When you think about it, higher education is one of the greatest businesses in the world. It’s a guaranteed and growing market – as economies develop, people want more of it. And people are willing to pay tons of money for it. Worldwide, total spending on PSE (public and private) is somewhere in the range of $1.5 trillion annually, at least a third of which comes in the form of tuition fees. There has to be profit in there – and who wouldn’t want a piece of a market like that?

Which is why it is a bit of a puzzle, frankly, that more private capital has not gone into the sector. It’s not as though there isn’t a lot of private education out there – our count at HESA suggests that private universities account for about a third of all enrolments generally. But most of that is either private non-profit or cottage-industry companies. With the half-exceptions of Laureate International Universities and Global University Systems (which owns University Canada West in Vancouver) there isn’t a lot of what you’d call major international capital in higher education. Mainly, that’s because international capital seems to aim for the “volume” or “Wal-Mart” end of education of education rather than the prestige end of the spectrum, which is odd since in most of the world higher education is at least to some degree a Veblen Good that is basically impervious to disruption from low-cost competitors. There is not, really, any LMVH-type for-profit players in higher education, mainly because the current actual prestige players (the Ivies) are all non-profits and by any commercial definition lose money at an incredible rate.

But just because capital can’t make money directly through the provision of education doesn’t mean it can’t make money from education in all sorts of other ways. It is just that relatively few of these ways have to do directly with the process of education, per se.

Think about it from the point of view of the institution for a second. What does an institution typically buy in terms of outside services?  Well, at what one might call the most basic level of outside services, they buy commodities like computers, paper, and specialized products like journals and scientific equipment. They can also outsource some core cost-centres like printing, security, corrective maintenance and custodial services. To some degree items like IT, payroll services, transportation and preventive maintenance/groundskeeping can be outsourced as well. The commodities and IT work will tend to go to major global companies – but usually not ones which are specific to education. As for the rest it tends to go to quite small local companies, not “big money”.

This all works reasonably well for universities and colleges provided a few things are in place: first, that there is a genuinely competitive bidding process in place (there are limits to outsourcing in small communities, for instance, where there might not be multiple providers for things like printing); second, that contracts are structured in such a way that creates incentives for quality of service; and third, that institutional management has the kind of skills required to manage these contracts and enforce service provisions. This is all second nature in North American universities but might not be in developing countries where outsourcing of these kinds of services is sometimes still quite controversial.

Where things get difficult is the institutional/business interface in areas where the institution thinks of as its core competencies: the generation and transmission of knowledge. Some parts of this work pretty well; the purchase of scientific equipment and library monographs proceed in a mostly organized manner. However, the companies responsible for textbooks and scientific journals have managed to establish cartels that have driven up prices enormously, not just faster than inflation but faster than pretty much any other good on the market with, perhaps, the exception of prescription drugs in the US. These textbooks and journals have, by and large, been a very effective way for Big Capital to latch on to higher education.

But the ability of such companies to diversify and latch on to new markets is limited. Take Pearson, for example, one of those well-known publishing companies. It tried hard to diversify away form publishing and into testing and so bet big on a world of MOOCs and Competency-Based credentialing do-it-yourself education in which teaching and credentializing were largely split (if you ever wondered why it was three Pearson employees that published that ghastly paper An Avalanche is Coming – my review back here – it was to press the point of view that “everything was going to change” and so everyone should “get ahead of the curve”, a process that almost certainly involved greater use of Pearson products).

I think the lesson to take from all of this is that Big Capital finds it relatively difficult to make money from higher education by either competing with or trying to alter the habits of higher education institutions. It also finds it hard to make money off the routine elements of university outsourcing, precisely because so much of it is locally-based or commodity-based, neither of which gives Big Capital a chance to shine. Publishing, however, which has seen enough consolidation that major publishers can create cartels to drive up prices, has attracted Big Money investments (see Elsevier’s string of acquisitions or the Cengage-McGraw Hill merger).

But while the conditions that prevail in the publishing industry simply don’t hold in most fields of institutional expenditures, that doesn’t mean Capital is shut out of the system. Over the last decade or so what has really changed is the extent to which universities are turning to private companies to help drive revenue. And in some cases, they are substantially changing higher education as a result. More on that tomorrow.