TCS Daily

The World's Nicest Holding Pen

By Arnold Kling - September 15, 2003 12:00 AM

"Because maybe college isn't the be-all and end-all that parents make it out to be. You know, I mean, maybe once you get past the rhetoric of all these great books that nobody reads, college is basically just a holding pen for 18- to 22-year-olds."
Dawson ("Future Tense," episode #404, "Dawson's Creek")


College tuitions have increased at a rate of 2 or 3 percent more than general inflation over the past thirty years, according to Cornell University's Ron Ehrenberg. This means that the real cost of going to college has nearly doubled in that span.


When a price increases by this magnitude, it is important not to lose track of the law of supply and demand. A clear implication of basic economics is that it is impossible to explain the increase in college costs by looking at only one factor. This type of sustained price increase can only occur if both demand is rising and costs are going up. Without cost increases, higher demand would induce more supply, with only modest price changes. Without increased demand, cost increases would translate into a market with fewer consumers, rather than more consumers paying higher prices.


In this essay, I want to make two points. First, "college" is a different good than it was thirty years ago, when I was an undergraduate. Second, college is an information industry that operates by industrial-age methods.


The Rise of Aesthetics


Virginia Postrel's new book, The Substance of Style, argues that the aesthetic component of consumption has increased dramatically in recent years. I have yet to read the book, so I do not know whether it uses college as an example. However, having heard Postrel outline her book's thesis in a talk, I believe that it makes for a good fit.


Here are some of the ways in which the aesthetic aspect of college has changed in thirty years, without necessarily changing what used to be the substance of college:

·      Food. I can remember when the Swarthmore cafeteria only offered one choice at dinner, such as liver and onions, or veal cutlet (known as "vile cutlet"). If you did not like that, you got a slice of bread and smeared on some industrial peanut butter from a large vat. Nowadays, students get the types of food choices that one sees in suburban mall food courts.

·      Facilities. Fitness centers resemble expensive health clubs. The University of Maryland's performing arts center is as luxurious as the Kennedy Center. Swarthmore has a magnificent auditorium that seats several hundred -- and is almost always empty at a college that prides itself on small classes.

·      Ethnic solidarity. Postrel argues that consumers use aesthetics to express their identity. Her bumper-sticker phrase that describes the identity-driven motive for consumption is, "I like that. I'm like that." This is very evident on college campuses, where there are special buildings for the African-American student union, for Jewish students, and for other segments. Ethnic-group clubs are the most thriving student organizations on campus. One of my academic friends wryly notes that "there is a dean for all three genders, for each ethnic group, and for every intersecting combination." Entire academic departments, such as Black Studies or Women's Studies, have emerged to serve no purpose other than "I like that. I'm like that."

·      Professional sports. The University of Maryland cannot provide housing for all of the students who would like to live on campus. However, it was able to afford a new stadium and a new arena for its football and basketball teams.

·      Urban settings. Students want access to clubs, restaurants, and a variety of entertainment. New York University and Boston University are brimming with applicants, while small midwestern colleges are finding themselves at a competitive disadvantage.

These aesthetic values were not forced onto college students unwillingly. On the contrary, colleges that are deficient in aesthetics pay a price in terms of lower application rates. If college is a holding pen, then it is populated by 18- to 22-year-olds who insist that it should be a pleasant, comfortable, and entertaining one.

I am not trying to say that the college experience ought to revert to some mythical past in which students experienced a monastic existence. Granted, I have strong philistine tendencies. But rather than make a value judgment, my point is that college represents a different bundle of services than it did thirty years ago, and part of where the increase in tuition goes is to pay for this rise in aesthetics.

Industrial-Strength Education

Education is at the center of the information age, and it is a driving force in economic growth. The information age is characterized by economies of scale, with diseconomies of scope. Ironically, college education is stuck in some industrial-era habits.

To take advantage of economies of scale, information-age companies must make their products inter-operate. Cell phone calls have to reach people with different providers. Computer software companies must go as far as they can to make their products inter-operable without eliminating proprietary advantages altogether. In the 1990's, Microsoft thrived because its competitors failed to provide the level of inter-operability with third-party hardware and software that the Evil Empire delivered. The Internet took off because its protocols provide inter-operability.

Colleges are not inter-operable. My daughter's calculus course at the University of Rochester could not be used to meet the math requirement at the University of Maryland. You would think that she was trying to repair a General Motors car with a Ford part. In higher education, inter-operability actually has declined in the past thirty years. When I was in college, it was relatively easy to transfer and stay on track to graduate in four years. Now, doing so can be difficult or even impossible.

If colleges pursued inter-operability, then courses would be less location-dependent. If freshman economics is going to be taught in large lecture format, then instead of 20 universities each putting a professor in front of 250 students, a single lecture could be broadcast to all 5000 students. My daughter's economic class was given by that distinguished lecturer, A. Warm Body, who seems to wind up teaching the majority of courses nowadays. With modern communication technology, this is inexcusable.

To reduce diseconomies of scope, colleges have to limit their course offerings. A college cannot offer a large variety of disciplines, sub-disciplines, and cross-disciplines in a cost-effective manner. Specialization is inevitable. This increases the value of inter-operability. If students can construct special majors or take special courses by taking advantages of resources at other institutions, that will be more cost-effective than trying to have every college be all things to all students.

Another key to avoiding diseconomies of scope is the ability to let go of poorly-performing professors and uncompetitive departments. The information age rewards dynamic excellence, not stable mediocrity.

The sectors of our economy that are growing most rapidly are characterized by the highest rate of failure. Economic growth is a process of trial-and-error learning. If errors are not corrected and failures are not quickly shut down, then experiments become too costly to conduct. If most new businesses fail, then most new academic departments should fail, also. Without a process for quick failure, institutions have to be somewhat reluctant to create new departments.

Jack Welch of General Electric reportedly decreed that if a division of GE was not in the top three in its market, then that division would be sold. No such ruthlessness exists in academia. Mediocrity and failure are tolerated indefinitely.

A Future of Outsourcing?

Colleges today are in a position to continue to increase tuition charges. They have successfully met the demand for the aesthetic qualities desired by parents and students. They have achieved market dominance by becoming highly attractive holding pens.

On the other hand, the ability of college to provide educational substance at reasonable cost is diminishing. To me, this suggests that in the future colleges will turn increasingly to outsourcing. Rather than rely on an internally-selected faculty, a college might turn to a specialized supplier. That supplier might provide instructional videos and software in addition to live professors. Rather than enjoy the privilege of institutional tenure, professors might sell their lecture time through agencies that book popular speakers.

In the information age, many manufacturing companies have become supply-chain integrators. You might hire consultants to design a product, go to China to manufacture it, hire a logistics specialist to ship it, and rely on a value-added reseller to market it. I could see colleges going down the same path. A generation from now, the most successful colleges may be the ones that provide the best aesthetics, while outsourcing the actual function of education.


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