Taxpayers Lose When Colleges Are Too Big To Fail (Opinion)

Ann McClure's picture
Tuesday, October 2, 2012

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.

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