To the Editor:
Kudos, comments, and caveats for Gordon Brittan's thoughtful article, "Public Goods, Private Benefits, and the University."
Professor Brittan is absolutely right to identify the primary "public good" benefit of public universities as cultural rather than economic. While the cultural benefits are indisputable, there is little reliable evidence that government spending on universities has more economic benefit than, say, spending on infrastructure or leaving the money in the private sector.
On the contrary: A corpus of econometric studies has developed over the past 30 years identifying macro-economic effects from all sorts of government fiscal and legal actions, including tax changes, infrastructure spending, employment laws, and the like; but I have yet to see a rigorous independent study (as contrasted with lobbying fluff or anecdotes) showing a positive net economic effect from spending more tax money on higher education. On the contrary, there is some evidence that diverting money from the private sector to public universities may depress the economy, at least in the short run. In sum, the "economic development" argument for higher education funding is an old dog--makes us comfortable, but won't hunt.
The recent economic history of Ireland is often mis-stated, but the real history is that Ireland long funded education and other government services lavishly, yet remained economically stagnant. Ireland became prosperous only after it started to reduce dramatically both its tax rates and government spending as a share of GDP--factors strongly correlated with subsequent economic growth generally. [See, e.g., Gwartney, Lawson & Holcomb (Joint Economic Committee, U.S. Congress, 1998), which examines the record of Ireland and other OECD countries.]
The point is not that higher education shouldn't be subsidized. The point is that Professor Brittan is correct in identifying cultural rather than economic benefits as the primary reason.
If the spill-over benefits from universities are cultural rather than economic, then public subsidies should be targeted toward fields of study that provide cultural benefits, but potentially are underserved by the free market. In other words, fields such as Professor Brittan's (philosophy and the other liberal arts and sciences) are more worthy of public support than those that are largely vocational in nature and promptly reward students with a market payoff (such as my own field of law).
Moreover, to say that higher education should be subsidized is not to rule out better ways of doing so. If the legislature focused its funding on the "bottom up" priority of Montana student scholarships rather than on the "top-trickle down" approach of funding the Board of Regents, Montanans probably would get more education and less bureaucracy for their money.
I am troubled by Professor Brittan's (and others') use of the word "privatization" to describe a more tuition-driven system. Privatization has a clear accepted meaning: the transfer of government assets into the private sector. With respect to the university system, this is not happening in Montana, and, so far as I am aware, has not been seriously proposed. User fees are not a form of privatization, according to the accepted definition of the term. The decision by the National Park Service to charge a $10 entry fee did not "privatize" Yellowstone.
My principal caveat has to do with Professor Brittan's use of the Samuelson formulation of public goods. As Professor Brittan notes, the argument for subsidizing public goods is that some activities diffuse benefits throughout society in such a way that they will be under-produced unless people are taxed to pay for them. There is some truth to this, and, in my view, higher education is part of that truth, but I think the argument is oversold for two opposing reasons.
The first reason is that we have learned that many goods and services that we thought were purely "public" in nature turn out not to be, because entrepreneurs can find ways to capture the benefits for the producers. Samuelson's own classic example of lighthouses as something that must be produced by government was debunked long ago by Nobel laureate Ronald Coase, who showed that in England, for example, an adequate supply of lighthouses actually was being produced by the private sector rather than by government.
The opposing reason for caution is that the argument from diffuse benefits proves too much. Much productive activity results in diffuse benefits to third parties who do not pay for it. For example, millions of people who have never purchased computer software have benefited hugely by its production. Does that mean those millions should be taxed to subsidize Microsoft?
Such concerns again underscore Professor Brittan's wisdom in identifying the reason for public support of higher education as cultural rather than economic.
Thank you for publishing his excellent article.
Rob Natelson, Professor of Law
University of Montana-Missoula
Missoula, MT 59812-7992
(406) 243-2751
natelson@montana.com