by James A. Bacon
The world’s first university was founded in 1088 in Bologna (in what is now Italy). The idea of bringing scholars together in a dedicated institution caught on. In time, universities were established throughout Europe, the United States and the rest of the world. Almost every country has a university today, with Bhutan in 2003 being the latest nation to open its first. The proliferation of universities has coincided with the accumulation of knowledge and growth of the global economy. Scholars (most of them employed by universities, as it happens) have debated the extent to which universities have contributed to that growth.
Drawing upon a 60-year database of nearly 15,000 universities in 1,500 regions across 78 countries, Anna Valero and John Van Reenen with the London School of Economics think they have an answer. “Doubling the number of universities per capita,” they say, “is associated with 4% higher future GDP per capital.”
Perhaps most significantly for readers of Bacon’s Rebellion, universities appear to have positive spillover effects to neighboring regions. In other words, the effect is felt locally and regionally, not just nationally.
Writing in “The Economic Impact of Universities: Evidence from Across the Globe,” Valero and Van Reenen posit several channels by which universities affect growth.
Perhaps most obvious and easy-to-measure impact is the demand created by students, staff and universities’ purchase of local goods and services. Like any other primary industry, universities provide a service (higher education) that pumps income into the region where it resides. The effect is especially positive when costs are financed through national governments from tax revenues raised mainly outside the region in which the university is located.
But there are other channels. Universities produce human capital, nd skilled workers tend to be more productive than unskilled workers. Universities also spur innovation. The innovation effect is both direct, as when university researchers themselves produce the innovations, and indirect, as graduates enter the workforce and innovate. A third channel is by fostering pro-growth institutions. “Universities,” write the authors, “[provide] a platform for democratic dialogue and sharing of ideas, through events, publications, or reports to policy makers.”
None of this is earth-shattering stuff, although the computation that a doubling of universities per capita results in a 4% increase in wealth is interesting. And there is ample room to refine the conclusions. The authors concede that their methodology does not adjust for the size or quality of universities. All other things being equal, one would expect that a large, prestigious university would have a larger positive impact on the regional economy than an obscure, als0-ran institution.
Bacon’s bottom line. But the study provides a useful reminder as Virginians think about what they expect from their public education system — especially the flagship institutions of the University of Virginia, the College of William & Mary, and Virginia Tech. On the one hand, we want to make high-quality higher education affordable and accessible to Virginians. On the other, we like it when universities function as engines of local and regional economic growth. Insofar as it takes money for universities to generate bigger payrolls, R&D contracts, business spin-offs and other economic benefits, institutions that most effectively extract revenue from whatever source, including their students, will tend to be more powerful economic engines.
The trade-off is most clearly evident at UVa where administrators devised a way to cobble together a $2.2 billion pool of capital capable of throwing off roughly $100 million a year in unrestricted funds. The Board of Visitors voted to dedicate that money to enhancing the prestige of the university, indirectly stimulating economic growth, rather than lowering tuition & fees in order to make a UVa education more affordable.
I have criticized the board’s decision; I think the university has lost its way by embracing the Ivy League high tuition/high aid financial model that exploits its student body, especially middle-class students who struggle to pay the massive bills but don’t quality for student aid. But I also acknowledge that the UVa approach does have the advantage of creating economic growth. If the university were a company that, to pick a fanciful example, developed and manufactured leading-edge smart phones, for which it charged ever-higher prices and plowed revenues back into growing its business operations, Virginians would applaud it as an economic champion.
The higher ed affordability crisis is very real. But so is the economic contribution of Virginia’s universities. We need to strike the right balance between the two.
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