Privatizing and Outsourcing in Higher Education

In the U.S. and globally, government leaders and institutional leaders of higher education are looking for ways to cut costs; privatization and outsourcing has presented itself as a valid option. Over the course of this paper I will address some of the pros and cons associated with using these two options in higher education. I will also display how they are affecting Japan’s higher education landscape as well. And by doing so, I hope to give the reader a clearer picture of the advantages and disadvantages of privatizing and outsourcing in the world of higher education.

Advantages to Privatization and Outsourcing

One advantage to outsourcing is that it gives universities and colleges the chance to remain competitive and improve services, while also having the potential to enhance the revenue stream. From a governmental standpoint, the Wisconsin Office of Internal Audit (2002) reviewed the University of Wisconsin institutions’ and made the point that: “Outsourcing, when properly structured and monitored, can have many benefits, such as reducing costs, improving service quality, and increasing efficiency and innovation” (Pg. 4). Also, if outsourcing is well implemented and correctly understood, then excellent returns on investment for the institution can be expected (Gupta, Herath, & Mikouiza, 2005, Conclusion Section, Para 4). With that being said, it appears that many administrators in colleges and universities also see outsourcing as fruitful and are well into the process. Kenneth A. Polcyn (2003) cited that:

According to David Kirp’s March 15, 2002 article in The Chronicle Review, Barnes & Noble operates more than 40% of the higher education bookstores, and Marriot and other companies operate 60% of the dining room food services. Even American Express Tax and Business Services has moved into the market to provide, for example, budgeting, payroll, financial aid, purchasing, and student-billing services. (Lack of Providers section, Para 1)

This data shows that the administrators of these colleges and universities are most likely seeing an increase in improved service quality and reduced costs, which also serves to give the institution a competitive edge. These institutions are also most likely receiving 50% of the net profit, as contracts with dining and bookstores usually stipulate an equal split of profit (Davies, 2005, What’s not to like? Section, Para 11). This again represents a strength for the modern institution surrounded by ever-growing fiscal pressures.

Another advantage that outsourcing gives higher educational institutions is that it allows for a college or university to better focus on its core mission. Bartem and Manning (2001) argued that: “Outsourcing allows a college or university to focus on its primary mission, not on managing an auxiliary service that may compete with private-sector alternatives and not provide a real return for institutional dollars ” (p. 44). Bartem and Manning (2001) then cited an example at Marycrest International University (MIU) where 80 percent of the employees at this small liberal arts institution served in building and grounds maintenance, even after significant academic cutbacks had taken place (p. 44). They stated, “With so many in the community focusing on landscape, janitorial, and engineering concerns, few were there to educate” (Bartem & Manning, 2001, p. 44). Bartem and Manning (2001) further explained that this was at odds with the academic culture at MIU and the decision was made to outsource some of the functions in building and grounds maintenance, which in turn better served the educational mission of MIU (p. 44). This is a good example of how outsourcing can support an institution wanting to return to its primary mission.

An important advantage that privatizing higher education brings is that it allows for a lot more freedom from governmental restrictions. As Meyer (2006) noted so eloquently:

Institutional leaders would be freed from the vagaries of state budgeting practices and the actions of constantly changing legislatures, even though they would need to replace state funding with other sources. They would also be freed from lengthy lobbying efforts in the state capitol, the rule of some state regulators, and the unwelcome intrusions of state legislators or state-level boards. (Will Privatization Work? Implications Section, Para 1)

This statement alone gives the reader a good glimpse of the obstacles and the amount of work institutional leaders must perform in order to ensure state funding. Institutional leaders would be free to spend their time more constructively and build their revenue sources in an entrepreneurial manner. Privatization would also allow for greater departmental freedom at many higher education institutions. Mangan (2005) noted that the Dean of Berkeley’s Law School was calling for partial privatization as it would allow him “to raise more money and to control how the money is spent” (Para 1). Mangan (2005) also noted that California provides only 30 percent of the law school’s budget today, down from 60 percent in 1994 (Para 4). This is clearly a good example of state control of a school but severely less funding from the state. Privatization would allow the Dean to raise the money he sees necessary for the school to run efficiently, while also giving him control of his school’s expenditures.

Disadvantages Associated with Privatization and Outsourcing

A disadvantage associated with privatization and outsourcing is that it has led to a greater presence of part-time faculty, which in turn is affecting the higher educational experience in a negative way. The National Education Association ([NEA],2004) released data on how privatization in higher education is affecting faculty at higher education institutions. The data released by NEA (2004) was staggering; over 40% of higher education faculties are employed part-time and that most new full-time faculty positions in higher education are not even tenure-eligible. One has to question if the part-time faculty can focus on doing their job well when: the institution is clearly not committed to them, they are perhaps working two or more jobs, and with the hefty fact that considerable uncertainty about their future is constantly hanging over them.

With this in mind, Seybold (2008) made the point that such practices are detrimental to the health of higher educational institutions. “As universities run more like businesses, they not only degrade university culture and everyday life; they also create their own competition” (Seybold, 2008, Section 3, Para 1). Seybold (2008) then cited that groups have united at a number of campuses to highlight the exploitation of adjunct faculty as well as several other issues connected to privatization(Section 3, Para 1). And more recently, Jaschik (2009) noted that students have organized opposition at Fort Hays State University against the practice of outsourcing general education courses to StraighterLine, a company that is not a college and does not have accreditation (Para 7). Even Fort Hays’ accreditor, the North Central Association of Schools and Colleges, is now asking questions about the arrangement as they were uninformed about the arrangement (Jaschik, 2009, Para 1). Circumstances such as these that privatization and outsourcing have created serve as a roadblock to higher education’s overall success.

A disadvantage to outsourcing in America’s higher educational institutions is that there may be hidden costs that hide behind the “new” and “improved” balance sheet. According to the AACRAO Outsourcing Task Force (2001), “outsourcing may have hidden costs, such as loss of employee morale, exposure to additional risks, higher costs resulting from poorly written contracts, inability to respond to changing needs, and recovery costs in the event of a termination of the contract” (Pg. 2). These are all examples of the negative features “hidden costs” can pose when an institution chooses to outsource. Patricia A. Wood (2000) also pointed out that “critics feel that contract staff may have less loyalty to the university than if they were employed directly by the institution and express disappointment with the resulting inadequate service by contractors” (Problems with Outsourcing section, para 3). Here again we see that making decisions solely on what is “profitable” for the institution may truly not be profitable for the overall health of the institution.

Another negative effect associated with privatization is that it is affecting access for students who are from less-privileged backgrounds. Katharine C. Lyall and Kathleen R. Sell (2006) made the point that:

Access for low- and moderate-income students is declining as tuitions rise and financial aid fails to keep up with need. Over the past decade, low-income students have become an increasingly smaller portion of the entering classes at public four-year institutions, relying more on hard-pressed community colleges to start their postsecondary education. (Para 13)

Meyer (2006) added that privatizing colleges and universities could “impede efforts to expand access to higher education as a means of pursuing a rough equity among classes, races, or places” (Will Privatization Work? Implications Section, Para 3). Meyer (2006) also made the point that privatization might also encourage stratification: more expensive institutions for the wealthy or the aspiring professional, less expensive institutions for others (Will Privatization Work? Implications Section, Para 3). Holding students back from less-privileged backgrounds is certainly a disadvantage to our “free society”, and this disadvantage to privatization could perhaps be the most detrimental one.

Privatizing and Outsourcing Japan’s Higher Education

In Japan, outsourcing is not a new concept. According to Yoko Arai (2007), a Professor at Tokyo’s Hosei University, “Outsourcing of adult education began in Japan in the 1970s for the purpose of “rationalizing” administration” (Para 1). Arai (2007) goes onto explain that the number of cases of outsourcing were small and that organizations that did put it in play were non-profit (Para 1). Arai (2007) then notes:

But after the 2003 amendment of the Local Autonomy Act and the granting of permission by the Ministry of Education and Science in January 2005, some municipal governments started to outsource the whole management of some public adult education institutions to private profit-making organizations in 2006. The number of cases of outsourcing in adult education has recently been rising. (Para 1)

This shows that the central government and the Ministry of Education and Science shifted some of the decision-making to a local level from a national one. And much like the reasoning for outsourcing in the United States arena of Higher Education, Arai (2007) pointed out one reason for recent outsourcing as being caused by “the crisis in the public funding of municipalities brought about by the decentralization policy of central government under the decentralization Act passed in 1995” (Para 2). On both sides of the Pacific a lack of governmental funding has led to a search for cheaper solutions to higher education’s problems and outsourcing is being recognized by key decision-makers as resourceful.

There is also another reason public institutions in Japan who serve adult education are engaging in outsourcing more frequently. Arai (2007) noted the reason of this as being caused by: “the entry into the adult education and lifelong learning market of private corporations” (Para 3). Much like what we are seeing with Higher Education institutions in the United States, private entities are bringing market forces that Higher Educational institutions are accustomed to being protected from. Gene I. Maeroff (2003) pointed out in a 2001 study released by the Education Commission of the States that: “Once considered well outside the mainstream of America’s higher education system, for-profit degree-granting institutions have emerged as an integral and increasingly influential part of the system” (p. 124). It appears that for-profit institutions in Japan will also continue to have an increasingly stronger grip on the adult education and lifelong learning scene.

The privatization of Japanese public universities is also changing the educational landscape. Craft (2004) highlighted that since 2004 the taxpayer funded subsidy that covers two-thirds of every public university's operating expenses is no longer assured (Para 8). On top of that, Craft (2004) noted that the nearly 123,000 professors and support staff of all public universities will cease being civil servants and become regular employees, subject to performance-based pay if the schools choose (Para 8). This will certainly create more tension and hurdles for the newly regarded “regular employees”.

The effects of the central government’s decision to privatize its public universities were felt even a couple of months before it was official. In a survey of engineering schools released in February 2004 by a leading business daily, the engineering Ivy League which included the University of Tokyo, Kyoto University, Kyushu University, and Hokkaido University were not even in the top 10 (Craft, 2004, Top Schools Aren’t Tops Section, Para 1). These public entities were displaced by private schools strong in research, patient applications and industry ties (Craft, 2004, Top Schools Aren’t Tops Section, Para 1). This clearly shows the challenges facing these public institutions. Their new image of less public funding had already started to diminish their prestige as well. This serves as another example of how privatization is not necessarily a great thing for public institutions, especially in the beginning stages.

Conclusion

I have proposed some advantages and disadvantages to privatization and outsourcing. On the plus side privatizing and outsourcing has the potential to gives universities the chance to remain competitive and improve services, while also adding to the revenue stream. It can allow for a college or university to better focus on its core mission while also allowing for more institutional freedom from governmental restrictions. On the negative side privatization can create a greater presence of part-time faculty, which is affecting the higher educational experience in a negative way. Privatization is also affecting access for students who are from less privileged backgrounds. There are negative components to outsourcing as well, where there may be hidden costs such as low employee morale and exposure to additional risks. The practice of outsourcing general education courses has recent caused a stir amongst students and is even generating extra attention from accrediting agencies like the North Central Association of Schools and Colleges.

Japan’s higher educational landscape has not been immune to privatization and outsourcing. Japan is involved in outsourcing a lot of its adult education as the central government’s funding has eroded and an increase in competition created by private corporations. Japanese public universities have also been privatized and this has affected the way top-rank public engineering universities are perceived.

With all of these factors in mind, I hope the reader has a clearer picture of how privatization and outsourcing is affecting the educational landscape in the USA and in Japan.

References in attached Word Document