Many Americans opposed federal bailouts of financial institutions and large corporations. By promoting a "too big to fail" policy, favored businesses can engage in risky, undesirable behavior, while deriving unfair advantages over competitors, all financed by the taxpayer.
Too-big-to-fail thinking saved huge financial institutions such as Citigroup, American International Group and Fannie Mae, not to mention an industrial giant, General Motors. Critics argue that market conditions should have led these businesses to fail, sending a powerful lesson to others to act more prudently.
Although those criticisms are at least somewhat valid, it is surprising that no one has recognized that governments (state as well as federal) have been following a too-big-to-fail policy in higher education for decades. While I can name several large businesses (Enron, Bethlehem Steel, Arthur Andersen, Lehman Brothers Holdings, TWA, Montgomery Ward, Borders, WorldCom) that have failed over the last decade or so, I cannot think of a single example of a large American university that has failed or closed its doors.
Market forces that frequently topple private-sector companies in acts of what economist Joseph Schumpeter called "creative destruction" are suppressed in higher education by huge government subsidies.
There are two reasons why universities never "fail" in the sense that they cease to operate. First, of course, with governments paying part of the bill, the probability that revenue won't cover expenses, leading to bankruptcy, is remote. If a school can manage to cover even only, say, 75 percent of its costs through tuition fees and other sources of revenue, it is likely that government will cover the rest - through operating and federal research grants; indirectly through federal student financial aid, which allows higher tuition fees; or through private donations and investment income enhanced by favorable tax status.
Universities don't fail for another reason, as well: We don't meaningfully define "success" or "failure" in higher education. Did Wesleyan University or Trinity College in Connecticut have a good year in 2011? Who knows? Did their students learn more than they did the year before, or develop better critical-thinking skills? Does the "value added" from an expensive education at those private schools exceed that at, say, the state-supported University of Connecticut, which is far less pricey?
It may well be that some schools are "failures" in a meaningful sense - their seniors know no more than their freshmen; their graduates are underemployed or have low-paying jobs; and they provide less student satisfaction per dollar spent than at comparable institutions - but we really don't know that.
Yes, there are some decent performance metrics, and what they show is disconcerting. At schools such as Idaho State University, Chicago State University or the University of Texas at San Antonio, fewer than 10 percent of full-time students graduate in the customary four years. Isn't that "failure," even though the schools continue to exist because of government subsidies? At Chicago State, where several newspaper accounts described dubious management practices in recent years, almost half of entering full-time freshmen don't even make it to their sophomore year.
