“Oklahoma Higher Education: Challenging the Conventional Wisdom”

Stephen W.S. McKeever, Vice President for Research and Technology Transfer

and

Steven Price, Associate Vice President for Technology Development

One thing on which generals, politicians and industry leaders all agree is that no good decisions are ever made if based on bad information. That thought needs to be at the forefront of the minds of anyone who reads “Oklahoma Higher Education: Challenging the Conventional Wisdom” published by the Oklahoma Council of Public Affairs (OCPA; http://www.ocpathink.org/articles/1222), but written by Matthew Denhart and Christopher Matgouranis^[1] of the Washington DC group, “The Center for College Affordability and Productivity (CCAP)”. Over and over, as one reads the report, it is easy to be struck with the impression that the authors had formed their conclusions before they did their “analysis” and made every effort to interpret the data, heavily selected, to support their pre-conceived notions. As a result their “analysis” lacks appropriate objectivity. We use the word “analysis” lightly here since the report in fact bears little resemblance to a thorough analysis of the subject (state spending on Higher Education in Oklahoma). As professional scientists familiar with the world of objective peer review prior to publication we are disappointed that such weakly supported arguments were published by the OCPA, from whom we might have expected higher standards. It is even more worrying that anyone might make decisions based on this publication.

Denhart and Matgouranis set out to prove their position that increased state support for Higher Education in Oklahoma is wasteful and yields no results in either the quality of the education that students receive, or in economic development for the state. This is somewhat surprising since the CCAP’s own web site lists both Oklahoma’s state research universities (OSU and OU) as being among “…...the 100 colleges and universities which provide the best “bang for your tuition buck” by providing quality education at an affordable price” (http://centerforcollegeaffordability.org/rankings/2011-rankings). Clearly this is not what the OCPA wanted, so it is not what the OCPA got.

Denhart and Matgouranis claim that as revenues in Oklahoma Higher Educational institutions have gone up, so has spending increased to match it, and they produce Integrated Postsecondary Education System (IPEDS) data on revenue and expenses per student between 2003-04 and 2008-09 in an attempt to illustrate this. However, the authors confuse cause and effect. The IPEDS data are more accurately, logically and justifiably interpreted to mean that as expenses have risen so income has de facto also had to increase in order to maintain the quality of service offered. These cost increases have, by necessity, been greater than inflation because of the need for new technology in the classrooms, replacement of old facilities beyond their useful life (a continuing problem), and mandatory cost increases (including health care, energy, and federal compliance mandates, to mention just three). Such mandatory increases have caught our state education organizations in a “darned-if-you-do, darned-if-you-don’t” situation.

The report’s authors next discuss Higher Education’s “shockingly small” investment, <50% of expenditures, on “instruction”. Forgetting for the moment that Higher Education’s state-mandated responsibilities to the tax-payer lie in instruction and outreach and research (dismissed somewhat casually as competing “extraneous ventures” by Denhart and Matgouranis) the authors overlook the other areas of spending that in fact directly support the instructional effort. These include academic support, student services and scholarships. Without these and other expenditures, in areas Denhart and Matgouranis dismiss as “non-academically essential”, there would be no instruction at all since there would be no students, no instructors and no facilities.

Perhaps an even more bizarre postulate made by the authors is that the measure of the percentage of the population with a bachelor’s degree is a direct measure of economic development within a state. (This is actually a self-inconsistent argument since the authors also maintain that Higher Education does not in fact educate the students. The unspoken implication here is that Higher Education graduates are just as well educated as High School graduates. Try making that argument to a Physics graduate with 4 years of quantum mechanics, electrodynamics and advanced mathematics under his or her belt. If the authors really believe this, why do they then take the number of BS or BA graduates as a surrogate of economic development?) Letting that paradox slide for the moment, the authors do admit that economic development is a complex entity relying on multiple factors many of which are outside the realm of Higher Education. They also point out, correctly, that there will obviously be a delay between educating an individual and the impact that individual will have on the economy. Having made these statements, however, they then proceed to completely ignore them. A scatter plot is presented that compares, for all 50 states, the state funding per capita for Higher Education in 2010 with the per capita percentage of bachelor’s degrees in that same year. Using this “analysis” the authors conclude that the “scatter plot fails to show any obvious relationship.” One has to ask why anyone would even think there would be a relationship between such obviously disconnected parameters. Nevertheless, the authors persist in their assertion that the presented data demonstrate a disconnection between Higher Education funding and growth in economic development. In fact, they do not. (What their data do seem to show, however, is that High School attainment and tax burden are, respectively, almost 4,000 and 10,000 times more correlated with the percentage of bachelors degrees held by the population. According to this analysis, therefore, one might be forgiven for arguing that the answer lies in higher taxes and better High Schools, not reduced funding for Higher Education.)

With reference to the generalized assertion that Higher Education does not contribute in a significant way to economic development recent data assembled by the Association of University Technology Managers (AUTM) says just the opposite: there is a positive correlation between money spent on university research and economic development metrics.

The metrics that go to the bottom line are royalties generated on inventions and the formation of start-up companies – those that come about as a result of research activities. An analysis of the AUTM 2008 data shows that the top 25 universities in the nation have average research expenditures of $709 million per year. On average, this produces 261 new inventions and generates $28 million in royalties for each of those universities. These royalties stem directly from an estimated $560 million per year in revenues to private companies as a result of university research. In contrast, the mid-range group of universities to which OU and OSU belong spent an average of $170 million on research in 2008. This generated 66 new inventions and $4.5 million in royalties, representing $90 million in annual revenues to companies. Conclusion: more research expenditures = more inventions = more economic activity.

The same AUTM data show that on average each of the top 25 universities also spun out seven new companies for the 2008 fiscal year. The mid-range group produced four. Once again, more research results in more start-up businesses. Closer to home, OSU had $139 million in research expenditures for FY08. This modest research budget generated $1.2 million in royalties, representing $24 million in private industry revenue. OSU also produced three new start-ups during this same period. State-sponsored research at OSU was just over $16 million during the same year.

The old model of state economic development was to tout tax breaks, utilities and quality of life benefits as inducements to companies to relocate. The new paradigm is knowledge-centered – that is, in addition to these older factors, states are discovering that proximity to universities is of primary concern to companies. This is because in the economy of the future, knowledge will be the key to corporate success – research, new ideas, new technologies, new processes and a skilled workforce. It is no accident that Apple, a knowledge-based company, has a higher capitalization than either Exxon or Wal-Mart; it probably will stay so as the ‘Googles’ of the world grow stronger. What type of state is Oklahoma going to be in the future? One that does not invest in research? One that does not produce new start-ups? One that watches while its graduates flock to Silicon Valley and Dallas-Fort Worth? One that will ask 20 years from now what they could have done differently? It is unlikely that states that fail to invest in their universities will be either interesting places to live or places where new companies will incubate and grow. As the saying goes, you get what you pay for.

As to whether or not Higher Education graduates in Oklahoma learn anything while at college, contribute to the economy after graduation and are worthy of state support, it is important to judge any enterprise by the quality of its output. One might take notice of the Sept. 2010 report from the Wall Street Journal that listed OSU as one of the top 45 universities in the country, public or private, for “schools that are most likely to help students land a job in key careers and professions “. (http://wsjclassroom.com/cre/articles/10nov_cs_path_rankings.htm). Simply stated, students from OSU are among the most heavily recruited in the country.

The intent of the authors of the OCPA article is to mislead, not to inform. We note that nowhere do the authors mention that, as a percentage of Higher Education’s expenditures, financial support from the state has in fact declined in recent years. In some years the state budget has increased in real dollars and in some years it has decreased (not mentioned in the report). However, in every year there has been a steady decline in state support when expressed as a percentage of actual Higher Education costs. This decreasing state support is a reflection of the realities of the time. Many state-supported Higher Education institutions have had to become more entrepreneurial and have been forced to look for alternative sources of income in order to maintain standards, while at the same time serving larger and larger student populations. One of the alternative sources is increased tuition, although it has to be stated that Oklahoma still has one of the lowest tuition rates for its students compared with the majority of states in the union. Another source is private philanthropy. In a related OCPA article (“Top 10 Reasons Oklahoma Regents Should Cut, Not Raise Tuition”, by Dutcher and Small; http://www.ocpathink.org/articles/1453 ) this too is attacked^[2] . Building large endowments is claimed as another indication of the wealth of the institution being wasted and not being passed on to the students. The assertion is that monies in endowments should be spent, not saved. Cleary, however, an endowment (the larger the better) provides direct support for students in perpetuity, whereas if the money is spent as the gift is received student support will last only while the gift lasts.

As a whole, these flawed and misleading OCPA reports remind us of the critics of the American Recovery and Reinvestment Act (ARRA) funding, pointing out that they cannot see a correlation between the ARRA funds and economic growth. Those critics and the authors of this report both fail to analyze what would have happened if the expenditures had not in fact been made. Such an analysis would have been of far more value than the simplistic views presented in the OCPA reports, the clear intent of which is to mislead the reader towards a false conclusion. Emotive phrases such as “shockingly”, “extraneous”, “ misallocation”, “wasteful”, “endemic”, “complicity”, etc., suggest a deliberate attempt to lead the reader to conclusions that are not in fact supported by the discussion. The lack of objectivity is disturbing and is not what one would hope to find from an objective “Think Tank”. If decisions are indeed made based on this report, a societal travesty with long-term consequences will undoubtedly result.

^[1]Both Denhart and Matgouranis are recent graduates with bachelor’s degrees in Political Science from Ohio University. Denhart graduated only in 2010 while Matgouranis just graduated, in 2011. Neither have experience in Higher Education, public service or state financing.

^[2]A persistent theme throughout OCPA and CCAP publications is self-referencing. The two groups often refer to published studies as if they are independent when often they are simply referring to assertions made by other members of the same or related organizations.