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How Creative Destruction Has Begun To Pop The College Bubble


The economist Joseph Schumpeter coined the term creative destruction––the idea that dynamic forces work incessantly to destroy existing business models and institutions and replace them with superior alternatives. Think Amazon. Academia’s myriad failings have set in motion a perennial gale of creative destruction that is breaking down existing institutions and replacing them with new models of higher education that provide a better value proposition.  

The fundamental problem is that universities provide too little and charge too much. Tuition has increased at a rate that far outpaces inflation; students are burdened with mountains of debt that dog them for decades and contribute to low credit scores.

What, exactly, is being procured with a college degree? Students certainly seek to acquire a set of skills that enable them to obtain a job that would not be attainable otherwise. Yet many, if not most, jobs that graduates obtain make little or no direct use of the skills they obtain in college.

The intrinsic value of the degree lies in what economists refer to as a signaling—the basic idea that a degree attests to the students’ innate abilities, perseverance, and work ethic. Earning a degree is a screening device that employers use to reduce the risk of making bad hires. Employers are willing to pay for this reduced risk, which largely explains why college graduates earn more than high school graduates.

Collegiate Dysfunction

A multitude of factors explain why tuition costs have spiraled out of control. The federal government’s control of the student loan program is a major factor, as university administrators have leveraged this source of funding to raise tuition at unprecedented rates. State governments have dramatically reduced taxpayer support for public universities.

This betrays the idea that higher education is a public good: everyone benefits from an educated citizenry. The ranks of university administrators have increased multifold while professors’ teaching loads continue to decrease. The average time to complete a four-year degree is now five-plus years, as students are closed out of required courses that are not offered with sufficient frequency.

This introduces even greater uncertainty into the employers’ hiring calculus, as the failure to earn a degree in four years can be a negative signal (e.g., limited ability, poor work ethic). Specialized courses are offered virtually independent of enrollment, particularly at the graduate level, which further contributes to soaring costs. This is the cost side of the equation.

The value side is no less bleak. Researchers Philip Babcock and Mindy Marks report that the average college student in the United States today puts in less than 60 percent of the study time per week that their counterparts did in 1961 (14 hours versus 24 hours). They conclude that “The most plausible explanation for these findings…is that standards have fallen at post-secondary institutions in the United States.”

The result is degree devaluation, which prompts students to pursue graduate studies in an attempt to secure a credential that the bachelor’s degree previously provided. This leads to even more student debt, both direct costs in the form of additional tuition expense, and indirect (opportunity) costs attributable to more time spent out of the work force.

The story does not end there. Even students in the more technical fields, such as engineering, are not adequately trained to perform the jobs that they were hired to do. This has forced employers to commit additional resources to the in-house training of employees. There is no such thing as a free lunch, though—the cost of this supplemental training will be reflected in lower starting salaries for new hires. This further reduces the value proposition.

Professors Are Too Busy With Research and Indoctrination

Some of the more glaring failings of academia have already been noted, but there are more. Universities tend to undervalue superior teaching and overvalue mediocre research. The social value of a stellar teacher is far greater than that of a mediocre researcher, but this is not reflected in university reward structures. It should not come as a surprise that most academic articles are read by surprisingly few, if they are read at all.

Professors confuse indoctrination with teaching. To test this proposition, I regularly posed the following question to my students: Do you feel pressured to answer questions during class discussions or on examinations to satisfy the political or social leanings of your professors? No less than 85 percent of the students answered this question in the affirmative.

This is not quite the burning of books, but it is the suppression of free thought in a less drastic (but still worrisome) way. Effective teaching is not about telling students what to think, but rather how to think critically and objectively. Too many professors use the classroom lectern to advance their personal political and social viewpoints to the exclusion of all others.

Many universities now discourage use of the Socratic method in the classroom, lest students be made to feel uncomfortable. This is a manifestation of the so-called snowflake phenomenon that has infected college campuses like the intellectual cancer that it is. The cost is measured in terms of a dearth of critical thinking skills because students are not confronted with diverse (and, yes, sometimes uncomfortable) viewpoints.

With the tacit approval of university administrators, professors invoke tenure to protect their right to champion views that they hold dear while actively denying students the opportunity to develop their own views by restricting free speech. What precisely are universities afraid of in banning (primarily) right-leaning speakers from appearing on campus? If left-leaning professors truly have the better argument, they should welcome the opportunity to expose their students to these opposing views and then engage them in vigorous debate. This is a teaching moment lost.

Banning Speakers Creates Homogeneous Viewpoints

University administrators contend that the risk of violence is the primary reason that certain speakers are banned from appearing on campus. This is a credible argument in principle. In practice, authorities may be unwitting contributors to this heightened risk of violence by not putting it down when it first arises; what begins with broken windows often ends with broken bodies. The seminal question is whether preventing violence on campus justifies the unconditional surrender of a freedom considered so fundamental that it is codified in the First Amendment to the U.S. Constitution.

All of this has created an environment on college campuses that is consumed by far too many distractions. Universities make accommodations for students who wish to be addressed with pronouns that differ from their biological sex. Professors are asked to query students to ensure that they are being addressed by their preferred (often gender-neutral) pronouns that may change over the course of the term.

Do professors really need to partake in the dynamic gender preferences of their students? The harsh reality is that students can expect to find life outside the ivy-covered walls of academia to be far less accommodating. The only safe space in that setting is the one carved out by superior performance.

Universities admonish students for seeking help with mathematics from their Asian classmates because it could be perceived as a microaggression. Notwithstanding the fact that Asian students as a group consistently perform at higher levels on standardized mathematics examinations, it makes little sense for students in need of mathematics tutoring to solicit assistance from the numerically challenged. Only on the modern-day college campus could the innocuous act of securing help from the more able to improve academic performance be considered racial profiling.

Potential Fixes For a Terribly Broken System

Consideration should be given to eliminating tenure in favor of three-year or five-year renewable contracts. This may necessitate additional compensation for select faculty due to risk-return tradeoffs, but these costs will be more than offset by the separation of unproductive professors and the influx of new ideas from their replacements. This also solves a serious moral hazard problem because tenure would no longer protect underperforming faculty.

Tenured professors not actively engaged in research may be “penalized” with heavier teaching loads. The problem with this approach is that professors who may not have had an original thought since the Johnson administration (Andrew, not Lyndon) are given even more face time with students. Additional teaching responsibilities are not assigned to the most able teachers but to the least able researchers. Teaching once again gets short shrift.

The paradox of tenure is that it should be awarded only to those whose productivity will not fall off due to receiving it, but those professors do not need tenure. The free market will ensure that they are able to command the salaries and job security that such performance warrants. While tenure is not likely to perish quickly or quietly, the share of tenure-track positions is decreasing as universities move to transform fixed costs into variable costs. This process could be accelerated if excessively partisan teaching that runs counter to the development of critical thinking skills were grounds for revoking tenure.

Universities recognize the need to make significant capital-labor substitutions, but tenure impedes this process by institutionalizing the overutilization of labor. Technology has made it possible to beam lectures from the most gifted professors around the world at the speed of light. MOOCs (massive, open, online courses) are rapidly being developed that are available tuition-free. Online courses will continue to play a prominent role. This is evident in the protracted debate over whether colleges should build more dormitories or prepare for a time when an increasing proportion of students reside off-campus.

These new technologies for producing higher education exhibit economies of scale that will force policymakers to question whether they have too many universities. These new models of higher education are not perfect substitutes for the more traditional approach, but they may be sufficiently close substitutes to temper the unbridled increase in tuition costs.

Thomas Kuhn, the renowned physicist and philosopher of science, would tell us that we are experiencing a paradigmatic shift in higher education. A new set of institutions brought about by the profound failings of the old ones is forming. This new competitive model strikes not at the margins of traditional academic institutions but at their foundations and their very lives. Welcome to Amazon University! The ivory tower is not yet toppled, but it has begun to sway. Make no mistake: this is Schumpeter’s perennial gale of creative destruction at work.