The social contract of publc higher education

Posted: November 10, 2012 at 6:00 pm, Last Updated: November 12, 2012 at 9:18 am

By Ángel Cabrera and Callie LeRenard

Let me add more color to my commentary last week about the public disinvestment in higher education.

Though not a perfect public good, higher education creates many positive externalities that benefit society at large. Whether

or not you are the one going to college (and therefore the one personally reaping the benefits of a better paying job, for

example), we all benefit as a society from the increased productivity of a college-educated labor force, the tax revenues

of higher wage jobs and the innovation spillovers from research.  As we showed in an earlier post, the number of world-class

universities a country has on a per-capita basis is a strong predictor of that country’s competitiveness, which is, obviously, a

value shared by all.  This notion of public value higher education underlies the traditional social compact according to which

governments subsidize the bulk of the cost of higher education through appropriations of tax revenue to public universities.

Over the last decade, however, public disinvestment in higher education is threatening that old “deal”.

The chart here shows the mix of revenues and expenses at George Mason University since 2001 in constant 2012 dollars.  The University’s average expenditures per student have remained fairly constant, with a mere 6% increase over a decade.  To support those expenditures, taxpayers contributed in 2001 more than twice as much as students did for their education ($8,281 vs. $3,289) whereas in 2012 the ratio was reversed, with students contributing significantly more than taxpayers ($6,710 vs. $4,050).  These numbers, in essence, amount to a redefinition of the social compact mentioned above.

The impact of a these trends have been somewhat buffered in universities with large endowments, as private funds can help mitigate the effects of decreasing state funding through financial aid and faculty support.



But, as the second graph shows, our university is not (yet) in that category.  Until now, George Mason University has handled these funding trends by being more efficient than average: producing more graduates at a lower cost while delivering scholarship among the top 200 universities in the world.  But the challenge to deliver on these outcomes will get only more difficult as long as state subsidies remain low and public pressure mounts to limit tuition increases.  Unless the funding context improves or until we can build a private endowment comparable to our peers and alternative sources of revenues, our tradition of innovation will be taken to task!



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