Educational economics

It would be nice to think that, once I've finished with this doctorate, I'll be able to return to the UK and find an academic post. But the job market in philosophy is a small pond with many fish chasing not much food, and the situation doesn't look much like it'll have improved by the time I'm a fully-qualified fish. Two months of hints culminated in the recent announcement by the Higher Education Funding Council for England that the budget for universities would be cut by 5% next year, in addition to large 'efficiency' savings already demanded, with no guarantee that subsequent years won't see further cuts.

Risibly, the business secretary "expect[s] universities to make these [cuts] in a way that minimises the impact on teaching and students". Pace Peter, many universities are already planning redundancies among academic staff and alterations in the ratio of permanent professors to short-term teachers. Indeed, some are already implementing these plans. KCL's decision to lay off two members of their philosophy faculty and forcibly retire a third, as part of a "restructuring" of their humanities division, has provoked great outcry. I imagine that such moves will soon be so commonplace that nobody will muster the energy to complain. That comfortable Chair, which was already something of a pipe dream, is disappearing over the horizon of possibilities as fast as an abstract object can.

(Two digressive comments. First, I've no idea about the situation in Scotland or Wales. Perhaps the SCRs there will still be fully furnished. Second, that the business secretary is in charge of universities speaks volumes about the Government's attitude to higher education.)

Some of the moves mooted will make the model of higher education provision in England more similar to that of the US; for example, relying on adjuncts and postgraduates to do a large proportion of undergraduate teaching, greater specialisation of institutions, and Mandelson's proposal of two-year degrees. Given the continued pressure from the Russell Group of "top" institutions for more leeway to charge higher fees, and the increasingly assertive attempts by the University of Bristol to persuade me into giving them lots of money, it seems that many in university governance see the economic model prevalent in the US as the future for the UK as well. So it's worth looking in more detail at what that model is, and how it works.

Before I moved here, I thought that all American universities were private institutions. It turns out that this is not the case. About half of the 3000 or so accredited universities are public, and their finances work much the same as in the UK. That is, a large proportion of their income (about 40%) comes directly from their home-state governments, and much of the rest is made up by tuition fees. Fees vary widely, and it costs far more to go to a public institution outside your home state than it does to stay (relatively) local. But as a rough generalisation, private universities charge around twice as much on average as public ones. The public universities accept some constraints on their freedom to set fees, and on other aspects of economic and institutional governance, in exchange for the regular supply of state money.

Now, the mess in the UK has been caused by, or at least is being blamed on, the pervasive economic malaise that's settled upon the Western world. The US being as much part of that world as the UK, it's not surprising that public universities here are facing much the same grim financial prospects. Florida State University, one of the better public ones, has had about 20% of its budget cut, on top of large reductions in previous years. The best state institution in the country, the University of California at Berkeley, is facing similar cuts, which have prompted massive protests among the students and faculty (if you like the look of that article, let me know and I'll send you the full thing).

One proposal to sort out Berkeley's problems -- also mooted for other stricken public institutions -- is privatisation. Take the school out of the state's hands, raise fees, compete more aggressively for private grant money. There's a precedent and procedure for this process in the US. Obviously, there's not in the UK, but lack of precedent doesn't preclude possibility. I wouldn't be surprised to see it at least suggested soon. So the question is, how would privatisation help struggling public institutions, if it would at all?

Most obviously, since private institutions don't depend on state funding, they've not been as badly hit by the general financial chaos and concomitant cuts in public spending. That's not to say they've escaped. A lot of the income of some private institutions is from the return on invested capital, that capital being made up of the endowments that they're so keen to wring out of alumni. As much of the recent trouble was caused by (or caused) bad investments, some of the American universities have suffered according to the wisdom of their investing. Harvard lost over $10 billion in a year (reducing its endowment to a mere $27 billion). Yale recorded a 30% shrinkage from 2008 to 2009. So the income from the investment of those endowments has of course been reduced.

Not all private universities have been quite so embarrassed, however. More cautious investing has preserved some endowments, and some places were not so reliant on endowment income anyway. The remarkably chatty president of the University of Miami has delivered a stream of emails to all staff and students over the last few years, assuring us that (despite various cost-cutting measures) we are on a reasonable financial footing, having never been dependent on investments for revenue.

It was one of these emails that prompted me to investigate where the money does in fact come from. The University of Miami is a private university whose environs exude an air of monied comfort (if not opulence) that's quite different from the shabbier surroundings typical in the UK. When you compare income relative to student numbers, this air isn't surprising. My last British ivory tower, the University of Sheffield, had 19 000 or so full-time students (UG and PG) in 2008/9, and its income for that year worked out at about $33 500 for each of those. The University of Miami has just over 14 000 full-time students, and its income in 2009 worked out at $128 000 for each. Yes, really. Nearly four times as much.

So, again, where does the money come from -- especially given that about 32% of Sheffield's income was from the state, and none of Miami's was? Before I looked, I thought that the answer was: tuition fees. Students here pays around $35 000 a year for their education. But, it turns out, this isn't the answer at all. It's true that Miami's income from tuition fees approaches Sheffield's income from the state and from fees combined ($369.5m against $386m). But tuition accounts for just 18% of Miami's income; it's 27% of Sheffield's. The big earner for Miami, generating 48% of the university's income, is money paid by or on behalf of patients being treated at the three hospitals it runs. The university made $996m last year from "patient care".

However, much of this goes straight back into the operating costs of those hospitals; "patient care" accounted for $982m of expenditure.That's still a healthy $14m profit; easily enough to run a couple of Arts or Humanities departments. Sheffield spent about that much last year paying off people who took up their voluntary severance scheme. But even if you eliminate the hospital income stream, the average Miami student would still have nearly twice as much money behind them as their counterpart in Sheffield. As I said, the difference is not down to tuition fees; the difference in income of that sort just covers what Miami doesn't get from the state. Nor is the real difference the endowment income; though Miami's is much larger, it's only 6% of income (1% of Sheffield's). Leaving out the hospitals, the big difference is the amount the two institutions attract in (mostly private) grants and contracts. Miami attracts about three times as much investment of this sort.

How come? I can only speculate, but I've had enough of numbers and stuff, so here I go. Two possible reasons are firstly, that Miami can take whatever contracts it likes, and secondly, the university has a more diverse base of expertise and facilities than Sheffield. I would guess that much of the contract income is to do with the hospitals, the school of marine science, the atmospheric research centre, that kind of thing. Sheffield doesn't have the same sort of rare specialities. Every university has engineering departments, physics departments, and so on; what's needed is some particular, potentially lucrative research strength that's not available easily elsewhere.

This seems to suggest that the prospects for places like Sheffield competing with the likes of Miami for such contracts are quite grim, in the short term. Again, I'm speculating, but I'd guess that a lot of the contracts and grants and so on are awarded to pre-existing research departments. That is, one needs to spend the money to build the facilities and recruit the faculty before one can attract more money from outside. But, in the longer term, it's not impossible. It would, however, require concentration on one or two likely candidates among research projects, and brutal axing of other departments that are less likely to generate money.

So bad news for philosophy? Well, not at all. Under the American private system, arts and humanities departments are very much secure, provided that they can keep their recruitment numbers up. This is because they're very cheap to run; you need faculty, a few extra teaching staff, a pot for conferences and so on, and some office space and classrooms. That's it. No expensive particle accelerators, weather balloons, boats, supercomputers, and so on. So the bulk of the fees that their students pay can go towards subsiding other, more costly departments. Here's an example: the vast majority of first-year undergraduate teaching in the philosophy department is done by teaching assistants (TAs) like me. The fees paid by one student in my class fall just short of covering the annual stipend of two teaching assistants. So the fees paid by my class of 25 students can cover the cost of paying all the 25 or so TAs in the philosophy department, and also most of the cost of paying the TAs in another similar-sized department. Thus, arts and humanities departments -- at least, popular ones -- are quite likely to survive radical moves to a nakedly commercial economic model, because if tuition fees can be set at any level by the university, it's easy to make such departments profitable.

None of this is meant to suggest that I think it would be a good idea for British universities to become more like American ones. Privatisation of any sort raises my ideological hackles. What I do mean to suggest, though, is that it's quite possible that it'll happen, and that the possibility shouldn't necessarily lead philosophy departments (and people who might want jobs in philosophy departments sometime soon-ish) to fear for their future. Unless philosophy stops seeming sexy to seventeen-year-olds, and what are the chances of that?