The Agenda

California’s Move to Break the Higher Education Cartel

One of the barriers to business model innovation in higher education is the accreditation system. Basically, we have accredited institutions rather than accredited courses. Accredited institutions like bundling their services, as it allows them to cross-subsidize money-losing business lines with the revenue from lucrative business lines. But unbundling creates opportunities for productivity increases, as specialized instructional providers can focus on becoming extremely good at one narrow task, like teaching Mandarin or calculus to first-year college students. So the challenge has been finding a way to leverage the promise of specialization to contain costs and improve quality in higher education — and it’s been a challenge because the champions of business model innovation are extremely weak relative to higher education incumbents, who generally speaking don’t want new entrants to undermine their existing business model.

California, according to Kevin Carey, is on the verge of breaking through this barrier, as one Democratic State Senator, Darrell Steinberg, is actually doing his job:

As of today nearly half a million students are on waiting lists for basic courses in California’s public higher education system, increasing the cost and duration of college and reducing the number of students who ultimately earn degrees. This is a human tragedy and a policy failure on a massive scale. Under the plan, waitlisted students would be able to take online classes that have been approved by California’s Open Education Resources Council, a faculty-led body that was created by recent Steinberg-sponsored legislation creating free open textbooks. ACE certification would be a point in course’s favor. Students would have to take in-person proctored exams to pass the courses. Public colleges and universities in California would be required to accept those courses for credit.

It seems commonsensical, and it is. But the policy represents a huge departure from standard policy arrangements in two important ways. First, the organizations providing the courses would not have to be accredited colleges and universities. They could be MOOCs, but also low-cost course providers like Straighterline, or perhaps a venture led by textbook companies whose offerings increasingly blur the distinction between textbook and course. This would represent a major breach in the regulatory wall that has long kept credit-granting privileges and public subsidies confined to organizations that have been certified as colleges by other colleges, with all of the cultural and financial structures that designation implies. This idea is very consistent with the policy ideas put forth by President Obama in his State of the Union last month, as well as by Senator Marco Rubio in the SOTU response. [Emphasis added]

Carey emphasizes the importance of quality control, and for good reason. Another concern, however, is that California’s Open Education Resources Council will eventually be packed with allies of higher education incumbents. But this danger is ever-present.

The beauty of Steinberg’s approach is that it encourages California’s public universities to do a better job of meeting the needs of waitlisted students, i.e., it could serve as a spur to productivity improvements.

Recall our recent discussion of reallocation in the steel industry: productivity in the steel increased as minimills displaced an older technology, vertically integrated production, yet productivity increased even more as minimills drove inefficient vertically integrated producers out of business, leaving behind highly-efficient vertically integrated producers that were capable of keeping up with the minimills. In a similar vein, the best, most adaptive of the higher education incumbents will keep innovating to keep up with new entrants, in the process improving quality and outcomes across the higher education sector as a whole. But specialization is essential. Minimills, for example, began by focusing on a narrow range of steel products. Without specialization, productivity gains will be muted. 

UPDATE: Tamar Lewin’s report in the New York Times includes the following very telling statements from higher education incumbents:

Lillian Taiz, the president of the California Faculty Association, said that she thought it was too soon to conclude that online classes from third-party providers were a good substitute for the classes at state institutions.

“This whole online thing is not well-vetted yet,” she said. “There’s a sort of mania for massive online courses right now, but there’s no good evidence that they work for all students.”

“What’s really going on is that after the budget cuts have sucked public higher education dry of resources,” she continued, “the Legislature’s saying we should give away the job of educating our students.”

Keep in mind that the legislative proposal includes a faculty-led assessment process, and that the Legislature is saying that waitlisted students ought to be eligible — that is, once public higher education institutions have already failed to educate our students in a timely fashion, specialized instructional providers should be given the opportunity to fill the breech. I’d also add that the growth of California’s public sector, driven in part by pension and health costs for public employees, has led to a tax burden that some would argue is sucking a nontrivial number of taxpayers and consumers dry of resources. 

My favorite statement, however, is from Mark Yudof, as it points to the next set of risks:

Other higher education leaders were more open to the idea, including Mark Yudof, the president of the University of California.

“I’m O.K. with credit for online, actually. I’m flat-out optimistic about it, as long as our faculty has the chance to massage it appropriately,” he said. “They might want to add recitation, or assessment or discussions groups, but assuming they accept it, I think it’s fine. We’re getting ready to put online 30 courses developed by our own faculty, mostly introductory general education courses, and it’s possible that people at other institutions would use those.” [Emphasis added]

Adding recitation, or assessment and discussion groups, will presumably be somewhat labor-intensive. Yudof is essentially saying that he’s amenable to credit for online courses, provided the University of California gets its vig or juice as part of the deal.

The chancellor of the California State University system, Timothy P. White, in contrast, owns up to the scale of the problem facing students seeking to complete their degrees:

“Demand exceeds capacity on every one of our campuses,” he said. “This is really about increasing our capacity with the existing resources. It isn’t a challenge to professors’ autonomy, or something that would mean cutting the work force. We have to find a way to do better at meeting the growing demand, and if there’s a better way to do things, why not? We need innovation, but we also need quality, and the devil’s in the details.” [Emphasis added]

Of course, White is also mindful of not “cutting the work force” — and perhaps that’s fair enough. Containing its growth would be a prodigious accomplishment. 


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