Neil H. Buchanan

The Real Damage From Investing Too Little in Higher Education: State Budget Cuts and Federal Responsibilities

By NEIL H. BUCHANAN


Thursday, December 3, 2009

The economic crisis has been particularly hard on the states. Across the country, state governments are facing budget shortfalls of historic proportions, causing them to slash funding for all of the major services that they provide. Health care is harder to get for low-income citizens; children can no longer spend time in safe and clean public parks; and support of all types for vulnerable citizens is disappearing.

In such a context, it might seem a bit "rich" to worry about universities' budgets. When people are literally starving or are dying from treatable diseases because of a lack of access to medical care, cuts in the number of sections of, say, Political Science 101 or Molecular Biology labs seem relatively mild by comparison. To fall into this mode of thinking, however, is extremely dangerous. Education, including higher education, must be supported amply; but when it is, the rewards are impressive.

In the last century, the United States created a system of higher education that is the envy of the world. It has also been the basis of our prosperity. Therefore, the cuts that we are tolerating now in higher education across the country will harm Americans both immediately and in decades to come. If we do not reverse these trends, the United States will become a permanently poorer country.

The Long-Term Nature of Investment in Higher Education

My most recent FindLaw column presented the latest version of an argument that I have been making for years, as a scholar, about the importance of public investment for long-term economic prosperity. Bridges, electrical grids, computer networks, transportation systems, and many other foundations of a modern economy must be continuously maintained and upgraded. We are used to thinking of these aspects of our system as part of our infrastructure, the basis upon which all else depends. Yet higher education, too, is an especially important part of what makes an economy succeed, and it, too, is therefore an essential part of the public infrastructure.

In this column, I will explain how higher education fits into my more general argument, presented in my prior column, that if the federal government fails to provide funding, our future will be significantly poorer and more dangerous.

Universities and colleges are important for a number of reasons. The most direct effect is that Americans have the opportunity to improve their own economic futures through higher education. But the effect does not stop there: College-educated Americans' improved prospects then spill over to benefit the rest of the citizenry, as we all benefit from the enhanced productivity of our neighbors as they expand their knowledge and skills.

Similarly, the elite status of America's universities has made them the preferred destination for the brightest students from around the world. Those students come to our universities (usually paying full tuition) and enhance the learning experience for American students. Moreover, they often stay in the United States after graduation, applying their skills here in a way that benefits Americans – in an example of the kind of immigration that even nativists claim not to oppose.

In the past, we were wise to have invested in such an important and successful system of higher education. Now, however, it is all too easy to take that system for granted. If we stop, say, fixing potholes in our roads or expanding transportation networks into new areas where people want to live, then the effects of these short-sighted decisions are obvious within a matter of a few months or years. In contrast, if we stop investing in higher education -- in essence, using up previous generations' spending on our universities, without replacing what we are using -- the effects might not be obvious for many years, long after the damage is done. Yet those effects are very real, and they take a high toll.

The Ominous Case of California's Public Universities

A recent article in The New York Times, for example, talks about cuts in the budget of the University of California system. Because of that state's dysfunctional government and decades of budgetary stalemate, the current economic crisis has hit the state especially hard. With no slack remaining anywhere in the state budget, the cuts that have been made in the higher education budget during the current crisis have been historically severe, with state support per student dropping by almost half in just the last nine years, and tuition tripling in a decade.

California's universities are a particularly interesting and important example of the effects of disinvestment, because the system is so large, and because it has been built up to such a high level of excellence. The campuses at Berkeley and Los Angeles are world-class powerhouses in higher education, and the campuses at Davis, Santa Barbara, Irvine, and San Diego are not far behind. The other campuses would be jewels in any other state's system. The system, moreover, has always been an important source of economic mobility, allowing children of low-income families to achieve middle-class dreams.

California, in other words, has a lot to work with, and it might take a long time before it is obvious just how much damage budget cuts can do. The damage is, however, being done right now – as I write and as you read. Star faculty members are leaving for greener pastures and are not being replaced. The best graduate students, who would in previous years have flocked to Berkeley, are enrolling elsewhere. Facilities are not being upgraded. Vital courses are not being offered, causing students to take longer to graduate -- or not to graduate at all in the face of rising tuitions and the prospect of being out of the workforce for yet another year.

The Crisis in the States and Public Universities

And California is hardly alone. Nearly every state has been hit with crippling budget crises in the last few years, and the response has been to cut spending on higher education severely, raising tuition for students and failing to support faculty and staff. Even states whose universities have global reputations, such as Wisconsin, have furloughed university employees to cut costs.

As it happens, some of our best universities are in states with the worst budget crises. Michigan, which has built a state university system with two world-class research campuses as well as a statewide network of excellent regional campuses, is a state with an economic future that is, to put it politely, uncertain. Iowa, Colorado, Washington, and other states have seen their top-tier flagship campuses falter and fade, doomed by state budget crises that return with increasing frequency and ferocity.

If we are going to restore these universities to greatness, we must first stop the decline. It is far easier (and less expensive) to preserve a great university than to rebuild it after allowing it to decline. A valuable cautionary tale can be found in the United Kingdom, where the Thatcher government deliberately and radically cut funding for British universities in the 1980's. The UK's universities had been the only national system of higher education that arguably competed with the universities in this country, and their decline in quality as a result of the Thatcher budget cuts was dramatic. The country's subsequent attempts to undo that damage have proven costly and difficult, and it is by no means certain that its universities will ever recapture their past greatness.

State governments in the United States, however, are in no way equipped to do the work necessary to preserve what their parents and grandparents built. Preventing a precipitous decline in the quality of our universities requires a solution that goes beyond the states. That solution is clear: We need to bring in the federal government.

The Federal Role in University Education

The obvious counterargument here is that the states should fend for themselves. But the fundamental problem with relying on states to fund university systems is the classic economic problem of externalities – benefits (or in other contexts, harms) that are not enjoyed only by their creators. The whole country gains when, say, the University of North Carolina becomes even better, but that university is funded primarily by its state legislature. If the university's budget is cut, it might not seem to be a crisis to citizens of New Jersey or Indiana; but the citizens of every state lose when any state's universities decline in quality.

Moreover, state governments do not have the flexibility to ride out an economic crisis in the same way that the federal government can. Most states have adopted financing mechanisms that are genuinely perverse, requiring cuts on top of cuts when the economy is in its worst condition, with states engaged in a vicious cycle of budget cuts that only weaken their economies further.

The federal government, of course, need not follow such a route. While the question of long-term deficits is quite a different matter (and current estimates show that such deficits are caused almost entirely by the upward spiral in health care costs), the federal government's ability to borrow is especially important in the context of supporting states during economic crises. Thus, the federal government is the potential savior of state universities now.

In fact, the federal government already plays a central role in financing higher education, both public and private. The Internet was largely developed at the University of Illinois, financed by grants from the U.S. Department of Defense. MIT has been jokingly called "the other U.S. Military Academy," because of its heavy reliance on military funding for scientific research.

Even the great private universities are heavily dependent on federal money. Harvard, Stanford, the University of Chicago, Yale, and the other top-flight U.S. universities are supported by federal grants, as well as federal assistance to pay students' tuition. While each of those universities has suffered during the current crisis, mostly because of losses in their endowments due to the financial collapse, they have not faced the added burden of having a state legislature gut their budgets just when things are at their worst.

From the standpoint of the nation as a whole, it does not matter whether a star graduate student goes to Berkeley or to Stanford. It does, however, matter very much that both Berkeley and Stanford continue to exist, continue to compete with each other (and with Princeton, Duke, and the University of Texas), and continue to set standards for excellence. The federal government is the only entity that can respond to the current crisis in a broad, effective way that can prevent the decline of all state-supported universities.

Sadly, our commitment to higher education has recently been on the wane, even at the federal level. For example, when the stimulus package was nearing a vote in the Senate earlier this year, the "centrist" senators who ultimately voted for the package insisted that the amount of spending on education (at all levels) be cut by tens of billions of dollars. The key Democrat who negotiated that deal, Sen. Ben Nelson of Nebraska, argued that the federal government should not be involved in education. While Sen. Nelson's argument was unpersuasive on a number of levels, the point here is that he represents an important and unfortunate view in Washington – a view that pushes against precisely what the state universities most need today and ignores the unique role the federal government can play in this arena, to the great benefit of all Americans.

In sum, our universities need to have their budgets restored (at the minimum), and the federal government is the one entity that can accomplish that. The money spent will come back to us many times over, if we use it wisely to preserve one of America's greatest assets: our public universities.


Neil H. Buchanan, J.D. Ph. D. (economics), is a Visiting Scholar at Cornell Law School, an Associate Professor at The George Washington University Law School, and a former economics professor.

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