Isomorphism in Higher Education

1 July 2010 at 12:04 am Peter G. Klein 21 comments

| Peter Klein |

Amitai Etzioni is upset that new firms are entering the higher-education market and offering — gasp! — a differentiated product. Worst of all, they operate on a for-profit basis! (“For-profit,” as left-leaning intellectuals know, is synonymous for “evil.”) Consider:

The education students receive at for-profit colleges bears little resemblance to the kind they would get at a true liberal arts college. Neither does it resemble the collegial image the for-profit colleges love to project. Professors at these schools often work on short contracts. There is no tenure. The executives make staggering salaries. Most students are taught online, often by poorly qualified professors who have very limited contact with the students. . . .

The schools’ stripped-down curricula and poor instruction often make for nearly worthless degrees. When students graduate from these colleges, many cannot find jobs — or at least not the kinds they were promised — and eventually, many of them default on their loans.

Of course, this in no way resembles the situation at traditional colleges and universities, at which all instructors are highly qualified, administrators make minimum wage, instructors spend lots of time with their students, and all students get exactly the jobs they were promised and pay their loans back immediately.

Etzioni cites approvingly the 2007 New York Times piece on the University of Phoenix that we deconstructed earlier. As we pointed out then, higher education is perhaps the most conservative, least innovative industry in any modern economy. (Even organized religion looks cutting-edge by comparison.) I hesitate to use the term “institutional isomorphism” in a O&M post, but if the shoe fits. . . .

Put it this way: “Diversity” is the primary mantra of higher-education institutions. So why not have some diversity in organizational forms? “Education,” after all, is not a homogenous good. As with healthcare, one size doesn’t fit all. Shouldn’t we encourage entry, and applaud entrants who experiment with alternative curricula, teaching methods, incentive structures, sizes, and shapes? Let a thousand pedagogic flowers bloom, I say!

(NB: I’ve heard people make a market-for-lemons argument against alternative educational institutions, that potential students won’t be able to distinguish one type of school from another and that the industry as a whole will thus be harmed. This strikes me as entirely bogus. Branding, after all, is a major aspect of the higher-ed racket today. Stanford doesn’t seem too worried about differentiating its product from that of San Jose State or Cal State Hayward, so I doubt adding Phoenix to the mix makes much of a difference.)

Entry filed under: - Klein -, Education, Entrepreneurship, Innovation, Institutions, Theory of the Firm.

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21 Comments Add your own

1. David Gerard | 1 July 2010 at 1:00 am

Contrast this with the article on law schools from last week’s NYT, where elite law school’s innovative response of failing to place their students is to give them higher grades.

And here:

http://economix.blogs.nytimes.com/2010/06/22/law-schools-visit-lake-wobegone/

To paraphrase the late, great Henny Youngman: Take our graduates — please!

That is the message blasting from the nation’s law schools, those cash cows of higher education that could once promise lucrative employment to the nation’s risk-averse young adults. Now the legal job market has turned chilly, though, and schools are trying everything from literally paying employers to hire their students to retroactively inflating their alumni’s grades.
2. Rafe | 1 July 2010 at 1:11 am

It is a good thing you said he was describing the for-profit schools because they sound a lot like our universities since all the colleges that used to issue diplomas were converted into universities and all of the “universites” are now centrally funded and controlled from Canberra. Jacques Barzun saw this kind of thing happening in the US several decades ago but nobody took any notice and learned from his commentary.

Amazingly our now defunct leader Kevin Rudd wanted to do something the same with the hospitals.
3. Ross Emmett | 1 July 2010 at 5:35 am

In MISSION & MONEY: UNDERSTANDING THE UNIVERSITY, the authors argue that traditional public universities like my own MSU look today a lot like for-profit universities, because the independent mission has been become fully integrated into the search for revenue. While their account has some flaws, it is much closer to the truth than Etzioni’s!
4. Per Bylund | 1 July 2010 at 8:38 am

Applying a liberal bias, I can see how the situation with private for-profit colleges can be seen as even worse than what is mentioned in this post. After all, for-profit is only about making money through printing as many diplomas as possible and therefore the students seeking education there are not interested in educating themselves but only to get their degree on paper and then work in business (for profit). So there should be a race to the bottom in private education, while serious students and professors strive to end up in public institutions that care about education instead of profit.

From a competition point of view, such a liberal bias would not be a problem since private education would be inherently bad and public education would be quite the opposite. The former would not be long-term viable and would be out-competed by public education.

But from a fairness point of view, it is terrible to “allow” private educational institutions simply because the students ending up there (because they do not understand better, do not have proper information, or do not have the means to make optimal judgments) are at an unfortunate disadvantage. So it would be better for education per se and for all students and faculty if education was purely public and all private eduction prohibited.

At least, I believe this might be a how some of these people reason.
5. David Hoopes | 1 July 2010 at 12:12 pm

Regarding Law Schools: Might it be that the market for lawyers is saturated? Perhaps they should graduate fewer students.

I guess I’m being silly.

Wonder how those students whose GPA were sky-high to start with feel about that the grades being raised?
6. joshmccabe | 1 July 2010 at 12:30 pm

I’m sure all my English major friends who now wait on tables to pay off their student loans from their liberal arts education will just be horrified at this!
7. David Hoopes | 1 July 2010 at 1:09 pm

Which part will horrify them Josh? (I have a BA in Theatre but worked as a cook not a waiter).
8. joshmccabe | 1 July 2010 at 1:14 pm

They’ll be horrified that a greedy profit-seeking corporation took students’ money and left them without any marketable job skills. Of course, the irony will totally be lost on them.
9. Recomendaciones « intelib | 1 July 2010 at 2:45 pm

[…] Isomorphism in Higher Education, by Peter Klein […]
10. phil the last austrian in austria | 2 July 2010 at 12:49 pm

Haha, perfect and utterly insightful description of my university by Prof. Etzioni – the only problem is: it’s public! Not only is it economically not profitable, unfortunately it’s also academically not very profitable at least for someone who tries to study organizations and markets with an Austrian twist – in Vienna of all places!!! Pomos are the fundamentalists of the Left (sorry had to get this off my chest).
11. Rafe | 2 July 2010 at 6:00 pm

Somebody once wrote that the universities defy market principles in that consumers (students) do not buy, producers (staff) do not sell and owners (Boards and trustees) do not control. Bill Bartley added that this structural defect, assisted by constraints on the free trade in genuine criticism has converted the academies into a network of fiefdoms, guilds and mutual protection rackets.

Someone else described rock music journalism as interviews with people who can’t talk, done by people who can’t write for people who can’t read.
12. drtaxsacto | 3 July 2010 at 1:37 pm

A couple of comments on your posts on Phoenix. #1 – I agree with letting 100 flowers bloom. But like the original analogy when you are planting a garden of 100 flowers you should not allow weeds to take over the garden. I’ve done some economic analysis of the Phoenix 10-K and their revenue model seems highly dependent on federal tax dollars. Admittedly a lot of other universities get a lot of dough from the feds too but their numbers are at the top end of the scale. Included in that is a 16% default rate on their federal loans – which is about 4 times higher than the more traditional models. If satisfaction of the consumers were high the default rates would be lower. The Phoenix defaults cost taxpayers something north of $500 million annually – that is not chump change. #2 – The Phoenix model relies heavily on a limited set of course offerings (much as McDonald’s does with their menu). While I think it is great to have those kinds of fast food opportunities we should also make room for different kinds of menus. #3 – The All that Glisters model is clear in the proprietary sector. Phoenix, by all accounts, has spent time and effort making their delivery system a bit more efficient (by changes in delivery but also by varying incentives for various parts of the system. Their graduation rates are pretty poor – even if you buy their argument that the current federal formulas for calculating graduations count only a portion of their students. But many in the proprietary sector have achieved financial results by cutting corners. Phoenix may be working on changing parts of the system and may actually offer something the traditional universities could learn from – but that does not mean that a substantial part of the sector is made up of the educational equivalents of subprime lenders.
13. srp | 5 July 2010 at 8:42 pm

I’m not worried about Phoenix and its brethren taking advantage of naive students. I’ve yet to see any evidence that for-profit students are less savvy than non-profit students.

What worries me about the for-profits is their role as subsidy mills. The sloppiness, inefficiency, and diverse internal constituencies of the typical non-profit university have limited their ability to really scale up and rape the public fisc. But the for-profits are really good at it, like all the “green energy” firms currently screwing us on subsidies for solar power, auto batteries, windmills and the like. Regulatory inhibition of for-profit subsidy farmers seems like a plausible application of the theory of the second best.
14. David Hoopes | 6 July 2010 at 12:58 am

http://uchicagolaw.typepad.com/beckerposner/2010/06/the-controversy-over-forprofit-collegesposner.html
15. David Hoopes | 6 July 2010 at 12:59 am

http://uchicagolaw.typepad.com/beckerposner/2010/06/default-rates-and-for-profit-colleges–becker.html
16. Peter Klein | 6 July 2010 at 12:00 pm

Steve, Carol Iannone makes a similar argument:

http://www.nationalreview.com/phi-beta-cons/230697/not-so-profitable

It seems the solution is to reduce the subsidy, not to crush the upstarts.
17. srp | 17 August 2010 at 12:41 pm

For those who check the recent comments panel: Just one more anecdote about the dangers of ethanol-like subsidized for-profit education:

http://www.bloomberg.com/video/62044940/
18. econometrician | 10 November 2010 at 11:48 am

Zing. Do you have examples of poorly-trained prof’s at major universities? (say public, accredited ones … although we don’t want to shade into a public/private sector debate)
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