The Forum | Costs

Should Universities Be More Like Corporations?

February 25, 2020 by Erik Gross

I attended an interesting event last week at the American Enterprise Institute (AEI) with University of Virginia President James Ryan. Titled “Should universities be more like corporations?”, the speech by President Ryan and subsequent discussion with AEI’s Director of Education Policy Studies Rick Hess examined lessons that universities could learn from the private sector. Drawing from the Business Roundtable’s statement this past summer that the mission of a corporation is to promote an “economy that serves all Americans,” rather than only customers and investors, President Ryan asserted that universities should not only serve students and stakeholders, but the general public as well. Universities also, of course, could learn from the efficient resource allocation of the for-profit sector.

I agree with his sentiment that universities have a public responsibility and that they must work to change their business models, but a minor, and somewhat tangential, note from his speech really stuck with me. President Ryan noted that 23 of the top 25 national universities are older than 100 years old. Meanwhile, the average corporation on the S&P 500 is a fraction of that age. To President Ryan, this is one way in which universities have actually been more successful than their corporate counterparts. But I could not help but wonder if the longevity of elite universities is a sign of the higher education marketplace’s failure to be more competitive, and if perhaps universities should be more like corporations and file for bankruptcy more often.

If one believes in free markets, the failure of businesses is a benign phenomena in many ways. Inefficient companies go under, or more effective or innovative companies either replace them or force them out of the market in the first place. The economy thus constantly improves and innovates. In higher education, that competitive market mechanism has been largely absent, although disruptive innovation from online or for-profit universities has placed recent pressure on traditional colleges.

“Perhaps universities should be more like corporations and file for bankruptcy more often.”

If 23 out of the top 25 universities are over 100 years old, could that be a sign of condensed market power in higher education? Imagine for a moment if 23 of the top 25 corporations in America had experienced that kind of longevity. Critics would likely claim that the market had become monopolistic, that well-established businesses were not being challenged by newcomers, and that decisive policy action was needed to correct the market. At the very least, it would be clear that the economy had become static. Yet if 23 of the top 25 universities are that old, it is a sign of success in an otherwise dysfunctional and inefficient market.

Perhaps well-established institutions do provide some value added. For students and faculty, there are perceived perks. Students can benefit from having a prestigious, brand-name institution on their resume after graduation. Faculty are better able to advance their research at well-known, resource-heavy institutions.

But for wider society, the picture is murkier. It is hard for smaller and lesser-known universities to compete with elite institutions, even if they are providing real benefits and substantive education to their students. Likewise, brilliant faculty at less prestigious campuses often have difficulty getting published over faculty at Ivy League universities, for example. And, as the Varsity Blues admissions scandal most poignantly demonstrated, our cultural focus on prestige has distorted college selection away from academic quality in favor of reputation.

On the other hand, maybe elite and storied institutions provide some benefits to American society. They can present an air of cultural and institutional stability against the backdrop of unrest and upheaval throughout the rest of the country, even if their students look to tear down the powers that be. Perhaps these institutions are able to build up resources as well as a body of knowledge over time, which can provide research benefits that push the boundaries of human understanding.

“Colleges going under and being replaced by new and innovative institutions would be a sign of a healthier market.”

I do not claim to have the answers to the questions that I am raising, but I believe that they are worth examining. I know that I feel deep sadness when I read about a university going under, and I think of the students and employees that are affected. But at the same time, maybe more colleges going under and being replaced by new and innovative institutions would be a sign of a healthier market.

Lastly, I appreciate that President Ryan examined important issues and questions in higher education without claiming to have the silver bullet for everything. He was honest and inquisitive in his talk, which I found refreshing. In today’s age of intense political correctness, with university officials under heavy scrutiny, college presidents are often such shrewd politicians that they, well, do not say much of anything at all. Not President Ryan, however. He was honest, humble, and truth-seeking. American higher education desperately needs more college presidents that are comfortable being intellectual leaders on and off campus.


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