Thursday, September 21, 2006

Universities and Economic Development

By Richard Vedder

Last Sunday, three Ohio newspapers(the Cleveland Plain Dealer, Columbus Dispatch, and the Dayton Daily News) jointly ran several articles advocating more higher education funding, arguing this would help reverse that state's relative economic decline. Today, at lunch, I spoke at a Mackinac Center meeting in Lansing, Michigan, where many opinion-makers are making similar arguments. Michigan can work its way out of its doldrums, we are told, if it would just renew its historic major commitment to its public universities.

While I have written on this many times before, my position (that this argument is simply wrong) seems to be not only a minority view, but one that is considered almost treasonable by some of my higher education colleagues. Whenever state legislatures start accumulating some budget surpluses, the higher ed lobby is quick to call for new "investments" in higher education to stimulate the economy. It is considered tacky or worse for a member of the higher ed community to try to stop this effort.

It is true that college grads are on average more productive by far than high school ones, so it seems that increasing the proportion of college grads in the work force would raise productivity and incomes. Hence, some would argue, we should increase higher education funding.

Yet the evidence shows no positive relationship between state higher ed spending and economic growth -- indeed, the opposite is the case. Higher university spending, lower growth. Why? The evidence shows that higher appropriations do not translate into higher access. Only a minority of new appropriated funds are used to keep tuition charges down. While particpation in college is related positively to appropriation levels, it is an extremely weak relationship. Moreover, there seems to be no relationship between the more meaningful indicator, namely college graduation rates, and state government support for higher education.

Do new appropriations lure only a few new kids to college, and those new entrants are largely academically unqualified? (I suspect the answer is yes). Are large proportions of new appropriations used for non-academic purposes, including funding an overly large university bureaucracy, or for what economists call "economic rent", providing bigger pay raises for employees? (Again, the answer is yes). Does using budget surpluses to reduce tax burdens have more positive economic impact than increasing state spending on universities? These questions are seldom asked in the rush to "invest" new funds in the universities.

If increased appropriations are to be made, why not at least tie the receipt of incremental funds to university compliance with certain practices, like complete financial transparency, or requiring the schools to provide evidence of the amount of student learning occuring while in school (the "value added"), etc.?

States should be very wary of succumbing to the "new investments" argument, particularly in the absence of real university efforts to improve efficiency, accountability, and measurability of performance.

3 comments:

Butter Cup said...

Alternative thinking - how dare you! Another statistic I would like very much to see before increasing funding by the state - with the notion that increased funding will benefit MI is: How many graduates from MI universities actually end up taking jobs in MI. And isn't MI having an employment problem? See Ford Motor Company.

Anonymous said...

These are the guys that you think will reform the academy? From Think Progress,

A “scorching internal review”

of the Bush administration’s $1 billion/year reading program “says the Education Department ignored the law and ethical standards to steer money how it wanted.” The report says the program — described as the “jewel of No Child Left Behind” — is “beset by conflicts of interest and willful mismanagement” and “suggests the department broke the law by trying to dictate which curriculum schools must use.”

UPDATE: Rep. George Miller (D-CA), ranking member on the education committee, is outraged:

“Corrupt cronies at the Department of Education wasted taxpayer dollars on an inferior reading curriculum for kids that was developed by a company headed by a Bush friend and campaign contributor,” said Miller. “Instead of putting children first, they chose to put their cronies first. Enough is enough. President Bush and Secretary Spellings must take responsibility and do a wholesale housecleaning at the Education Department.”

“Everyone at the Department of Education who was involved in perpetrating this fraud on school districts should be fired — not suspended, not reassigned, not admonished, but fired.”

Butter Cup said...

After reading through your blog, I'm left wondering if your analysis might be subjective given the left wing disposition of your web site.

I do however respect your opinion, but I also disagree with it.