Brand names are assets to any firm or organization. Colleges and universities, whether public, private nonprofit, or for-profit, are no different. Those that have national name recognition can attract a broader and more talented pool of applicants, more tuition revenue, and more donations.

Because a strong reputation often shows that the college or university has been successful in pursuit of its mission, a reputation once developed is a potential revenue good that can be profitably exploited. Somewhat ironically, it is the school's reputation for its unprofitable activities, such as research and many elements of instruction, that often permits it to make profits in other activities. For example, by lending its good name to other revenue-raising programs – such as continuing education or product certification or endorsements – a school can expect to enhance its revenue. Critical to success in higher education, however, is the perception that the school's primary priority and mission is the welfare of the student and the production and dissemination of knowledge and not merely money. Overexploiting the brand name can result in greater short-run revenues at the expense of long-run reputation, as happened when Johns Hopkins University decided to endorse skin care products for cash (see Chapter 12). Thus, “successful” brand management involves a trade-off between leveraging the brand – making use of it to generate revenue – and simultaneously sustaining its value. A public or nonprofit college or university is very much like a private firm in facing this continued balancing problem.

INTRODUCTION

As seen in the previous chapters, dictatorships vary in their institutional arrangements. In 12 percent of all dictatorial country-year observations, neither a legislature nor a political party existed. Monarchs are most likely to govern without institutions; one-third of them dispense with nominally democratic institutions. In contrast, civilian dictators rely heavily on them: there are almost two times as many civilian dictatorships with a single party rather than multiple parties, but almost all of them govern with legislatures. The organization of military regimes is much more varied.

The illustrative cases also display the variation in institutions under dictatorship. In Kuwait, the ruling family at first conceded institutions to the merchant opposition, only to rescind them after the discovery of oil. After independence, the kings of Morocco attempted to renege on institutional concessions as well, only to find that they could not engage in state-building and neutralize the opposition without the aid of nominally democratic legislatures and parties. Because they did not have the resources of the Kuwaiti emirs, Morocco's rulers wisely established these institutions to co-opt the opposition. In contrast, Rodriguez Lara failed to incorporate crucial elements of Ecuadorian society. By not providing a forum in which outside groups could issue demands, negotiate with the regime, and influence policy, the military government alienated even those segments of society that were designated beneficiaries of its programs.

If parties do not compete and legislatures do not legislate, then what do these institutions do under dictatorship? This question naturally emerges if we adopt the typical view of dictatorial institutions as mere “window-dressing.” Yet this understanding of nondemocratic legislatures and parties makes little sense in light of neo-institutionalist approaches that pervade the study of other political structures and events. For one, we think that institutions, in general, are not randomly generated phenomena but rather are purposely constructed to further the goals of political actors, whether they are to solve particular problems that prevent the fruition of more efficient outcomes, to solidify distributional power, to survive in office, or to achieve whatever else. Actors use institutions to realize their goals but are constrained by the types of action available to them and by the goals and actions of others. As a result, institutions are the product of strategic behavior on the part of political actors. But this standard notion of institutions runs counter to the idea that dictatorial institutions are “window dressing.” If assemblies and parties are mere ornamentation under dictatorship, then what explains the variation in the presence and absence of these institutions? Are we to assume that such variation is determined only by the capriciousness of individual leaders rather than by the strategic logic that governs the functioning of other types of institutions?

Amid the obvious complexity of schools' activities and the equally obvious differences between research universities and liberal arts colleges, and between for-profit and nonprofit schools, there is a fundamental simplicity. Every school does two things: it raises revenue and it spends it. It spends money to pursue its mission and it raises revenue to finance those expenditures. Every school of every form must generate revenue to advance its goals, however different those goals may be.

These two elements of each school's behavior – deciding how it can raise money and how it should spend it – provide a valuable starting point for examining how the various types of schools determine such elements as tuition and financial aid policy, how much to spend on fundraising, how much legislative lobbying to do for governmental grants, which level of intercollegiate athletics to play, how to capitalize on a strong brand-name reputation, how much to spend on recruiting students, whether to lease or buy classroom space, and what to look for in a new president. As we investigate these and other aspects of collegiate activities we can be guided by thinking of schools as “two-good firms” – choosing which methods to use for raising money and which activities to spend the money on. Both kinds of activities are affected by the school's competitive position as it considers how to define its goals and how to finance them.

The choice of the mission and the manner in which it is financed are inextricably linked for any college or university. Research, teaching, and outreach lead schools to invest in specific means to raise revenue to support their missions. Lobbying, international expansion, and distance education are excellent examples of distinct ways of financing schools' particular missions.

LOBBYING: SPENDING MONEY TO MAKE MONEY

Lobbying legislatures for funding or legislation has a long (if sometimes unsavory) history in the United States. Colleges and universities have increasingly included lobbying among their methods of revenue pursuit, just as organizations in other industries have. Public, nonprofit, and for-profit schools are spending money on in-house lobbyists or on lobbyists from outside firms. Influencing Congress to enact favorable legislation can advance a research university's efforts or lead to regulatory changes desired by for-profit schools. We find some intriguing patterns of lobbying activity in higher education.

The search for revenue led three universities to spend close to $1 million each on lobbying in 2004 – $930,000 by Boston University, $937,000 by the University of Miami, and $940,000 by Johns Hopkins University (Center for Responsive Politics 2007), and over the next three years a number of schools reported annual lobbying expenditures over $700,000 – including Harvard and Northwestern as well as Johns Hopkins and Boston Universities. These sums are tiny in the overall budgets of these schools where research expenditures alone, in 2005, were $337 million at Boston, $287 million at Miami, and $1.7 billion at Johns Hopkins (AUTM 2005).

Research has become big business and a growing source of revenue, especially in recent decades. Yet it remains true that research and its follow-on activities, patenting and licensing, are the domain of a small fraction of the higher education industry. For-profit schools do not engage in research and, indeed, are not even eligible for federal grants from National Institutes of Health (NIH) or the National Science Foundation (NSF). Community colleges do not engage in significant amounts of scientific research of the sort that generates grants from government or corporations, nor do liberal arts colleges, including the most prestigious. Even many schools classified as research universities receive, for the most part, relatively inconsequential amounts of research grants. Only the elite public and private universities are involved in “big” research.

RESEARCH AND RESEARCH UNIVERSITIES

Research has been a substantial growth sector, as we can see from Figure 8.1. Following a period of quiescence from the late 1960s through the 1970s, the rate of growth of university spending on research and development (R&D) quickened in the 1980s (and not by accident, as we shall see below), increasing again in the second half of the 1980s. Over the entire period beginning in 1953, research spending grew from $817 million to an estimated $42.8 billion in 2006, more than a 50-fold increase in constant dollars. As a share of total higher education expenditures, R&D expenditures have increased substantially, from 9 percent in 1971 to 15 percent in 2006.

INTRODUCTION

The aggregate numbers show that nondemocratic regimes display significant heterogeneity. The variation in institutions and the reasons for it come into sharper focus by examining some specific cases. First, consider Kuwait. Beginning in the early 1900s, merchants were active in the political life of the kingdom. They rebelled against the emir's unilateral imposition of taxes and demanded greater participation in decision-making alongside the Sabah ruling family. Dependent on the merchants for revenues, the emir steadily granted concessions, culminating in a parliament in 1938. The institution, however, did not last. As Kuwaiti rulers were able to disentangle themselves from the merchants through steadily increasing oil revenues and to consolidate and distribute power within their family, they were able to cease concessions to the merchants who eventually, themselves, were co-opted.

The kings of Morocco, however, were not able to avoid making concessions to outside groups. After independence from France in 1956, they sought the cooperation of their citizens in state-building because they had little recourse to external revenues. In addition, a secular, nationalist party that had gained popularity for its leading role in the independence movement foiled the monarchs' designs to consolidate absolutist power. As a result, nominally democratic institutions emerged with the king forced to contend with parliaments containing parties that did not always follow his will.

What is vital about colleges and universities? For parents, higher educa-tion is vital to their children's lifetime careers, on one hand, but is a major financial drain on family resources, on the other. For public policy- makers, higher education is many things – a fundamental element of their constituents' demands for economic opportunity, a crucial element of the struggle for equality of access to learning and prosperity, a magnet for attracting business and industry, and a source of national, state, and local pride. But it is also a costly social service – and increasingly so. For faculty, academic administrators, and trustees, higher education is their vocation but also a business that seems increasingly driven by money alone. For researchers, higher education is an industry having much in common with other industries, consisting of thousands of competitors, each attempting to establish its own brand-name reputation, each attempting to attract contributions from public and private sources. However, it is also quite different from most other industries. Many millions have had direct experience with higher education but know little about it as an industry. Our goal is to reach all these audiences both within and outside of higher education.

We set out to understand this complex industry: how schools compete, how they finance themselves, and what social role each type of college and university plays. In the course of the research we learned a great deal. If we can convey to others some of what we learned we will have succeeded.

At the heart of this book has been our examination of the distinction between what colleges and universities do to raise revenue and how they spend it to advance their missions. That distinction is neither simple nor clear. Raising money and spending it are interrelated, not distinct. Every one of the methods used by colleges and universities to raise funds for the support of their training, research, and public service missions has side effects that can easily compromise those missions. That conflict, or tension as we have called it, highlights the challenge to public policy on higher education: how to make it possible for colleges and universities to generate revenue in ways that minimize the side effects or distortionary effects on the mission, which is typically ill defined.

Complicated as that challenge is to deal with, it is only part of the overall public policy challenge for higher education. How much revenue “should” higher education have? How should the funds be spent? How many colleges and universities should there be? What should the mix of large and small schools be? Does higher education have the “right” balance of two-year community colleges and research universities, of career academies and traditional degree-granting schools, of residential and Internet-based programs? Is the combination of public, private nonprofit, and for-profit higher education “appropriate”? And although everyone would like to see “high-quality” education, what does that mean in practical terms?

Higher education affects almost all of us – as students, parents, employees, employers, and citizens or as beneficiaries of scientific, medical, and technological research. A college education is coming ever closer to being considered so basic that, like hospital care, it is too important to be left to the competitive forces of the marketplace.

Higher education today is caught up in conflicting political pressures that are increasingly relying on it to solve economic and social problems. Colleges and universities are called on to expand their already broad missions and make college education available not only to all recent high school graduates but also to older adults trying to adjust to changing labor markets. At the same time, higher education is asked to expand these educational services while reducing revenue from tuition and to avoid pursuit of other revenue sources when they involve questionable relationships with the corporate world. And the richer schools are pushed to spend down endowments that are being deemed “excessive” without a clear definition of what that means.

The higher education industry is complex and diverse. It combines a dominant public sector of state universities and community colleges that educate a majority of all students; a varied private sector of nonprofit schools that encompass some of the world's most elite research universities, such as Harvard, Princeton, and Stanford; elite liberal arts colleges, such as Swarthmore and Williams; and many hundred less-selective schools, many religiously oriented.

In part, this book reflects my Condorcet Lectures delivered at the Centre de Recherche en Économie et Management, Université de Caen, Caen, France. Perhaps anticipating paradoxical election behavior of the kind exhibited by the “Nader effect” in the 2000 election, which would have added spice to the already lively discussions, these lectures were purposely scheduled for the week after the November 2004 U.S. presidential elections.

The Condorcet Lectures are named after the prominent eighteenth-century French scholar and politician Marie-Jean-Antoine-Nicolas de Condorcet. As one must expect, a lecture series named after theMarquis de Condorcet must emphasize contributions made to social choice and voting theory. Appropriately, the inaugural Condorcet Lectures were delivered by Kenneth Arrow in September 2002. My lectures were the second in this series, and the third were given in June 2005 by Amartya Sen. What a delight to be sandwiched, perhaps serving as a comma, between these two great thinkers, who have influenced the field of social choice in so many ways. Indeed, certain of their seminal results play key roles in Chapter 2 of this book.

My hosts, Vincent Merlin and Maurice Salles, also organized a small conference centered around the general topic of my lectures – “The Subtle Mathematical Structure of Social Choice.” In order of presentation, the speakers, all eminent contributors to this area, were

• Luc Lauwers (Catholic University of Leuven), who spoke on the topological approach to the aggregation of preferences

• Bernard Monjardet (Université de Paris 1), who described discrete mathematics in social choice

• […]

Introduction

The Japanese economy by the end of Koizumi's tenure stabilized and reached a point of sustainable growth. Although Japan experienced several recovery periods since 1990 only to be followed by decline and instability, the recovery that started in 2003 has been more substantial. In the late 1990s and first year or two of the new century, there was considerable discussion about the potential for another decade of economic distress. As of September 2006, this type of discussion has all but disappeared. This does not imply an absence of economic and political challenges facing Japan in the near future. It does mean, however, that for the first time in a decade and half, the Japanese economy and political systems at the end of 2006 could realistically have a more positive attitude about the future. This view needs to be qualified to some degree because Japan's economic recovery has been based narrowly on the export sector, the political impasse and uncertainty that emerged with the LDP-CGP (Clean Government Party) government's loss of the majority in the July 2007 upper house election and the opposition parties' controlling the upper house, and continuing indications that the potential for deflation has not been completely rung out of the Japanese economy.

On the positive side, real GDP increased 2 percent in 2006, unemployment declined, although it still remained high by historical standards, equity prices increased, and, for the first time since 1991, real estate prices and rents in Tokyo begun to move upward.

Introduction

Prime Minister Koizumi came into office April 2001, when the economy was in serious, protracted stagnation and deflation, despite nine years of repeated government stimulus packages and the unprecedented ZIRP of the BOJ starting February 1999. In 2001, the economy was in renewed decline, and real GDP growth was only 0.21 percent in 2001, after a brief modest recovery in 2000 (2.4 percent real growth). The unemployment rate of 5.0 percent in 2001 was the highest in postwar history and was still climbing. Deflation continued with a 0.77 percent decline in the CPI in 2001 (OECD, various years). Observers in and outside Japan were wondering whether a “second lost decade” was in the making. The Japanese public and businesses felt helpless in the face of the seemingly insurmountable economic stagnation and ineffective government policy. They were desperate for any change or any political leader who could offer any alternative solution to the economic and financial distress that had passed the decade mark.

The Japanese placed their hope in Koizumi – very unconventional, energetic, and atypical of LDP leaders – when he emerged in 2001 with the promise of changing Japan and engineering economic growth and, if necessary, destroying his own LDP in the process. Koizumi attempted reform in many areas of the economy and government intervention, some successfully and some not so successfully.