I spent part of this weekend reading Rockonomics: A Backstage Tour of What the Music Industry Can Teach Us About Economics and Life, by the late Princeton Economist Alan Krueger (whose work on higher education I highlighted here when he died by suicide earlier this year).  It’s not a bad little book, part inside-baseball on the music industry, part using examples from the music industry to explain certain features of the wider economy.  But one chapter in particular got me thinking about how higher education differs from other industries.

The chapter in question deals with the way that the economy has become more of a “winner-take-all” affair over the past few decades.  This isn’t a new observation, obviously: it’s been nearly 25 years since Robert H. Frank and Philip J. Cook wrote The Winner-Take-All Society: Why the Few at The Top Get So Much More Than The Rest of Us, which still holds up remarkably well even though the economy they described was basically pre-internet.  In music, we certainly see this “superstar” effect: the top 0.1% of artists account for 50% of all downloads, and the top 1 percent of all touring acts have seen their share of total concert ticket revenue climb to 60 percent from under 30 percent in the early 1980s. 

What is it that makes a superstar market?  Two things: scale and uniqueness.  The bigger the market, the bigger the reward; as the scale of markets have increased – either through trade, telecommunications or the internet – the potential fortunes have increased as well.  But not all big markets are superstar markets: corn, silver, wheat and cotton are all among the ten most-traded commodities in the world, yet none exhibit any characteristics of a superstar market.  What is also needed, Krueger notes, is the notion of “imperfect substitutes” – that is, not all the players in the market are the same and some have characteristics which justify paying them a significant premium.

Now if you look at higher education from about 30,000 feet up, you might come to the conclusion that all the prerequisites to a superstar market are there.  MOOCs – or electronic delivery of courses more generally – in theory gives higher education just as global a scope as the music industry, with individual courses as accessible or downloadable as an MP3 (to use just one of the more brainless examples of the 2012 MOOC hype-cycle).   And Lord knows we have superstar institutions.  Just look at any global institutional reputation survey and you see a clear hierarchy which, even if it does not quite follow a power-law, still pretty clearly has a global top-five (Harvard, MIT, Stanford, Oxford, Cambridge), with a few also-rans (Yale, Princeton, UCLA, Berkeley) and then a really long tail.  

And yet, no superstar market has emerged.  Why?

The banal part of the answer is that higher education as an industry is substantially publicly funded, and it isn’t really in the public interest for a superstar market to play out.  The somewhat-less-banal answer is that not all segments of the market actually seem to care about the superstar thing.  For most students, higher education is pretty close to a featureless commodity, and any available degree from a minimally reputable institution that is close at hand is “good enough”. 

But related to this point about “close at hand” is that the notion of truly globally-available mass education from top institutions is and always was a fantasy.  And that’s not because people wouldn’t pay for it – they would.  Harvard, Oxford, etc., forego hundreds of millions – maybe even billions – of dollars each year by not opening their doors to the masses.  They do not offer many MOOCs for credit or open branch campuses in every corner of the world.  They could do so – absolutely they could – and this is what fed all that nonsense a few years back about how there would “inevitably” be only fifty or a hundred major universities left in the world in a couple of decades’ time (the exact number and timing varied based on which member of the commentariat was doing the prognosticating).  

But they don’t and they won’t because higher education is different.  The people in charge of top institutions actually don’t care about money for the sake of money.  They care about money for the sake of prestige.  As a result, the manner in which money is raised matters.  If it is raised in prestige building ways, then money from wealthy benefactors (preferably morally acceptable) is fine.  Research income is fine.  But at high prestige institutions, money from students is slightly dirty.  The market-clearing price for a Harvard undergraduate degree is probably a quarter of a million dollars a year or more.  But Harvard doesn’t charge that because then its students would all be oligarchs’ children, and self-respecting academics would shun the organization, thus lowering prestige.  So, Harvard keeps tuition well below market-clearing and effectively provides free tuition to a certain percentage of its entering class.  Alternatively, it could earn more money by charging what it charges now and expanding the class enormously.  But again, Harvard *likes* keeping things small and exclusive.  It’s part of the charm/experience.       

The point here is that institutions – those towards the top end of the spectrum anyway – are not in the game to maximize revenue but to maximize prestige.  In any other industry, “top” players would use their market power to make a lot of money.  In higher education, they voluntarily restrain themselves to pursue something more abstract.  This creates an entirely different kind of organizational imperative.  Maybe it is no more altruistic than one founded on a drive for money – the struggle for prestige makes people do weird things – but it nevertheless marks out higher education as one in which simple nostrums about market power and market competition simply do not work very well.  And this is a fact of which policy makers should be much more cognizant than they often appear to be.

(Btw, for those of you that are interested in the notion of prestige and universities there’s a book entitled In Pursuit of Prestige by Dominic Brewer, Susan Gates and my friend Charles Goldman on this very point.  It completely re-arranged my world when I read it, and it’s still one of my top five all-time faves in higher education.  It’s excellent, pick it up if you can).