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INTERNATIONAL HIGHER EDUCATION

US Privatization, Accountability, and Market-Based State Policy

Peter Eckel, Lara Couturier, and Dao Luu
Peter Eckel is associate director for institutional initiatives, Center for Institutional and International Initiatives, American Council on Education. Address: 1 Dupont Circle, Washington, DC 20036, USA. E-mail: peter_eckel@ace.nche.edu. Lara Couturier is the former research director of the Futures Project and now an independent consultant. Dao Luu was an intern at the American Council on Education.

In the United States, the relationship between state governments and public colleges and universities is being redefined with new notions of autonomy and accountability and highly market-driven funding policies (often referred to as “privatization”) as the centerpieces. These new patterns have implications for both public and independent colleges and universities. The American Council on Education convened three roundtable conversations of presidents and other higher education leaders to explore the implications of this changing relationship. The following points emerged from those discussions and appear in the paper, “Peering around the Bend: The Leadership Challenges of Privatization, Accountability and Market-based State Policy.”

Business is not “as usual.” Situations and strategies unthinkable just a few years ago are becoming increasingly commonplace. For instance, a few business and law schools at public institutions are moving toward privatization, distancing themselves from both the states and their parent universities. Public universities are seeking “enterprise status” to become quasipublic institutions. One southern governor offered deals to his public institutions to privatize, removing them from state authority and state funding.

Innovative (but untested) policies are emerging. Policies labeled as decentralization, tuition deregulation, vouchers, public corporations, state enterprises, charter colleges, and state compacts are appearing, reflecting the changing perception of the role and function of public higher education. These assumptions, long based on the premise that higher education is a public good, are being replaced by a public belief of higher education as primarily a private individual good. However, the policy labels and their definitions vary, making it difficult to understand what is truly happening.

Higher education leaders must reconcile two competing policy tensions. One set of policies encourages expansion and rising expectations of higher education’s many services to society. In many states, public officials see higher education playing a central role in addressing state economic and social needs, in addition to traditional education and research roles. The other set of policies encourage contraction and fiscal restraint. State support is not expanding commensurate with institutional needs, and in some states it is even declining. Institutional leaders find themselves in difficult situations because they cannot respond adequately to both demands concurrently.

“Privatization” of public higher education is a solution garnering significant attention, and it most likely is the wrong strategy. Despite recent high-profile examples, becoming private (in this context understood as a reliance on private revenue sources rather than public funds) is not a feasible option for most institutions. One public research university president estimated that his institution would need to increase its endowment by $7 billion to replace lost state funds. Public higher education is also reluctant to sever its historic ties to the state, as doing so sends unfavorable messages to policymakers and the public that the institution no longer views itself as a public asset. Instead, a handful of public institutions are striking middle ground through a type of hybrid public/independent status such as public corporations found in Maryland and state enterprises found in Colorado.

The historic distinctions within American higher education—public and private (not for profit)—are being challenged. In many ways public institutions are acting like private ones and vise versa. Whereas public institutions have previously received a majority of their funding from the state, these institutions now increasingly rely on private revenue. The Chronicle of Higher Education, for example, reported that of the 22 institutions engaged in fund-raising campaigns in excess of $1 billion, 15 are public institutions. Private institutions, on the other hand, are increasingly shaping state policy to their benefit, particularly regarding access to state financial-aid programs and public capital funding. These financial and policy changes are reducing a number of factors that once highlighted important differences and creating new key distinctions among institutions, such as those based on economic and prestige indicators. American higher education may be seeing a new set of meaningful classifications emerge, such as “public-independent” or “private-dependent,” indicating historical source of control combined with the level of financial dependence on public resources.

The competition stiffens. While American higher education has traditionally been competitive and market driven, emerging state market–based policies are further intensifying the competition. Public and independent institutions of all types and sizes are facing increased market pressures. Those that are small and focused on undergraduate education often find they must play by the same rules as large diversified research institutions that offer a range of undergraduate, graduate, and professional programs. Market-based policies will clearly favor some types of institutions over others by diminishing the role of state support in higher education and will advantage entrepreneurial or historically self-reliant institutions. The increased competition may be creating more problems than it is solving. Entrepreneurial or commercial activities may provide the additional resources individual institutions need to fulfill their public purpose. However, when all institutions pursue the same set of competitive strategies, no one gains an advantage. Institutions run harder to stay in place. The cumulative effect of competition may also work against important social objectives such as affordability and access. Institutional leaders at both public and independent institutions face the difficult task of striking a balance between public or historic objectives and the pressures of the competitive marketplace, which may not be wholly compatible.

Strategies for Moving Forward
Some potential strategies for university leaders to address these difficult challenges are beginning to emerge. First, institutions should connect explicitly and intentionally to state needs. Colleges and universities must demonstrate through action that they understand the fiscal and social problems their states and regions face and that they have the capacity to contribute needed solutions. Second, leaders should intensify meaningful cooperation with other colleges and universities and with outside groups. Beyond collaboration in research and back-office functions, institutional leaders also can work collaboratively to shape public policy more effectively. Finding ways to build strong ties with the business community, alumni, parents, and leaders of civic, philanthropic, and nonprofit groups is an important policy strategy. Third, leaders need to chose the right language to reframe the issues. The language that higher education is accustomed to using when describing key policy issues, such as “autonomy,” may be counterproductive. For example, higher education might be better served by talking about “more flexibility”—freedom from counterproductive regulations in managing its institutions—rather than about “increased autonomy”—with its implicit overtones of lessening public stewardship. Finally, campus leaders and policymakers need to be mindful of adopting others’ solutions too quickly. It is tempting to adopt strategies that seem to be working elsewhere; however, state context matters. What’s happening in one state may not be the best solution for another state. For example, the state fiscal framework and the mix of public and private institutions in each state shape available options.

Conclusion
Higher education leaders face the difficult challenge of balancing immediate concerns with the need to position their institutions and the higher education sector for an uncertain future. Questions such as, how does one balance the pursuit of public purposes with the demands of a competitive marketplace? or how can higher education’s key values be articulated and reaffirmed as steadfast priorities given the new environment and the constantly changing nature of public policy? will need to be addressed if American higher education is to preserve the best of its traditions and capitalize on the opportunities that lie before it.

[Online] Available: http://www.bc.edu/bc_org/avp/soe/cihe/newsletter/Number41/p12_Eckel_Couturier_Luu.htm