omics of Higher Education in the 21st Century J.-M. Kuczynski Table of Contents The Economics of Higher Education in the 21st Century: Part I Introduction to Part I Retention-rates and Graduation-rates: Introductory Remarks Do Graduationand Retention-rates Matter? Open-market Companies (OMC's): How they Differ from Universities Colleges Sell Degrees, not Instruction Enrollment-rates Matter: Retentionand Graduation-rates Don't Universities: Their Distinctive Business-model How Useful Do Students Really Want Their Educations To Be? The Paradox of Macroeconomic Efficiency When in Doubt, Drop Out: Dispelling the Myth that Only Losers Drop Out Knowledge-management: Introductory Remarks Why Knowledge-management Cannot be of Assistance to Universities Key Points Conclusion of Part 1: How to Maximize Revenue by Optimizing Education The Economics of Higher Education in the 21st Century Part II Introduction to Part II What is Knowledge-management (KM)? An Actual Company that Could Benefit from KM Who Exactly Sounds the KM-alarm? KM as Preventative Measure KM in Relation to Organizations that Sell Results KM in Relation to Organizations that Sell Services Service-organizations Depend on Poor KM KM Impossible Unless Employment and Pay are Performance-dependent No KM without Financial Transparency Expense-padding in Relation to KM A Corollary: Education Must be Digitized Whenever Possible DMO: A New and Better Kind of University All Accreditations Examination-based How DMO Turns Non-STEM Students into STEM Students Emphasis on Instruction as Opposed to Selection More Degree-levels at DMO Instructors Never to Function as Gatekeepers Payments to Go Straight from Student to Instructor The Inverted Payment Pyramid 25 Desiderata that DMO Must Satisfy Conclusion of Part 2 Conclusion of the Present Work The Economics of Higher Education in the 21st Century Part I Introduction to Part I In the first part of this two-part work, the economics of higher education are explained. It is made clear how a university's business model differs from that of a company that has to compete on the open market, and on this basis it is explained: (i) Why universities are in no way threatened by low retention rates and graduation rates; (ii) Why universities cannot significantly improve or otherwise alter the quality of their educational services without imperiling their very existences; (iii) Why universities do not have to improve the quality of their educational services; (iv) Why universities couldn't improve the quality of their services even if they wanted to; (v) Why the fact that many universities have low retentionand graduationrates does not a represent a business opportunity, or opportunity of any other kind, for anyone, whether inside or outside of academia; and (vi) Why principles of Knowledge Management (KM) that are so useful when it comes to helping businesses that compete on the open market are completely useless, and indeed of negative utility, when it comes to helping universities solve their problems. In the second part of this work, it is explained how to construct an online university that is both lucrative and provides instruction that is faster, better, cheaper, and more useful than the instruction provided by any existing (or possible) brick-andmortar university. It is also explained how the principles of KM can be used to optimize such a university, once it is up and running. Retention-rates and Graduation-rates: Introductory Remarks A university's retention rate is the percentage of students who stay after the first year. A university's graduation rate is the percentage of students who graduate within six years of enrollment. These numbers never coincide, but they track each other. Universities with high retention rates have high graduation rates, and universities with low retention rates have low graduation rates. Retention rates are necessarily at least as high as graduation rates and in practice are always higher. Also, even if a university has a graduation rate of 0%, as is the case with a number of institutions, it doesn't follow that nobody graduates from it, only that nobody does so within six years of enrollment. Do Graduationand Retention-rates Matter? From a financial perspective, a university has relatively cogent reasons to want a high retention rate: when a student doesn't enroll for a second year, that university loses business, and it doesn't when he does. A university has less strong reasons to want a high graduation rate. If a student comes back year after year and never graduates, the university makes more money than it does if he graduates. All of this said, universities with low graduation and retention rates almost always tend to stay in business. Great Basin College in Nevada has a retention rate of 4% and a graduation rate of 0%, but it is not in financial trouble.