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Are Universities a Luxury Good?

Reader AH writes in response to the posts discussing Harvard’s recent early admissions decision:

Why are people shocked when they find out that money plays a factor in college admission? Universities are businesses, they are rational economic actors. They manage a set of short run revenue and profit maximization goals and longer term brand management goals just like Proctor and Gamble….

The world is not fair but it is rational. Those with the most resources will always have disproportionate access to luxury goods and a college education is a luxury good. It’s time to grow up.

I will freely concede that universities behave like businesses along certain dimensions, in that they attempt to maximize educational and research output constrained by a budget, but I will not go as far to assert that universities are businesses.

If they are businesses, they behave like very peculiar ones. In what other industry would a firm lose its market share for attempting to curb its costs year after year? A university must attempt to be a jack-of-all-trades in order to be competitive, whereas a business aims to leverage its comparative advantages and specialize in narrowly defined markets while keeping costs down. Whereas Boeing specializes in aerospace and Kraft Foods specializes in processed food, Cornell seeks excellence in both aerospace engineering and food science (and a diverse student body, a good hockey team, a medical school in Qatar, and delicious ice cream from Cornell Dairy’s operations). This is why tuition keeps rising at twice the rate of inflation.

Moreover, when was the last time that any business producing a “luxury good” was founded with an explicitly public purpose? Most universities operate with vast-infusions of public money (and have been doing so for a long time) and grandstand about how diverse and accessible they are. Cornell itself was a land-grant institution founded under the credence that “any person”, given the necessary academic qualifications, should be able to find study on East Hill.

And, quite frankly, I would love to see the state of America’s economy if higher education was really a “luxury good”, accessible only the sons and daughters of the very rich. We sure as hell would have a lot less engineers, chemists, teachers, businessmen, and doctors.

I am not so naďve as to think that Cornell could suddenly start admitting only poor students. The university very clearly depends on the tuition revenues from the 50 percent of the student body that didn’t apply for financial aid last year—roughly 25 percent of Cornell’s total operating budget comes out of tuition and fees, and this fraction increases if you just look at the costs going into undergraduate education.

But I will continue to applaud any gesture by Harvard that may encourage other institutions to stay true to their public mission and encourage a more level playing field when it comes to their admissions policies.

Matthew Nagowski | Posted on September 16, 2006 (#)

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