To Bust, or not to Bust? What’s Next for the Academia World

This article is about the problems. If you are more of a solution-oriented person, check this interview directly.

Universities fail for the exact same reasons that led to the financial collapse of 2008 – they (just as the banks did) forgot what they were designed to do. And opposite to the modern-day banking, university education can be far more easily substituted. 

OK, I wound not start with the banking comparison – obviously it would be wiser to keep it for later on, as it is a sensitive argument, indeed, and provoking one. So let’s take an alternative approach to explain where we currently stand with university education, and what we should expect by discussing why did the housing market in the U.S. basically turned into bubble, and eventually went bust, along with the banking system inflating it – the primary cause of the 2007–2009 recession. It’s simple – it ended up this way, because it broke its linkage with the common sense of doing business in an entrepreneurial economy, turning itself into a deceptive, but yet not-so-clever instrumental bundle of service to the hedge funds, investment banks schemes and products, you name it… Remaining without any meaningful purpose on the outside, and especially in regards to the housing demand & supply logic, to start with.

The problem with the higher education market is more or less the same – without clear focus on providing real value to the customer, it slowly turns itself into nothing more than an overly inflated balloon, serving and pursuing its own, internally-oriented reasons of existence, just as any other self-sufficient system does.

In my article, provoked by a TV documentary in which I was invited to take part (i also gave an online interview on the subject at another recent occasion), I look through two of the key aspects of the problem:

1. The key systematic deficits upon which the higher education market is set today.

2. The root cause behind those deficits that many institutions and groups in our society prefer to disregard – the lack of skills, and efforts, in the area of strategic higher-education management – both on systematic, and on university-level.

We address the issues, starting all the way from understanding the core principles behind why an university would operate as such, and why it’s of need for the society and the economy, as an agent.

In the beginning, let me clear out a few things. First, I do not want to generalize, while discussing the problems. But when the stakes are that high, some words should be spoken laud and clear enough for all to consider them, no matter if directly applicable, or not. Because as mentioned below, the subject affects us all.

Second, I do believe that higher education should not be elitist. And that the educational market can, and should further grow, as long as it grows on the basis of common economic sense.

I also believe that any student should have the chance to pursue any type of education that fits his vision and plans for the future – whether that would be liberal arts education, or of technical character; in a full, or a part-time programme; in a private- or a state-owned academic institution.

Meaning, I do not seek to reinvent the way this system works. There are far more simple things that can be done, starting with re-discovering its original meaning and purpose.

Because, really, what is the University, as an organization, or an institution, if not a classical intermediary, a medium intended to connect knowledge surplus, and knowledge deficit agents? And if you substitute ‘knowledge‘ with ‘financial‘ intermediary, you would understand that this otherwise bizarre definition is extremely close to the classic financial intermediary definition. And that the more those institutions run away from their initial operating design, the more unpleasant consequences are to follow.

Explained in other words, the moment universities decide that they have another path to follow, different than to enable and successfully conduct knowledge transfer, as a base of their operations, they start to cut off the branch they have been sitting on for centuries.

If not to facilitate the knowledge transfer towards the end-user – would that be the student – through his studies, the business – through applied research, or the society – through fundamental research, what other value-generating model would be sustainable for an academic institution?

To emphasize on my thesis, let’s try to figure out what such an alternative model, that we can apply to academia, just as modern day banking tried to apply for itself, would look and sound like. Actually, let’s just implement what banks specialized in over the last few decades and see what happens with the Academia world.

Probably universities would specialize in issuing a special type of securities, called higher ed. diplomas – Bachelor’s, Master’s, and Doctor’s class, backed by the government, of course, which in our “figurative example” case serves a rather unique role – that of a regulator, a rating agency, and a stock exchange owner – all at the same time.

As the traditional economic function of securities purchase would be to serve as an investment, with the view to receive income and/or achieve capital gain, and as this investment vehicle is the only of its class that is approved by the regulator, then a certain group of retail investors, let’s call them – the students, would be really interested to invest in such a financial instrument (with borrowed money, of course), in order to trade it on the secondary market. A market where another class of investors, known as – the hiring businesses, would be eager to gain of such investments that would pay off in the form of improved quality of work and work productivity, performed by the university graduates.

In our “purely figurative model” businesses would be actually investing in a derivative product, an asset-based security, the value of which is derived from, and collateralized by, the pool of underlying assets, the so called – annual pool of graduates. Pooling the assets into these derivative financial instruments would allow the risk of investing in the underlying assets to be diversified, as the security now represents just a fraction of the total value of the diverse pool of underlying assets.

If the “purely hypothetical model” sounds more and more familiar to you, then you would rightly guess, based on the banking industry experience, that (a) the risk is diversified only on paper and (b) is eventually dispersed over the entire economy. Not only that, but the consequences are inevitable transferred throughout the entire society, getting quite obvious for the tax-payers when it comes clear that there is no underlying value behind the tradable financial assets, as the initial issuer had made all the wrong investment decisions, similar to all the other stakeholders along the line.

Going back to where the example started, as it is now clear that we are describing what the academia world had turned into, there is one key element remaining untouched, and that is the question “Why’s that so?“. What’s the root cause behind the current situation? Why are many of the universities, even the best and brightest of them, turning into unreliable Academia-shaped Enron-avatars.

It’s because nowadays higher education institutions are constituting a multi-billion dollar industry, which is just entering into the age of volatility, uncertainty, and complexity, while continuing to operate in the same old monopolistic way under the  governmental protection, ensuring that no disruptive agents would be able to penetrate the market and endanger the establishment positions. Understanding the ambiguity of the situation, however, many universities are starting to hedge against risks of financial losses, through various ways. And even though not all of them are involving exotic financial instruments or derivatives-based scenarios, this overall move is leading towards an insurance-based survival strategy, causing universities to bet on superficial, yet influential characteristics, rather than enforcing on what really matters – the knowledge transfer process. This is what is causing the shift of focus and what is turning the entire university enrollment-through-graduation process to look like a capital raising exercise, needed to finance the “core” operations, related to universities’ revenue-generating image and prestige. Prestige that allows them to sell on promises, not on assets.

Let’s take for example the conveyor-type research paper production, serving a research journal industry, worth >$20 billion (STM only) in the era of what should be the open-source education, science, and innovations Golden Age. What this means in the end of the day, is that a scholar is now working to fulfill a norm that is not oriented towards the students’ interests, rather than towards his own impact-factor agenda, and the one of his institution. Preserving the institutional self-interest, is becoming more important than preserving and improving on what this institution was intended to provide. And i am only giving this research-paper example, because it is probably the most justifiable and modest of all. Broadly speaking, there are far worse things universities use to justify what many of them have turned into – all the way from the business of printing diplomas to the business of rejecting and diminishing opportunities for the ones who seek in order to ensure exclusiveness of the experience for the few, as if we are speaking of yachting clubs and not of learning and development communities.

Only if there was a way to bring back in the spotlight the deeper, more meaningful sources of value behind the university diploma – the knowledge acquired, the skills and competences mastered. As mentioned many times so far, there is a way. But it involves dissolving the centralized, institution-based thinking when speaking of higher education. That’s right – the University is a medium, a network, not a fortress, nor an ivory-tower. And nobody would have wanted to change the ivory towers themselves, if those were to operate in a free-market, competing with other educational or research agents, with networks and clusters of partners, in providing the same type of educational service.

In fact, it is in the interest of the very higher education institutions that lag behind, to have this discussion. Because in the case of the housing market collapse, a number of systemic malfunctions, backed by false governmental incentives and interventions, that ensured a feeling of “sustainability” behind the self-sufficiency of the system, led to its collapse.

Different than what happened back in 2008, there would be no second chance for the Academia world in case of a bust. A house will always be a house, and provide accommodation to start with – the basic source of value, to sustain the demand and supply relations, vital for the market’s existence after 100, or 100 000 years… Meaning that the market will always be there. But will the University, as an organization, the way we know it nowadays, remain the only source, the monopoly provider of higher education and research services in the 22-nd century? Do we really believe that even in a generation-time we will continue to gather and process information (knowledge and professions as derivatives, including) by means and forms of organization as we did in the 18th or 19th century?

I am personally not so sure about it, and therefore can conclude that as long as this market remains a subject of systemic logic deficits, its sustainability is questionable, therefore there are risks to see it as a busting bubble the moment the key stakeholders withdraw their trust, and stop investing in it. And the many alternatives arising out of the Internet, are just making this chain-of-events almost irreversible.

My message to those, which are on the side of the university education as something of value, such as me, would be to do the following in order to avoid the worst case scenario for the Academia in distress:

1. Remove barriers form higher education – Country borders and related regulations mean nothing to knowledge and science in the information era, and has never meant anything when speaking of ideas, of progress.

2. Remove the monopoly of classic ivory-tower universities – Deregulating and opening the higher education market for alternative higher education providers that do not necessary follow the government agenda – allowing collaborative networks of academic, business and NGO institutions, to formally do for society what they already do for their members, partners, supporters, would mean that everyone would be able to choose what type of higher education to pursue – institutionalized, state-regulated, or global and open-source. To decide in what to invest his time, efforts, money. Especially now when there are thousands of massive open online courses just waiting to be harvested.

3. Help classic universities adapt to the new reality – This change will help them become more competitive and vital, rather than destroy them. And if this is not the case, then how is preserving a system, incapable to keep pace with the rest of the world, helping the students, society, nations to progress? The main shift of thinking required is for universities to no longer think of themselves as the higher education market monopolists, but rather than to embrace a role of educational marketplace – were the constituting stakeholders meet, collaborate, exchange ideas and knowledge.

In other words – University’s future is where its foundations are laid. To succeed in the next century, it should go back to its basics, and rediscover its meaning, while modernizing its means of operations.

I am currently leading the Open Source University project and am open to new contacts and partnerships in regards to this global academic initiative.

As part of my higher education advocacy background, I have served as a member of the Academic Council of New Bulgarian University, have led the University Students’ Union, representing a student community of 12 000+, and have served as a Secretary General of the National Students Union, representing a network of 50+ universities.

Among the main campaigns i have led, are for implementing the European HE Quality Charter in Bulgaria and ensuring it is being enforced whenever that was needed – in a court case against the Ministry of Education, attempting to protect the rights of 30,000+ part-time university students; during a country-wide campaign, leading to a public policy expansion to cover the costs of university sports programmes for 50 000+ additional students; and at many other occasions, including over the establishment of a national EU-funded investment programme for education and research.