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.