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The Nearly Free University and The Emerging Economy:
The Revolution in Higher Education

Reconnecting higher education, livelihoods and the real economy

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Foreword by Mark A. Gallmeier

Change is a most difficult challenge for many people. It is even more difficult for people in groups. The Nearly Free University model represents such a change, an entirely new method of education.

Developments in education and information media have always impacted each other. Below is a brief review of the history of each for the past 2,500 years. The aim is to open minds as to how the asymptotic expansion of the information media technology known as the Internet is expanding education beyond its previous boundaries.

Brief History of Educational Media

Archimedes independently derived the Fundamental Theorem of Calculus over 2,300 years ago. This theorem did not become widely known until recently because of the scarcity of media, specifically papyrus and vellum parchments. During the time of the Roman Empire, the Library of Alexandria and the Roman imperial bureaucracy consumed almost the entire annual production of papyrus in Egypt. In fact, the competing library at Pergamum in Anatolia developed the use of vellum parchment specifically because of a lack of papyrus.

The extreme shortage of written media caused learning to become focused on two customs. One was the primacy of the oral lecture, such as Hero's lectures on mechanisms. The other was the requirement to concentrate students in one small geographic area to hear these lectures.

Due to the concentration of all this academic information in one place with limited access, the libraries tended to become centers of academic study and scientific research. Thus ancient colleges and universities first developed in parallel with the ancient libraries, for obvious reasons.

Development of the Oral Lecture

Many surviving ancient books began as sets of written lecture notes. Many other books, such as the New Testament, began as letters addressed from one person or group to another. An especially well-endowed library might have as many as 500 books, each produces by scribes, by hand, a single copy at a time. Due to the lack of time and papyrus/vellum, it was impossible to provide every student with their own set of textbooks. Instead, students were assembled in a room to hear a professor read to them from the school's single book copy. It is notable that one of the most ancient of present-day universities, Cambridge University in England, to this day preserves the memory of this practice with the formal academic rank of "Reader.”

The ancient oral lecture method of delivering information is still in use at most universities, but is now subject to what I call the Johnny Carson Principle, which states "there is and can be only one Johnny Carson.” Within a talented, diverse field of talk-show hosts, only one host occupies the top spot. Applying this principle to the education filed, in any given field there will only be a handful of truly A-list lecturers, but with one clearly at the head of the pack.

In my view, Dr. Walter Lewin of MIT is clearly the Johnny Carson of Physics I & II. His Physics lectures—which are theatrical-grade productions—are readily available on YouTube. Note that unrivalled genius in theoretical research is no guarantee of being an excellent physics lecturer and educator.

Where We Are Today

Two thousand years later the modern college and university is clearly still structured around the ancient principles. Even the appearance and spread of Gutenberg's printing press in the 15th century simply served to multiply the numbers of schools organized on this ancient pattern. Currently two primary elements of the old style system, written media and oral lectures, are already widely available at greatly reduced cost. The Nearly Free University (NFU) already exists in a practical sense. One example of open-access curriculum will suffice: the study of physics for science and engineering majors. Free, professional-level materials for Newtonian mechanics and subsequent developments in electrical, optical and nuclear physics are available online.

Other resources are available at numerous other websites. Yet science and engineering continue to be taught using the ancient system, using well-paid professors and expensive university classrooms to teach physically present students.

Despite major advances in media technology and the accompanying reduction and sometimes outright elimination of cost, the ancient model of organizing schools has persisted to modern times, with education costs and student debts now spiraling out of control.

One reason for this persistence may be that tenured professor jobs with six-figure salaries, excellent health insurance, and generous pensions are increasingly rare in the private sector. The academic priesthoods that benefit from the current system have a vast self-interest in perpetuating it no matter what. The ancient practices of oral lectures and costly texts are actively blocking lower cost superior methods. The organizational imperatives of this ancient system are clearly obsolete.

Why does the old style system still persist even though it is already demonstrably inferior? In addition to the financial disincentives, there is another reason: the current system retains a monopoly on assessing student learning and granting credit for demonstrated accomplishment. The schools are able to do this because they have arranged a monopoly on accreditation. This is ultimately a grant of state power.

As a result, modern colleges and universities have collectively become a rent-seeking cartel, an alliance of nominally competitive institutions that maintains a highly profitable monopoly of accreditation. To grasp the power of the cartel, consider a typical Physics I course even at MIT is almost entirely based on Newtonian mechanics, and the subject matter entirely in the public domain. Only a cartel could arrange to charge $1,500 and more per student for tuition and texts, in the face of far lower cost and superior quality materials, for subject matter that is no more recent than the 19th Century.

Breaking down this system means developing alternate methods to accredit what already exists. This is individual learning. Rather than accrediting institutions, the NFU must aim at accrediting individuals directly.

Chapter 1: A New Model for Higher Education

We all have first-hand knowledge of school and learning, and most of us have navigated the world of work. Our experience may have made us an expert in how we learn and what kind of work best suits us, but it sheds little light on the systemic connections between education, learning and becoming productive in the fast-evolving emerging economy.

Economists use the phrase emerging economies to describe rapidly developing national economies. I use the term emerging economy to describe the digital-software-fabrication-robotics-automation (DSFRA) innovations that are rapidly transforming every sector of the global economy.

The U.S. economy has entered an era of profound technological transformation akin to the Industrial Revolution that remade America in the late 19th and early 20th centuries. New technologies transform more than just production of goods and services: they also change the social and political order, and the nature of work (labor) and capital. As a result, the assumptions and projections based on the previous era are no longer valid.

A phrase commonly attributed to Henry Ford captures the way technology invalidates projections based on the past era: If I’d asked people what they wanted, they’d have said faster horses.

This book explores the dynamic relationship between the economy and our system of higher learning. While the economy is being transformed in fundamental ways, our system of higher education remains essentially unchanged from the post-World War II industrial era—what I call the factory model of education.

No sector of the economy is immune to this technological transformation, and the higher education sector is bubbling with technology-enabled innovations such as massively open online courses (MOOCs) that distribute lectures once confined to a single classroom to millions of students’ digital devices.

But these innovations in higher education are in essence aimed at breeding faster horses, that is, maintaining a status quo system of a bygone era that no longer serves the emerging economy. This widening divide between the emerging economy and higher education manifests in two ways: while the cost of higher education has skyrocketed (tuition is up 1,100% since 1980), the value of college education and diploma has declined. Indeed, one national study, Academically Adrift, found that over one third of college students “did not demonstrate any significant improvements in learning” critical thinking and other skills central to success in the emerging economy.

The era in which a college degree in almost any field virtually guaranteed a secure white-collar job has passed. There are many reasons for this, but the primary one is that the economy is changing at the most fundamental levels. The dominant features of the current post-industrial economy—financial capital and centralized institutions—have reached the terminal stage of their effectiveness. The critical features in the emerging economy are decentralization, adaptability, transparency and accountability (what I term the DATA model), and the essential assets are human and social capital.

If higher education is to effectively serve our society, we must understand these systemic connections between learning, knowledge and the emerging economy. To do that, we must understand the emerging economy in some detail and identify what is indispensable for students to become productive in this economy.

There are four basic levels in the current higher education system:

1. the two-year community college and vocational training system;

2. the four-year universities that issue bachelor’s degrees;

3. the professional and graduate schools; and

4. the research universities, which receive federal funding to conduct a wide array of research, often in conjunction with government agencies, non-profit institutions and the national laboratories.

Though there are clear differences between each sector, higher education as a whole has a number of systemic characteristics.

Before we examine these traits, it’s important to stipulate that the industry’s failings are systemic, and do not reflect the positive intentions and efforts of those working in higher education, any more than the systemic failures of U.S. healthcare reflect the good intentions and efforts of those employed in that industry. Despite the good intentions and hard work of individuals, these systems are broken.

Due to their size and structure, large systems such as national defense, healthcare and education limit the impact of individual initiative. This has several consequences. One is that individuals feel powerless to change the system and so they relinquish responsibility for changing it. As Voltaire observed, “No snowflake in an avalanche ever feels responsible.” A second consequence is psychological. Even if the system is visibly flawed or failing, insiders feel obligated to defend the system and their role in it, for two compelling reasons: self-preservation and the psychological need to believe in the value of one’s place in the institution.

Answering the question cui bono, to whose benefit, illuminates the line between self-interest and claims of serving the public interest. Thus everyone participating in building an obsolete weapons system plagued by horrendous cost overruns will defend it as essential to national security, and those employed in the U.S. healthcare system will justify every dollar spent even though the system costs twice as much per person as healthcare in competing advanced democracies. Higher education is no different; those employed by the industry are compelled to minimize its failings and defend its standing as a secularly sacred industry.

Every institution defends itself against external analysis by marginalizing or discrediting those who could potentially limit its funding and power. Those few within the institution who reveal the systemic rot (whistleblowers) or attempt reforms that threaten the status quo are portrayed as troublemakers who must be neutralized or cast out for the good of the institution and all who work for it.

Applying this to the higher education system, we can anticipate that those employed by the higher education industry will deny that it is failing, and all the institutions within the system will devote tremendous resources to marginalizing or suppressing critics who find it obsolete, ineffective, unaffordable and unsustainable. These defensive responses are natural, but they don’t help us assess whether higher education actually is, in fact, obsolete, ineffective, unaffordable and unsustainable, any more than the claims of defense contractors help us assess if their incredibly costly weapons systems are obsolete and unaffordable.

Let’s start with what is self-evident about the basic structure of higher education:

1. As my colleague Mark Gallmeier noted in the Foreword, higher education is a legacy system based on the scarcity of recorded knowledge (printed and other media) and informed lectures. Both recorded knowledge and informed lectures are now essentially free and readily available. This is the material basis of the alternative system outlined in this book, the Nearly Free University (NFU), whose core is an open-enrollment, universally accessible, individually accredited curriculum designed for the emerging economy and the individual student.

2. The current higher education model is a factory composed of broadcast lectures and mass-distributed reading/coursework/tests. The student moves down the assembly line, attending the same lectures as other students, reading the same materials and taking the same tests. When the student receives a passing grade in a quasi-arbitrary number of courses, he or she is issued a diploma.

This factory model of education is fundamentally unchanged from the era of World War II, when the government expanded higher education from its traditional elitist function to serve the nation’s war production. While factories churned out war materiel with low-skill labor, behind the scenes the war effort demanded a vast increase in engineering and scientific skills. This began the transformation into a knowledge-based economy. The difference between an industrial economy that requires massive numbers of low-skill factory workers and a knowledge-based (often referred to a post-industrial) economy is the knowledge of its workers.

The factory model is obsolete in an era where a variety of nearly-free instructional materials and methodologies enable the student to select the most appropriate approach for his aptitudes and needs.

3. In terms of its financial structure, higher education is a cartel-like system that limits its product (accredited instruction) and restricts its output (credentials, diplomas). (A cartel is an organization of nominally competing enterprises that fixes prices and production to benefit its members. Cartels may be formal, such as the Organization of Oil Exporting Nations (OPEC) or informal like the higher education cartel. Informal cartels often rely on government regulations to restrict competitors’ entry into their market and on government spending or loans to fund their operations. To mask the uncompetitive nature of their cartel, they devote enormous resources to public relations.)

The cartel’s basic mechanism of maintaining non-competitive pricing is to enforce an artificial scarcity of credentials. The cartel’s control of a product that is in high demand (college diploma) frees it from outside competition and free-market price discovery, enabling it to charge customers (students) an extraordinary premium for a product whose value is entirely scarcity-based.

This is the very definition of a rent-seeking cartel, a cartel that extracts premiums solely on the basis of an artificial scarcity. By their very nature, rent-seeking cartels are exploitive and parasitic, drawing resources from those who can least afford to pay high premiums and misallocating capital that could have been invested in productive social investments. The term rents in this context means that the cartel collects a premium without providing any corresponding additional value. The rentier class includes landed aristocracy, who collect rents while adding no value to the production of their tenant farmers.

4. Since the higher education cartel is the sole provider of accreditation (college diplomas), it is unaccountable for its failure to prepare its customers (students) for productive employment in the emerging economy. If a diploma is portrayed as essential, students must pay the cartel even if the cartel’s product (education) is ineffective and obsolete.

5. The four-year college system is profoundly disconnected from the economy. That the cartel’s product has little practical application is not considered a factor in the value of the product (diploma), whose primary purpose is to act as a higher education passport that enables passage to a more expansive territory of employment.

6. The present system of higher education is unaffordable for all but the wealthy. The cartel’s solution to its high prices, $1 trillion in student loan debt (exceeding both credit card debt and vehicle loans), is a crushing burden on both individuals and society at large.

7. The higher education cartel is an intrinsically elitist force, as its survival as a rent-seeking cartel is based on limiting what is now essentially free: knowledge and instruction. In other words, the higher education cartel charges an extraordinary premium for a free product.

8. The only way the Higher Education cartel can continue to charge a premium for nearly-free products is to actively mystify its product (by attributing secular sanctity and civic value to its diplomas) and promote an artificial value for this product using public relations and political lobbying. In other words, the higher education cartel operates on the same principles as other informal cartels: it depends on the state to fund its operations, and it uses public relations to mask its cartel structure and systemic failure to fulfill its original purpose.

The higher education cartel’s dependence on federal funding and enforcement of student loans is readily visible in the Federal Reserve’s Flow of Funds report, Table L.105, which shows the Federal Government's assets and liabilities. Direct Federal loans to students have exploded higher, from $93 billion in 2007 to $560 billion in early 2013. This gargantuan sum exceeds the gross domestic product (GDP) of entire nations—for example, Sweden ($538 billion) and Iran ($521 billion). Non-Federal student loans total another $500 billion, bringing the total to $1 trillion.

A variety of cultural traditions have effectively obscured these self-evident truths, even as the system’s diminishing returns and rising costs have rendered it unsustainable.

The alternative is equally self-evident: knowledge and instruction should be nearly free, and students should be accredited directly, dissolving the monopoly on accreditation that gives higher education its cartel-like power to extract artificial premiums.

I am fully aware that this critique is exceedingly unwelcome to those whose livelihood depends on the higher education cartel. I am also aware that this critique upends most or all of the secularly sacred cultural traditions that the higher education system nurtures to justify its premium.

This is the key question: does the current higher education system exist to serve students, or does it exist to serve those employed by the system? Those with vested interests in the system will naturally answer “both,” but to answer this question fairly, we must ask if an alternative system that accredits each student could serve students more effectively than current system of accrediting schools.

Let’s imagine another system, one in which the Nearly Free University and the existing higher education cartel compete to prepare students for individual third-party accreditation of the critical skills and knowledge base needed to establish and maintain a livelihood in the emerging economy. If the Nearly Free University costs $4,000 for a four-year program (not including room and board) and the higher education cartel charges between ten and 25 times more for the same number of courses, then the higher education cartel had better be 25 times better at preparing students to establish and maintain a livelihood in the emerging economy, or it will lose its customers.

Limiting access to accreditation to skim enormous premiums based on scarcity is not just unethical; it is intellectually dishonest. Cartels are intrinsically extractive, exploitive and parasitic, and no amount of vested-interest justification changes this reality. Creating an artificial scarcity is financial manipulation, and all financial manipulation is ultimately a form of theft.

Progressives, by the very definition of their creed, must support the dissolution of all cartels. Those within the higher education system must choose between financial allegiance to their cartel or refusal to support cartels.

A cartel whose raison d’etre is to limit access to accreditation cannot possibly serve students; indeed, its very existence is a profound disservice to students and society. If we accredit the student, not the school, then the true value of every school will soon be established.

Table of Contents



What Is the Purpose of Higher Education?

How Effectively Is Higher Education Fulfilling This Purpose?

Protecting the Higher Education Cartel

The Roots of the Factory Model

The Four Higher Education Solutions of the Nearly Free University

The Eight Necessary Skills

Massively Open Online Courses (MOOCs) and Accreditation

Current Contributors to the Increasing Cost of Higher Education

The Limits of Predicting Emerging Trends


Seven Questions

Understanding Human and Social Capital

Human Capital as the Means of Production

A Failing Model

Cultural and Symbolic Capital

Mastery as the Means of Production

Economically Valuable Skills and the Matrix of Work

The Premium of Labor

What Can Be Self-Taught and What Must Be Learned from Others?

Developing and Maintaining Motivation

Acquiring Mastery

The Student as Teacher

The Nearly Free University Template

The NFU Workshop/Lab Model


Aligning the NFU Curriculum to the Emerging Economy






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Copyright 2008-2012 Charles Hugh Smith all rights reserved in all media. No reproduction in any media in any format (text, audio, video/film, web) without written permission of the author.
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