International Higher Education, Spring 2003

Why the United States Will Not Be a Market for Foreign Higher Education Products: A Case against GATS

The United States will not be a major export market for higher education products and services from other countries. Rather, the United States is a major exporter of education--from standardized tests such as the Graduate Record Exam to U.S.-style management education--and it benefits tremendously from the 547,000 students from other countries attending higher education institutions in the United States. It is estimated that foreign students contribute $11 billion to the U.S. economy--making higher education the nation’s fifth-largest service export. Worldwide, the OECD estimates that the market for educational services exceeds $30 billion, very likely an underestimation. Free trade advocates and the for-profit education sector in the United States, along with similar groups in some other rich countries, have been advocating that the world education market be opened up completely and regulated by the new General Agreement on Trade in Services (GATS) of the World Trade Organization. GATS would guarantee that markets in educational services (including offering postsecondary degrees and certificates, testing and evaluation, on-line educational programs, and many others), be open to exporters and importers without much restriction among the countries signing on to the protocols. The details are now being debated within the WTO.

It is worth looking realistically at the prospects for educational "free trade." The fact is that the United States will remain a major beneficiary, and that, even with completely open markets, providers in other countries would have little scope to make major inroads into the huge U.S. postsecondary education market. The argument here is that furthering opening the world market for educational products and services will benefit the United States by facilitating making exports while other countries will continue to have little potential for penetrating the well-developed and very complex American education market. The United States has a huge educational advantage at the postsecondary level. Not only is it by far the largest academic system in the world, but it is widely perceived as being the best. It is highly unusual for a country to claim both the mass market and the elite market, but in higher education this is the case. Further, the United States has advantages not only in its traditional colleges and universities but also in the ancillary education markets such as testing, specialized training, the control of knowledge networks (such as Lexus-Nexus), and others.

Elements of Advantage
The American higher education system is not only large, it is also diverse and efficient. There are educational providers serving every type and level of study--from prestigious research-based graduate schools to community colleges. Specialized trade schools provide training to meet specific needs, from computer technicians to architectural design. Few niche markets exist in the United States for foreign institutions to serve. Further, with few exceptions, there is no shortage of places in the American system for students. While the competition is fierce for the top undergraduate colleges and universities, and for admission to the best medical, law, and business schools, qualified students can gain admission to an institution in their field of interest--even if not necessarily at top-ranked institutions. Interestingly, in those few fields where capacity is limited in the United States, such as medical education, Americans who cannot gain entry at home go abroad to study. Foreign medical schools have not, however, entered the U.S. market. It is unlikely that foreign providers will be able to succeed in penetrating this large and diverse educational market.

Despite domestic criticism of the inefficiency of American academe, in fact U.S. colleges and universities are both efficient and market-savvy. They tend to be nimble in figuring out their niche in the system and in offering programs that will appeal to their particular audience. When interests shift, so, too, do institutional priorities. Most American academic institutions, public and private, are dependent on enrollments to survive and prosper, and thus they have learned how to locate students. The academic system is so diversified that institutions exist in specific markets--Harvard does not compete with the University of Massachusetts and could be described as bring in a different universe from Lesley University, which is located just across the street in Cambridge. Foreign institutions would have a very difficult time operating in this diverse system, particularly given the challenge of adjusting to the constantly changing educational marketplace.

Americans happily buy automobiles made in other countries, but they do not like foreign educational products. While most of the half million foreign students in the United States are studying for degrees, few of the 143,000 American students who go overseas are studying for degrees--they typically spend a semester or even less abroad. Foreign universities would not find a receptive audience among American students. They would have to demonstrate they offer a quality product like Honda or a prestigious name brand like BMW. The fact is that American academic institutions are the name brands worldwide. Not since Americans went to Germany more than a century ago to study for the doctorate, before the Ph.D. was offered in the United States, have Americans been lured abroad.

The English language also helps to ensure American academic dominance. English is the world language of science and scholarship, and English is increasingly the language of instruction overseas. While there is a market for education in English in many countries, there is no market in America for education in other languages.

Entering the U.S. higher education market would be very expensive for foreign providers. Local institutions generally have good facilities, and foreign schools would need to make major investments in facilities, marketing, staffing, and the like. Few local institutions in the United States would see an advantage in partnering with foreign schools to set up joint programs. The Open University, a highly respected British institution using distance technologies and related nontraditional instructional techniques recently entered the U.S. higher education market--despite major investment it failed and has closed its American operations. This is an example of the problems of successfully entering the U.S. market.

A Free Market That is Not Free
For these and other reasons it is unlikely the foreign providers will be successful in the United States. Thus, the further opening of higher education markets worldwide will help U.S. institutions without any reciprocal direct benefit to other countries. American institutions already have advantages in overseas markets, advantages that further liberalization will only reinforce. Other countries should not make the mistake of thinking that by legislating free trade in education through GATS they would get into the U.S. market. The only outcome will be to permit increasingly aggressive American educational providers greater access to foreign markets.