In the June issue of The Atlantic Monthly, Richard A. Posner postulates that the differences between businesses and non-profit universities are less than what most people think.* He says, "The close economic similarities between the business and university sectors are often obscured by the fact that university faculties are dense with critics of capitalism." He points out that, like businesses, "our state universities compete vigorously with one another and with private universities; moreover, increasingly they are only quasi-public." He uses the University of Illinois at Urbana-Champaign as an example, saying that it receives less than a third of its funding from the state. Posner points out that, "What 'not-for-profit' means in the university world is that a university's surplus of revenue over expenses does not go to shareholders but is instead added to endowment or invested in new projects, much as at a for-profit firm that doesn't pay dividends." He goes on to say that universities treat their programs more or less as a commodity by excluding students who are likely to be low performers because the quality of students at a particular institution is "a signal of worth to potential employers." The decision to exclude slower students also has another aspect that makes it more like a business decision: professors would have to be paid more to teach them. Universities also commoditize (to borrow a term from David Noble) their degrees by attracting "professorial stars." These nationally known professors lend prestige to a university and its programs. Posner explains the fallout from this practice as follows: The result is a great variance in faculty salaries both among and within universities--indeed, often within departments. One thing the stars negotiate for is a reduced teaching load. The slack is picked up by poorly paid graduate students and by non-tenure-track adjuncts with low salaries and no fringe benefits. Some of the stars do little teaching, and some do little research as well, instead moonlighting as "public intellectuals" commenting in the popular media on the events of the day. This commentary is often uninformed, so one might think that a university would fear damage to its trademark; but most universities treasure their celebrity academics. Celebrity advertises the university. And students go to college not merely to learn but also to have a good time. The celebrity professor is an entertainer (though purists will question the appropriateness of tax exemptions for universities that double as entertainment companies). Posner does not lament the "professionalization" of universities. He postulates that it is part of trend "toward bringing an ever greater range of human activities under the direction of rational principles." He points out that critics of this trend blame it for higher education's "loss of soul." Posner, on the other hand, says that the loss of "enchantment--of idealistic, romantic, charismatic...or otherwise unrealistic methods of coordinating human behavior" comes with some real gains, "which include wider access to higher education, the dismantling of many discriminatory and archaic practices, and increased breadth and sophistication in many fields of research." Tracy<>< *Richard A. Posner; "The University as Business." The Atlantic Monthly; June 2002; Boston; p. 21. [Not yet available online.] Posner is a judge of the U.S. Court of Appeals for the the Seventh Circuit and a senior lecturer at the University of Chicago Law School. His most recent book is Public Intellectuals: A Study of Decline .
I've been saying for years that universities are run like any other businesses, that their not-for-profit statuses are a matter of taxation and accounting, not operations. They have to draw customers (students and companies), make sales (tuition and other funding), operate within budgetary guidelines, increase revenues, etc. We've seen example after example of schools lopping off unprofitable ventures (lots to do with DL, sad to say), including Columbia University and Open University. Also, many are resorting to different staffing paradigms, opening their doors to nontraditional students, and making other market adjustments. This seems to be true for public and private universities alike. And with no discernable difference in price between for-profits and private not-for-profits (and, for that matter, the public schools, who are being subsidized by taxpayers), I wonder if there is any real difference between them at all.
