KY’s universities are a different kind of business — and that difference matters | Opinion

At a recent hearing on Kentucky House Bill 490, a witness stated that universities are not businesses. Several senators pushed back. Both sides are partly right — and the confusion is doing real damage to this debate. As a retired university administrator, let me offer a clarification: universities are businesses, but they are a fundamentally different kind of business. That difference is not an inconvenience to be legislated away — it is the source of their value to Kentucky.

HB 490, which was delivered to the Governor on April 1, is framed as improving fiscal accountability and institutional flexibility. In practice, it targets the mechanisms — shared governance and faculty tenure — that distinguish universities from ordinary commercial enterprises. The complaint is that these make institutions slow and unresponsive to change, including the rapidly shifting workplace and the rise of Artificial Intelligence. That complaint deserves a fair hearing; universities can be weighed down by tradition. But the remedy — concentrating authority in administrators and silencing faculty input — would destroy something essential in the attempt to fix something real.

Universities compete nationally for students, faculty, and research contracts. With state appropriations a declining share of their budgets, they depend increasingly on marketplace revenue. The surplus a nonprofit university generates — unlike a shareholder return — is a reserve for growth and resilience. As the saying goes: “no margin, no mission.” No serious person argues universities should be exempt from financial discipline. Yes, they are businesses.

But a commercial business can nimbly eliminate an unprofitable product line without consequence beyond its shareholders. A university cannot — or should not — operate the same way, because its most important outputs are intangible and their value is realized over decades, not quarters. Yes, universities produce graduates who fill workforce needs which can change quickly. Less visibly, they also produce informed citizens and the basic research that becomes the foundation of industries not yet imagined. Different “product lines” are entangled in a way that only the experts — the faculty — can truly fathom and navigate.

Senator Gex Williams, R-Verona, observed at the hearing that rising tuition has led some of our greatest innovators to forgo college. The examples are well-known — Bill Gates, Steve Jobs, Larry Ellison. But this is survivorship bias: we remember the spectacular dropouts and forget the far greater number who left in pursuit of a dream and did not succeed. The pattern is also narrow — dropping out occasionally works in fast-moving, low-capital, shallow-expertise fields like early software development. It is nearly impossible in biomedical sciences or electrical engineering. And coding prowess, the skill that powered those celebrated innovators, is now being automated away by AI. The next generation of innovation will require deeper training, not less.

Where did the knowledge base those innovators drew from actually come from? The internet traces to university research funded by DARPA. The mRNA technology behind COVID-19 vaccines came from decades of basic science with no obvious commercial application at the time. Eliminating a physics department for low enrollment — a real risk under a purely market-driven model — could strip Kentucky of the foundational science critical to its electric vehicle battery future. Universities are repositories of the esoteric precisely because no one can predict which body of knowledge will anchor the next transformative industry.

This is why governance matters. A CFO making unilateral decisions about academic programs based on short-term enrollment trends — without input from faculty who have spent careers mastering a discipline — is not nimbleness. It is the substitution of administrative expedience for intellectual judgment about future trends.

The deliberative process of shared governance exists to protect against hasty decisions with long-term consequences. The weakening of Faculty Senates has already given administrators near-unitary authority over program changes. HB 490 removes the remaining faculty input that catches the decisions administrators can get wrong. Likewise, removing the stability provided by tenure will discourage the best minds from pursuing faculty roles which more often than not pay a lot less than traditional industry.

The senators at that hearing were right that universities are businesses. But Kentucky’s future will be shaped not by how efficiently its universities respond to this year’s enrollment trends, but by the professionals they train and the research they build over the next decades. That is a different kind of business — one that requires a different kind of governance. HB 490 moves in exactly the wrong direction.

Kumble Subbaswamy, Ph.D. is a Lexington resident who is a former provost of the University of Kentucky and a former chancellor of the University of Massachusetts, Amherst. He is currently Senior Advisor to the non-profit national organization Stand Together for Higher Education (www.standtogetherhighered.org), a grassroots movement of faculty and staff in support of higher education.