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The enigma of support for higher education: Impact on Alaska

Posted: April 4, 2013 - 9:43pm  |  Updated: April 4, 2013 - 11:08pm

“And not by eastern windows only,

When daylight comes, comes in the light,

In front the sun climbs slow, how slowly,

But westward, look, the land is bright.”

— Arthur Clough

Research and development (R&D) gives a nation competitive advantage. From Whitney’s cotton gin to microprocessor chips to iPods, history proves this. Apart from corporate R&D centers, the intellectual firepower needed for R&D usually resides at universities. The primary role of universities is to serve society. The benefits of higher education are many, including: improving prospects and earnings for employment; preparing for success in the global economy; productivity; and civic participation.

Historically, state appropriations have been the most important source of funding for higher education. As a nation, we have significantly reduced state support per student in recent years (between 1990 and 2010, appropriations per full time equivalent student declined by 26 percent. Note that with $18,000 of state appropriation per student FTE, Alaska is the exception to this trend). What is the implication of this when education is considered a public good? Over this same 20-year period, tuition has increased by 112 percent at public universities while median household income grew by 2 percent. As a result of decreasing state appropriations per student, rising tuition and stagnating median household incomes, the total student debt held by households stands at $1 trillion—more than the nation’s credit card debt. It needs to be realized that as higher education funding is discretionary, public universities have to compete with other state priorities. As higher education budgets are largely incremental—although more than 33 states currently implement performance-based funding systems—states such as Alaska that have supported higher education at a high rate are more likely to maintain the range of support, barring budget pressures like increasing oil production in the Lower 48.

Best in the world

Our universities are the best in the world: six of the top 10, 13 of the top 20, and 130 of the world’s top 700 universities reside in the U.S.; and research shows that universities play a vital role in the economic development ecosystem via innovation. While the issues are inextricably linked, universities teach the next generation of innovators and also contribute via faculty research. At the University of Alaska, according to a recent study, for every dollar of state investment in UA research in fiscal year 2011, the university generated $5.60 in additional research revenues. Competitiveness is a complex issue involving streamlining of regulations, corporate taxes, infrastructure, attracting investments, energy prices and creating a more highly skilled workforce.

We are all beneficiaries, albeit serendipitously, to partnerships between universities and government, especially the federal government. The G.I. Bill is widely accepted to have enhanced the nation’s human capital and, in turn, spurred economic growth and social mobility. In FY12, University of Alaska revenue from federal grants and contracts was $160 million—20 percent of its revenues.

Nevertheless, there are clouds on the horizon. These clouds rise from an increasing corporate emphasis on short-term results of translational discoveries and global competition. While university enrollment in the U.S. is stagnating, India is planning to increase the number of young people attending university from 12 million to 30 million in the next decade. The World Bank has observed that India’s economic success cannot be sustained without major investments in education. China’s investment in education has increased significantly in recent years. These decisions could impact not only U.S. jobs, but also new industrial development. With China and India’s high energy and commitment to higher education, we are on the precipice of a shift in world educational dynamism.

Dual track advance

In my opinion, it is important as a nation for universities to advance on a dual track, one of applied research and the other of basic research, as it is the foundation on which new industries are built. As an example, the discovery of DNA by Francis Crick and James Watson via basic research has led to numerous commercial applications, such as: genetic alteration of plants, animals and microbes and commercially prepared insulin via applied research. Unfortunately, it is becoming increasing difficult to get funding to address the “big” questions in basic research as the private sector is less interested due to a lack of quick commercial application. Furthermore, as funding from the National Science Foundation, National Institutes of Health and others becomes more targeted we will not see immediate impacts there either. Previously, only prestigious universities such as Massachusetts Institute of Technology and Johns Hopkins engaged in classified research. Today, with less government spending, more universities, such as the University of Delaware and the University of Maryland, are getting into classified research, giving faculty opportunities to tackle issues at the forefront of technological development.

While the U.S. today maintains a huge advantage in its universities, it has a huge disadvantage pervading its K-12 education system. The uneven K-12 education threatens the nation’s competitiveness. Every state is grappling with the question of how to make sure that high school graduates are prepared for university and what to do with those who are not prepared. On average, nationally 43 percent are not ready for university—at the University of Alaska it is 54.8 percent—and so the universities have to do remedial work, which costs the nation billions of dollars. This complex issue brings up questions of access and affordability as well.

Creative thinking

There is also a central debate going on in higher education on the role and need of liberal arts. In this time of budgetary challenges, the liberal arts and humanities departments and curricula are under tremendous pressure to demonstrate their net value. While we should certainly evaluate them, we should also remember that they give students the ability to be creative thinkers, which leads to innovation. The Harvard Business Review recently added fuel to the fire by saying that the Master of Fine Arts is the new Master of Business Administration. There are certainly good arguments why this is the case. For example, Steve Jobs and Warren Buffet both relied heavily on imagination as they created a vision of markets to come.

As I often mention, the 19th century was the century of chemistry, the 20th century was the century of physics, and the 21st century will be the century of biology. It is no wonder; therefore, that biomedical engineering is the field of the future with numerous universities such as MIT, Ohio State, Georgia Tech and John Hopkins already offering more than 64 undergraduate programs in this field. STEM (science, technology, engineering, and mathematics) graduates predominate among nations in the international innovation league tables. This is why the Royal Academy of Engineering recently voiced concern that the United Kingdom was only graduating 23,000 engineers each year while China and India are producing 20 times and eight times as many, respectively. There is a huge demand for STEM graduates, and while we are seeing younger students interested early on in the sciences, the key is how to teach science so that students persist in science. As research funding becomes more competitive, there is concern about how college graduates in the sciences will value their future. Studies show that nearly all patents in STEM fields are a crucial driver of job/economic growth. Studies also depict that immigrants are behind three of every four patents from leading universities—MIT, Stanford and the University of California system—which argues for immigration reform for U.S. educated STEM graduates and entrepreneurs. It also makes eminent sense to increase total U.S. R&D expenditures to at least 3 percent of our GDP (currently, it is 2.9 percent) and also make permanent the research and experimentation tax credit.

Visualize the future

The sweep, scale and pace of the revolution of the higher education landscape today is breath-taking and disruptive. We have to visualize the future to stay ahead of the curve. Let me provide a few examples to illustrate my point:

First: The structural model at universities will change. New instructional models are emerging to address productivity in higher education. Since 1983, in the U.S., the cost per student has risen five times the rate of inflation. Some of the top institutions—Harvard, MIT and Stanford—are figuring out how to do more with less on a scale not imagined earlier through massive open online courses or MOOCs. Online courses permit universities to spread the cost of the course over huge numbers of students, permit students to learn at their own pace, do not permit student charges to subsidize research, reduce the need for costly campus facilities, allow clusters of universities to pool their resources, and offer the prospect of lower-cost degrees.

Two companies, Udacity and Coursera, are at the front. These feature free classes taught by professors from a range of top universities and are open to all. Udacity alone already has 160,000 students from 190 countries. Hybrid or blended programs will become routine. Yet another exciting example of the digital effect is tuition at the new online Western Governors University, which is supported by 19 governors and costs less than $6,000 a year.

Let me highlight a prognosis by Dr. Sebastian Thrun, who is the founder of Udacity and a computer science professor at Stanford University: “In 50 years, there will be only 10 institutions in the world delivering higher education.” Harvard University professor Clayton Christensen goes further in predicting “wholesale bankruptcies” of standard universities in the next decade. Something we all should ponder and reflect upon. Should universities specialize to survive? Generally, it is students from the bottom tier who need the face-to-face instruction, advisers, counselors and learning-disability experts to get them through college. So, it remains to be seen empirically if just more access via massive open online courses at lower costs will address the changing demographic challenges of the U.S.

Second: Higher education will consolidate around hubs. Much like the Silicon Valley is a hub for business start-ups and Milan a hub for the fashion industry, we are seeing educational hubs driven by globalization: New York, Boston, Chicago in the U.S.; London in the UK; Education City in India; in Singapore; in Qatar; and Abu Dhabi.

Third: The funding model at universities will change. More than 40 percent of universities are already looking at privatization for long-term revenue. The classic example is Ohio State University’s (63,000 students) recent transition to privatized parking. University systems such as University of Wisconsin in Madison and University of Minnesota in Minneapolis are also ramping up efforts to brand themselves by uniting disparate parts.

Fourth: The cost model at universities will change. According to the National Center for Education Statistics, in 2011-12, the per-year estimated total price of attending a four-year public university is $20,056. There were 9.6 million students enrolled at public four-year universities. Universities have to bend the cost curve and make college more affordable. At the University of Alaska, for fiscal year 2012, the total operating expenses were contained at a modest 3 percent, and the tuition increase for fiscal year 2014 is a modest 2 percent. So, the University of Alaska is trying to bend the cost curve. Also, look for more creative scheduling for classes like at Arizona State University where two intensive courses can be taken back-to-back in one semester thereby making earlier graduation possible.

The Choice is Ours

I am an optimist. I am confident that we can have a national policy on competitiveness and human capital that will guarantee that the 21st century, much like the 20th century, remains very much an American century. The choice is ours to make, but we cannot afford to wait too long.

Roy is the Vice President for Finance & Administration/Chief Financial Officer for the University of Alaska system & Associate Professor of Business Management at UAF. Dr. Roy has significant experience, at senior management levels, at three other large universities, local government, and in the private sector. Dr. Roy was educated in the USA and India, and holds six university degrees and five professional certifications. He has authored 69 publications in academic and trade journals. The views expressed above are the author’s own and not those of the University of Alaska.

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