William Patrick Leonard is at war with himself. As a teacher of economics, he instructs his students to look for examples of waste and inefficiency and to come up with alternatives. But as an administrator, he knowingly participates in wasteful practices, because—well, because he is a university administrator.
Leonard, now acting dean at Solbridge International School of Business in Daejeon, Korea, wrote in the September issue of Econ Journal Watch that “unconsciously, I have compartmentalized my administrative and my classroom priorities.”
He explained that in his roles as dean, vice president, and president of various institutions, he has relied on two tried-and-true techniques—increasing enrollment and raising tuition. The reason is simple: These are the “least internally controversial, least combative means of bringing revenue in-line with probable operating costs.”
His economist self, however, knows that this policy falls far short of the optimum because it completely rejects cost control. He is far from alone. Most university administrators make the same choice he does.
Leonard describes the situation matter-of-factly, but he also has a message. He thinks that this complacency, which extends throughout academia, will spawn a political backlash. If universities do not cut costs, the federal government is likely to put universities under a “No Child Left Behind” kind of restraint—that’s the law that gives federal bureaucrats authority to withhold federal funds from K-12 schools that do not meet certain standards.
But in the here-and-now, increasing enrollment and tuition is too darn attractive. “Pushing for higher enrollments gives the institution as a whole a sense of positive momentum,” explains Leonard. Even though tuition increases are not popular with students and parents, nearly everyone views them as unavoidable. When complaints arise, he and his colleagues bring out such tired old chestnuts as “quality must be maintained if not enhanced,” “quality is costly,” tuition is “an investment and not a cost,” and lifetime earnings for college graduates are greater than for high school graduates.
“The pitch is perhaps no sleazier than those of other industries,” he remarks, expressing a tinge of doubt…maybe higher ed is sleazier than other industries.
But what he considers the right thing to do, cutting costs, is tough. This is primarily because most universities operate under “shared governance,” which gives tenured faculty veto power over most changes to the status quo. Like most people, faculty like the way things are and, unlike employees in other industries, they have the ability to keep them that way. There’s no “creative destruction” on college campuses, to use another economist’s term. In Leonard’s words, faculty “enjoy institutional primacy not found in other contemporary industries.” To avoid unpleasant confrontations with faculty, administrators seek more money, even though controlling costs would be better for students.
Leonard’s analysis jibes with economist Robert Martin’s in “The Revenue-to-Cost Cycle of Higher Education.” Martin says that nonprofit organizations such as colleges and universities lack the discipline that profit-making firms have. They don’t have potential buyers looking over their shoulders, ready to pounce on inefficiency and take a company over; they don’t even have a convenient way to measure their effectiveness (profit); and they don’t have real owners (who would have an incentive to control costs).
Leonard’s statements also echo points raised by Richard Vedder, the author of Going Broke by Degree. An economist at Ohio University, Vedder is a prominent figure in higher education and an irreverent speaker who likes to tell audiences, “I’ve been ripping off the taxpayers for years.” Vedder says that universities’ lack of a bottom line plus their access to public funds (“rent-seeking,” economists call it) have created a cushy lifestyle for tenured professors, whose workloads have declined while their compensation has gone up.
And Cornell University economist Ronald Ehrenberg offers a humorous illustration of the difference between good economics and university administration in his book Tuition Rising. As an academic vice president he tried, unsuccessfully, to make allocation of space for faculty and administrative offices more efficient.
Office space is highly sought after on college campuses, and the costs of operation, maintenance, and replacement (that is, constructing more buildings to provide more office space) can be very high. Demand for space proliferates because it is “free.”
The usual practice is to give space away on the basis of hierarchy (a full professor is entitled to a certain-sized office, for example, while an associate professor gets something a little smaller, and an adjunct is lucky to get a made-over coat closet). While he was an administrator, Ehrenberg spent two years trying to get the university to measure the costs of space and then use those costs to allocate offices, perhaps even billing academic departments for the space they used. Ultimately, he gave up.
When Ehrenberg went back to being a faculty member, he worked out a special arrangement with his dean so that he could have an additional office to store his books and papers (he needed them to write his book on college costs). With some chagrin, he observes, “If the person at the university who best understood the need to try to ration space (namely me) behaved in this manner once he returned to the faculty, is there any hope that the university will be able to limit future construction of new space?”
The answer appears to be, sadly, “not much.”