Over the past two decades, American universities have created reasons to spend more and raise large donations, without end. What are the second-order effects of this increase in fundraising activity?
American universities remain highly sought after for both American and international students. The trends over the last few decades include a larger population now attending college (both in total numbers and percentage of population) with lower acceptance rates (partly driven by the increased number of applications per applicant). These two trends continue in spite of greatly increased tuition.
Most of the cost of university tuition is not the education. That’s why the fundraising trend is even more interesting. I haven’t found an authoritative source on this but the cost of the pure education piece of university tuition (larger than just faculty) seems to be estimated at somewhere between 17% to 25%, depending on the institution. Faculty salaries are pretty flat over the past few decades and more faculty are now hired on a part-time basis in order to keep costs down. There has, however, been a large increase in the number of university administrative jobs. Throughout all of this, tuition increases and more students going to university mean that Americans hold a total of $1.5 trillion in student debt today ($34K each on average). That number is twice what it was 10 years ago (in adjusted dollar terms).
More American universities have joined the funding arms race and at funding goals never before seen. The top 20 US universities raised over $12B in 2017 (28% of the total $43B raised that year).
Once started, this arms race is unavoidable. Any major university must join in or be left behind, until the model changes. What could the unintended consequences of the funding arms race be?
While the arms race term comes from military history (US and USSR during the Cold War), there are many other situations in which arms racing is seen. I’m going to focus on second-order effects here, especially ethical violations, rather than pure competition-related scenarios. Here are a few of them.
- Elicit performance enhancement in elite sports. Especially winner-take-all scenarios involving small numbers of athletes. The extreme ones are those where a single large event is only held annually or less often, for example Tour de France and the Olympics. Higher stakes means that it becomes worth it for some to violate the rules, take performance enhancing drugs, and risk fines or an outright ban. We don’t do drug tests for low-stakes amateur sports because it’s not worth the cost of the tests and it’s not worth cheating.
- Ethical violations in business competition. Especially among undifferentiated suppliers, like Uber and Lyft (they both get you from point A to B and at similar price and speed). Does intense competition enable ethical violations to exist for longer?
“There is only one ethics, one set of rules of morality, one code: That of individual behavior in which the same rules apply to everyone alike.” — Peter Drucker
A Different Problem Than Expensive Tuition
More and more, students ask me whether $250K for four years of college is worth it. It’s easy to say yes or no based on opinion (I have a growing number of examples where it is not worth it). So how would you answer the question without relying on opinion?
- It’s worth it because there are more people willing to pay than there are spots. That’s supply and demand. No one is forced to go to college, although if you believe that college is a pathway to success (which is still largely the case), then not going is to put yourself at a disadvantage.
- It’s worth it if you think that the things universities provide are worth it. It’s not worth it if you think you could create a similar environment for a fraction of the cost (which is increasingly possible).
- It’s not worth it because the education provided is also available for free or nearly free online or at your public library. It’s available for a fraction of the cost at cheaper community colleges (though perhaps not at the same level). There isn’t much to disagree with here, as long as you know that online education still has many gaps in quality delivered.
- It’s not worth it if you think tuition is paid for the education alone. It is worth it if you think tuition is for education, community, experience, enjoyment, which you believe should cost more than the education itself.
- It’s worth / not worth it because of signaling. Robin Hanson and Bryan Caplan discuss this at length. Summary: if you can sit through years of boring classes (not mine obviously), then you can sit through years of boring work. You’re a good hire. Credentials have value and they are different than the value of learning.
- It’s not worth it because the true cost is masked by student loans. Was property during the housing bubble worth it because easy loans made it possible to buy?
Will Perpetual Fundraising Increase Ethical Violations?
Consider that fundraising is tough, there are limited opportunities for it, and people who donate large sums to universities include those who are known for their immodesty. Those who can raise large donor gifts — whether university staff, faculty, or administration — are in high demand by universities. When such a rainmaker commits an ethical violation — either because of something they do or by something they avoid doing — will overseers sometimes turn a blind eye or grant the individuals extra time to address it? Yes. Dollars enable bad behavior to continue longer than it would otherwise.
Now that universities are in perpetual fundraising mode, expect more ethical transgressions. Decision trees are being drawn behind closed doors to weigh the risk of ethical discovery versus funding income.
To quote a now quaint article from 2017: “A healthy board is going to ask itself: ‘Have we participated in the creation of a culture where the most egregious ethical lapses are ignored because the money is coming in?’”
What can be done to avoid this second-order effect? Increase the number of people who donate, but put a maximum on the gift size. This potential change will not happen as long as the fundraising arms race continues.