Here’s a serious question: are universities too big to fail?  And if so, what are the consequences of that?

If we had a fully public system, with tight government oversight on budgets, and no deficit spending – sort of like what much of continental Europe has – this wouldn’t be an issue.  By definition, public institutions couldn’t fail (though presumably a government would be free to close an institution should it wish to do so).   But the existence of institutional financial autonomy changes things.  Who, ultimately, bears the responsibility for an institution’s finances?  What happens if things go wrong?

One of the interesting things about the very market-driven reforms in both Australia and England is the assumption that universities are, at the end of the day, on their own.  They can have their freedom – especially to raise fees – but the flip side is that no one’s going to bail them out, either.  That might sound a little crazy to Canadians, who tend to think of campuses as next to immortal, but the fact is they’re not.  If people don’t attend universities, they go under.  It happens all the time with international campuses (think of Waterloo’s venture in the Emirates), and there’s a long history of private universities going under in the US (think Antioch College’s 2008 flame-out).  Even in Canada, we’ve had closures (or rather, closures thinly disguised as mergers – Augustana College in Alberta being the most obvious).

The Canadian view here reflects a very deep ambivalence on the part of governments about the role of markets in higher education.  By and large, governments love it – LOVE IT! – when entrepreneurial universities make money through licensing, or get foreign students to cough up cash for courses, because that means institutions are less likely to come banging on government’s door for money.  They are significantly less enthusiastic about universities getting local students to cough up money for courses, because that means parents come banging on their doors.  And they are positively allergic to the idea that a campus might lose serious money doing something entrepreneurial – or worse, try to cut services in order to make ends meet.

As a result, Canadian governments laud entrepreneurial universities in public, but stifle them in private.  And the reason for this is that governments are unwilling to risk the public opprobrium that would come from a major campus closure.  At the end of the day, governments know they would be forced to step in because universities really are too big to fail.

Only one province is actually honest about the implication of this: British Columbia.  There, precisely because the government feels ultimately responsible for institutional survival, institutions do not have the freedom either to build their own buildings (even if they raise their own cash) or to negotiate independently with staff (the province insists that settlements meet specific public-sector-wide guidelines).  My guess is that over time, most Canadian governments will converge on the BC model because institutions are, in fact, too big to fail, and as a people, we’re scared of failure. But that policy is not without cost: making universities safe can also make it more difficult for them to excel.

It would be great if one day we had a debate where we talked honestly about the pros and cons of institutional autonomy and markets in higher education, instead fumbling around addressing symptoms rather than causes, and dealing in slogans rather than empirics.  But that wouldn’t be very Canadian, would it?