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August 3, 2008 by Gary North, Ph.D.
Wal-Mart should start a college. As with virtually all colleges, it would be called a university. Why? Because of higher perceived value by the consumers. Why should Wal-Mart bother? Here is a good reason. The total expenditure in the United States on higher education is in the range of a third of a trillion dollars a year. That is a great deal of money. Wal-Mart is not a company to let a large profit opportunity drift by. You would be hard-pressed to find any industry with this level of income that is less efficient than higher education. If Wal-Mart gets into the field, this will change. Wal-Mart could offer far lower tuition than any other private university, and lower than 80% of tax-funded universities. All it needs to do is offer what is already available, but which almost no one knows about. What about room and board? Whatever parents are charging now could be extended for four more years. Or three. Or maybe only two. THIS ALREADY EXISTS It is possible to earn a bachelor's degree from one of a handful of accredited universities by distance learning for about $15,000, total. You can do this from home, without quitting your job. See my website. A student can take all of his courses through examination, with or without the Internet, with or without DVDs, video tapes, and other technological tools. If he is very bright, he can earn his bachelor's degree in two years. I know a student who earned a bachelor's degree from an accredited university, Edison State University, which is located in New Jersey, in six months for $5,000. That was about eight years ago. It might cost $6,000 today. This can be done, and there is no economic reason why it should not be done. It needs only a marketing system to deliver the product to large numbers of college-age students. Could Wal-Mart do this? To ask the question is to answer it. Is there any company more computer-savvy? More gifted at marketing? Better positioned to sell anything to anybody? The Internet can enable any college or university to provide high-quality education to students located anywhere in the world. Examinations can be administered locally in the same way that college entrance examinations are administered locally. Students can read only so fast. They can read anywhere. They do not need a campus. Most of their academic time is spent either reading or sitting in a lecture hall. Why not just view a YouTube video? They can buy an on online PDF textbook for $30 (not $150 in hardback) and print it out for (say) $10. That $30 is all profit for Wal-Mart University Press. They do not need access to a huge college library. They can write term papers in the local town library as well as they can write them on a distant campus. If they ever do need a research university library, which is extremely unlikely for undergraduate education, they can get into a car and drive a few miles to use an existing university library. Anybody can walk into any university library in the United States and use any of the materials free of charge. Nobody asks if a student is enrolled locally. They can download MP3 lectures from Wal-Mart University's website. They can upload their term papers the same way. Can students cheat? Only once. Wal-Mart University will lease anti-cheating software that spots cribbed term papers. Or it will create an in-house division that buys the term papers from online sellers, places them in its computer, and lets its faculty members use its in-house anti-plagiarism service. (It could even market this service to other colleges.) THE MULTIBILLION-DOLLAR MODEL The University of Phoenix now has approximately 300,000 students. These students are located all over the world. It is a fully accredited educational program. It is generating billions of dollars a year in tuition. There is no reason why any accredited college or university cannot create a program comparable to the University of Phoenix. All it takes is vision (admittedly scarce), some start-up capital, and a willingness to convert from classroom education to online education. This is a matter of technology; it is not a matter of lack of demand. Wal-Mart has retail outlets where an individual could sign up for classes. It has outlets for the purchase of independently published textbooks and other materials. It has the technological capability of delivering online education anywhere in the world. Wal-Mart University would not have a campus, any more than Edison State University (New Jersey) or Excelsior University (New York) have campuses. It would exist only digitally. The university would not have any campus maintenance expenses. It would not have to maintain a multimillion-dollar library because there would be no library. The course work in the freshmen and sophomore years (lower division) could be graded by machine in most cases, since true/false exams are graded this way in most community colleges. Digital term papers could be read and graded by graduate students enrolled in universities anywhere in the country, just as they grade lower division term papers today in all of the major universities. (By the way, very few lower-division courses these days require term papers -- grim, but true.) Pay them $5 per term paper. A term paper takes at most 15 minutes to grade. Nothing has to change academically for lower-division courses. The only difference is this: (1) it would all be handled online; (2) it would be vastly cheaper for students. This is going to come. Whether Wal-Mart is going to do it, or FedEx, or Target, or UPS, or some other large multinational corporation, is a question that will be solved by the free market. There is no question that it will be solved. Companies are not going to let the University of Phoenix absorb a couple of billion dollars a year in tuition payments, without getting involved themselves. Why should they let the University of Phoenix skim off this kind of money? Universities are mass-production factories at the lower division level. They herd students into auditoriums of 500 or 1000 seats. There is an untenured professor lecturing into a microphone far below the students in the top row. Teaching assistants, who are paid practically nothing, grade all of the papers. No student gets in to see the senior professor, who is in fact a junior professor. Who are the universities kidding? (Answer: parents) Some of the best private universities generate $1000 per student per semester in one of these mega-classes, or $1 million gross. What does it cost them to run such a class? An auditorium, shared with eight other classes. It may cost $100,000 in salaries per class. Why should Wal-Mart or any other company let big-name universities skim off this kind of gross income for mass-produced classes taught by untenured assistant professors? THE MARKET Approximately 15 million Americans are attending college this year. About 14 million of them could get perfectly good educations online, at a university sponsored by a major corporation. The corporation could cut tuition payments to 50% of what most state universities charge. In a decade, at least half of America's students could stay home, work part time, and graduate with a bachelor's degree in most of the social sciences or humanities, and pay no more than $30,000 for the privilege, saving tens of thousand dollars in room, board, and travel. Of course, the kids don't want this. They want their parents to pony up $50,000 or more to send them off to college for four years of party time. They want to have fun and games at their parents' expense. "Boola-boola!" Moola-moola. Parents' moola. Parents are guilt-manipulated and peer-pressured into going along with this nonsense. I am talking about getting a good education at a reasonable price. The present university system does not deliver the goods. It will take a large profit-seeking company to set up program that will deliver the goods. Then rival corporations will get in on the act. We will then have price competition in university education. I am too controversial for Wal-Mart to hire me as a faculty member, but maybe I could run the advertising. This would be a slam-dunk.
THE FACULTY For undergraduate education, and especially for lower-division education, Wal-Mart could produce a first-rate educational program in one year. It could easily assemble a faculty that is the best in the world. Faculty members in any university have their summers free. A faculty member in any field could produce an online course over his summer vacation. He can then sell his course to Wal-Mart on a contract basis. He can get paid a royalty on a new workbook that he writes. Let's see: 10% royalty. The workbook is digital. It sells for $10. (Cheap!) If 100,000 students enroll, that's $100,000 a year for the professor, and $900,000 for Wal-Mart. He also will be paid a small amount of money for each student enrolled in his course. At $3 per student, this is another $300,000 a year. He will be a millionaire within two or three years, because there is no question that Wal-Mart could have a million students within three years. If you think a big-name professor would not sign his name on a workbook for $100,000 a year, you do not understand professors. If you think he would not stand in front of a camera to deliver the same lectures he has delivered for ten or twenty years, for a shot at $300,000 a year, you do not understand professors. Wal-Mart could hire the most famous professors in the world in every field in the next three months. Pay them a little money up front and give them a nice royalty agreement. Universities would not have time to react. It would be too late to stick a non-compete clause into the contracts. Even if they do, Wal-Mart could hire world-famous retired professors. What could Harvard, Princeton, Yale, Chicago, or Stanford do about this? Nothing. Wal-Mart has plenty of money to invest. It can sign up the best academic talent in the world. It can create a college-level degree-granting program of such high quality that any accreditation agency that might resist granting accreditation would look like a cartel of special-interest, turf-protecting, guild-mentality dinosaurs still living in the 1950s. In other words, it would look like what it really is. These dinosaurs don't want the exposure . . . or a lawsuit accusing them of restraint of trade through a cartel agreement. I can imagine these guys on the witness stand. C-Span would have a field day. Accredited colleges have long since implemented assembly-line education at the lower-division level. The fact that a student will get his lecture from a computer screen rather than from a man with a microphone in a lecture hall of a thousand seats is neither here or there intellectually. The difference is, the student getting educated at his computer screen will not be paying $500 per semester credit, or $1500 for the class (maybe twice this). He will be paying $100 per credit hour for lower division, and maybe $200 for upper division. ACCREDITATION The main barrier to entry in this field is accreditation. The tenured university bureaucrats who control the granting of accreditation to a new university resist any suggestion that education can and should be delivered online at price-competitive tuitions. They say: "If the mountain cannot go to Muhammad, Mohammed must come to the mountain." Well, in the digital age, the mountain can go to Mohammed. Millions of Mohammeds. What if Wal-Mart University cannot get accreditation in a year or two? So what? Wal-Mart has access to accredited colleges all over the United States, or even 30 miles down the road, that would be happy to take a grant of $5 million to set up a distance-learning program. These schools are already accredited. The distance-learning program sponsored by Wal-Mart would be a supplement to the existing program. An accrediting agency would find it hard to deny an existing accredited college the right to set up a distance-learning program. The fact that Wal-Mart would happen to get 80% of the revenues is neither here nor there, officially. "We are scholars here. A billion dollars in tuition has nothing to do with accreditation." (Ha!) Wal-Mart could serve as a clearinghouse for several different colleges, with several different specialties, all leading to the same thing: an accredited bachelor's degree. Within two years, Wal-Mart University will push a hundred accredited colleges to the verge of bankruptcy. Then other corporations can do what Wal-Mart did. They can set up a distance-learning program. These desperate colleges will rush to do the deal. Their survival will depend on it. Within 10 years, college salaries will be where other middle-class salaries are. No more tenure. No more six hours a week of teaching. The days of wine and roses will end. RECRUITING FUTURE EMPLOYEES Wal-Mart could create a special upper-division major for business students. It could admit only the best and the brightest of the students who have gone through lower division. Wal-Mart would be in a position to hire these students part-time as they take their upper division courses. At the end of the college degree program, Wal-Mart could make offers to the best and the brightest of the students who have gone through its program. Wal-Mart would tap into a huge pool of bright, energetic, tested students. It could pick off these graduates to employ in its own organization. In effect, students around the country, and around the world, would pay Wal-Mart for the privilege of becoming candidates to be employed by Wal-Mart. Obviously, most students would not do this. But for those students who want a career in business, and who want to enter a familiar organization, what better way of doing this than to go through a college degree-granting program sponsored by Wal-Mart? What better way for Wal-Mart to identify these students, test them in advance, and make offers to the very best? It is a win-win situation for the students and for Wal-Mart. If Target doesn't like the competition, Target can start its own university. The free market is perfectly capable of providing a college-level education program for millions of students. There is nothing that the average college offers to the average undergraduate that an online college education program could not offer at half the price. Of course, certain fields may not be suitable for this kind of education. Nuclear physics is one of them. Another would be organic chemistry. But very few Americans major in these fields. The vast majority of college graduates are majoring in the humanities, not the natural sciences. Most courses in the humanities can be taught in this fashion. Music may be an exception. So, Wal-Mart University need not offer a music major. But most fields are well suited for distance learning. You can learn history, political science, sociology, psychology, philosophy, business, and most of the other disciplines through today's Internet technology. If there are some fields that are not suitable, then sell only lower-division courses to these few students. Every university requires certain courses of all the graduates. These are generally liberal arts courses. So, Wal-Mart University can offer these courses. These courses will transfer to any four-year university from an accredited program. NO MORE CONCEALED SUBSIDIES FROM PARENTS The great threat to a university is that most of its profit per student comes from lower-division courses. The students going through the required courses in their freshman and sophomore years provide the bulk of the funds needed to operate the typical university. Upper-division courses barely break even. Graduate school courses are always money-losing. So, the parents of the freshman and sophomore students are subsidizing the parents of the junior and senior students. They are especially subsidizing the graduate students. Wal-Mart, by offering price competitive courses to freshman and sophomore students, will skim off the cream, leaving milk for the upper division courses, and skim milk for the graduate programs. This would throw a monkey wrench into the financing of higher education in America. This is exactly what needs to be done. Any president of a university who does not see this coming is likely to find himself a former president three years after Wal-Mart University begins, and certainly five years after Wal-Mart University has spawned Target University, UPS University, and FedEx University. Private colleges with fewer than 2000 students will be scrambling to survive within a decade of Wal-Mart University. State university presidents will be begging state legislatures to fund their operations with taxpayers' money, just as they do today. The difference will be, Wal-Mart University will be offering an equally good education for less money than the tax-subsidized State University will be offering. This will make it a much harder sell to the state legislatures. About the only thing that the state universities will be able to tell the state legislators to vote for is the football team or the basketball team at the sports program. That will least let the world know what the real purpose of higher education is. Wal-Mart University will be granting degrees for education; the state universities will be granting degrees in order to recruit semi-professional athletes, half of whom will not graduate, to entertain the voters. The voters deserve to know this. WHY NOT TRY FREEDOM? Why should we believe that the free market, which delivers the vast bulk of the services and goods that we consume, is somehow incapable of delivering higher education at competitive prices? Why should we believe special-interest bureaucrats who claim that higher education is of necessity a nonprofit venture and usually a tax-funded venture? Wal-Mart University will have to deliver a high-quality product from the very beginning. It will have to be visibly superior to the product delivered by every community college in the United States. It will have to be better than the product delivered by 70% of the private colleges and 80% of the state universities. It will not be better than the education delivered by the top schools in the country, because it will not recruit students of the highest caliber. But this is true of 95% of all colleges and universities. The difference is, the free market, through its system of open entry and competition, can deliver what the buyers really want for their money. Buyers today face an educational delivery system that is a cartel. All it will take to break this cartel is for one major retailer to enter the field, produce a high-quality product, and enroll a million students. At that point, the myth of nonprofit education will be a thing of the past. Wal-Mart could put this together in three years. In a crash program, it could probably put it together in two years. All it needs is a cooperating college or university that is accredited and which would like to get 5 million or ten million dollars. I daresay there are several that would like to do this. Wal-Mart does not need to stick its name on the university. It can simply make available the service and take a hefty fee for marketing. Some large retailer is going to do this. It may not be Wal-Mart. It doesn't really matter which one launches the program. What matters is that it will break the monopoly of the educational cartel. It will generate so much money, enroll so many students, and deliver such a competitive product at a competitive price, that the cartel will have to respond in order to survive. The moment colleges begin to respond to the free market by offering services at a competitive price, the cartel will be busted. Cartels always break down. There are always members of the cartel that cheat. Cheating in academia means delivering a high-quality product at a competitive price. There is no doubt that Wal-Mart or UPS or any other major American corporation could deliver such a program. If Wal-Mart doesn't do it, then Toyota could do it. The major television networks could do it. Any of the major cable television networks could do it. This is not rocket science. Think about the big three television networks. They are suffering from shrinking market share. They have lost the young people. Cable is eating their lunch. Advertising revenues are falling. Nothing has been done in the last 20 years to reverse the constant decline. Here is a way that they could combine their digital communications skills with their retail outlets to produce an educational revolution. Why won't they do this? The oil companies could do this. The tobacco industry could do this. Proctor & Gamble could do this. Dow chemical could do it. Dow is already associated closely with the Northwood Institute. It could simply extend its existing alliance to fund the creation of a national university. There are times when I wonder about the entrepreneurial commitment of America's largest corporations. They want to recruit bright entry-level employees. They should imitate baseball. Baseball has set up a system of farm teams. They recruit players for the major leagues through the minor leagues. If American businesses are really interested in recruiting superior middle managers from the pool of educational talent in the country, they can do this. They can use Harvard, Princeton, Yale, Stanford, Chicago, and the other 30 universities to provide the super-talented graduates. But there are never enough of these people to go around. It makes far more sense to recruit bright students right out of college, put them in managerial positions in a low-level, and see how they produce. Give them on-the-job training. The goal is to attract competent students for the initial hiring. This can be done through the creation of a national university. Higher education has got to break away from tax subsidies. As state budgets get tighter, legislators are going to be looking for ways to cut expenditures. An obvious thing to cut is higher education. This is going to happen. The question is: Will the free market provide a viable alternative to the red-ink universities that now absorb several hundred billion dollars a year? I think it will. Another person who thought it would was management guru Peter Drucker. He was convinced that higher education would be completely restructured as a result of the technological revolution that was taking place in the 1990s. That revolution has begun: the University of Phoenix. The model already exists. It is a highly profitable model. It will take only one major American corporation entering this field to prove that the existing model of tax-funded, nonprofit higher education is inefficient. That model belongs to the past. Technology, when coupled with price competition, always replaces older models that cannot match the discount prices of the new products made possible by the new technology and mass marketing. Students will initially resist this. They want their parents to give up half of their retirement portfolio in order to send them off for four years of partying, and four years of delaying making a judgment about what to do when they grow up. University administrators will also resist this, because they want the students to show up on campus, and they want the parents to write the checks. But, at some point, it is going to become obvious to hundreds of thousands of parents that there is a better way. That better way is distance learning. The technology exists. The model exists: the University of Phoenix. All it will take is the marketing. The rest of it is just a matter of setting up the administration. If an American firm does not do this, then a European firm will. Or maybe a Japanese firm will. There is nothing that keeps education inside geographical borders. When the product is digital, there are no borders. If an accredited university in a foreign country wants to create an international university, it can do so. If American entrepreneurs are unable to see the potential, then some foreign company is going to enter the field and capture it. All it will take will be a cooperative venture between the company and an accredited university in the home country. There are dozens of universities in the British Isles that would be happy to do this. Oxford and Cambridge probably won't, but how many people do those two institutions educate? CONCLUSION The free market is better able to deliver high-quality education than the state is. The state has used its power to license and accredit colleges and universities to preserve an educational cartel. That cartel can be broken, and it will be broken. It is just a question of time. Any university president who does not see what is going to happen has to be blind. It is his job, as a fund-raiser, to make certain that his university is prepared for the competition of the future. It is obvious where the competition is going to come from: the profit-seeking private sector. The private sector is going to deliver the goods. It is going to sell the goods cheaper, offer a wider range of choices, deliver the package anywhere in the world, and let the student graduate as fast as he can pass the examinations. Of course, these schools will not have athletic teams, saving millions of dollars per year. They can offer video game competitions for their students. They can set up a league: the NDAA (National Digital Athletic Association). I can see it now: Wal-Mart University vs. Target University for the Division I national championship. Then on to the World Series, where Tata Motors is the favorite. Dr. Gary North earned a Ph.D. in history and is one of America's keenest economic analysts and commentators. He supports the Austrian school of economics and is a previous assistant to libertarian congressman Dr. Ron Paul. Visit his website at http://garynorth.com. To subscribe to Gary North's Reality Check go to http://www.dailyreckoning.com/sub/GetReality.cfm If you enjoyed this essay and would like to read more of Gary's writing please visit his website at http://www.garynorth.com or http://www.freebooks.com
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Enrich your life or a child's life with an education book...
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I
earned my Ph.D. in 1972. What I am about to
describe is academically feasible. It is surely
economically feasible.
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