Friday, March 20, 2015

Cowardly* Chronicle of Higher Education Refuses to Publish an Idea that Could Save Colleges from Failure and End Runaway Tuition Hikes!

3/20/2015 at 4:03 pm 
Dear Prof. Wright,

Thank you for sending us your article. Several of us have read it, and we regret to say that we are unable to publish it. Because we receive dozens of manuscripts each week on all sorts of topics, we have to make some tough choices. And, unfortunately, that large number also precludes us from responding to each in depth. But we appreciate your thinking of us and hope you will keep us in mind for articles in the future.

Sincerely yours,
The Editors 

Small Colleges as Professional Partnerships by Robert E. Wright, Nef Family Chair of Political Economy, Augustana College SD
Higher education in America is yet again engulfed in crisis. On the rise for decades, tuition and borrowing appear to be approaching their natural limits. Small colleges are closing or merging and intrusive federal regulations loom. It is time to experiment, especially at the most fundamental level.
            I’ve argued in two books (including one, Fubarnomics,  published in the U.S. in 2010) that the sector’s root problems are ownership structure and incentive alignment. For-profit schools (whether proprietary or publicly-traded) have proven themselves venal: they lure students into taking out federal loans while leaving most to drop out or to earn degrees with little marketplace value. State-owned schools vary greatly in quality and cost-effectiveness. So, too, do private colleges and universities. The problem with both public and private schools is that they are non-profit entities. Nobody owns them, so nobody in particular has an interest in making them more efficient. Some are blessed with talented administrators, caring trustees, generous alumni, and so forth, but none are owned by the people who create most institutional value, faculty members.
            It is high time that one or more colleges, struggling or recently failed ones, reorganize as professional partnerships, along the lines of a law firm or business consultancy such as McKinsey. Such a college’s assets (tangible and intangible) would be owned by faculty members according to a formula of their own agreement, likely based on variables like term of service, pre-partnership salary, and so forth. Professors who dislike the agreement would be free to leave or to try to negotiate better terms. Presumably those professors who push for more than their objective worth would be allowed to leave while others would receive reasonable recompense for their expected contributions to the partnership.
            Once bound together in professional partnership, faculty members would be free to establish their own governance rules, policies, and so forth within the general guidelines of partnership law. Partners’ ownership stakes, for example, are not like shares in a public company as they cannot be sold or transferred but only insured against death or disability. The goal of such a rule is to tie the long-term incentives of partners (professors) to that of their firms (colleges). Some flexibility is necessary, however, so in their partnership agreement faculty partners can establish rules governing the “cashing out” of faculty members who wish to leave before retirement, or who the faculty partners wish to be rid of. (Instead of being an absolute, in other words, tenure could be “priced,” as in other types of partnership.)
A professional partnership college would be a for-private entity but one where the interests of the two main constituencies, faculty and students, are more closely aligned over the long term than in current for-profit and non-profit ownership models. Publicly-traded and proprietary colleges sometimes make ruthless cuts in their pursuit of quarterly profits. Non-profit public and private colleges, by contrast, often spend too much, i.e., more than strictly necessary to achieve a pedagogical goal, because that can be easier than making difficult decisions. Presumably, professional partners would search out the happy median as they would have no incentive to endanger their own future by slashing expenditures too much or by spending more than they have to in pursuit of specific goals. Surely mistakes will be made in execution of their long-term interests but that is a far better state of affairs than the structurally mis-aligned incentives of traditional non-profit and for-profit colleges.
Moreover, I suspect that many professional partnership colleges would soon conclude that their capital would be best employed by lending it to their students or, if they have insufficient reserves to do that, by guaranteeing their students’ college-related debt. Traditional lenders cannot readily discern good student borrowers from risky ones, but colleges certainly can and in fact can make students lower-risk borrowers by increasing their human capital and improving their attachment to their alma mater. Colleges can therefore lower student borrowing costs by lending to their students directly or by guaranteeing student loans made by traditional lenders and in the process tie their long-term interests much more closely to those of their students.
Professional partnership colleges could bring other improvements to U.S. higher education as well. If barriers to entry were reduced, we might see increased competition and hence innovations not currently fathomed. The more venal for-profit colleges might be run out of the industry and burdensome federal regulations avoided.
Of course, I may have overestimated the beneficial qualities of professional partnerships but, at this critical juncture, we need data more than we need debate. Let the experiment begin and the professional partnership model spread if it works in practice as well as it appears to in theory.

*In hindsight, maybe the editors at the Chronicle are not cowards. Maybe they just aren't very bright.


S-A-M said...

Cornell University, as you may know, was governed by the faculty for a century.
Traagic events in 1969 and 1970 showed the futility of faculty control. The faculty's refusal to respond to a moral crisis caused the suicide of a great scholar and the imposition of standard administrative governance by traditionally passive trustees.
Briefly, over a decade, black students had petitioned the faculty to reach out for qualified African American applicants. Routinely, fewer than 100 black students in a student body of over 15,000; worse, the University included three STATE-FUNDED colleges among several units.
Finally, as you may recall, black students peacefully "occupied" the student union building.
A faculty group of both conservative and liberal professors demanded a meeting to create a non-discriminatory admissions policy; ironically, Cornell had been founded as a school open to "any person" [gender, ethnicity, faith] in 1868.
A reportedly "fiery" faculty meeting ensued. The faculty voted to IGNORE PLAINLY DISCRIMINATORY POLICIES -- ignoring its charter. Many outraged faculty approached the trustees; apparently because of political pressure and "bad P. R.", the trustees imposed professionaly administrators as policy makers.
The changes sametcame to late to prevent the "reported" suicide of Clinton Rossiter, father of the study of the modern presidency and a leading conservative thinker.
I agree there's a desperate need for higher education reform; it seems to this economist that this is a POLICY issue requiring shifts in resources, structures, and even the MISSIONS of universities.
Hope this is helpful.

Sam Leven, PhD [Cornell A.B., 1972]

Robert E. Wright said...

This certainly is helpful Dr. Leven. I don't recall those events ... I was living in Western N.Y. at that time but was 3 years old. I should point out that faculty ownership is a broader concept than faculty governance. The latter is about extraction of rents from the current stream of revenue while the former (ownership) is about long term incentive alignment between faculty and their students, past, present, and future. I want faculty to be in the same position as attorneys, investment bankers (under the partnership system), business consultants, etc., i.e. partners in a professional firm with illiquid ownership stakes that comprise the bulk of their net worth. I believe that faculty governance would be vastly improved if decisions impinged on the viability of faculty jobs and retirement funds as would be the case if faculty actually owned their schools.