The big business of higher education

Gavin Moodie, Griffith University

Derek Bok Universities in the Marketplace: The Commercialization of Higher Education New Jersey, Princeton University Press, 2003 (233 pp). ISBN 0-691-11412-9 (paperback) RRP US$22.95.

In December 2004, and after substantial amendment of the Bill first presented to it, the Australian Parliament passed the Higher Education Support Act 2004. The Act introduces changes as significant as those made by the Higher Education Funding Act 1989, which implemented Labor education minister John Dawkins’ higher education policy. Although the new Act in some aspects consistently extends the Dawkins reforms, other aspects will redirect Australian higher education to be more like the US system. It is therefore informative to have the views of the distinguished former president of Harvard University Derek Bok on the commercialisation of American higher education.

Bok argues in his recent book Universities in the Marketplace: The Commercialization of Higher Education that ‘commercialization may be changing the nature of academic institutions in ways that we will come to regret’ and that ‘By trying so hard to acquire more money for their work, universities may compromise values that are essential to the continued confidence and loyalty of faculty, students, alumni, and even the general public’ (p. x). Bok does not consider soft marking of fee-paying students, plagiarism, and a general lowering or compromise of academic standards that are so prominent criticisms of Australian universities’ commercialisation. Bok regrets the increase of what in Australia is called managerial decision-making (p. 191), but his main concerns are athletics and scientific research.

U.S. college athletics

Sport, or athletics as it is more commonly known at US colleges/universities, has had an iconic place in American colleges at least since WWII. In 1945 the first ‘Ivy group agreement’ was made, formalising the Ivy league of the football teams of eight of the private colleges with the biggest accumulations of academic and socio-economic capital: Brown, Columbia, Cornell, Dartmouth, Harvard, Penn, Princeton, and Yale (Council of Ivy Group Presidents, 2003). Since then athletics has become big but by no means profitable business for many US colleges. Men’s football and basketball teams in division 1A of the National Collegiate Athletic Association earn tens of millions of dollars each year, mostly from broadcast rights from content-hungry cable television stations.

The competition amongst colleges in the ‘revenue’ sports is therefore intense, yet college athletes are supposed to meet their colleges’ normal admission and student progress standards, they are meant to be amateur, and of course gambling and performance-enhancing drugs are proscribed. These rules are variously avoided, broken, and flouted, to the occasional scandal of US college athletics. Bok discusses this problem and possible reforms at length, but as he himself acknowledges, while the abuses and widespread erosion of academic values in college athletics may indicate what may foreshadow possible problems if commercial competition intensifies in other areas of colleges’ activities, there is little evidence that it has happened so far.

Scientific research

Bok fears that commercial pressures will compromise pure academic values.

Bok’s other major concern is that ‘commercialization has taken hold most firmly’ (p. 5) in the sciences notwithstanding scientists’ strong sense of mission. Bok observes the by now familiar involvement of university scientists in industrial research, justifying Kenney’s (1986) phrase ‘the university-industrial complex’. The reasons for this development are given by Collini in a recent elegant, entertaining, and informative essay. Collini (2003) notes that since WWII British universities have been transformed into mainly centres of scientific and technological research and, increasingly, of vocational and professional training. In the 1930s half the students at British universities were in the arts faculties; more strikingly still, arts students were 80 per cent of students at Oxford and 70 per cent of students at Cambridge. Now only about 18 per cent of students in British universities are studying ‘pure humanities’.

But the really significant change concerns expenditure, especially expenditure on research rather than teaching: the huge growth in the costs of ‘big science’ and the extraordinary expansion of the scope of the biological sciences mean that the science budget has soared into the billions, dwarfing the amounts spent on the humanities and social sciences. Inevitably, funding systems will be designed to fit the activities involving the most money. Public funding of higher education is hugely concentrated on supporting science, medicine and technology, and these departments account for an overwhelmingly large proportion of any individual university’s operating budget (Collini 2003).

But because public funding has not maintained pace with increasing costs—and ambitions—in scientific research, scientists and their institutions seek and increasingly rely on commercial funds. Bok observes that ‘most universities have not earned much money from royalties: the odds of making anything substantial from patenting a new discovery are extremely small’ (p. 77). Yet commercialisation brings the familiar risks of secrecy, conflicts of interest, and of suppressing or changing results inconvenient to commercial sponsors. He recounts some disgraceful examples of the latter in research on pharmaceutical and other medical products.

Bok fears that commercial pressures will compromise pure academic values:

These dangers caution against efforts to take technology transfer activities into account in appointing and promoting faculty members. The case for doing so seems persuasive at first glance . . . For basic science departments in major universities, however, rewarding professors for technology transfer would be most unwise. The market already rewards such activities. To go further to give credit in appointments proceedings could easily tilt the balance too far toward encouraging commercial pursuits. Universities, in their eagerness to make money, might use such policies to tenure professors of modest scientific talents who demonstrate a capacity to raise substantial funds from patents or industrial connections. In the end, the fragile set of values so critical to basic research could gradually succumb to commercial temptations to the detriment of basic scientific progress (p. 205).

This is surely too purist. It ignores Gibbons and colleagues’ (1994) observation of ‘mode 2’ knowledge production or research which is context-driven, problem-focussed, and interdisciplinary in contrast with traditional or ‘mode 1’ research which is academic, investigator-initiated, and discipline-based. Bok furthermore ignores the work of Michael Porter (1988) in his own institution, which demonstrates the importance of clusters of research units, teaching-learning, and businesses in fostering innovation and increasing productivity.

And Bok’s concerns are hardly applicable to Australia. Unlike in the United States, Australian universities don’t own teaching hospitals and so are not under such direct and intense pressure to obtain funds from private pharmaceutical and medical products companies. While Australia’s public funding of research and development is at or a bit above the OECD average, Australian private expenditure on R&D is way below the OECD average (OECD 2003). The problem in Australia is not too much private funding compromising basic research, but too little private investment in any kind of research and development. While this is a problem of the private sector, it is a problem for the society as a whole, including universities.

In some respects Australian higher education is more commercialised than in the United States.

The current Commonwealth Government’s first response to this problem Backing Australia’s ability - an innovation action plan for the future allocated most additional funding to supporting university research and very little to increasing private funding and influence in R&D. Of the $2.8 billion committed over five years, 91 per cent was for higher education, 4 per cent for R&D tax concessions for private enterprise and 5 per cent to compensate somewhat for the transfer of Commonwealth funding from public to private schools (Commonwealth of Australia 2001). The review of this policy seems to be almost entirely concerned with universities and other major publicly funded research organisations. And the Commonwealth’s implementation of the four national research priorities and goals seems to be achieving a reasonable balance of pure and applied research and concentrating but not narrowing effort. These measures do not seem to be compromising basic academic values, and arguably Australian universities could do more to encourage and support private research and innovation without risking their main roles.


Bok’s views on distance education (‘correspondence schools’) and university extension programs are even quainter. He notes that ‘at Harvard some 18,000 students are enrolled in regular degree programs but over 60,000 more come to the campus for a few days, a few weeks or an entire year’ (p. 83). But he considers these and distance education students to be on the ‘periphery of campus life’ (p. 3) and thus their educational experience to be of marginal educational value. He worries that the profit motive is ‘problematic’ in fee for service programs (p. 166) and that it threatens educational principles (p. 108). Bok is deeply sceptical of the prospects of ‘internet instruction’ (pp. 92–98).

While one may share some of these fears in the abstract, some of Bok’s examples are not borne out by experience. He asserts that students would not accept paying different amounts for the same degree:

Yet no one expects institutions to charge some students more or less than others to reflect these varying costs [of subjects]. The accounting problems would make such adjustments extremely arbitrary and cumbersome, and students would resent having to pay different amounts for the same degree (p. 164).

This supposition is contradicted by Australian students’ broad acceptance of variable higher education scheme charges since 1997, despite their being widely criticised at the time of their introduction. Indeed, it seems that in some respects Australian higher education is more commercialised than in the United States.

How commercialised is Australian and U.S. higher education?

Public colleges/universities educate 65 per cent of students enrolled in American institutions that offer baccalaureate degrees, and almost all the balance are enrolled in private not-for-profit institutions. Typically U.S. state governments set tuition fees for students in public institutions from within the state, and in 2001–2 the average in-state public tuition fee was $US4,300 for one full time year. Some states regulate the tuition fee for students from out of the state, while others allow university systems and less frequently individual universities to set their own out-of state tuition fees, but in both cases these typically range from about $6,000 to $8,000. In 2001–2 the average tuition fee for 4-year private not-for-profit colleges/universities was $US21,200, although this is extensively discounted for students from disadvantaged backgrounds and for high-scoring students.

American students pay their fees by a combination of federal government means-tested grants, federal government means-tested but interest-bearing loans, state or local government means-tested grants and loans, and fee discounts/scholarships/grants provided by private colleges. The proportions of students receiving what is called financial aid in the U.S. are shown in Table 1 below. The percentages do not sum to 100 because students typically receive multiple forms of financial aid.

Table 1: Forms of financial aid for first time full-time undergraduate
students by institutional control, U.S.A., 2000–1 (per cent)
  Public 4-year
Private 4-year
Federal government grants 47 35
State or local government grants 48 40
Institutional grants 34 84
Loans 48 72
Any form of financial aid 64 84

Source: U.S. Department of Education, National Center for Education Statistics (2002) Table 24.

Federal and State government financial aid is typically provided to students irrespective of whether they are enrolled in a public or private institution. It is therefore like the Australian Government’s fee-help scheme to be introduced in 2005, except that unlike the US schemes, Australian fee-help covers the total fees up to a maximum loan of $50,000 and it does not charge interest. Australian universities earn a higher proportion of their income from student fees, however, largely because they enrol far more international students.

While a few US universities may be spectacularly entrepreneurial, most are not.

In 2000 only 5 per cent of those enrolled in US universities were international students, and even private not-for-profit 4-year institutions enrolled only a 2 per cent higher proportion of international students than public institutions. In contrast Australian universities enrolled 14 per cent international students in 2000, most of them on shore. Since 2000 Australian international enrolments have grown very strongly, so that by 2002 onshore enrolments were 13 per cent and off shore international enrolments were 21 per cent of total enrolments. In contrast international enrolments at US institutions have languished. A director of international programs at an Australian university told me that the United States had succeeded where his mother and the Christian Brothers had failed: each night he goes down on his knees to thank god for the North Americans and pray that they might continue their policies towards international students.

Public colleges/universities in the United States and Australian universities derive the same proportion of their income from government grants—46 per cent. U.S. colleges/universities earn 9 per cent of their income from the teaching hospitals they own and a further 9 per cent from auxiliary enterprises, mostly student residences whose fees are also largely covered by combinations of federal and state government grants and loans. Only 0.9 per cent of public US institutions’ income is from endowments. Unfortunately the US Department of Education’s National Center for Education Statistics, which is the source of these figures, doesn’t report endowment income separately for private 4-year institutions in 2000, but even assuming most private institutions’ investment income is from endowments, it should be recalled that this is stimulated by the probate and gift duties that are still levied in the United States and most other civilised countries.

Table 2: Sources of revenue of degree-granting institutions,
Australia and the U.S., 1999–2000 (per cent)
  U.S. 4-year institutions Australia
  Public Private not-
Government grants 46 11 28 47
Tuition and fees 18 24 21 31
Other fees and charges (including fees for service)       5
Private gifts, grants, and contracts 5.6 13.6 9 5
Endowment income 0.9      
Investment return   31   3.4
Sales and services of educational activities 3.6 2.4 3  
Auxiliary enterprises 10.5 7 9  
Hospitals 11 7 9  
Independent operations 0.4   1.4  
Other sources 4 4 4 8
Proportion of international students 4 6 5 14

Sources: U.S. Department of Education, National Center for Education Statistics (2002) table D,
Department of Education, Training and Youth Affairs (2001), Table 1.

It is clear that while a few US universities may be spectacularly entrepreneurial, most are not. This seems to be because US governments believe that public funds should be under much greater public control than Australian governments, even when they are in the form of tax deductions or tax expenditures and even when they are allocated to private institutions. Different US states have different policies, but the type of re-regulation proposed by Australian education minister Dr Nelson in the Higher Education Support Bill 2003 first presented to Parliament and which provoked so much outrage from the neo-liberal Australian vice chancellors is quite within normal bounds in the United States, and rather less than the longstanding regulation of public 4-year higher education institutions in California, Colorado, and Texas, for example.

The US tax law is a major restriction on public and private US institutions’ commercial activities. Australian institutions are eligible for tax-deductible status if they do not distribute profits and if they were formed for charitable purposes, but Australian charities may and do conduct substantial commercial enterprises. In contrast US institutions such as universities are eligible for tax-deductible donations and bequests only if their trading or commercial activities are minimal. Since almost all public and private universities in the United States wish to retain their charitable tax status, they are heavily limited in the commercial activities they may undertake. Even so, American universities are not very active in developing the sources of non-government and non-tradition income open to them. In the land of the free—the land of free enterprise—universities are remarkably tightly regulated and unenterprising.


Critics of universities’ commercialisation have not shown that the undoubted problems they report are systemic.

While the extensive fee-charging of higher education in the United States has many problems, Bok does not suggest that it has compromised academic values. Neither does it seem to have caused the widespread problems of plagiarism, soft marking, or a lowering or compromise of academic standards so many Australian commentators fear. While one may readily agree that these are serious concerns, neither Australian critics of universities’ commercialisation nor Bok has demonstrated that the undoubted problems they report are systemic. Both Bok and the Australian critics extrapolate too far from a few examples of bad practice. Their laments for the increasing commercialisation of higher education read like anachronistic romanticisations of the disappeared past.

The real problem, as Anderson (2001) points out, is not that soft marking is rife or that academic standards have fallen, but that we have no way of knowing whether these ills have befallen Australian higher education. Rather than an indicator of substantive quality, the Australian universities quality agency’s audit of quality assurance processes is an expensive distraction from the core issue. The Commonwealth (DEST 2002) prefers the universal or at least systematic application of the graduate skills assessment. This approach is more promising, but many remain to be convinced that the test measures much more than innate ability, in which case it is measuring only the selectivity of student admissions, not the quality of student learning or teaching. Anderson’s (2002) proposal for the external assessment of a sample of final papers may be the best method currently available.

Notwithstanding these criticisms Bok is surely right in claiming that ‘The last line of defence for basic academic standards is an adequate and stable level of support’ (p. 196).


Anderson, D. 2001, How can anyone know about the intellectual standards of university degrees and does it matter anyway? Submission to Senate inquiry into higher education [Online], Available: [2003, Dec. 10].

Anderson, D. 2002, An academic standards agency, Submission to the higher education review [Online], Available: [2003, Dec. 10].

Collini, S. 2003, HiEdBiz, London Review of Books, vol. 25 no. 6 November [Online], Available: [2003, Dec. 10].

Commonwealth of Australia 2001, Backing Australia’s Ability—An Innovation Action Plan for the Future [Online], Available: [2003, Dec. 10].

Council of Ivy Group Presidents 2003, The Ivy League, [Online], Available: [2003, Dec. 10].

Department of Education, Science and Training 2001, Students 2000: Selected Higher Education Statistics [Online], Available: [2003, Dec 10].

Department of Education, Training and Youth Affairs 2001, Finance: selected higher education statistics 1999 [Online], Available: [2003, Dec. 10].

Department of Education, Science and Training 2002, Striving for quality: learning, teaching and scholarship [Online], Available: [2003, Dec. 10].

Gibbons, M., Limoges, C., Nowotny, H., Schwartzman, S., Scott, P. & Trow, M. 1994, The New Production of Knowledge: The Dynamics of Science and Research in Contemporary Societies, Sage, London.

Kenney, M. 1986, Biotechnology: The University-Industrial Complex, Yale University Press, New Haven.

OECD (Organisation for Economic Co-operation and Development) 2003, OECD Science, Technology and Industry Scoreboard 2003, [Online], Available: [2003, Dec. 10].

Porter, M. E. 1998, ‘Clusters and Competition: New Agendas for Companies, Governments, and Institutions’, in: On competition, Harvard Business School Press, Cambridge.

U.S. Department of Education, National Center for Education Statistics [E.D. Tabs] 2002, Enrollment in postsecondary institutions, Fall 2000 and financial statistics, fiscal year 2000, NCES 2002–212, Washington, DC [Online], Available: [2003, Dec. 10].

Gavin Moodie is principal policy adviser at Griffith University and a columnist for The Australian’s higher education supplement. He has been an administrator at various universities since 1975 and has published papers on higher education equity, policy, and management. He is currently interested in tertiary education structures in OECD countries.

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