Why do for-profit higher education providers have a small market share?

In this week’s Campus Review, John Quiggin in polemical mode takes aim at for-profit higher education. He claims ‘for profit education has been a consistent failure in all times and places’ , with some ‘limited exceptions’ in vocational training.

Curiously, he provides very little evidence of the failure of for-profit higher education. He reports some of the legal troubles of the University of Phoenix, but it has 250,000 students and has operated successfully for many years, as have various competitors in the US market. The legal troubles relate to violations of student admissions and loans regulations, not the quality of their courses. The statistic he cites on their graduation rate refers to a market they barely target, full-time and first-time college attendees (as here, US completion statistics are of poor quality).

Apart from the Singapore-based but partly Australian owned U21 Global he doesn’t even mention any of the Australian for-profits, though there quite a few of them, with nearly 30 signed up for FEE-HELP (some with common owners). The players in the for-profit market include the stockmarket listed and profitable Navitas, the Australian College of Natural Medicine, and the various providers owned by Amadeus Education.

But there is an interesting issue here: why is for-profit higher education relatively rare? Even in the US, the for-profits have only about 1 million students out of a total enrolment of 17.5 million. (In 2006, about 20 Australia for-profits reported 5,094 students to DEST, but they were only obliged to report students receiving FEE-HELP.)

Professor Q’s answer is:

Because the benefits of education are hard to assess in advance, and only realised over a number of years, short-term market incentives are ineffective or perverse. Only a long-term commitment to academic standards and professionalism can maintain the quality of education, and such a commitment cannot be driven by managerial skill or direct incentives.

‘Professionalism’ is over-rated as a protection; it has taken Australian universities the best part of 150 years to introduce even rudimentary routine teacher training for academics, and there is very little follow-up of students to see how well they do after graduation. This is the one aspect of higher education that I think is under-regulated for self-accrediting institutions, and I hope Labor will implement its 2006 promise to look into this. Some added managerial skill, along with better accreditation and audit processes, would probably improve things.

But even with these systems is not easy for either students or their potential employers to assess quality. As Quiggin suggests, only after graduation may students fully realise how good their education was, or conversely how under-prepared their course left them. Therefore people fall back on established brands more than they might in other markets, where the quality of the product or service is more easily observed and assessed. This means that in higher education older institutions tend to be better regarded than newer institutions, regardless of their actual quality.

Another powerful aspect of this reinforcing of older institutions is that because ‘peer effects’ can be valuable in education – learning from other students, or simply networking for career and social advancement, it makes sense to go where the most talented students are going, even if the university-provided education is not as good as elsewhere.

Not-for-profit private higher education is strong in the US – including many of the leading universities – because it had a first-mover advantage there; in Australia the public universities had the first-mover advantage.

There is also a simple market explanation for the prevalence of public and private not-for-profit institutions, which is that they almost always and often respectively price their courses below cost, with taxpayer subsidies and endowment income/donations making up most of the difference.

So what we see in both the US and Australia is that, for the most part, the for-profit sector targets either fields of study (eg theology, natural medicine, narrow forms of professional education), modes of delivery (online, easily accessible campuses, small classes) or clienteles (working adults, academically weak students) which the other sectors don’t service or under-service.

There may be a case for consumer protection for low-ability students; they can be targeted by unscrupulous for-profits hoping to make money even for a semester and by well-meaning but operating-on-ideology-rather-than-evidence public providers seeking to expand ‘access’. We certainly need a lot more research on outcomes for these students.

While there are historical reasons why institutions with different ownership structures service different parts of the market it should be a matter of public policy indifference who owns higher education institutions. If a course is no good, it should not be offered regardless of who provides it. If a field of study should not be subsidised (natural medicine or theology perhaps) it should not be subsidised in either public or private institutions. If students have low chances of success, they should receive frank warnings of the risks whether they are applying to a public or private institution. These are the kinds of guiding principles we need, not theoretical assumptions about for-profit education.

48 Responses to “Why do for-profit higher education providers have a small market share?

  • 1
    conrad
    March 9th, 2008 19:57

    1) Before you suggest that academics should all get teacher training, I recommend you look at its efficacy first. I know heaps of people that have done this at a number of different universities, and not a single person I know actually has anything particularily positive to say about it (including myself). The only interesting thing about it is it becomes easy to understand how pointless some of the school teacher training must be if it is anything like the university slop they inflict on people. If universities want better quality teaching, then my suggestion is they employ a few admin people and also try and have basic equipment working most of the time (something pretty rare in Australia it seems). More space would be a good idea too. Teaching people things like how to run online course using a Macintosh which they won’t be running anyway is hardly worthwhile (and thats the good part of the course, versus the “learning theories” part).
    2) As for you other suggestion as to follow up students — there’s paper trails to the moon already — do we really need more and do students really want universities to track them down their entire lives? How many more beuracrats will be needed, and how much more will the computer system cost? If students want to be part of an alumni thats all fine and dandy, but tracking people through their lives is all different story (why not apply that to high schools also?)
    3) Its not clear to me that not for profit unis in the US are pricing their courses below cost at all — many of the private’s are charging 40K a year — surely thats not below cost even if you consider endowments unfair competition (I certainly don’t). Aus universities charging full fees are far below this.

  • 2
    Sinclair Davidson
    March 9th, 2008 20:47

    Education isn’t the only service industry where the benefits are difficult to measure in advance and are realised over time. Indeed, most forms of management consultancy has those characteristics as does many forms of legal advice. These services are for-profit. So I don’t agree with John on that point.

    I do agree with him when he says that ‘Only a long-term commitment to academic standards and professionalism can maintain the quality of education’. In agency theory that would be described as ‘bonding behaviour’. And Conrad is quite right to say that academic teacher training has absolutely nothing to do with academic professionalism. But again these sorts of values have to be inculcated in service industries. Look what happened to Arthur Anderson once it was realised that they had not maintained strict professional standards.

    I haven’t read the article, but a lot turns on the meaning of ‘for profit’. If John means the organisation form where there are external shareholders who earn dividends and capitals gains, then there are few such organisations. On the other hand, he could also mean organisations that rely on subsidy of some sort. It is here that Andrew’s first mover advantage becomes important. Australian public universities operate in a huge for profit market – the international and offshore students. Now their existing brands – previous committment to academic standards – would crowd out new for-profit entrants. (Conrad going bananas at his point).

    So John is saying that for-profit cannot work, while I’m saying that new for-profit entrants will struggle to work, but the privatisation of an existing player could work. That process would start with the institution collateralising government payments and using debt to drive efficiencies. Over time the institution could consider issuing equity to raise additional funds. Of course, any backsliding from academic standards and professionalism would see the institution destoyed very quickly.

  • 3
    John Quiggin
    March 9th, 2008 21:29

    As regards the first-mover advantage, the failure of Edison schools is particularly notable. As I mention, there could hardly have been a more favorable situation for an entrant than that facing Edison in the 1990s – friendly politics and easy access to capital. But they are pretty much out of business as a school operator.

    On the point that not-for-profits win because they don’t need to make a profit – how does this make education different from any other activity that not-for-profits might engage in? If there are donors who are specifically willing to subsidise not-for-profit education, but not for-profit education (hope the hyphens make sense there) nor not-for-profit provision of other services, I’d regard that as a genuine cost advantage.

  • 4
    Rafe
    March 9th, 2008 21:30

    On a parallel track, the boosters of public school education are not usually aware that there was a deal of private (and highly effective) school education before the public education movement took off and drove the “penny schools” out of business. Ed West was a historian of this and there is a centre dedicated to his memory, and to the extension of private education in unlikely places like Africa. http://www.ncl.ac.uk/egwest/
    Ed West was guest at CIS a few years ago and he wrote a couple of CIS papers.

  • 5
    Club Troppo » Missing Link Daily
    March 9th, 2008 21:43

    [...] Government’s labour market policies.Andrew Norton argues that there are good explanations for the rarity of for-profit education, that do not — contra Quiggin — imply inferior quality or efficiency.   Meanwhile [...]

  • 6
    Andrew Norton
    March 9th, 2008 21:46

    Conrad -1) While it would not surprise me if the teacher training offered by Australian universities often isn’t much good (that’s why I used the term ‘rudimentary’), I find it very difficult to believe that teaching is the one occupation in which there are no skills that can be taught.

    2) We don’t need to track every student (samples would be fine), but we do need to know a lot more about whether the things universities say they do work or not – particularly for the academically weak.

    3) The American not-for-profits price discriminate, so many students end up paying much less than the ‘sticker price’. Of course the costs are wildly inflated; a basic coursework education could be delivered for much less.

    Sinclair – I think a professional ethos has never really developed around teaching. Of course there have always been academics who are good at teaching and I think the vast majority would resist passing students who should fail, but the minimum standards required of teachers have always been vague and not enforced from within the profession. The pressure to lift standards came from university administrations, who in turn were concerned about how governments saw the dismal results from the course experience questionnaire and later on how international students would react to paying high fees for sub-standard teaching.

    Part of the problem has been the kind of mixed motive issue that people complain about in for-profit institutions, except that in the not-for-profits the issue is prestige-maximisation, which usually means putting research as the top priority. In research, I think professionalisation has occurred through peer review and promotion on merit. Of course professional standards are not always met, but the standards are understood and the departures from them criticised in a way that generally hasn’t happened in teaching.

  • 7
    Andrew Norton
    March 9th, 2008 21:56

    John – I don’t know the Edison story, but clearly they weren’t first movers – primary education has universally been available for well over a century and secondary for a long time.

    I don’t think the problem is that not-for-profits don’t need to make a profit, because the public/not-for-profit model usually involves cost inefficiences that the for-profits can get rid off.

    But clearly when your competitors offer a similar product for free or a very low price business is tough, and so you need to strongly differentiate what you offer. That’s what the for-profits have done.

    Private schools in Australia also differentiate their product, but they also have a first mover advantage, with many of the leading schools pre-dating public education.

  • 8
    NPOV
    March 9th, 2008 22:20

    One comment to throw into the ring – my mother teaches at Swinburne’s English-as-a-second-language facility, and can give countless examples of how, since the university has come to rely on income from full-fee-paying foreign students, there is constant pressure to pass students that shouldn’t be passing. Of course, this is simply bad management – going after short-term gains at the expense of academic reputation, which is surely worth far more in the long run. And given teachers don’t like it, it logically should make it harder for them to attract good staff too. And yet, the practice has continued to worsen, and teachers are staying on despite the conditions.
    Maybe this is just as long teething process, but it does seem to me there may be a case for regulation: the threat of heavy fines if teachers can prove that management have been pressuring them to pass below-par students might be an effective stick.

  • 9
    Andrew Norton
    March 10th, 2008 06:37

    NPOV – Is that practice in the English language courses, or courses generally? While very few claims of soft marking have ever been substantiated (it’s an Asian version of the perpetual claims by academics that standards are in decline), the fact that these allegations can continue to be made frequently to me indicates the structural problems in quality control at universities, with the courses being self-accredited (so universities set their own benchmarks as to what should be learnt) and self-marked, so there is no generally accepted standard that constitutes a ‘pass’. I don’t think all universities need necessarily have the same courses and standards, but we need to know more than we do about the differences.

  • 10
    conrad
    March 10th, 2008 07:05

    Andrew, on (2), I know where I work, the VC has the data that shows you can take in academically weak students, stick them in them Tafe for two years, and transfer them to second year and they do just as well as those with average ENTERs (it must NPOV’s mother’s teaching :) , which basically means they have an aweful time for a few years and are not competitive when it counts. I imagine the problem is there are worse universities willing to compete for these guys who offer essentially the same courses but are not willing to do this — so they let in people at my university with aweful ENTERs anyway as they need the students despite knowing better (albeit to the second campus, although since courses are often linked, it degrades the standard of everything). To stop ramballing — I imagine many universities do often have the type of data you want, its just they dont neccesarily use it, since money is often more important in the short term.
    NPOV: Everyone always complains about OS students and how OS students are marked easier etc., but they are a very mixed bag. In some courses (perhaps the majority they do), they actually bring the Australian standard up and not down as they often come from places with much higher mathematics standards, and also often work much harder. Thats not even including the money they bring in.

  • 11
    conrad
    March 10th, 2008 07:06

    Sorry I should say that (2) does not always happen.

  • 12
    Sinclair Davidson
    March 10th, 2008 07:45

    Conrad – have you seen this data yourself, or had it described to you by management? Unless you’re seen the analysis yourself I’d be very sceptical. Senior management at my uni believe that having a year off from study after second year and working then coming back for final year (cooperative education its called) improves educational outcomes. There is a DBA thesis that supports that view. Except that thesis has no control group when making the comparision – so it finds that final year students are better than second year students. I put this difference to the fact that final year students have already passed second so this is true by definition.

    Andrew I’m not convinced by this argument.

    The pressure to lift standards came from university administrations, who in turn were concerned about how governments saw the dismal results from the course experience questionnaire and later on how international students would react to paying high fees for sub-standard teaching.

    I have never heard an administrator say sub-standard students should be passed. I have heard academics say that students paying fees expect to be passed (but always from people whose understanding of markets is poor IMHO) and I’ve heard union officials say the same thing. Never an administrator. However, the greatest impediment to excluding a student on grounds of poor performance have always been the administrators. If you want to measure the quality of education you don’t need to look at the CEQ (not sure what that is really measuring anyway) – look at how many students were excluded after failing all subjects, how many students were excluded for cheating in exams, how many students gained entry via non-traditional entry paths (especially through TAFE). That’ll tell you heaps.

    John’s argument about not-for-profits having a cost advantage is well made. There are instances where that cost advantage is decisive (surf life saving in the UK for example – they also refuse public subsidy for that same reason). I don’t know if it would be decisive in education – that is an empirical question. Given that individuals (and their families) make huge sacifices to pay for education (in many parts of the world) and private unis wold have an incentive to reduce costs (all those standards eroding administrators) this cost advantage may not be as decisive here as elsewhere.

  • 13
    Andrew Norton
    March 10th, 2008 08:03

    Sinclair – Sorry, I was ambiguous in what I said. There has been pressure by administrators to improve teaching standards, not necessarily academic standards.

    These days, the CEQ is less useful than the subject-level evaluations. But it was a major reason why unis got going on this issue, and it has the advantage of being public.

  • 14
    Winton Bates
    March 10th, 2008 09:11

    Even if John Quiggin is correct that for-profit education providers are less efficient than not-for-profit providers, why does he think that is something that the Rudd government should take into account? (This may be explained in the article but I have only been able to read a couple of sentences – it is only available to subscribers to Campus Review.)
    It seems to me that if for-profit and not-for-profit providers were competing on a level playing field (including the same regulatory requirements to meet minimum standards) then the question of whether for-profits can compete is purely a matter for investors and consumers to consider.

  • 15
    conrad
    March 10th, 2008 09:29

    SD: Yes, I’ve seen it (although I didn’t personally do the analysis). Our VC has shown the data in a few talks about it to spruke up the Tafe bit of the uni and that we should integrate more (I was impressed that they actually did that analysis — I doubt they would outright lie about that, although the people that do the stats for other things do get things wrong constantly and I wouldn’t trust them to do anything more than calculate means). However, he doesn’t give talks about how low the ENTER scores are at the campus — I know that from people on the selection comittees — although officially there is supposed to be a minimum (of course, since the selection is done department by department, and you can let people in on whatever criterion you want, which I assume happens to areas desperate for students, I don’t think there is much he can do about that — that’s especially the case given that large numbers are coming in via alternative methods).
    I seem to remember RMIT has some Tafe sections too — if you got the data from your guys, it would take next to no time to see if that is true with your uni also, and you might do your selection people a favor if it is (let alone the people going into uni who might benefit substantially).

  • 16
    conrad
    March 10th, 2008 09:31

    SD: I should say, I’ve seen it from managment, but the way it was presented looked like they wern’t simply making it up based on their imaginations .

  • 17
    JC
    March 10th, 2008 10:27

    Aren’t institutions such as Yale, Harvard, Cornell, Stanford, MIT private ? According the quiggin these have been failures?

  • 18
    Andrew Norton
    March 10th, 2008 10:31

    JC – The issue here is for-profit motivation, rather than private ownership as such (though in Quiggin’s article there is a confusing reference to ‘fee-based competition’, which all types of higher education provider engage in).

  • 19
    JC
    March 10th, 2008 10:43

    I understand Andrew, but Quiggin makes no distinction. In reality I hardly see a difference between say the way an MIT arranges it’s funding and distributes any surplus compared to a government funded institution. Quiggin simply is inferring that government Ed is better because it lacks a profit motive. My examples show that inference is nonsense, as those institutions would go broke if they didn’t maintain a surplus.

  • 20
    conrad
    March 10th, 2008 11:24

    JC — you might not see a difference between MIT and a public institute, say UCLA (neither do I), but you would see a difference between a private non-profit and a private for-profit. One of the reasons the super successful private non-profits are successful is sure to be because people are willing to donate to them (especially in the US), and hence they end up with billions of dollars and this leads to a rather virtous circle (Harvard professor cured my cancer, I give Harvard a million dollars.). It seems hard to imagine people are going to donate billions to a for-profit uni when the profit goes into an individual’s pocket.

  • 21
    JC
    March 10th, 2008 12:10

    you might not see a difference between MIT and a public institute, say UCLA (neither do I), but you would see a difference between a private non-profit and a private for-profit.

    Sorry I was ambiguous. I do see a huge difference as MIT as the best institution in the world while UCLA isn’t anywhere close.

    You may be right in the last part of your comment about donations etc. although I have my doubts that if say Harvard listed on the NYSE tomorrow much would change.

    However Quiggin was suggesting something else. Quiggin was suggesting that Ed through private means cannot deliver the best outcomes and he didn’t distinguish.

    Because the benefits of education are hard to assess in advance, and only realised over a number of years,

    Oh yea? So Ivy League grads are wasting their money and ought to enroll in CUNY because the benefits are hard to assess. That’s an interesting assertion.

    And who says for-profits have to be research oriented like say Harvard is?

  • 22
    Andrew Norton
    March 10th, 2008 12:21

    The for-profits don’t get direct donations, of course, but they do get donations supporting scholarship programs, eg these at U of Phoenix.

    None of them do research so far as I am aware, so obviously they don’t get donations for that.

  • 23
    Spiros
    March 10th, 2008 19:35

    It’s clear that Quiggin is talking about for-profit education, not private as such. There is no essential difference between private non-profit and public non-profit universities. In the US, there are good and bad examples of both. Some apparently private universities aren’t even totally private, having been chartered by a state government. Some are partly funded by government.

    If there was such a thing as public for-profit education, it wouldn’t work either.

    “those institutions would go broke if they didn’t maintain a surplus.”

    They do maintain a surplus, this doesn’t make them for-profit, because theysurplus is not distributed to the owners, nor do they have any other claim on the money. (This is why the institutions don’t pay tax on the surplus.). It’s like the local bowls club. Does it make a surplus? Usually yes. Is it for-profit? No. What’s the practical difference (apart from tax implications)? The purpose of a local bowls club is provide a service to its members. The surplus is a means to that end. The purpose of a for-profit institution is the opposite. It is to make money for its owners. What it does to make that money is the means to that end.

    Substiture “university” for “bowls club” and there’s your answer. The purpose of a university is to teach students and do research.

  • 24
    Andrew Norton
    March 10th, 2008 20:47

    Spiros – Though your distinction between tax-paying and tax-exempt may be the most important one. Non-profits distribute surpluses to internal stakeholders; for-profits to external stakeholders, shareholders and taxpayers. It’s not clear that the non-profit system always creates the best incentives.

  • 25
    JC
    March 10th, 2008 20:51

    It’s clear that Quiggin is talking about for-profit education, not private as such.

    I’m not sure you can say that, as we have it discussed earlier.

    There is no essential difference between private non-profit and public non-profit universities. In the US, there are good and bad examples of both. Some apparently private universities aren’t even totally private, having been chartered by a state government. Some are partly funded by government.

    Yes and?

    If there was such a thing as public for-profit education, it wouldn’t work either.

    You know this how?

    Substiture “university” for “bowls club” and there’s your answer. The purpose of a university is to teach students and do research.

    You still haven’t explained why the profit motive seems to disappear when we’re discussing teaching. You haven’t explained why you readily accept your food supply being is privately met; yet the same laws of economics could not achieve a good result in higher ed.

    And who says research can’t be conducted at for-profit institutions? I could think of pharma contracting out parts of their research as an example. Pharma currently contract out anyway. So I can’t imagine why it would be too far fetched to think a for-profit institution wouldn’t get research.
    The big advantage of for–profit is that it would allow for lots of specialization to take place. In other words for-profit would pick their spots and exploit those opportunities.

  • 26
    Spiros
    March 10th, 2008 21:52

    “And who says research can’t be conducted at for-profit institutions?”

    It can, and lots of applied research is, but not pure research, for which there is no commercial return.

    The only significant exception was AT&T’s Bell Labs where a lot of maths and physics was researched, not necessarily with application to running a telelphone system. But as soon as AT&T’s monopoly was broken up and they had to compete with other phone companies, all the pure research at AT&T was stopped.

    “You still haven’t explained why the profit motive seems to disappear when we’re discussing teaching.”

    It can exist successfully, as with hairdressing colleges and the like. But universities are not vocational training colleges. They provide an education, not just a meal ticket.

  • 27
    JC
    March 10th, 2008 22:05

    So you’re actaully suggesting that primary research wouldn’t happen at a for profit?

    I actually think that is nonsense and very short sighted. I would think that primary research could easily be incorporated within such an institution as it breads reputation and reputation is part of the breand name/goodwill.

    I think you are being far, far too short sighted, Spiros

  • 28
    conrad
    March 11th, 2008 06:48

    JC,

    I think you’ll find that whilst research could happen at private for profit unis, it basically doesn’t — and thats just the reality. Have a look through the SJTU scale, which is a broad measure of research, and tell me where the first private for profit university falls. Since university reputation (and hence probably the majority of donations) are due to research, that’s an important factor. Its also important because some courses require accreditation from outside organizations and part of this accreditation is research active staff.

  • 29
    Andrew Norton
    March 11th, 2008 07:55

    Though government accreditation does not require research, unless you want to call yourself a ‘university’. My discussions with private providers in Australia suggests that most don’t want to use the university title, as they believe that in their niche markets the product is well-understood. However institutions offering the same courses as public universities may want to do so.

    The also don’t want to do research – they are focused organisations.

  • 30
    Rajat Sood
    March 11th, 2008 09:06

    If ‘pure research’ is so pure (ie it is a public good), why doesn’t Australia do the sensible thing and free-ride on other countries’ research to the maximium extent possible instead of funding our own? Why would it matter whether we do pure research here? And if there commercial benefits from doing pure research, firms will do it themselves.

  • 31
    Andrew Norton
    March 11th, 2008 09:27

    Rajat – While even I don’t endorse that position, there is an important point behind it – whether Australia doubled or halved its own university research effort it would have only a small effect, since most new knowledge comes from overseas and all new research-created knowledge each year is a modest percentage of existing knowledge (though cumulatively important, of course).

  • 32
    Spiros
    March 11th, 2008 10:26

    “why doesn’t Australia do the sensible thing and free-ride on other countries’ research to the maximium extent possible instead of funding our own?”

    Because a university where good pure research is being done creates a stimulating environment that promotes good applied research and teaching. While it’s true that anyone can download and read a research paper, it’s just not the same as being where it’s all happening.

    Because a university’s reputation is built around the reputation of its superstars who do pure research

    Because some pure research has large spinoffs, such as Cochlear (but the odds of success are so small, and the ability to capture the benefits so uncertain, that no private company will put in the investment)

    Because some pure research is Australian-specific or Australian-led, such as Kangaroo genetics, or southern hemisphere climate change.

  • 33
    JC
    March 11th, 2008 11:31

    “The also don’t want to do research – they are focused organisations.”

    Exactly, they pick their spots as you would expect with specialization.

  • 34
    Rajat Sood
    March 11th, 2008 11:50

    Spiros, if there are economies of scope in undertaking pure research together with teaching or applied research or whatever, the market should identify those opportunities. If anything, publicly funded universities will tend to crowd out such investment by the private sector. Obviously, free-riding could not apply to Australian-specific research.

  • 35
    conrad
    March 11th, 2008 12:47

    Rajat,

    there’s a mater of keeping the smartest people in your country and being at the forefront of new advances (obviously you can care more or less about this). It tends to be the case that many big projects require both pure and applied people, and when you’ll need them is unpredictable (just look at where computer chips came from and who guessed that in 1940). An obvious modern day example is biotechnology, where you need lots of pure people to work out selection algorithms and so forth . By the time you can do things easily at an applied level, the game’s pretty much over.

  • 36
    Rajat Sood
    March 11th, 2008 13:59

    Conrad, I concede that markets may fall short of ensuring optimal investment on R&D, remembering that it is already benefits from favourable tax treatment. But compare the potential market failures with the enormous scope for failures in a centralised process for allocating research funding amongst universities and academics.

  • 37
    JC
    March 11th, 2008 14:43

    , I concede that markets may fall short of ensuring optimal investment on R&D

    Yea. It’s actually the opposite. Nearly all R&D research and technological developments etc occur in the private sector. Have a think about it.

  • 38
    conrad
    March 11th, 2008 15:39

    Rajat: I agree that allocating research funds is a tricky business and that people should consider both wastage and market failure. Its worthwhile noting that some of the research done is almost invaluable (check out the CSIRO stuff) so its very hard to work out the tradeoff (at least to me).

    JC,

    that’s simply not true. Here is a list of things where universities did/do a lot of the initial research:
    Computers
    DNA
    Advanced mathematics
    Nanotechnology
    Cloning
    etc.

  • 39
    JC
    March 11th, 2008 17:23

    Conrad:

    advances in chips
    fuel injection
    Catalytic converters
    run flat tires
    Keyless cars
    Ipod

    financial engineering
    New methods of mining.
    Deep water drilling.

    these are just a tiny, tiny sample of stuff that comes out of private industry.

    You would be foolish to think most stuff comes from universities.

    In any event you haven’t given one reason why you think government funding is better able to provide research money.

  • 40
    JC
    March 11th, 2008 17:26

    How about productivity gains which bascially means doing less with more. US productivity has at times been as high as 5% of GDP. That alone is worth US$700 billion pa. i would argue that productivity ought to be counted.

  • 41
    Sacha
    March 11th, 2008 17:29

    Don’t know where it fits in here: Newton’s Principia and Maxwell’s equations of electromagnetism?

    (the really driven people will do the work regardless of whether it’s for money or fun provided they have the time)

  • 42
    conrad
    March 11th, 2008 19:03

    JC, I don’t think most stuff comes out of universities — however, I think a lot of the basic level stuff does and more particularly most of the great technology leaps that change everything as we know it (like DNA). I’m pretty glad, for example, we know about DNA and exotic materials which led to computers. I’m also glad we have advanced mathematics so we can analyse all that biotech data. THats why I think it is important — I think private firms and universities are good at different things.
    In addition, you might like to consider why the high-tech areas of the US have been pretty much the richest areas on Earth for the last 50 years or so. I believe many people argue that it is because they get all the new technology spin-offs from the universities and the fact that the smartest people on Earth all want to move there (of course it only works because they also have the private firm integration with venture funds and so on — Australia is notorious for this — people think of good ideas but are not able to capitalize on them).

  • 43
    JC
    March 11th, 2008 19:25

    Conrad:

    I couldn’t imagine what the earth would be like if we didn’t have government supported funding of research over the last 80-100 years. I’m sure we would bhe still riding horse carriages.

  • 44
    JC
    March 11th, 2008 19:32

    Australia is notorious for this — people think of good ideas but are not able to capitalize on them).

    Big deal, so the ideas get made overseas. So what? There isn’t a computer made in the US thes days either.

    In addition, you might like to consider why the high-tech areas of the US have been pretty much the richest areas on Earth for the last 50 years or so.

    You mean those centres around Harvard, MIT Stanford, Berkley, Caltec? Ummm

    the richest areas on earth are financial centres.

    But you may also want to ponder the average compensation at BHP is $75,000. Not bad for mostly untrained people.

    I don’t think we should worry too much about our ideas going overseas, conrad. As trhe 8th richest nation on earth by GDP per cap were no slouches.

  • 45
    conrad
    March 12th, 2008 06:05

    I don’t worry about it JC. Its just people complain about it, and I was just pointing out that part of making money from universities is due to external factors like a good private sector and companies that can actually usefully employ super talented people.

  • 46
    NPOV
    March 14th, 2008 21:30

    Jc, without “government supported funding of research over the last 80-100 years” it’s pretty fair to guess that we wouldn’t be having this conversation for a start.
    Personally I don’t care too much where the money comes from – if an academic non-profit organisation like MIT can secure a guaranteed flow of private money, then there’s little need for government money, but in Austalia there just isn’t that culture of philanthropy.
    However defence-based research (DARPA etc.) is pretty much always going to rely on taxpayer funds. And it’s hard to imagine NASA surviving on philanthropy.

  • 47
    JC
    March 15th, 2008 02:06

    “without “government supported funding of research over the last 80-100 years” it’s pretty fair to guess that we wouldn’t be having this conversation for a start.”

    So the guy who conceived the internet would never have been born or worked in the tech field unless there was government funding?

  • 48
    NPOV
    March 15th, 2008 04:16

    I think it’s a fair bet we wouldn’t have the internet as we know it now without a lot of the funding that supports non-profit organisations. It’s not just the initial development of it either, but the software that much of it still runs on. I’d hazard a guess that at least 50% of the software that makes up the backbone of the internet (including blog software) has been developed as a not-for-profit exercise. And something in the order of 25% of it owes its existence directly to taxpayer funding.
    Hardware is quite a different issue of course.