The Economic Imperative for Teaching with Technology

Innovative approaches to increasing classroom productivity are the best option for controlling the escalating costs of research universities.

In 1997, management guru Peter Drucker predicted that in 30 years the big university campuses would be relics, driven out of existence by their inexorable increases in tuition and by competition from alternative education systems made possible by information technology (IT). Drucker overstates the case, but the nation’s major research universities, both the publics and the private nonprofits, will have to make fundamental changes in the way they provide education if they are to thrive, rather than merely survive, in the coming decades. Drucker’s alleged implement of destruction, IT, can actually be an essential tool in maintaining the strength of the research university.

Research universities suffer from what economist William Baumol has labeled a “cost disease”: The relative cost of delivering services in labor-intensive industries increases over time as other industries experience technological progress, employ labor-saving devices, and realize cost savings. In addition, highly selective universities operate in a market in which rankings and prestige have been more important than price to most prospective students. They prosper not by cutting costs but by convincing the public that the value of an education at a first-tier university is worth the ever-rising cost. Labor intensity and quality-based competition are driving up the costs of all universities, particularly the private nonprofits. As Drucker points out, this cannot continue indefinitely.

In the current university financial system, undergraduate education subsidizes research. State legislatures and the alumni of private universities are willing to contribute to the goal of educating undergraduates. The combination of tuition and outside contributions brings in more money than is needed to teach undergraduates, and the universities use the surplus to subsidize research. For example, state subsidies cover faculty salaries because faculty are expected to teach undergraduates, but then the faculty grant themselves light teaching loads so that they have time for research.

Unfortunately for the universities, this strategy is beginning to unravel. The states are cutting higher-education subsidies and at the same time trying to keep a lid on public university tuition. Meanwhile, members of Congress are voicing their concern about the relentless tuition increases at the private nonprofits. Although tuition at private universities might not seem to be a government problem, tax deductions for alumni contributions are a government subsidy, and the government does pay some of the tuition at private universities through grants and loans to individual students. These indirect government subsidies are highly regressive. At the 146 most selective and most heavily subsidized colleges and universities, only 3% of the students come from families in the lowest income quartile, whereas 74% come from families in the highest income quartile. This government largesse to the wealthiest citizens is hard to justify, and it will hardly continue forever. Public and private universities should be preparing for a period of declining revenue growth, and perhaps even falling revenue.

A future in which costs outpace revenues will cause severe financial stress for the universities. The publics are already beginning to feel the pain, and the day of reckoning for the private nonprofits is not far off. To preserve the quality of their research activities, the publics must begin immediately to use technology to make their teaching operations less labor-intensive and to begin developing new markets such as continuing education, where they can use their technology to lower the labor intensity of teaching and thus increase revenue. For now, the private universities can wait and see— and learn from the publics, which need to act immediately. Their strategy might differ in detail, but they too will have to begin soon to use technology in ways that will make teaching more cost-effective.

Where to begin

The first function of research universities is research. We like to say that it is teaching, but no reasonable person seeking to set up a teaching enterprise would organize it as a research university. Of course, a research university can be used for teaching purposes, in the same way that a burning barn can be used to roast a pig; it is just not cost-effective.

The cost of research is difficult to calculate exactly because it includes so many activities. Universities pay premium salaries for star researchers and then require them to do very little teaching; they build science buildings and purchase expensive equipment to help them attract outside funding; they carry researchers who are not receiving outside funding; they train doctoral students in an apprentice system that requires enormous faculty time for each student; they cover the cost of faculty who serve on expert advisory committees, edit journals, review articles for journals and proposals for funding, and take leadership roles in professional organizations; and they allow faculty to participate in an endless variety of other activities that keep the faculty happy or contribute to the prestige of the university.

Research is inherently labor-intensive because human creativity is an essential component, because the related activity of doctoral training requires extensive personal interaction over a long time, and because the need to maintain quality demands that people with specialized expertise devote extensive time to reviewing the work of their peers. Even though researchers have eagerly integrated IT into their work, it has not reduced the labor intensity of research, and we should not expect it to do so in the future. Although researchers will be able to explore new questions and to share their findings more quickly with colleagues, the critical need for human involvement will not diminish.

The bottom line is that there are no significant opportunities to substitute IT for the work of humans and no obvious ways to reduce financial support for research without also endangering the quantity and quality of the research.

The situation is more complicated for teaching, simply because there are so many kinds of teaching. Consider how little common ground exists in the teaching of laboratory science, creative writing, history, and basic accounting. Some kinds of teaching are inherently labor-intensive; others could go either way, but the labor-intensive form yields higher-quality results than does the technology-intensive form; yet others have the potential to achieve their highest quality in the technology-intensive form, although this potential is yet to be realized. For example, practical ethics is usually taught face-to-face in the honored tradition of the Socratic method. In the future, it might be less expensive and more effective for students to learn experientially by immersing themselves in virtual societies and exploring their own and other people’s responses in morally charged situations.


Complicating matters further is concern about the quality of student learning. An acclaimed faculty lecturer might be very effective for the majority of students, but research has revealed that individuals differ widely in how they learn. Given the choice, one student will attend a lecture even as another student makes a beeline for the Internet; one student will learn interactively or in a group, whereas another student likes to work on his own. No individual teacher or course plan can be the best choice for all students. The goal should not be to offer the perfect course and teacher, but to provide enough varied options that each student will be able to find the most effective learning environment. IT not only makes it possible to reduce costs, but by offering more options that are tailored to needs of individual students, it also has the potential to increase the quality of learning.

For the individual student, the most effective mix of labor-intensive and technology-intensive teaching will vary with the subject matter, the immediate goal of the course, and the student’s stage in life. A student might start out with a liberal arts education that prepares her cognitively and emotionally to cope with uncertainty and complexity and instills in her a meaningful philosophy of life and a sense of social responsibility. In the course of her working life, she would upgrade her skills as needed by taking continuing education courses with vocational content. To advance her career or to change direction, she might add a professional degree. In retirement, she would come full circle and once again take advantage of the university’s continuing education offerings, but now with a liberal arts bent. After several decades of work and family responsibilities, she would return to the Great Books and a reconsideration of life’s perennial questions. For this student, who may well be representative of the majority of tomorrow’s student body, we should be aiming for labor intensity in the early years of education, technology intensity in the middle, and a mix of labor and technology intensity at the end. This structure also makes economic sense, because it is in the middle where the numbers are, and technology-intensive teaching requires economies of scale to be cost-effective.

Weakening support

State funding of public research universities has always been a roller coaster, with the business cycle driving state tax receipts and thus state support for higher education. The recent decline in state support, however, is not just another transitory trough in a boom-and-bust cycle; it is the beginning of a long-term trend. State budgets are systematically moving out of higher education and into state employee pensions, Medicaid, K-12 schools, and prisons. The combination of shrinking state support, rising university costs, and a political climate in which middle-class voters resist increases in tuition or decreases in enrollment is setting the stage for a financial train wreck. The only option open to university administrators will be to hollow out the teaching enterprise.

Nominally, state budget cuts apply to undergraduate education, not to research, but we have already seen that research needs to be cross-subsidized with funds intended for undergraduates. Tight budgets will hurt research. A university can respond to state budget cuts by increasing the teaching load of its research professors and cutting the number of low-enrollment doctoral classes, or by hiring less-expensive non-tenure-track faculty who do not conduct research or train doctoral students. Either way, the research capacity of the university will suffer.

At first glance, it appears that the private universities will fare better because they are not formally constrained from increasing tuition. They could use tuition, endowment income, and alumni giving to meet their increasing costs. But eventually they too will hit the wall, in part because they are not completely insulated from public opinion. As cost increases attract more attention, the public will undoubtedly hear more about tax exemptions for gifts from wealthy alumni, federal loans and grants used to pay tuition, government research grants, and other government expenditures directed to private institutions that indulge their privileged students with a country club lifestyle and charge fees that are affordable for fewer families each year.

The private nonprofits have some breathing room for now, because taxpayers have not been paying much attention. But that could change quickly if the stock market crashes or the real estate bubble bursts, or if the media expose wasteful spending or fraudulent accounting in the Ivy League. Neither political party is a reliable ally. Democrats are unhappy with the social stratification of the elite universities. Republicans are impatient with the liberal political leanings of the faculty and have their disagreements with stem cell research or support for evolution. The for-profit universities know how to make the most of political contributions and are eager to tout how efficient they are in comparison with traditional universities—and not without some truth. Add to this the rising budget deficit and an aging electorate that has less personal interest in higher education, and one can easily imagine congressional debates that portray research universities as bastions of economic privilege, intellectual elitism, and financial inefficiency that do not deserve to be subsidized. I consider it extremely unlikely that the private non-profits will be able to increase their costs and tuition forever.

Time to act

The research universities will have to take dramatic action to meet the financial challenge, and the publics will have to act first. They should begin by exploring ways in which IT can enable them to fulfill their teaching mission more cost-effectively. This cannot happen overnight. It will require creative design, teams of diverse specialists, and a savvy business model. If most college teaching occurs on the scale of a campus theater production, teaching with technology will be closer to a Hollywood blockbuster. The university will need to develop a professional class of tenured faculty who will forge a second career for themselves in teaching with technology as they work with specialists in cognitive science, software development, and the like. They will have to reinvent themselves just as some faculty build second careers as academic administrators who work with specialists in student counseling, government lobbying, financial management, and fundraising.

Creating high-quality online content and upgrading it over the years is an expensive proposition, and cost savings will come about only if universities succeed in realizing significant economies of scale. This will require collaboration between the departments and divisions of the university, including university extension; between the campuses of a university system; across levels of state higher-education systems from flagship universities to community colleges; and among similarly situated universities such as the Big Ten universities in the Midwest. Urgently needed, too, is a rethinking of faculty hiring, promotion, and reward systems, which in their current form are impediments to interdisciplinary, interdepartmental, and cross-campus collaboration in teaching.

The public research university has the size, organization, and expertise to pull off this feat. But it can expect to encounter significant political opposition. University reform on this scale requires shifting a collective belief system, and there is nothing like a crisis to create an opening for such a shift. For this reason, I disagree with public university leaders, such as University of Texas Chancellor Mark Yudof, who call for tuition deregulation so that they can increase tuition to meet growing expenses. I believe, to the contrary, that state politicians need to keep a firm lid on public university tuition precisely because this is the only way that the public universities will be able to overcome the political obstacles to change. Costs will continue to increase. With tuition income constant and state subsidies decreasing, the public universities can tread water for a while by cannibalizing their research operations and hollowing out the teaching enterprise. But eventually they will start to sink, which will give university leaders and senior administrators the bureaucratic legitimacy to reorganize the university without losing political capital (or office). We can hope, of course, that everyone will see the writing on the wall well before then, which would allow for a timely and smooth transition to the new business model, but we cannot count on it. Hence, we need a tuition lid that will create cost pressure for change.


For the immediate future, the elite private nonprofits are likely to continue to take the expensive labor-intensive route. The richest among them have the resources to finance the switch to teaching with technology, but there are no political forces inside or outside of them that might encourage them to act quickly to make the necessary organizational changes. Nonselective private nonprofit universities, which lack the endowment and alumni giving to cover their ever-spiraling costs, let alone to finance the switch to teaching with technology, face a dire future. Indeed, the large number of private universities that have been forced to close their doors recently indicates that the future has already arrived for some.

Ultimately, even the richest private universities face a future of austerity, if we define austerity not as a low absolute level of resources but as an excess of expenditures over income. Costs will continue to rise into the stratosphere; political forces will constrain the rate at which college tuition can increase; and political and market forces will force colleges to enroll a diverse student body and offer tuition discounts to minority and low-income students. There will inevitably come a time when the private nonprofits will be forced to follow the leadership of the public research university and expand their operations to increase the number of tuition-paying students and teach them with the help of labor-saving technology.

Recommended Reading

  • W. J. Baumol and W. G. Bowen, “On the Performing Arts: The Anatomy of Their Economic Problems,” American Economic Review 55, no. 2 (1966): 495–502.
  • J. J. Duderstadt and F. W. Womack, The Future of the Public University in America: Beyond the Crossroads (Baltimore, MD: Johns Hopkins University Press, 2003).
  • James J. Duderstadt, Daniel E. Atkins, and Douglas Van Houweling, Higher Education in the Digital Age: Technology Issues and Strategies for American Colleges and Universities (Westport, CT: Praeger and American Council on Education, 2002).
  • R. L. Geiger, Knowledge and Money: Research Universities and the Paradox of the Marketplace. (Stanford, CA: Stanford University Press, 2004).
  • S. Lohmann, “IT Doesn’t Matter for the Research University: Disruptive Technology, Ruinous Competition, and the Death of the University,” Continuing Higher Education Review (2005).
  • G. C. Winston, “Subsidies, Hierarchy, and Peers: The Awkward Economics of Higher Education,” Journal of Economic Perspectives (Winter 1999): 13–36.
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Cite this Article

Lohmann, Susanne. “The Economic Imperative for Teaching with Technology.” Issues in Science and Technology 22, no. 1 (Fall 2005).

Vol. XXII, No. 1, Fall 2005