Today’s blog draws inspiration from Michael D. Smith’s perspective on higher education, as discussed in a recent episode of the podcast People I (Mostly) Admire, titled “Higher Education Is Broken. Can It Be Fixed?” . Btw, the podcast itself is part of the Freakonomics network, the academically inclined perspective is particularly sweetspot for an econ student.
This episode elucidates the systemic flaws plaguing the U.S. higher education system. One pov involves diving into the market power of colleges.
LEVITT: So let’s talk about that status quo. You argue that our current system of higher education is built on three scarcities. Can you explain what you mean by that?
SMITH: When we talk about market power, you get market power by being able to do something or controlling some sort of resource that your competitors don’t control or can’t do. And at least when I looked at that in the context of higher education, I think higher education power derives from being able to control access to the scarce seats in the classroom, access to the scarce faculty experts, and access to the valuable credentials that help you get good high paying jobs.
LEVITT: Let’s cover those one by one. You’re saying that there’s a scarcity of access to seats in the classroom. What do you mean by that?
SMITH: What I mean by that is — you know, my wife and I have had three kids apply to college, and if you type into Google almost any college’s name, the autofill will be “acceptance rate.” One of the key ways we measure quality is proportionally how few students get admitted. Controlling access to those scarce seats becomes a key source of power.
LEVITT: That makes perfect sense. Now, your second scarcity was the scarcity in instruction. What do you mean by that?
SMITH: What I mean by that is access to faculty experts. So in the book, I talk about my advisor, Eric Brynjolfsson, Catherine Tucker, Ed McFowland, Natalia Levina, and the point I make is: if you want to learn from Eric Brynjolfsson, you’ve got to get admitted to Stanford. And if you want to learn from Catherine Tucker, you’ve got to get admitted to M.I.T. And on down the line. And I think it’s the powerful universities who control access to those experts, however we define that.
LEVITT: That makes sense. So the faculty teach the students at the university primarily. They don’t teach the general public. If you want me to lecture to you, then you got to come to the University of Chicago. Okay. Now the third scarcity you mentioned is credentials. What do you mean by that?
SMITH: What I mean by that is controlling access to the really high value credential. And here I’m going to say university brand name — that how people are perceived in the job market, at least early in their career, is heavily dependent on the brand name of the university they graduated from. Getting a degree from the University of Chicago is going to get you a whole lot farther in the marketplace than University X.
LEVITT: I’m glad you said X. I wondered what university you were going to disparage.
SMITH: I’ve already pissed off enough people. I’m trying to minimize it as much as possible.
LEVITT: So the elite schools admit very few students. They have big name faculty that people would like to learn from, but can’t because they don’t go to that school. And then when you graduate with this degree, it gives you a big reward. And the bottom line of all of that is that universities have a ton of market power, especially the elite ones, and they charge really high sticker prices as a result of that. And in your own words, you described the current situation as financially and morally unsustainable. And that’s why you’ve written this book is because you think that higher education is completely and totally broken.
This market power is not only strong but persistent as well:
LEVITT: Arguably higher education has been the most stable industry in America over the last hundred years. I went back trying to find a ranking of the top schools. I found a ranking from 1910 and the top five schools in 1910, so 113 years ago, were Harvard, University of Chicago, Columbia, Yale, and Cornell. MIT was 10th, Princeton was 14th, Stanford was 15th. Really, you know, the same set of schools are there. And just for fun, I went back and I looked at the highest market capitalization companies, and I found from 1917 that the five biggest companies in America by value were: U.S. Steel, AT&T, Standard Oil of New Jersey, Bethlehem Steel, and Armour and Company, which I had to go look it up — they were a meatpacking company. So the economy has been completely transformed. Higher education hasn’t. So what in the world makes you think that we’re at the cusp of a radical change in higher education when everything else points the opposite direction?
At last, something fun for a bedtime sweetener:
SMITH: I think a college degree has become more important in the job market over the course of the last 40 years. I also think that the U.S. News and World Report rankings have become more important over the last 40 years. And only 25 universities can be in the top 25 at any given time.
LEVITT: I don’t know if this is really true. At least in economics, there’s maybe eight schools in the top three, 25 schools in the top 10, and about 50 in the top 25. I don’t know, I think you got something wrong with the math there.
SMITH: It’s a limited number in the top 25. How about that? …