Pathways to Financialization of Higher Education

Political economists agree that the recent changes in the global economy are part of a bigger transformational process called financialization. While many scholars have studied the financialization of pensions or housing, the financialization of education remains an almost neglected field. That is surprising, as education is of crucial relevance for innovation, skill formation, and inequality. I argue that the current developments in higher education point to financialization. The higher education institutions are increasingly becoming actors of financial markets. Universities issue bonds, use their endowment capital for risky investments, and trade financial instruments like derivatives. This development affects not only higher education institutions’ funding but also their governance. Universities experience a shift in priorities as they start to depend on ratings issued by credit rating agencies, which leads to the application of financial practices and performance indicators. The implications and consequences are striking. In 2007 the University of California engaged in derivative contracts and lost almost 200 million USD. The effects on teaching and research were severe and included budget cuts, postponement of research projects, and lower enrollment. Similar tendencies have been witnessed in the Netherlands and some Latin American countries. Three of four Brazilian students study in private higher education institutions managed by conglomerates, publicly listed enterprises, and other private providers. The ascendence of shareholder value and educational entrepreneurs in Brazilian academia has led to precarious education and huge credit default rates. This paper studies the politics of higher education’s financialization. It proposes a new analytical typology to categorize different kinds and degrees of financialization in higher education, identifying four main types. In order to explain this variation, I develop a political economy model that is then tested by applying an explanatory sequential mixed-method research design. The first quantitative part explores major democratic states. It is followed by a comparative case study covering the extreme cases: Brazil, Chile, Japan, and South Korea. This article makes three contributions. First, I show how and why the concept of financialization applies to the recent developments in higher education. Second, I show that the financialization of higher education may take variegated forms of appearances, reached via distinct pathways. Third, I identify the necessary conditions for a financialized higher education system and the sufficient for its variation. The findings have a broader implication for understanding financialization’s determinants and the influence of financial markets on educational institutions.