In its involvement with higher education, the federal government has followed a policy of building on strength. As late as 1964, 85% of federal funds for higher education were allocated for organized research. In 1962, 95% of research funds were devoted to work in the physical and life sciences. Federal monies are also highly concentrated geographically and are distributed in ways that allow large numbers of graduate students to devote full time developing research skills. Some of the sources of inefficiency in higher education are: poor quality of faculty, the teaching and learning of wrong things, neglect of undergraduate education, neglect of the poorer states and their gifted students. Federal involvement has helped to improve the quality of teaching but has not had a beneficial effect on the other sources of inefficiency. One solution might be to provide the states with block grants to strengthen all higher education within their borders. The states, however, would still be responsible for accounting for the use of funds and evaluating the success of federally funded programs. An annotated bibliography is included. (JS)