Higher Education Strategy Associates

Two Economies, Two Universities

There’s an interesting debate going on in American policy circles based on arguments Tyler Cowen advanced in his recent book The Great Stagnation, one with enormous relevance for thinking about the future of the university.

The argument is that there are two economies in America today. The first (call it “Economy I”) is composed of the sectors dealing in globally traded goods, which are required to be extremely inventive and dynamic because of the pressure of foreign competition. It is producing a lot of cash, but precisely because it is under relentless pressure to produce productivity gains, it’s not adding a lot of new jobs. The second economy (“Economy II”) is the stuff you can’t easily move around – government, health care, education and some non-government sectors like construction. Not being subject to competition, productivity gains are lower, job creation is higher, but these costs are passed on to the end-user and so they are taking up an increasing fraction of our collective consumption, both public and private.

In a recent article David Brooks pointed out that political coalitions in the United States are increasingly coalescing around these two economies. Republicans think they can improve public services in Economy II by importing the values Economy I, while Democrats want to tame the excesses of Economy I by importing the values of Economy II.

It seems to me that there is a parallel here within universities. To generalize a bit, the parts of the university that have closest links to Economy I (basically: engineering, computer science, biomedicine and finance/management) tend to favour an interpretation of the “mission of the university” which involves lots of research and close links with industry. The parts of the university that are more closely linked to Economy II (arts, education, social work) tend to be much more hostile to that outlook and talk much more about education as a public good, its benefits to citizenship, etc.

On the whole, the tension between these two views is a healthy one. But there’s no doubt about where new money is going; the university’s paymasters in the public sector have been fairly clear that they want universities to concentrate on Economy I. Some have interpreted that as a slap in the face to the values embodied in the rest of the university. But that’s pretty defensive; another way to look at it is that governments are satisfied with how universities are supporting Economy II, but want that level of excellence applied to Economy I, please.

That’s not a crazy request – it’s actually very much in the Humboldtian tradition. And tomorrow, we’ll see how this trend is likely to play out over the decade ahead.

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