There is a second equally important trend occurring within the same period– the federalization of higher education. Despite the fact that the potential impacts of this trend are similarly significant for this industry it has received less attention from the literature thus far. Evidence of the trend of federalization within the higher education industry can be found in the increased pressure for accountability from Congress as well as the increases in the accountability requirements imposed by the Department of Education and the IRS.  For example, the recently proposed changes in the Education Departments’ rules for for-profit and nonprofit colleges and universities increase the federal and state oversight of for-profit and nonprofit colleges and universities financial and recruiting practices while also imposing a standard definition of a credit hour at a federal level (see recent articles in The Chronicle of Higher  Education here and here).  There have also been numerous calls for increased oversight of endowments and requirements for increased levels of endowment spending as reported in The Chronicle of Higher Education here, here and here. Both of these examples point to the increasing role of the federal government in the higher education industry as a force of increasing accountability.

The potential impacts of the federalization of higher education are just as significant as the potential impacts of the privatization of higher education. Both of these trends result in a shift in the key stakeholders of the organizations within this industry which in turn can dramatically impact the behavior of these organizations.  The role of stakeholders is heightened in an industry like higher education where the organizations lack clear measures of success or failure. This is especially true in the case of the nonprofit and public sector organizations that form the majority of this industry.

Organizations which lack clear outcome measures are more subject to external referents of accountability rather than internally defined measures of success or failure. In other words, because there are not clear measures of success these organizations are more accountable to their various stakeholders to define the success or failure of the organization in terms of the goals and interests of the stakeholder groups. This if further complicated by two things: (1)the more stakeholders an organization has the more the more groups they have to please and (2)the extent of the influence of any particular stakeholder group is strongly related to their level of involvement in the organization.

Therefore if either the makeup of the organizational stakeholders shifts (groups are either added or subtracted) or the relative power of the existing stakeholders shifts, this has the potential to dramatically influence the behavior of the organizations. For example, if privatization is occurring we would anticipate that the power of state and federal government stakeholders is declining and the power of the consumers (students, parents, and other educational consumers) and the private stakeholders (donors) is increasing. This would have distinct consequences for the behavior of the organization because it would be more responsive to the wishes of the private stakeholders and consumer stakeholders instead of the government stakeholders. The story would be different in the case of federalization where we would assume that the federal government stakeholders would be increasing in power relative to the private, state government and consumer stakeholders.

Regardless of which trend is stronger within the higher education industry, or which trend will eventually prevail, the basic conclusion is the same: We should focus more attention on the implications of both of these trends for the stakeholders of these organizations and the subsequent impacts of these changes on the behavior of these organizations in the short and long-term. Utilizing the unique conditions of the higher education industry, and the changes currently happening within this industry, researchers can shed light on how organizational behavior changes in response to alterations in stakeholder makeup and power. This can then shed light on how organizations more generally respond to these changes in stakeholders and if these responses are different for organizations in different sectors.

Over the past 30 years or so the argument that public higher education is becoming privatized has become an accepted fact. However, less attention has been focused on how, why and to what extent these colleges and universities are actually pursuing more “private” means of sustaining themselves as various types of government support has declined. Preliminary evidence from my dissertation research indicates that though there is evidence of privatization among public colleges and universities between 1970 and 1995, however, concluding that this is occurring for the entire industry would be an oversimplification.

Using a new methodological technique I empirically derived five different organizational funding strategies that are being pursued by a sample of 164 colleges and universities from 1970-1995. These strategies range from very public funding models (no endowment income, very little if any endowment and low levels of private contributions) to funding models that closely parallel the private colleges and universities within this industry which are characterized by high levels of endowment income and wealth as well as high levels of private gifts, grants and contracts.

Overall the field is shifting towards the private end of the spectrum with increases in private and hybrid strategies over the time period, with declines in the strategies at the public end of the spectrum. This gives the picture of an industry characterized by dynamic changes over time. This shift is, primarily, being driven by the movement of a small subgroup of institutions, predominantly the branch campuses of the large state systems (University of Texas-San Antonio, University of California-Davis, and University of Wisconsin-Platteville for example) and smaller public colleges and universities that are not affiliated with the large state systems (Southwest Texas State University, Evergreen State College, and Coastal Carolina University for example). This indicates that this industry, rather than being dynamic, is actually relatively stable with significant movement by a small but important contingent of institutions. This finding is contrary to the depiction of the higher education industry in the popular press and in some academic literatures.

This evidence indicates that the privatization of higher education is not an industry-wide phenomenon but instead is occurring in a smaller subpopulation of colleges and universities within this very diverse group. The majority of institutions that are seen as pursuing privatized strategies in the literature have not drastically changed their funding strategies in the past 30 years. These larger state institutions have consistently been pursuing endowment income, donations and higher tuition levels as means for sustaining their mission. Therefore to say that privatization is occurring across the board and at much higher rates than in the past is not supported by the empirical evidence.