Author Sahaj Sharda’s new book The College Cartel completely reframes the reason that elite education matters in our society. As Sahaj Sharda argues in his book, the conventional wisdom is that products solve problems. I pay for petrol because it solves my empty tank problem. I pay for water because it solves my thirst problem. Expressed formulaically, I pay for X because it solves Y. This seems intuitively true, but the surprising fact is that not every product solves the problem you think it does. In his book, author Sahaj Sharda takes the hard case of elite higher education.
Students pay for higher education to solve their productivity problem. At least, that’s the assumption that the human-capital model makes. But if that’s true, shouldn’t higher education be getting cheaper? After all, the digital revolution has electrified our lives with access to computing. The internet revolution has loudly thundered and stormed with access to information. Youtube videos, published lecture notes, pirated textbooks, and Wikipedia pages have all expanded affordable access to knowledge. By 2003, I could watch alongside actual MIT students by logging into MIT OpenCourseWare. By 2008, I could practice along with Khan Academy. By 2023, I could have a conversation with ChatGPT to help me understand anything I might have missed.
In the realm of learning, never before has so much been so accessible, to so many, and for so little. In a world of abundant online information and virtual teachers, what problem does a college education really solve? Can’t students get more productive on their own? If technology is doing more with less, then computing and internet technologies should allow people to achieve more than before with less schooling than before. So why is the West stagnating in precisely the opposite way? Why are we growing less and schooling more?
Compare the 21st century with the 19th century. In the 1800s, Abraham Lincoln famously taught himself the law with borrowed books. Michael Faraday unraveled the secrets of electro-magnetism with little formal schooling. Likewise, George Boole never went to college. Nevertheless, he fused math and logic in an irreversible way. Imagine what any of those autodidacts would have been able to accomplish today. Framed differently, where have all the self-taught geniuses gone? If learning is getting more accessible, why does the cost of traditional higher education keep going up?
The simple answer has been staring us in the face. Higher education generally, and elite higher education specifically, isn’t really about productivity improvements. You wouldn’t know it from the conventional chatter in Washington, but productivity gains are not what students are paying for. Instead, higher education today is largely about job market signaling. This is why Harvard advertises dropouts like Bill Gates and Mark Zuckerberg, when traditional logic would suggest that they should do the opposite. This is why the media was so obsessed with then-candidate Senator Obama’s Harvard Law degree. This is why people fight so fiercely over so few elite college seats, with bribery, donations, and fraud all on the table.
Of course, the signaling thesis is not so novel as one might fashion it to be. Indeed, the connection between job market signaling and education is an old insight, first published by economist Michael Spence in 1973. Still, it’s an insight that has not been developed in nearly enough depth. Why does our society depend on this method of signaling when offered all of the others? In what other sector does an entity formed in 1636 continue to dominate all else?
During World War II, American pilots had trouble communicating with their radio-telephony equipment. Signal strength was often weak. There was often static and plenty of background noise. The engine and propellers were incredibly loud. The lack of clarity in communications was deadly serious. Miscommunication could lead to dire consequences, such as misidentifying friend from foe. It was within this context that researchers at Harvard’s psycho-acoustic lab made a major breakthrough. Essentially, these researchers figured out that if people listening in for a message had no idea what to expect from the message they received, it was often difficult for them to decipher what had been communicated amidst all the noise. However, if listeners knew to listen for only one of a few different options, they could perceive the message even with high noise levels. This is why pilots began limiting their messages to weird words like Alpha, Bravo, and Charlie. By limiting the range of options to a standardized set of sounds, communication was once more possible despite the noise.
The first job market is also a noisy environment, and in a globalized labor market it is increasingly noisy. There is also deep information asymmetry in the first job market. Job applicants know themselves much better than hiring managers do. Some job applicants overplay their experience on their resumes. Other applicants offer irrelevant information in interviews. Sometimes, there’s just so much information to perceive, that hiring managers are rightly overwhelmed. As George Miller taught us in the 1960s, there are bandwidth limits to human perception. Labels like Harvard, Princeton, and Stanford are for job applicants what words like Alpha, Bravo, and Charlie are for pilots. Prestigious degrees allow job market applicants to communicate with employers, just as a standardized alphabet allows pilots to communicate with listeners. Still the question remains, of all the ways to signal, why do we cling to the college channel?
The answer is network effects. Languages have network effects. It’s why we all speak English and few of us learn Esperanto. Esperanto might be a superior language, but no one else speaks it. Therefore, why should I? The prestigious degree hierarchy is just another form of language. It’s one I decide to learn, because everyone else already knows it.
Especially in the elite college market, rankings like US News’ offer a largely stable alphabet with which to compare job applicants. Relative prestige allows employers to infer that the Havard graduate is more desirable than the Haverford graduate. If every applicant had to be considered without such a filtering mechanism, how would decisions get made? Consider the noise in a globalized labor market with many different peoples, with many different social bonds, and very different backgrounds. The prestige hierarchy that US News helps create has exceptionally powerful network effects of a kind even most Silicon Valley businesses might be jealous of.
Importantly, the massive network effects lock-in elite college degrees have in job market signaling is a problem for all efforts to dethrone Harvard, Yale, Stanford, and Princeton. The range of prestigious signals accepted by our society has been locked into by network effects. We can’t expect too much change to come from without this market. Instead, it has to be restructured from within.
And restructuring the market is vitally important. Price-fixing, seat scarcity, admissions scandals, corruption, legal debates, political and racial polarization, all of these and more are downstream disruptions that an elite college market structured as a cartel necessarily causes. A privileged few have a monopoly on signaling, and how they allocate that signaling becomes more and more violent over time. If the market isn’t restructured now, it may soon be too late.
Follow Sahaj Sharda on Twitter as he leads a campaign to break the college cartel.