(Editor’s note: On September 13, 2013, Ohio University professor Richard K. Vedder delivered the following address to a meeting for members of the University of North Carolina Board of Governors sponsored by the Pope Center. Vedder directs the Center for College Affordability and Productivity in Washington, D.C.)
I am honored to be here today. Alas, my message is not altogether pleasant. Indeed, it may be the intellectual equivalent of having a hemorrhoid operation performed by an unlicensed French physician just returned from a wine-laden lunch.
But first, let me give a more cheerful thought. I rank colleges and universities for Forbes magazine, and I don’t think we have ever ranked UNC-Chapel Hill outside the top five public universities in the United States, and several other UNC campuses do fairly respectably as well. You are stewards of a great institution.
Before I ruminate with you for a few minutes about university governance, I would like to present an overview of American higher education that is distinctly less optimistic than usually portrayed to groups such as yours.
It is true that listings of the world’s greatest universities are dominated by American schools, that foreigners flock to our shores to study, and that we have successfully provided bachelor’s degrees or more to over 30 percent of our adult population. But there are other indicators that are far less positive that, cumulatively, are creating a true crisis in higher education, one that threatens to undermine public confidence in it and ultimately political support. Let me mention just six problems:
- First, of course, as you all know, the rise in higher education prices at a rate greater than people’s income is not a sustainable long term trend, and may partially explain the recent decline in enrollment in U.S. schools;
- Second, there is considerable evidence that a large proportion of new graduates are taking relatively low paying jobs previously reserved for those with a lesser education; we have more than one million retail sales clerks with bachelor’s degrees, and over 115,000 janitors, for example;
- Third, despite rampant grade inflation, about 45 percent of full-time students pursuing bachelor’s degrees fail to graduate in six years;
- Fourth, while information on learning outcomes is limited, the best of that evidence suggests students are not improving their critical learning or writing skills very much while in college, and other evidence points to low levels of knowledge of our culture and falling rates of basic literacy amongst college graduates;
- Fifth, intercollegiate athletics have become excessively costly at many institutions, and the scandals that have arisen, including right here, have undermined somewhat public confidence in the entire higher education enterprise;
- Sixth, the federal financial assistance program is out of control financially, has almost certainly contributed to the academic arms race financed from higher tuition fees resulting from generous aid, and has, ironically, hurt, not helped, those with lower incomes.
This list is not exhaustive. For example, we have a serious problem with accreditation in this country. It provides little information to consumers and may in some cases be a barrier to innovation and is somewhat costly. We also have a serious underutilization problem underlying all higher education resources –students don’t study enough, faculty don’t teach enough, and buildings are severely underutilized. Universities are vastly over staffed, especially in the administrative area, but also in some instructional areas as well.
Also, there is arguably a problem of a lack of intellectual diversity on many campuses—the near complete lack of persons of a right-of-center perspective. The list goes on and on.
These problems have largely been denied or ignored in the academy, to its peril. As a consequence, public support of higher education has declined a bit, and with slowing U.S. economic growth, the common assumption of steady increases in resources to fund the higher education enterprise is an erroneous one.
Universities generally are going to have to learn to do more with less. I predict several hundred institutions will disappear as a part of what Joseph Schumpeter once called “creative destruction.” They will literally go out of business because their business model no longer is sustaining, even with third party support.
Let me turn now to university governance issues.
There is a continuum of levels of governing board involvement in university life, ranging from a nominal involvement where the board essentially rubber stamps administration-initiated policy, including resource allocation and personnel issues, to a highly activist board where the body asserts strong control over defining the institution’s mission and even detailed decisions regarding resource allocation and personnel. I think the optimal place on that continuum probably varies somewhat from institution to institution and is typically at neither of the two extreme positions.
The organization that is viewed as the establishment group representing governing boards, the Association of Governing Boards, tends to believe, roughly speaking, that boards should be seen but not heard from too much. I once wrote a piece for AGB’s Trusteeship magazine, where they forced me to remove recommendations designed to give trustees greater tools to make informed decisions. The alternative group, the American Council of Trustees and Alumni (ACTA), favors a more activist board role.
I guess I come down closer to the ACTA end of the spectrum. As a generalization, I think a majority of boards do not fully exercise their fiduciary responsibilities to the broader public, they tend on average to be excessively co-opted by the university administration, and they regard their role more as a cheerleading and administrative and financial support role than a serious outside force helping direct the university in both defining and achieving its mission.
Let me use some illustrations to make my point. It is clear governing boards should approve a budget, elect the chief executive officer of the institution, and if it has multiple semi-autonomous campuses, the leaders of each of those campuses. I believe that the chief academic and financial officers should be jointly acceptable to both the president and the governing board. At lower levels of personnel decision, it is a judgment call as to how involved the board should be, but in general I think it should not interfere in the judgments of the chief executive officer, made sometimes in consultation with others.
It should as a rule stay out of decisions relating to promotion and tenure. There are, however, exceptions. I think it was appropriate for the University of Colorado board to get involved in the Ward Churchill matter, for example, because there were potentially significant policy issues at stake. One wonders what would have happened at Penn State if the board were fully apprised of the Jerry Sandusky matter at an earlier juncture, or at Duke if the board were consulted at the very beginning of the incident involving the lacrosse team.
Normally, of course, the board should not be involved in student disciplinary matters, but the Duke incident was not an ordinary matter and in my judgment Duke very badly bungled it, at the cost of great loss of reputation to both the institution and to many innocent persons. I thought heads should have rolled at Duke. They did not. Certainly any financial and legal settlements of a significant nature, involving millions of dollars, should require board approval.
At the same time, however, it becomes difficult to get top-notch people to lead the institution if the board unpredictably gets intimately involved in decisions as to, for example, fire the football coach. Universities that have a good reputation and are widely perceived to be well run should probably have a less active board than ones with spottier reputations and more instances of scandal or internal strife.
All said, however, I repeat my earlier statement: on average, I think boards do not exercise enough oversight and have too little say over major policy moves.
Is an institution going to try to maximize its reputation by stressing research and denying admission to a large number of potential students, or is it going to promote expanding its size and access to students at some cost in reputation? More crudely, is it trying to maximize reputation or revenues? That is ultimately a board decision.
Is the institution going to try to be a major football power by heavily subsidizing intercollegiate athletics, the strategy that Rutgers is currently aggressively pursuing? Again, the board should make that decision, not the president and athletic director.
Is the school going to get rid of its law school in the face of slumping applications and financial losses? Again, that is a board decision, although it is appropriate for the chief executive officer to make a recommendation that the board should seriously contemplate.
Is the school going to offer a three-year degree involving no long summer breaks, or start a largely independent mostly on-line institution, or build a new campus outside the U.S.? To combat grade inflation, should the institution insist that not more than 30 percent of undergraduate grades be at the A or A- level? The board should be more than a rubber stamp on such large decisions, and it should be involved at least informally before the president or chancellor tries to make it a done deal by announcing campus approval of the decision.
While some academic matters, such as whether to require course A or course B for graduation, are appropriately left to the faculty and administration, huge decisions involving major academic policies I think legitimately should come to the board for approval.
University cultures resist major change. Contractual arrangements like tenure and the lack of a well-defined “bottom line” add to that resistance. Yet universities are going to have to change radically in the next generation. Boards need to be agents of that change, nudging and sometimes cajoling institutions to move.
Institutional reform depends on three “I” words: information, incentives, and innovation. Let me discuss each of these words in the context of institutional governance.
Information
Boards have far too little information on which to make intelligent decisions.
Do graduating seniors at UNC have greater critical thinking and writing skills than they did as freshman? How do students use their time –do they study a lot, party a lot, write long papers, like their professors? Do graduates of UNC Chapel Hill make as much money 10 years after graduation as those at such peer top public universities as Virginia, Michigan, or Cal/Berkeley? Or, for that matter, Duke or Wake Forest?
My guess is you are clueless as to the answer to those questions.
Are you aware that students subsidize intercollegiate athletic programs at UNC- Asheville to the tune of nearly $1,000 per student –equal to over 20 percent of tuition, one of the highest such ratios in America? I knew that, but did you? Or that for every student graduating from UNC-Pembroke in six years, two do not?
The means to answer these questions are readily available. For example, the Collegiate Learning Assessment is a widely used test that can be administered at the beginning and end of the college career to estimate gains in critical thinking skills. The National Survey of Student Engagement (known as Nessie) is widely given by colleges to its students, although the results are seldom published. See if the Social Security administration or North Carolina state government would give you information on earnings of graduates; if not, you can get some useful if not complete data by going to the website of PayScale.com.
It is difficult to assess the quality or effectiveness of a program if you don’t have good measures of outcomes. Demand them of your administration and in the interest of transparency and consumer protection, further demand that they be made generally available to the public.
The idea that I like that the Association of Governing Boards found so bad was one of assuring more, better, and less biased communication between the central administration and the board.
Too often, boards simply are not told bad news that is embarrassing to the administration. At other times, the good side of certain information is hyped, and the negative aspects of that information either not mentioned or severely downplayed. The administration has a vested interest in having the board hear great things, but the board should want and insist on information of all kinds, good, bad and in between.
To that end, I think boards of large institutions, such as UNC, should have a totally independent liaison who reports directly to the board and has offices separate from that of the administration. That liaison should have complete power to examine and read any and all information that the president’s office sees, and to decide what will be transmitted to the board. Sometimes there are scandals that get out of control, such as at Duke and Penn State. Sometimes there are potential conflicts of interest of key employees that are suppressed from the board.
Let me give you some hypothetical examples of things that might get suppressed but should not.
An accreditation report is released that recommends continued accreditation but argues that one area of the university is particularly weak and marginal. The board hears about the re-accreditation, but not about the perceived weakness. A magazine ranking says Chapel Hill is the 8th best public university in the country, and the president hypes that to the board, neglecting to say that this is a decline of three ranks from the previous year. Forty-five percent of students on the Nessie survey (National Survey of Student Engagement) say they have never written a 20- or more-page paper. There are rampant campus rumors a dean has had a sexual relationship with a student that has a high probability of getting public attention. Two very senior professors announce they are moving to Cornell, saying that UNC does not pay enough or provide enough research support. A large number of student athletes are suspected of cheating but the story has not reached the press yet. And so on. (As I said, these are hypothetical.)
Incentives
Many of the cost-enhancing initiatives of universities that are questionable on cost-benefit grounds occur because the incentives systems are out of whack.
Facultyare perversely incentivized to engage in often esoteric and little read research rather than spending time advising students or teaching them. College presidents want to placate potentially troublesome constituencies with spending that makes no broader social sense, maybe on an ultra-posh alumni center, perhaps on reducing teaching loads that already are much lower than a couple of generations ago, or perhaps by turning a blind eye to student conduct that is questionable on moral grounds.
A university president trying to maximize job security raises buckets of money and then effectively buys off potentially troublesome campus constituencies. There is no “bottom line” that encourages efficiency in the competitive market sector, such as profits or stock prices.
Yet it is possible to introduce some such incentives. You, of course, should start at the top. While still governor of Indiana, Mitch Daniels called on me to help the trustees of Purdue University draft his contract as the next Purdue President. Daniels took a big cut in base pay, at least $200,000 if I recall correctly, but received all sorts of additional incentive payment options, relating to measures of actual or potential academic performance. Graduation rates, retention rates, undergraduate application and selectivity variables, rankings with magazines, gains in CLA test results or even entering student ACT or SAT tests—the possibilities are substantial.
University presidents often liken themselves to corporate executives without as much pay. But corporate executives typically receive a majority of their compensation in non-salary forms. University presidents should receive some of their pay this way as well.
And I would extend that concept further—to provosts, CFOs, and academic deans. If a dean runs a unit teaching two percent more students for one percent less money with no evidence of qualitative decline, give him or her a bonus.
The faculty is usually compensated on some merit basis, but never on the basis of any objective productivity measures. Probably the faculty member who increases the number of students she teaches by 20 percent, wins a major reward for teaching, publishes two articles in the Journal of Last Resort or its equivalent, and advises more students than ever should be given a bigger raise than the professor who publishes five articles in the Journal of Last Resort, but has an indifferent and worsening record of teaching few students, and seeing few of them either in or outside a small number of office hours. But that does not always happen.
You can also incentivize better use of space, by making units rent the facilities they use. Increase their budget by a given amount, and then charge them rent for the space they now use, perhaps equal to the increase in their budget. Then price facilities so as to maximize space usage.
Highly desirable classroom A might cost $500 a semester to rent from 10 a.m. to 3 p.m., but $50 to rent at 8 a.m. or at 5 or 7 p.m. Classrooms will be free in the summer, but costly during the standard academic year. Go further: give faculty an office budget, and make them rent their own office. If they will accept a crummy office with no window, they pay less than if they get a big office with windows, and can use the savings to hire a student assistant or take a business-related trip.
And you can use differential tuition fees as well. Let kids into classes that are cheap to teach for fewer dollars than classes that are expensive. Charge more for desirable parking spots than less desirable ones. You probably already charge kids a bit more for nicer housing–extend that concept to other resources you control and now allocate inefficiently because you fail to use the price system to improve productivity. That approach has worked pretty darned well for American business, so why not use it where possible in universities?
Innovation
I usually get a good laugh by claiming that, with the possible exception of prostitution, teaching is the only profession where there has been absolutely no productivity advance in the 2,400 years since Socrates taught the youth of Athens. America’s economic exceptionalism was to a considerable extent fostered by a high level of invention that quickly became commercialized and led to increases in output per unit of labor input.
Yet university presidents often argue we need to raise prices to pay for more new technology. They see technology as a cost enhancer rather than cost reducer. When people ask university presidents “why are college costs rising?” they often say productivity advance is nearly impossible because teaching is like theater. It takes the same number of actors to perform King Lear today as it did around 1600 when Shakespeare wrote it. The same, they argue, is true of teaching, which is essentially like putting an actor, the teacher, in front of an audience.
That argument is largely bogus for two reasons.
First, most university employees today don’t actually teach.
Second, modern technology allows a teacher to replicate himself, by electronic means giving the same lecture multiple times to diverse audiences via computers or television. Massively open on-line courses, MOOCs, are the most dramatic manifestation of potentially labor-saving technologies, allowing relatively high cost instruction to occur at a low cost. Universities are slow in embracing the new technology, as powerful vested interests, including tenured faculty, worry about job displacement.
There are still some qualitative issues about MOOCs, and clear limitations on use. They aren’t a panacea. They are, however, a means to effect some cost containment which, if done right, might actually enhance educational quality.
Thus, innovation is important. But I worry less about it than information and incentives. I think that if you provide good information on inputs and outcomes, and if you incentivize people to improve qualitatively their outcomes while lowering the costs of doing so, innovations will take care of themselves. They are a means to the desired end.
There is a basic principle of economics taught very early that I am on the cusp of ignoring—the law of diminishing returns. The 28th or 30th minute of wisdom I might have probably is not as insightful and the first or second. Enough is enough. I have enjoyed talking to you, believe your stewardship of the University of North Carolina is an important responsibility, and wish you the best for the future.