Practical Dad

Driving Up the Cost of Higher Ed:  Globalization and the Knowledge-Based Economy

A short while back, my middle child and eldest son - aka "Middle" - asked me how college costs managed to rise so disproportionately over the past several decades.  The resulting article was a response to his question and looked at five different factors, each of which contributed to the present mess in the cost of a college degree.  The first of these factors was Globalization and this article is the first of a series examining the factors in greater detail.

Globalization wouldn't be the first thing that springs to mind when you think about why the cost of higher education has risen so dramatically in the past three decades.  It frankly wouldn't be the second or third thing either, since the effect upon the cost of a college degree isn't primary.  The impact is derivative instead, yet it's still important because it helped to pave the road for the persistent annual tuition increases as the institutions of higher education realized that there was now a massive and sustained rise in demand for their product:  a college degree.

Globalization is the economic principle that economic progress and advancement is improved for everyone when there is a free-flow of capital, technology, resources and labor across the globe and unhampered by national borders.  It is supposed to be a sort of rising tide lifts all boats effect as the aforementioned inputs flow to that global region best able to utilize them to produce in the most efficient and effective manner.  It is the linchpin concept behind the fiercely debated North American Free Trade Agreement of 1994 and the World Trade Organization, which was instituted by treaty in 1995.  It's actually a reasonable concept and one that I didn't oppose when the debates occurred two decades ago.  But where the issue had an impact on higher education was a subsidiary concept:  the Knowledge-Based Economy.

The Knowledge-Based Economy is of more amorphous origin, but the principle is predicated upon the notion that global resources are allocated where they can be most efficiently used until they can be brought to market as a final good or product.  Since one of the basic variable costs in production is labor, it makes intellectual sense to shift lower-end manufacturing - requiring little education and training - to third world locations where a peasant can be paid a small fraction of what's earned by an American laborer.  This would continue and the First World nations would be left to utilize their own resources in the conceptual, design and engineering aspects of the production.  Higher-end and technical manufacturing would stay in the First World, at least until such time as the tides had lifted the other nations enough that they also had the intellectual and technical capabilities to support the design and engineering components.  Corollary to the Knowledge-Based Economy was the Service Economy, where American workers would be spending their time providing higher end services to run and support the now-displaced production aspects elsewhere across the globe.  I expect that some corporate visionaries envisioned a society in which the great mass of Americans became mandarin-like technocrats in a great machine that churned out profits enriching the lives of all privileged enough to participate.  But I also now expect that there was another group of corporate visionaries who saw this as the opportunity to offshore all manner of labor costs so that unions could be undercut and profits grown.  Understand one small yet highly significant fact from the early and mid-1980s:  there was a shift in how corporate senior executives were paid and stock packages and options now became even more potentially lucrative than salaries authorized by a Board of Directors.

So now start to think of higher education in terms of supply and demand and this is probably where these principles began to have an impact upon the cost of a college degree.  Preceding generations of young Americans had other alternatives to higher education so that there was less demand for it.  Young males could be drawn off into the military via the demands of the draft and the Cold War.  They also had options in sustainable, living-wage manufacturing and trades that did not require a degree.  Fewer women pursued a college degree since there were fewer, then-socially acceptable career paths available to them.  All of these factors meant that there was lesser demand for college, even though the GI Bill of 1944 had opened the spigot to higher education.  But then changes began.  The draft ended and the military shifted to an all-volunteer basis, followed two decades later by the end of the Cold War.  Women began to achieve greater opportunities for careers and there was a decided societal push for women to obtain an education and then a career.  And through the last three or more decades, the trickling shift of American jobs began and then became a torrent.

It was now here, at the end of the 20th century, that Globalization and the Knowledge-Based Economy became fully enunciated as guiding principles and the offshoring of American manufacturing began wholesale.  The resultant demand for a college degree turned the college marketing and admission process into a literal cattle chute and the colleges and universities realized that they had become - for many Americans hopeful for a future - the only game in town.  Even before this point, parents and guidance counselors pushed their kids to go to college so that they could have a better, more fulfilling future.  Mike Rowe, of Dirty Jobs fame, wrote about this in Popular Mechanics in August, 2013.  He described a conversation with his high school guidance counselor in which the counselor touted the value of a college degree, even to a kid who wasn't certain of what he wanted except for the understanding that his own skill set might be more technical and practical than intellectual.  I can attest to this type of conversation as well in my own experience.  So there was already a presumptuous mindset about the value of college:   but the increased demand that came from social change and the simple removal of other viable options simply drove everybody to the chutes.

But here's the thing about cattle chutes.  Some of them lead to slaughter pens.

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