is missing the big picture.

Two quotations come to mind, the first one by Paul Gauguin, in the Writings of a Savage: Courier’s words are still true: “What the State encourages languishes, what it protects dies.” The second one is from Battlestar Galactica: All of this has happened before and will happen again.

Before we turn to the historic processes, we should first note what is obvious to any half-decent salesman. The price of a product depends to only a small degree, or to no degree at all, on the cost of production; instead it depends on how much the customer is prepared to pay. When government provides or backs loans that increase the purchasing power of students, or are perceived to have this effect, the price of education will increase by almost identically the same amount. In the US, this increased price could for example have been spent on smaller classes, or on higher salaries for teaching staff. Instead, it turns out that some was spent on more luxurious facilities, but most went to a body, almost wholly foreign to education, the administrators.

How did science and learning originate? In Ancient Greece, seafarers needed to be able to navigate by the stars and astronomy and much of mathematics were invented by some extraordinary minds. These early scientists then lived off their teachings. To be able to do so, they had to have a reputation of excellence; they had to conduct research. The same was true for virtually every single great mind that we know of, in all branches of learning, including Plato and Aristotle.

Exceptions to this rule were for example already renowned medical doctors who gained employment as private contractors to city states, and other scientists who were wooed by rulers with great facilities, such as at the libraries of Alexandria and Pergamon. But then the Mediterranean was united under Rome, independent private financing largely disappeared, and most science died around 100 B.C.

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In Ancient China, during the period of the Warring States, Chinese science emerged about 500 B.C. and had its greatest flourishing. All of the great minds we know of worked in private practice. But China was united in 221 B.C., government intervened and science promptly died.

In the lands of Islam, during the height of its creative flourishing, 900-1050, there were hundreds of private schools and colleges. But wars (where the Crusades was an insignificant irritant) and government take-over killed science. The private schools were replaced by state-financed madrasahs.

Universities, as opposed to colleges (in the strict sense), or other forms of higher learning, are a European Medieval invention that began with the teaching of law in Bologna in Italy around 1090. It then evolved into what became the first university towards the end of the 12th century (according to some criteria for the definition of what exactly is a university, beating Paris by a small margin). The students in Bologna were mature and paid to be taught. A teacher actually had to deposit money to guarantee that he could pay any fines that the students might impose on him if he lacked in punctuality or if his performance was inadequate.

The second university was that of Paris. By 1110-20, clerics started the private teaching of theology and canonical law. As the students were younger than in Bologna, it was the teachers who led the organization of what became the university. By 1150, thousands of students from all over Europe flocked to Paris to pay good money for tuition.

The universities of Bologna, Paris and Oxford grew organically from the associations of students and masters. These organized themselves exactly like other professional bodies in the Middle Ages, i.e., in guilds, in “universal societies” (out of which the name university originated), for mutual protection and assistance. By so doing, they could better defend themselves alternatively against the local burghers, the local bishop, the king or the Pope, often by playing one against the other. Eventually, the universities were granted official recognition, but this came many decades after their actual creation. Hastings Rashdall’s trilogy on the subject, The Universities of Europe in the Middle Ages, is a fascinating read.

Mathematics in Medieval Europe was, to begin with, taught outside of the universities, in private schools with mainly merchants’ sons as the students. Arithmetic advanced greatly in Europe in the 13th to 15th centuries exclusively due to mathematicians in private practice. Financially, these mathematicians were very well-off upper middle class.

The private demand for knowledge in various subjects drove the demand for good teaching. Peter Abelard (1079-1142), maybe the greatest logician of the Middle Ages, and a tremendous teacher, along with many others, preferred to teach for money. But then, as now, the Santa Claus fable of education and public expenditure in general was firmly entrenched. The Church considered it immoral to charge for education. Therefore, gradually teachers, who were members of the clergy, came to be paid through stipends, paid in turn through taxes.

The result was not the “intellectual domestication” of the masters that the Church might have anticipated, but the end to innovation. Previously, the teachers had had to do what was necessary to keep their students if they wanted to make a living. Still, the 13th century witnessed great intellectual achievements in Paris, which, after all, was the period of Thomas Aquinas (1225-1274).

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Today, we continue to talk about universities according to the Bologna model and to the Paris model. In the Bologna model, the university only consists of the students. In the Paris model, it consists of both the students and the masters. But in none of these models did the species of the administrator feature.

The University of Paris had about 5-10,000 students in a town of about 200,000. But it originally rented all its facilities. Thus, when the university came in conflict with the city of Paris in 1228-29, the students and masters simply moved (the Great Dispersion) to other French cities and to Oxford. The university only returned once it was vindicated in 1231.

Then, as now, government (and the Church in those days) took taxes from everyone, to finance the higher education of a fraction of the population. Then, as now, government also sought control over academia. This was eventually achieved, and during the 14th and 15th centuries the universities gradually stopped being centers of learning and creativity. In the 16th century, the role of universities was taken over by private individuals and also academies.

The situation was far from uniform though, and the universities made a gradual comeback. Adam Smith recounts in 1776, in the Wealth of Nations, the world of difference between the creative hot-bead that was the University of Edinburgh, and the academic desert that was Oxford. At Oxford, the lecturers did not depend on their students; in modern terminology they had tenure. At Edinburgh, Smith himself received about half his money directly from the students.

But, some will say, there are and have been many great public universities. This is true. With the means at its disposal, it is possible for government to copy and streamline what has already been invented. As long as these institutions are kept in check by the competition from private rivals, they may be of extraordinarily high quality. But when the nominally private alternatives are heavily regulated, and partly, as they are today, financed by government, competition decreases, and academia begins to decay. This has happened before, and by the looks of it, it is now happening again.

So, what should Betsy DeVos and the Trump government do? If they really want to promote higher education and learning, they should restore the trial and error that is what drives true innovation and academic achievement. All involvement in higher education should simply cease. Abolishing government backing of student loans would put tremendous financial pressure on colleges. This should be combined with a studious neglect of their very existence. The faster failing colleges go bankrupt, the harder all of them have to compete to provide value for money to their students. As a side effect, the species of the administrator would have to mostly vanish.

But wouldn’t funding dry up? No. As Terence Kealey demonstrated in his The Economic Laws of Scientific Research, the less public money that goes into civilian research and higher education, the more money in total civilian research and higher education will receive. Schematically, if government spends 2 percent of GDP, all-private funding would be 2.5-3 percent.

Of course, in an all-private system, the academics would not all be the same people as they are today. Some would have to leave, some others would replace them, but all of academia would become much more vibrant, creative, and as many of us who work in the private sector can attest, a much more pleasant and rewarding place to work.


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Erik Lidström
About Erik Lidström 4 Articles
Erik Lidström is the author of the 2015 book "Education Unchained: What it takes to restore schools and learning”, recommended by "Choice" magazine. Erik holds an M.Sc. and a Ph.D. in physics from Uppsala University as well as an MBA from the Open University. After research at the ESRF in Grenoble, he moved to the software industry in 2000. He has worked in Britain, France, Sweden, and Morocco. A particular interest are complex social issues and development processes.
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