The Evolving Economic Structure of Higher Education

As an industry, higher education shows some striking anomalies. It is the only important industry in the United States that has been increasingly socialized in recent decades: the market share of public institutions grew, roughly, from 50 percent to 80 percent over the last half of the twentieth century. Now the industry is suddenly heading down a very different path, with the market share of proprietary institutions—which was negligible thirty-five years ago—presently in excess of 10 percent. Such contradictory developments bring into question the future economic organization of higher education and the forms of financing and regulation that might be appropriate to it. I’ll offer here some speculation in that direction, focusing just on several of the main structural features of the industry and, of necessity, addressing them at a very general level. And I’ll compare the evolution of higher education with the evolution of health care, seeking the reasons for both similarities and differences. The general conclusion I offer, perhaps unsurprising in the current political and economic climate, is that market forces are likely to play a much larger role in higher education in the future than they have in the past, and a larger role than they play in health care as well.