Colleges Look to Private Sector for Help

10 Apr

Today, as I scrolled the headlines for Wall Street Journal articles that may be beneficial to talk about if called upon in class, one in particular jumped out at me. The title was “Colleges Shedding Non-Core Operations” and I decided to give it a read. What I read left me puzzled.

As it turns out, universities and colleges such as Ohio State and Portland State are looking to the private sector to run what are considered “non-core operations” of their respective organizations. Ohio State specifically is looking to sell or long-term lease their parking spaces, while Portland State has already sold control of their dormitories to the company American Campus Communities Inc.

All of this makes sense; campuses are in a manner of different ways looking to contract out parts of their organizations that they feel could be run better by an outside source. Our own campus at Washington University in Saint Louis has a deal with Bon Appétit in which they manage the dining serves on campus. All this seems to be pretty solid logic; let a company that knows how to manage food, parking, or dorms run those facilities/operations and let the schools focus on what they do best, teaching. But what does not make sense to me is how the students will benefit as the schools claim they will.

Colleges such as University of Kentucky, who is transferring control of their dormitories to a private company, claims that by doing so they will help stabilize rising tuition and student fees, which for public four-year universities have risen over 70% in the past decade. These deals create large gains for the schools (University of Kentucky will receive $500 million in upgrades and construction for control of it’s dorms, while Ohio State believes it could get as much as $375 million up front in a deal for its parking spaces), but will the students receive any gains?

Some people argue that private companies in control of parking spaces will be more likely to give out tickets in order to increase their revenue (imagine if our parking lots had round the clock ticket writing personnel). This would mean more tickets as well as the possibility for higher permit cost in future years. There seems to be no mention of talks that require these private companies to keep costs low. The way I see it, tuition might not go up by as much to cover miscellaneous costs, but those costs would be transferred to private companies. Private companies, I might add, that are trying to increase shareholder value and if anything would be likely to increase the costs students must pay. Yes they will be more efficient, but there is no reason these cost savings would be passed on to students, especially when shareholders pockets need to be satisfied.

This emerging trend is not limited to colleges either. In 2008 the city of Chicago signed a 75-year lease for the rights to operate their parking meters, for which they received $1.16 billion. Though this income was seen as beneficial to the city, critics believe that “the price was too low, and [parking] rates have risen to quickly since.”

In the end the question remains open for debate and only time will tell if such deals benefit colleges and local governments as well as the communities and individuals they serve. However, if this becomes an increasing trend potential dangers are present.

For example, the government of Argentina, prior to their economic struggles from 1999 to 2002, attempted to privatize any and all operations they could. The hoped that the money it brought in would allow them to pay off their debts and spur economic growth. The results of these decisions turned out to be quite the opposite. After making such deals, the country fell into a deep economic crisis for three years (though this is not the only reason for the crisis it is believed to be a major factor). In this case privatizing operations ended up adding to the turmoil instead of improving the way of life for citizens. Selling operations, such as street signage (or parking), does not appear to lead to economic growth.

Today you will not see any more street signs in Argentina that look like this one. Currently they are more similar to the green ones used in America and no adds are present on them, but if this trend back home continues the questions to ask are: where does it stop and who (if anyone) really benefits?

by Joshua Lochner

Source: http://online.wsj.com/article/SB10001424052702303717304577279440681096800.html?mod=WSJ_article_LatestHeadlines

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One Response to “Colleges Look to Private Sector for Help”

  1. Connie Chen April 12, 2012 at 9:32 am #

    Interesting points you brought up, Josh. One specific pitfall I can think of resulting from colleges turning their services to the private sector is the consequent risk of the private company “monopolizing” services for its own gain. For example, Bon Appetit’s contract with WashU specifies that Subway is the only outside franchise on campus that accepts meal points. Bon Appetit also pockets students’ unused meal points at the end of each academic year. While Bon Appetit no doubt provides quality food for WashU students, the question arises as to whether WashU and the student body benefits as much from the contract as the company.

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