This text is based on a talk given by Robert Meister at the University of Chicago on November 29, 2016. The event was hosted by Graduate Students United (GSU), the non-recognized graduate student union at the University of Chicago.

 Thank you for inviting me. GSU has asked me to speak more biographically than I am accustomed to speaking about my experience and particularly about the relationship between my experience as a graduate student, unionizing graduate students in a private university, and how that bears on my experience as an advocate for public education in a public university that is in the process, not of commoditizing, but, rather, of financializing itself. So, the overarching theme of what I have to say is that there is a convergent process of financialization that in important ways transcends the distinction between the funding models of private and public universities, and which incentivizes administrators in both to hedge against changing perceptions of their quality and to derive financial value from that hedge. This process is based on the value of university rankings both internal and external that are exemplified by treating a university itself, and a department within it, as a brand that can be turned into an asset.

So, what I want to talk about today is the process by which financial assets are being created by the ability to manipulate and arbitrage spreads, both among universities themselves and also within universities, between and among departments, internally and externally — because this is how universities are now being managed. Focusing on this topic could make my experiences at University of California more relevant to your experiences at the University of Chicago than they might initially appear.

I’ll begin with a kind of autobiographical description of my political and academic career, contextualized by an account of the changing relationship among public higher education; traditional private, not-for-profit education; the growth of for-profit higher education, which is part of the debt-based funding model; and the emergence of offsite, online remote education, such as the MOOCs [Massive Open Online Courses], which are now increasingly killing off the private sector of onsite, for-profit education.

Understanding how these virtualized classes are harvesting value from the rankings of elite universities, both public and private, is a key part of what I’ll be saying today about the changing global political economy of higher education. The offsite, for-profit sector is replacing the onsite, for-profit sector with a financialized version that allows people around the world to buy equivalent courses to Stanford, the University of Chicago, or the University of California, as though they were out-of-the-money options to graduate from these universities that they will never have the opportunity to attend. This allows the universities to create financial products by improving their rankings in a way that has nothing to do with the quality of the education they provide to current students onsite, and everything to do with how student performance contributes to the ability of the university to market its ranking and sell virtual opportunities to graduate to people who will never get into this country, let alone into this university, but may, for example, get a job in Uganda based on their performance in a course that this university certifies as comparable to a course onsite students take.

This is a global financial phenomenon, and all I can do is give you my own perspective on it as I have moved through its emergence during in my lifetime. What I want you to attend to as you listen to my story is the multiple levels at which this phenomenon arises. There are periods; there are specifications of the relationship of the university and of higher education in general to the reproduction of capitalism. So, consider how each of these periods understands — culturally, sociologically, technologically — the role of higher education in generating greater equality and/or greater divergence —  greater spreads, greater volatility —  in the spread among income positions. And I also want to emphasize the changing the role that universities play and claim to play in directly generating economic growth or in overcoming the causes of economic stagnation.

Part of the story, over my lifetime, is a retreat from the view that greater exposure to higher education will create growth by creating greater income convergence — that the greater supply of people qualified for management positions will reduce the salary premiums they can claim over less skilled labor while contributing to greater prosperity for all. Today, higher education claims credit for widening economic disparity, and is thus, implicitly, selling something like a financial product, a hedge against falling into the bottom twenty percent of the population, a segment that had not experienced any income growth since the 1970s. In other words, a university now presents higher education as kind of proxy for what might amount to a financial derivative that would protect you against the possibility that technology is generating growth in the economy and leaving people without education behind. (Imagine, instead, that the financial markets allowed you to buy a parametric option that hedges against a growing spread between GDP growth and the Gini coefficient of economic inequality, allowing you to bypass education altogether. The fact that you can’t do this gives universities an effective monopoly right to sell a proxy for that hedge.) This is one development over my lifetime that has reduced the distinction between the public and private functions of higher education, and thus between public and private universities.

Another related development is the change in how universities in each of these sectors of higher education generate funds from public and private sources that don’t necessarily have to pass through universities, and how public and private uses of these funds is thought of as somehow being different because they pass through universities: from whom are these funds generated, to whom and for whose sake are these funds being used? How does each of these sectors of higher-education I mentioned earlier both implicate and obscure the role of the state in funding it? How does the university’s receipt of these funds evoke practices and principles of higher education’s relative autonomy – relative autonomy both as a matter of their self-government, but also (and this is very important to elite universities) as a kind of control for the loss of integrity in other institutions capable of doing R&D? Does doing it in universities perform a kind of truth-defending function? (The idea is that research done at a university is considered to be less corrupted, for example, than similar research for the benefit the private sector that is performed by the private sector, or for the benefit of the government that is performed by the government.) What difference do the university’s claims about its transparency, accountability, integrity and so forth make in justifying the relation between its revenue plan and its actual expenditures?

I’ll try to touch upon these themes as much as I can in what follows. The important point to bear in mind is that it matters for purposes of internal university politics how the university as an institution articulates its relationship to both the growth of the economy and the reproduction/transformation of social inequalities. And it also matters how the public values it professes, especially as they relate to education and intellectual freedom, make it difficult to suppress internal criticism when it starts to act like a tobacco company in covering up its real priorities, for example when it gives corporations sponsoring R&D contracts the right to censor the results, or keep them in the private domain. It is the public values of higher education, whatever its formal relation to the state, that must be deployed when considering it as a site for political action, including unionization and protest against events that are going on outside, such as we see now in the current sanctuary movement that is occurring on many campuses. This is how we must think about the strategies required to connect the university as a potential site for organization with other movements in society that can leverage the university’s relative autonomy as a privileged site for such interactions.

The federalization of higher education funding in the Cold War Security State

 Holding these broader considerations in mind, let me now turn to my assignment of relating them to my professional autobiography. I entered this profession as a budding political theorist when I began graduate school in the fall of 1968. This was around the time of Sheldon Wolin’s essay “Political Theory as a Vocation,” which tried to develop a relation between university politics and “real” politics by treating the college campus as something like an ancient Greek city-state in which the highest public values could be discussed under broad conditions of freedom and equality. I was barely aware of this essay at the time, but I did understand that the universities I had attended were a site of struggle and a source of participation in the Civil Rights Movement, the Anti-War movement and the anti-draft movement — and that to some extent they took what had happened at Berkeley as their model.

All males who graduated from college in 1968 were subject to the draft, and this bears on the politicization of graduate education because, until that year, graduate school had been grounds for draft-deferment, and many of the best male undergraduates had seen it as a way to both support themselves and stay out of Viet Nam. Thus, this was a year in which the university’s ability to reproduce itself (at a time of expansion) by providing political sanctuary to academically successful students was suddenly in jeopardy. In retrospect, however, 1968 was also important for higher education for another reason. Between 1958, the year of Sputnik, and 1968, higher education had been transformed into one of the major institutional beneficiaries of Cold War prosperity. Before this there had been the GI Bill, which was a major subsidy for public and private higher education after the Second World War. But Sputnik led to the passage of the National Defense Education Act, which expanded the National Science Foundation and subsidized higher education, especially graduate education, at a vastly greater scale. All of these forms of defense-driven funding reduced the distinction between state-funded and privately-funded universities by injecting large amounts of federal funding that did not favor public over private schools

The post-Sputnik Cold War was not, however, the only factor that increased the federal role in higher education in ways that undermined the distinction between publics and privates. Lyndon B. Johnson’s Higher Education Act of 1965 sought to expand higher education primarily through the growth of public university systems, but also to provide federally-funded loans that allowed students to borrow the full value of the tuition spread between public and private universities. The result was that tuition-funded universities, including newly-created for-profit vocational schools, were able to leverage the financial power of the federal government in order to expand by creating additional places for students who paid their tuition through federally-funded loans. Because the differential between private and public school tuition was added to a need-based loan, the effect by the mid-1970s was almost to kill the continued expansion of public universities. Tuition was, thus, a way for private institutions to take hold of an increasing share of the money being generated by student loans funded (or in some cases merely backed) by federal borrowing power. In short, the federalization of higher education funding in the 1960s created the system that eroded the distinction between state and private schools, created the revenue-model of a for-profit sector that was almost entirely funded by federal student loans, and set in motion a hybrid system public support for private schools and private support for public schools that is now being subsumed by financialization (in the form of reliance on globalized bond markets) today.

But this is getting ahead of my story. During my time in graduate school — 1968-73 — universities had greatly expanded to become centers of Cold War research, which had been located there partly in order to subsidize the expansion of graduate education as a positive side-effect. At the same time, and especially due to the Viet Nam war, they had become a shelter for male graduate students who were trying to resist the war by resisting the complicity of universities in it. Meanwhile, the federal government was funding an enormous growth in undergraduate education which created a demand for a professoriate, the supply of which was funded by the Cold War and the quality of which was indirectly supported by the growing reluctance of recent college graduates to be drafted, which created a strong incentive for those who qualified to attend graduate school and get deferments. My year was the dividing point between the graduate students who got draft deferments and those who did not.

Organizing graduate students: the question of justice in the reproduction of the academy

 When I started graduate school, the NDEA and the NSF were cutting back on graduate fellowships and subsidies for faculty expansion, as the defense-related pretext for supporting universities was evaporating in the heat of Viet Nam. With fewer federal awards to give, Harvard cut back on its number of admission offers. This arguably meant no net loss for Harvard, because having fewer graduate students would cost the university less. But Arts and Sciences Dean John Dunlop saw this as a loss to the University of revenues it had gotten to teach graduate students and that it should now recover from graduate students. To recoup this ostensibly lost revenue, he deducted a fixed amount of tuition from the stipend Harvard was paying to its research and teaching fellows. We, as graduate student employees, called a strike, formed an unrecognized union, and won an initial vote for recognition taken under the NLRA procedures of the time. After all this, Harvard was willing to bargain with representatives of the union-to-be, of whom I was one. The eventual result, as I recall, is that the tuition was not deducted — they were just attempting to do this because they thought that they could. So, our credible effort to invoke labor law brought the University to the bargaining table at that time, even if it did not result in eventual unionization at Harvard.

Aside from the largely positive result, there were other lessons I learned then about the role of labor organizing in politicizing a university. My supervisor at the time was well known for his sympathy with unionism and unionization, and he was on a faculty committee at Harvard that entitled him to ask for information that we needed about the names and contact information of our fellow graduate students that the University would probably have refused to provide. I remember dragging him, squirming, into University Hall to get the list so that he would give it to us to conduct our preliminary ballot. Perhaps this is not something that most graduate advisors would do, and I dare say it is not something that most graduate students would force or shame their advisors into doing. But it could happen back then, during that era of campus activism, and it is the kind of thing that could begin to happen again — I’m sure that some of you have graduate mentors who sympathize with your politics and who can’t easily be denied information that your University is not entitled to keep secret. Why shouldn’t they ask? And why shouldn’t they give it to you, as I would later do for campus labor organizations when I was on Academic Senate committees and able to get information? So, that is how we got to the point of canvassing our bargaining unit — by leveraging the ways in which our academic advisors were not mere corporate employees.

The actual bargaining is perhaps equally interesting, because it turned the management of the university (with regard to graduate programs) into a topic of discussion in the university that cut across departmental divisions. After Dunlop went into the Nixon administration (eventually becoming Ford’s Secretary of Labor), the prospective union committee found itself negotiating “against” an appointed faculty committee that included John Rawls, who was also one of my teachers, along with senior economists (Henry Rosovsky, Richard Caves) and others. So, the substance of the bargaining was no less interesting to me, as someone starting out in political theory, than how we got there. There was a lot of talk on this committee about issues like the self-reproduction of the professoriate as a practice, and what forms of inter-generational equity are required for a professoriate that expects lower salaries than other professions to be reproduced. As part of discussing the claw back of tuition money from our stipends, we considered whether graduate education should in principle be free, that is, should a talented undergraduate be treated by the university system like amateurs who could turn pro? Was the whole idea of taxing our paychecks in the form of tuition inconsistent with the Harvard faculty’s view of graduate training as a kind of farm system for academic major leagues?

From social visions for education to the financialization of the university

 Unionization efforts at Harvard occurred in 1971-72, and in 1973, during Watergate, I went to California to teach at the University of California, Santa Cruz. At this moment, I entered into the remarkable, mid-century version of social reconstruction and engineering known as the 1960 California Master Plan for Higher Education. The Plan was based on the view that as more people became qualified for higher-level jobs throughout the society, you would have greater income convergence and therefore a greater willingness at all income levels to support the system through taxation. The federal funding programs that I discussed earlier, changed all of this, almost from the beginning, by allowing for-profit, private institutions to compete with the community college and the UC. The result was a different higher education system — encompassing public, private and for-profit — than the authors of the California Master Plan had in mind.

I’ll skip over the battles that resulted from the challenge to the Master Plan needed after Proposition 13 in 1978, which resulted in moving K-12 from property tax- to income-tax-based funding, putting it in direct competition with higher education for General Fund dollars from the state. What is important for my story today is that this challenge to the state-funding model occurred at the same time as the reduction in Cold War-related federal funding that I described earlier — so that, by the 1990s, financialization becomes a simultaneous solution to how universities could replace the federal funds lost as the Cold War ended and the state funds lost through a change in California’s fiscal constitution.

Let me now fast-forward to the 1990s, the issue of unionization and the role I played in the University of California system regarding both faculty and graduate student unionization. It was the great insight of the founder of the UC faculty union, David Feller (who was a new professor at UC-Berkeley Law School), that Berkeley’s Free Speech Movement of the 1960s had failed to establish a right of free speech for faculty critical of the university administration (analogous to First Amendment rights against their government), and that a more feasible approach would be to assert the rights of faculty, as unionized employees, to criticize and oppose the policies of their employer. This meant someone acting under a legally protected right to unionize in universities could engage in protest against campus policies, expose maladministration, and speak to the press or the legislature without being disciplined as an employee for failing to go through the committee system of the Academic Senate. Feller wanted systemwide union recognition for UC faculty, and almost got it in the 1970s. We failed by surprisingly few votes at both Berkeley and UCLA, and succeeded only at UC Santa Cruz, which still has collective bargaining on local issues. The most positive, lasting result of Feller’s effort turned out be the statutory and administrative protections that we got merely by forming a union under applicable law. This in itself protected faculty (and later graduate students) in engaging in political activities both inside and outside our institution, whether or not we had gotten union recognition, merely because we were entitled to protest the policies of our employer as part of our right to organize systemwide.

Having the free speech conferred by labor law, however, never meant that we, as faculty, gave up our right to participate in “shared governance” as members of the university. During the late 1990s, while I was President of the statewide labor union for tenure-track faculty that Feller founded, I also became head of the Academic Senate Budget and Planning Committee, which the UC administration was obliged to consult before taking significant action. I thus received a lot of information through my Academic Senate position that I was happy to share with the leadership of other labor unions in the UC system. This was information that could and should have been publicly available, but the unions were not entitled to it as part of their jobs and would have had to give up something in bargaining to get it. Occupying my dual roles meant I could meet with the top officials of the university as head of the budget committee and also be brought by the heads of large, recognized unions into meetings with politicians in Sacramento where, based on the University’s own data, I could give legislators an alternative to the University’s account of how it was using enrollment-generated dollars from the state.

How could I try to translate what the University was actually doing with the money it got into language that a consortium of union leaders could use to lobby legislators? Well, the basic math of public university finance and administration is based on an abstract metaphor in which each student work “full-time” with a “full-time” professor and faculty teach only tutorials. The legislature then funds a student-faculty ratio defining the budgetary quality of instruction, based on how many full-time tutorials each full-time professor would be expected to teach — e.g. 20 full time students for each full time faculty-member From this metaphorically-based formula for enrollment-generated funding you can divide student time among several faculty and create “courses” in which faculty teach many students at one time — all using the concept of a “full-time equivalent” for both students and faculty, which is the coin of the realm in academic budgeting, the basis of academic planning, and how the primary way in which the campus administration funds itself and its non-instructional activities, along with faculty research time. Now it’s rather easy, if you’re a Marxist like me, to think of these full-time equivalents as abstract units of value, of both enrollment growth and a worsened student-faculty ratio as a generator of a kind of absolute surplus value, and other changes such as larger class and section sizes, more internships and study-abroad programs, and so forth as being a lot like relative surplus value.

Essentially, based on Marx’s view of how labor time gets exploited, it is possible to determine how enrollment growth, which by analogy with Marx produced absolute surplus value for the university, created heightened exploitation by decreasing the budgetary quality of the university (i.e., by changing the “organic composition of instructional capital”). In other words, based on an analogy with Marxism, and using simple long-division on Excel spreadsheets, I could figure out changing rate of exploitation of the enrollment dollars generated by each student as more students were added to each campus under policies that were designed to use the funds they brought in primarily for other purposes. This approach generate data showing how the university was planning to become (academically) worse by design, largely at the expense of graduate student TAs and adjunct faculty. And it created metrics for offsetting this heightened exploitation of enrollment growth that proved very useful, for example, to the TA and lecturer union leadership in their own collective bargaining — graduate student employees could bargain, e.g., for holding TA ratios constant as undergraduate enrollments increased, thereby requiring that instructionally-generated dollars be used to support a constant ratio of graduates to undergraduates in programs dependent on TAships.

These arguments showed how, despite the efforts of organized, internal opposition, the University of California had planned to exploit the growth of enrollment-generated revenue to fund non-instructional activity in increased proportion. It had thus developed a revenue model in which public higher education defied the laws of economics: it could lower quality, raise prices, and still increase demand. What a business! And this is the case because like home loans, once privatized and securitized, student loan securities became great investments for foreign investors because they were guaranteed (implicitly in the case of mortgages) by the federal government but paid a much higher coupon than US government bonds.

Implications of financialization: corporate benefits and runaway student debt

 In 1998, around the time US student loans were being privatized, the California Legislative Analyst came up with a report that seemed to justify relying on them to support public higher education. The report showed that from 1978 to 1998, the period of transition from the defense-led economy on which Master Plan was based to a tech-led economy, all income growth had occurred among the top twenty percent of taxpayers, while the bottom 80% incomes were either stagnant or lower. Now, the top 20% of high school graduates just happened to be target population for higher education under the Master Plan. So, UC could tell prospective students: “We’re really selling you a financial hedge against falling into the stagnant eighty percent.” Now that you know, why don’t you pay for this in the form of higher tuition?” And at the same time, it was telling students that the bottom eighty percent wouldn’t pay to support a system that was leaving them behind — and, perhaps implicitly, that people in their position shouldn’t pay. Instead of promising to be a great equalizer in the state economy, public higher education was now claiming credit for widening economic inequalities so that it could charge its students a higher price for the advantages it bestowed upon them.

Raising tuition to harvest the “education premium” in incomes wasn’t always a possibility for UC. When I first came on the statewide UC budget committee, the University administration was afraid of losing state funding, dollar for dollar, if it raised tuition. In 2003, the University struck a compact with Arnold Schwarzenegger allowing it to be able to maintain its state enrollment funding level while becoming less reliant on the state for funding increases, which would instead come from higher tuition that could now be “kept” in a sense that would matter for capital market, because tuition would no longer be seen as, potentially, another source of state revenue that reimbursed the state for its prior investment in public facilities.

Based on the Governor’s assurance that the State would not treat tuition as a user fee that it could recoup, the University was able to securitize tuition in the bond markets for the purpose of all kinds of projects that no longer had to be self-supporting for the purpose of raising capital. It thus immediately (in 2004) combined all revenue from self-supporting projects (e.g. dormitories) with student fees, unencumbered research funds and most importantly tuition into a General Fund that could be pledged as collateral for construction projects that did not have to be self-supporting as far as bond investors were concerned. UC’s new General Revenue Bonds were in principle similar to a general obligation bond issued by the state. The latter were backed by the state’s ability, as needed, to increase tax revenues through population growth and higher tax rates. The former were backed by the University’s ability to increase revenue based on enrollment growth and tuition hikes. This was enough to persuade the bond markets that the University could raise tuition revenue more easily than the state could raise tax revenue, and thus deserved a better credit rating than the state. The University of California was thus able to borrow (when I last looked) the equivalent of a $15 billion endowment, on the assumption that tuition growth and enrollment growth could be used to fund the diversification of the university’s portfolio into healthcare for the still-insured generation it had educated in the 1960s and 70s.

In 2009 I got the indentures for the bonds, laying all this out, and wrote an open letter to students. The indentures showed that the university had pledged to raise tuition by as much during the years of the budget crisis, 2008-2011, as they had actually raised tuition on an emergency basis in response to state budget cuts brought on by the financial crisis. As explained to the bond market, steadily raising tuition is a “no-brainer,” because the University could raise tuition when the economy is good, and if the economy is bad they could raise it even more and blame the state. In other words, the UC administrators had pledged their ability to raise tuition to promote a lot of capital projects that would have to be subsidized by budget cuts to instruction (despite fanciful scenarios, never presented to investors, in which they might hypothetically pay for themselves). A number of these capital projects allowed the University to diversify its business to non-instructional areas, such as public-private partnerships and arguably healthcare, that are not ultimately responsible for servicing the debt attributable to them because the instructional enterprise remains on the line.

This securitization of tuition to fund non-instructional activity became a part of university politics between 2009 and 2011. During this time in California, I would be invited to give a talk presenting my analysis at a UC campus, and then the students who had a First Amendment right to hear what I could say as a labor union president would vote to occupy the building where the event was held. There were occupations across the UC system in 2011, one lasting for more than a week. The state legislature investigated, based on information that I leaked to it, about how enrollment-generated funds were distributed among the campuses, and the upshot was that the University was forced by political pressure and public opinion to freeze in-state tuition increases, which are only now expected to resume. Instead of its planned tuition increases for Californians, however, UC raised tuition for out-of-state and foreign students, and massively increased their numbers at the most in-demand campuses, leaving the other campuses to bear the brunt of the six-year freeze on in-state tuition by having less to spend per student.

Before I leave the topic of higher education finance, I want to stress the point that we no longer have a straightforward commodification of higher education, which was occurring in the early 1990s with the rise of the brick-and-mortar for-profit schools. That trend was expected to lower the cost of higher education, through price competition, but instead it raised the cost because for-profit schools essentially became front-end providers of sub-prime debt to any student who enrolled. What we have now is, rather, a generalized use of the higher education system to generate the kind of debt, backed by all sorts of government protection, that can be used to manufacture other forms of security, some of which is rated AAA (like a synthetic US Treasury bond). What is important for this financial engine is not whether you, as a sub-prime borrower, can repay your debt, but whether you can create increased amounts of debt that remain liquid and can satisfy the demand of global bond markets for safe collateral (without the US government having to borrow more in order to create it).

It is the liquidity of debt, rather than the payability of debt, that is the basis of the new forms of financial value that are created through the exploitation of student enrollment as a generator of predictable revenue streams. The point is that these revenue streams can be securitized in the same way that your mortgage payments can be securitized, that your cell phone cell phone contracts can also be securitized. As we see in California, the securitization of payments of tuition in order to fund construction has benefitted public/private partnerships with industry, by giving industry access to the borrowing rate available to the University of California, at a time when the University of California’s credit, because of its ability to diversify and raise tuition, is still better than the State of California’s credit.

This access to the bond markets to securitize their revenue streams is what makes the University of California and the University of Chicago potentially similar. Just as the era of tax-based federal funding erased the distinction between public and private, now the era of financialization essentially erases the distinction between public, private, onsite for-profit and MOOC. Instead of the straightforward commodification of higher education, we got a financialized version of it in which, instead of becoming cheaper, the ability of elite universities to raise tuition created spreads that could be used for new financial products to fuel the global market in higher education credentials.

Securitization, MOOCs and the manufacture of global options, not opportunities

This brings me to consider the fourth sector I mentioned at the outset. While we were in the depths of the 2008 financial crisis, the private informatics companies in Silicon Valley began to develop their Massive Open Online Courses (MOOCS), mainly at Stanford. They offered to provide these online courses for free to the University of California in areas that were over-enrolled, in return for a guarantee that UC would grant the same credits for MOOCS as for its onsite course and allow MOOC outcomes to be tested against UC huge database on student performance, which is controllable for all sorts of factors such as high school performance, SES, and so forth.

MOOC advocates saying that universities like Berkeley or Stanford could continue to become more expensive and financialize their ability to collect tuition by selling credentials to people in China that could be compared to credentials that you could receive on those campuses, if you had the opportunity to enroll. In effect, what they were selling to a global market were unexercisable options to receive credit at Berkeley or Stanford, but not opportunities to exercise those options. But, of course, the value of these options would be higher if the marketers could show that they could be exercised by students at Berkeley and Stanford taking the identical classes, for college credit rather than a certificate of completion. The idea was that students in China could take courses in which their performance is tested every twelve minutes and compared with on-campus students at Berkeley or Stanford taking the identical tests. They could continually purchase “views” of their performance in those courses that would measure their fluctuating value of the ‘out-of-the-money option’ for credit at Berkeley or Stanford in the global higher education marketplace. These views could compare them to the next generation of students in the same class. But as data is gathered they could also be compared with others from China who went to the Berkeley or Stanford, and with other kids in China who did not go but had similar academic records, and with students in China (sorted by age, gender, etc.) who couldn’t have qualified for Berkeley and Stanford but who took the course, and whose performance in the class can now be valued in an ever-changing marketplace based on the hierarchy of globally-ranked universities.

Today, monetizable financial assets are being produced online out of university rankings and prices that allow the highly-ranked university to manufacture out-of-the-money options and essentially supplant the higher education system in places like Uganda, or anywhere else where there is currently a massive for-profit educational sector that sucks up tuition in return for credentials. For example, you can now take virtual courses at Stanford and qualify for a job with an NGO or a foreign investment company in Uganda without ever having attended Stanford. Stanford is essentially leveraging its selectivity and its price in order to produce options that have value in the local job market even if they do not correspond to opportunities in the U.S.

Perhaps as a result of our union’s efforts, combined with unexpected bad publicity for the MOOCs, the University of California curtailed its participation in these efforts. For the most part, however, the current revenue model for tuition growth in higher education is really pricing in an embedded financial asset that can be separately traded on what is in effect a global options market. The fact that tuition has risen at three times the rate of the consumer price index shows that tuition is not based on cost, and rather that universities charge as much as they can be based on the “education premium” in income spreads as it effects the value of the option to attend. This means that tuition should be increasing, according to my theory, at a square of the rate at which income inequality is increasing. I can’t do the math, but the results are pretty much there for all to see.

Let me just note, as a sidebar to my story, that the ability of the elite universities to sell (through MOOCs) financial assets based on their ranks now seems to be killing off large parts of the proprietary sector that was largely created by federal funding over an earlier twenty-year period.

To conclude, here is what I would ask you to take away from all this in terms of your own practice and your own union organizing:

  • First: If you are going to unionize, do not think of this as an alternative to your other activities on campus, and especially not as an alternative to your relations with your advisor; it should, rather, be a source of interactions and a friction. You should use your multiple positions, as student, employee, colleague (and so forth) to access information and then use your multiple connections, including connections outside of the university, to share that information.
  • Second: Do not allow yourself to be hamstrung by the etiquette of any particular institutional role you have, including your relations with your professors. These are often people who purport to believe in the things in which you believe; that is why you are working with them. So, hold them accountable.
  • Third: you should understand that the critique of commodifying higher education is one thing, and the critique of financializing it is another. Today, elite higher education is producing, perhaps, even more value in the form of financial assets than it is in the form of commodities. So, the quality of universities like the University of Chicago, is not being challenged by cut-rate providers; it is, rather, being financialized precisely because of its ability to raise its price, its ability to raise its selectivity, ultimately, by its ranking. These higher education rankings are now part of chain of production for new financial products (options) in the global higher education market, that take the form of selling new instructional services online.
  • Fourth: The financial story of US universities is no longer primarily about state funding, or private funding in the form of donations, and so forth; we are now talking increasingly about the university’s access to the bond market and its ability to provide access to its ability to ability to issue tax free bonds to private sector actors, including for-profit corporations. So, look at your university’s bonds. Demand to get its bond indentures. Part of what your University administration is doing to increase enrollments and cut quality, I suspect, is intended to promote and advance its bond rating so as to become a more attractive financial partner in joint enterprises with the private sector. The university’s revenue streams can be more fully securitized to the extent that it shows itself capable of diverting funds from instruction to other purposes, such as servicing its bonds. Remember that, for the university, tuition is capital, not just revenue.
  • Fifth: Don’t get distracted by budgets. Budgets are just a management tool for controlling spending, but this is obscured because the subject position of faculty members who become administrators is normatively that of a scientist who has a grant. Scientists know that if you don’t spend all the money in your grant, you often get to carry it forward, and that you can then spend the carryforward in a more discretionary way than what was justified by your grant. But an academic budget is not a grant of funds, and the concept of a carryforward has a different meaning outside the world of grant-based funding. In the case of non-profit universities, whether public or private, a carryforward, or the equivalent in budget cuts, goes instead to what is in effect the institution’s capital account, although this would always be called something other than that because, technically, there are no profits in universities like this. The most important point is that positive carryforwards can be used, like additional capital, to offset negative carryforwards, such as losses attributable to subsidized business partnerships that the university wants to promote, or in the account the university uses to pay the debt service on bonds. A further point is that longer-term budget cuts that cause changes in what I like to call the “organic composition of instructional capital” (the ratio of enrollment-generated income to instruction-related spending) function for just like carryforwards (underspending on a higher budget) insofar as they channel surplus to the center in a form that can then be financialized. Tracing the flow of educational funds in the way I’m suggesting can be difficult, but, if you want to roughly estimate your university’s carryforward from underspending previous budgets, just look at the commercial paper it issues to collect interest on this sum. The last time I looked, University of California’s total carryforward of enrollment-generated funds was roughly 40-60% of its total annual budget — a fact that was never mentioned when the University said that it was “forced” to double tuition because of cuts in funding from the state. So, if you focus on revenue flows rather than budgets you may discover, as I did, that your University is using its “ed-business,” to generate revenues that give it access to capital that funds, for example, its healthcare business. You may also discover that your university is never not in the real estate business in ways that sometimes appear to benefit its trustees and donors.
  • Sixth: Your union’s strategic decision is to make your university look bad depends ultimately on the assumption that the public believes in the quality of our universities and in the value of higher education. The wants them to be good. The critique around which we, as unionized teachers and researchers, can mobilize our potential allies, is thus, a demonstration that the quality of education is not the priority of administrators managing the financialized university. Instead of quality, which could be treated as a public good, those managing the university are essentially manufacturing spreads, i.e., gaps and ranks that can be used to new financial assets (such as construction bonds and educational products) that can be marketed globally. This arbitrage of rankings goes all the way down to the professorial level, especially when it comes to hiring, retention, promotion, and so on.[1]
  • Seventh: There are metrics of budgetary quality that involve the exploitation of enrollment-generated dollars to create forms of surplus that can be used to manufacture assets which are not themselves means of educational production.
  • Eighth: It is our jobs as academic trade unionists to connect our own exploitation with the exploitation of student borrowing-power, because many of our students are borrowing to work with us. Then, and only then, can we strike against — or otherwise subvert and resist the forms of institutional control that are used to manufacture financial rather than educational value. If we as graduate student researchers and teachers are not also striking for our undergraduate students, we will be perceived to be striking against
  • Ninth: In addressing the debt-funded University, it can be important to focus student attention on the way in which the liquidity of their debt is much more important than whether it is ever repaid. For example, a question I’ve raised to people working on the Strike Debt campaign is whether their tactic, at its most successful, is simply a way of increasing the steepness of the default curve without creating uncertainty about whether the asset class itself will remain liquid. To the extent that this is so, there will be investment funds that create new financial assets by buying up and resecuritizing student debt that is undervalued because of the apparent political success of the debt-resistance movement. The idea behind these funds is to harvest value if the growth of the economy increases people’s ability to repay while protest movement decreases their willingness to repay. It is important to understand that social movements creating volatility prima facie create value, other things equal, and to learn how to harvest some that value, either by credibly threatening to destroy it or by creating alternative derivatives (perhaps using blockchain technology) that rise in value with the social movement’s perceived success. (Some of my collaborators in the alternative derivatives world are testing the possibility.) This brings me back to my opening question about academic union organizing in higher education: to what extent can we, because of what universities are, because of who we are within them, acquire greater ability to harvest and enjoy the value we create while working here?
  • Finally: My story demonstrates that the option of organizing a union that is protected under labor relations law can have great value as a point of leverage in University politics whether or not the union ever succeeds in gaining recognition. I won’t now go into the question of how much more value the option to organize a union has when it is exercised in ways that lead to collective bargaining. The answer to this will often depend on the extent of one’s bargaining power and the degree of support one enjoys from one’s bargaining unit.

Robert Meister is professor of social and political thought in the Department of History of Consciousness at the University of California, Santa Cruz. 

[1] These days, people asked to write appointment and promotion letters for top departments are sometimes expected to state their own rank within their profession, the ranking of their department and or subfield, and even the rank of the journals in which they have published. This is because the department soliciting the letter wants to know whether hiring/tenuring/retaining the person will improve its own ranking using the metrics of their field. Fortunately, I am in a department called The History of Consciousness which can’t be ranked, because there isn’t another one!