Innovation and Privatization

By Richard Vedder

For years, traditional universities have grumbled about the for-profit institutions that are rapidly growing (although enrollment growth is now slowing down) and have been taking market share from the not-for-profits. For example, the University of Phoenix has gone from something like 50,000 students in the late 1990s to around 300,000 today.

Rather than complain about them, B. Joseph White, president of the University of Illinois, has decided to join them. With campuses in Urbana-Champaign, Chicago and Springfield, Illinois is clearly the flagship university in the state. Now it wants to open a fourth campus, a virtual site that will be a "Global Campus." Most interestingly, the U of I wants to run this operation on a for-profit basis, and it is out to raise an initial $15 to $30 million to get the project going in a big way.

On the whole, I admire this effort. It plans to use modern technology to serve students not only in Illinois, but around the world. It plans to ask taxpayers for nothing to fund the effort. It is a recognition that the for-profit model can and does work well --often far more efficiently than the traditional, bureaucratic, less competitive, model that dominates American higher education. Joe White (who is an impressive man) is to be commended for this move, as are the Trustees of the University who no doubt had to approve this major departure from current practice.

Are there potential pitfalls? Of course. Whenever you commingle for-profit and not-for-profit missions under the same umbrella, you have some potential problems. Is this new venture going to be largely or completely owned by the U of I, is it merely going to be a major stockholder, or is it simply going to share in the revenues (in return for providing instructional services)? How can an institution supported by taxpayers and designed to serve a broader public purpose also serve individual stockholders interested in private gain? Is their some implicit public subsidization of this private venture? Can individuals on public salaries be working for private companies at the same time?These are all good questions that will be answered, hopefully in a manner that does not embroil the university in scandal or controversy.

The U. of I. is taking a step already well advanced among the flagship state universities: privatization. Already, parts of the University of Virginia have, in effect, gone private. It has been openly talked about in other states. The University of Colorado, for example, once discussed the option of moving away from being a state supported institution. As state support as a percent of budgets declines, major universities might well consider going private --sacrificing some income in the short run in order to gain complete freedom to pursue whatever policies they want. An idea that both President James Garland of Miami University and I have supported is to accelerate this process by converting state appropriations to institutions into vouchers for residents to use at the college of their choice.

While Joe White is not yet ready to give up public support for his fine university, his new initiaitve is a bold innovation that moves traditional universities more into the hurly burly -- and efficiency --of the competitive marketplace.