Strengthening Constitutional Self-Government

No Left Turns

Higher education spending and economic growth

College presidents who make the case for increased state appropriations for their institutions often (probably always) argue that spending on education promotes economic growth and competitiveness. Well, this study, described here, pokes big holes in that argument. There turns out to be a negative correlation between state spending and economic growth. I’d love for someone more competent than I am to look at the equations; my impression is that the negative effect is pretty small. But it is negative.

Now, there can be all sorts of reasons for this. The authors, led by Richard K. Vedder (who wrote this book), argue that there’s an awful lot of college spending that doesn’t contribute directly to education and hence, perhaps, to productivity. All those aspects of college life that increasingly resemble resorts and country clubs--glitzy gyms, posh dorms, shopping mall-like student centers--certainly meet that description. (Of course, a market dominated by middle and upper middle class "consumers" can be said to "demand" these things. All too often, students and parents look at facilities as much as, if not more than, at the quality of the education.) Vedder and his associate also argue that growing administrative expenses (at least some of them devoted to nanny state-style activities, driven either by the proclivities of those of us in higher ed or by the demands of the proverbial helicopter parents) dirve up college costs without contributing to education.

Another set of reasons may have to do with the character of the states that spend relatively more or less on higher education. To the degree that economic growth is occurring above all in the Sunbelt, it’s occurring in places that, for the most part, don’t have a tradition of spending a lot on higher education. (That has changed somewhat in recent years, mostly for bad reasons. For example, virtually every state college in Georgia was relabeled a university. This institutional inflation certainly justifies more spending and hence more money pumped into the local economies, which is what the state reps who called for this sought. Vedder would surely regard this as a distortion of the marketplace.) The places that spend lots--Michigan, for example--may be in slow or no growth parts of the country. At the very least, it’s likely that factors other than spending on higher education--Vedder and his associates point to lower taxes; I’d add a generally business-friendly environment--swamp the effect of higher education spending (negative or positive) on economic growth.

One last point about the study, almost as a footnote: the most expensive part of higher education is research and graduate study. There’s plenty of anecdotal evidence that some of that research can be exploited economically. But it’s less clear that "the private sector" would be willing to fund it all on the assumption that some of it would pay off. Further, it’ of course also true that the "economic benefits" of graduate study turn out to be hard to capture for a particular state. People with Ph.D.’s move, perhaps from Michigan to Texas. States that spend a lot of money on higher education to some degree subsidize those that don’t, training a certain portion of the Ph.D.’s who staff the other states’ universities and research institutions.

For me, the bottom line is this: to the degree that studies like this one capture the attention of legislators and administrators, the effect on higher education ought to be good, Instead of talking about the economic benefits of education, we can discuss other goods education can provide--a literate, cultivated, and well-informed citizenry, for example. Of course, colleges and universities would have to provide it. And state legislators would have to care about it. I leave it to you, gentle readers, to decide whether that will ever happen.

Discussions - 5 Comments

An oldie but a goodie from Wilson Quarterly. (Copy and paste the link. The hot link function is on the fritz.)


http://phenomenologycenter.org/course/highered.htm

Joe wrote: "College presidents who make the case for increased state appropriations for their institutions often (probably always) argue that spending on education promotes economic growth and competitiveness."

I agree that's probably what they say when they try to make the case. But does it necessarily follow that they believe in their hearts the case they're making? I often wonder how much of higher education spending and investment is driven by a sense of pride and the pursuit of legacy. That, by the way, applies to college presidents who argue for the spending as well as lawmakers who grant it.

A negative correlation surprises me a little. A neutral correlation wouldn't have surprised me at all. A strong positive correlation would have led me to believe the study was baked to produce those results.

There is, as you state, too much mobility in our society to assume that $1 spent by Michigan on higher education accrues to Michigan down the road. Society as a whole, perhaps.

And I'd agree that because of how colleges spend that money there's probably not much direct contribution to economic growth and competitiveness. I read somewhere that more time is now spent writing and submitting grant requests than actually doing research.

I would think that economic growth and competitiveness is driven largely by how a region compares against others in terms of tax and regulator burden, as well as things like the physical proxity to supplies and markets and, finally, the availability of a suitable workforce. The suitability of the workforce has little to do with having a college degree. It's more a question of character and ambition; a good work ethic, a willingness to learn and do a good job, and a positive attitude. Those qualities are not necessarily provided by a university, regardless of the amount of state funding.

Joe wrote: "Instead of talking about the economic benefits of education, we can discuss other goods education can provide--a literate, cultivated, and well-informed citizenry, for example. Of course, colleges and universities would have to provide it. And state legislators would have to care about it. I leave it to you, gentle readers, to decide whether that will ever happen."


  • Colleges providing it: Nope.
  • State legistrators caring: Nope.

But I do agree with your basic premise that the true value higher education could provide -- but does not -- is as you say: "a literate, cultivated and well-informed citizenry."

Our real problem today is that, increasingly, nobody provides that. Not the home, not the church and not the schools.

My home is providing it.

JK: "My home is providing it."

Me: Point taken. I meant in the general sense. While many homes do in fact provide a healthy environment for the promotion of those attributes, many others do not. No personal offense intended.

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