Augustana College now Augustana University!

I'm a university professor once again, without any effort on my part!

Check it out here.

The publisher of Little Business on the Prairie, the Center for Western Studies at Augustana Coll .... errrr ... Augustana University, is now officially a "university press."

And, btw, one of our recent alums, Brian Knight, just graduated film school and has posted on vimeo a hilarious short film (12 minutes or so) called The Good, the Bad, and the Elderly. Fargo-esque but more funny than dark. Check it out here.

South Dakota Magazine NOT interested in saving South Dakotans time and money!: Top 5 Ways South Dakota Beats Disney Says Robert Wright

Just received a rejection letter on the article below from South Dakota Magazine with some pretty lame excuses. I think they are in the grasp of Big Mouse. Read on to see what I mean!

Top 5 Ways South Dakota Beats Disney Says Robert Wright

Robert Wright was a Northeasterner (New York, Pennsylvania, Virginia, New Jersey) until he discovered the Great Plains at age 40. He is now the Nef Family Chair of Political Economy at Augustana College in Sioux Falls and the author of 17 books, including Little Business on the Prairie: Entrepreneurship, Prosperity, and Challenge in South Dakota (Center for Western Studies, 2015). He recently took his family to Disney World in Orlando, Florida for the first time but soon wished he had vacationed in South Dakota instead.

Waiting to Wait

At Disney, waiting is the name of the game. First you wait to pay to park. Then you wait to be ushered to a spot. Then you wait for a tram to take you to the reputed entrance. Then you wait for your bags to be inspected, for what no one is quite sure. Then you wait to take a train or ferry to the actual park. Then you wait to buy your entrance pass. Then you wait to scan the pass and finally gain admission. Then the real waiting, for access to rides, commences. Driving from attractions in, say, Custer to ones in Deadwood is more interesting, sometimes faster, and certainly cheaper.

Mo’ Money

Including taxes, Disney passes, of which there are a dizzying  variety, can run on the order of $200 per day per person. What a family spends on the passes alone for a few days could instead buy several kayaks, a modest boat, or a snow machine that will provide years of fun under the Dakota sun. 

A Sauna, Then a Fire Hose

Much of the year, Orlando’s climate is like a sauna – very hot and very, very humid. That makes all the waiting seem even more onerous. In addition, the long waits combined with the price structure of the passes induce visitors to stay active even during the hottest parts of the day – if they are lucky. If they aren’t, and they often aren’t, round about 3 pm come torrential downpours, often accompanied by lightening, that effectively close the parks or at least the best rides. No refunds or rain checks, however, are to be had. Best brush up on your meteorological knowledge of central Florida before buying.

Slow Passes

Perhaps most frustratingly of all, Disney sells so-called “fast passes” that allow visitors to bypass the poor slobs who can’t afford the “fast pass” fee. Worst off of all, though, are the visitors who buy the passes only to discover that the “fast pass” times allotted for their favorite rides are many hours later, when they planned to be elsewhere, like another park, a restaurant, or dodging lightening.

Inauthentic Experiences

A hot air balloon flight out of Sioux Falls may not excite some people as much as one of Disney’s coasters do, but it, like most South Dakota adventures, is more authentic than canned Disney rides, which are pretty much the same for every rider, every time. The cultural side of Disney is even less authentic. For example, the Liberty Tree Tavern in Magic Kingdom, which purports to be a “colonial-style inn serving New England-inspired fare,” offers neither alcohol nor rabbit. “Freedom Pasta with Sautéed Shrimp” is on the menu, but Sam Adams and other “Founding Fathers” surely did not gobble down much of that.

Mortgage PRINCIPAL Deduction

Rereading Edmund Morgan, American Slavery, American Freedom: The Ordeal of Colonial Virginia (New York: W. W. Norton, 1975) for my current project, The Poverty of Slavery, I was reminded of Thomas Jefferson's disdain for debt (aside from his personal addiction to it). His argument was that debt created dependence and that dependence made republican government impossible because it allowed one man to control another man's politics/vote. (Ironic, yes. See Morgan for details.)

From this, I believe, came the dumbed down notion that homeowners have more of a stake in the community (and perhaps even society) than leaseholders do and hence the notion that government ought to encourage home "ownership." That homeowners have a greater stake is certainly true  when people actually own their homes, as oppose to "renting them from the bank," especially when leaseholds are short (as they are today). 

But the mortgage interest deduction, one of the causes of the '08 crisis, does not encourage real ownership, it encourages "renting from the bank," i.e. staying heavily leveraged (high loan to value). If the government was really interested in promoting stakes in society, it should change the mortgage interest deduction to a mortgage principal deduction. The tax benefit would be light in the first years of a 30 year amortized mortgage but get progressively heavier over time. That would discourage using the house as a piggy bank (refinancing to cash out equity) and encourage 15 and 20 year mortgages, which dig into principal more quickly, and eventually outright owning homes (no mortgage), which is what Jefferson wanted after all, if a tax deduction were also allowed for outright ownership, up to some reasonable limit of course.

I would prefer a flat tax in the sense of no deductions whatsoever (at lower marginal rates of course) but if we have to have a deduction or two (for political reasons) then a mortgage principal deduction would be more in line with republican theory than the interest deduction, which encourages the wrong behavior (from the standpoint of everyone except mortgage lenders).

Publicity for Little Business on the Prairie

You can listen to the podcast of my recent interview regarding Little Business on the Prairie on South Dakota Public Broadcasting here.

I also discussed the book on KCPOs show "The Facts" last week and await the Vimeo link.

Augie also did a nice story here.

Sales appear to be picking up but they should be much higher. I can see national disinterest in South Dakota but does no one care about entrepreneurship? economic freedom? the future of the U.S. economy? the plight of Indians wallowing on reservations?

Here is a short blurb to get you fired up: South Dakota, the land of infinite variety, is one of America's few remaining economic bright spots. The population is growing and unemployment is below 3 percent because the state possesses one of the most economically free economies on the continent. Where the bison once roamed, entrepreneurs now ply their respective trades free from excessive taxation and government regulation. But South Dakotans have not always had it so good and to this day government stifles the economic activities of the state's Native Americans. Follow Augustana College business historian Robert E. Wright as he traces the epic story of South Dakota's discovery some 12,000 years ago to its founding booms in the 1870s and 1880s through the economic crises of the 1930s and 1980s to the challenges facing the state in the near future.

See also my History News Network op ed "The Other Two Dakotas" here.

The Other Two Dakotas Speech 4/25/2015 Center for Western Studies Dakota Conference Luncheon Keynote

Little Business on the Prairie: Entrepreneurship in South Dakota, 10,000 BC to Present or, the Other Two Dakotas

By Robert E. Wright, Nef Family Chair of Political Economy, Augustana College SD

Even school kids know that there are two Dakotas -- North and South – but a surprising number of adults who live outside of the upper Midwest readily conflate the two. North Dakota, not South Dakota, is the emerging energy giant. According to the Minneapolis Fed, which reigns over both states as well as Montana, Minnesota, and parts of Wisconsin and Michigan, South Dakota receives no direct benefit from the Bakken formation’s energy riches, a fact that no South Dakotan had to learn from a bean counter in the Twin Cities. Most of South Dakota’s population resides in the south and east part of the state, far from the energy action in northwestern North Dakota. South Dakota’s largest city, Sioux Falls, is 656 miles from boomtown Williston, North Dakota by interstate highway. That is slightly longer than the distance between Boston, Massachusetts and Cleveland, Ohio. South Dakota’s second largest city, Rapid City, is 333 miles from Williston, a five and a half hour drive on non-Interstate roads, or the equivalent of driving from Washington, DC to Cleveland on back roads.

South Dakota does possess ample energy resources but they are all renewable -- hydro, solar, and wind – and the latter two are almost completely undeveloped. It also has a little low grade lignite but that stuff has never found anything but a local market, and a desultory one at that.

I make this point immediately so that nobody in the audience remains under the misapprehension that South Dakota’s economic prosperity is in any way built on fossil fuels. South currently lags North: at the end of February, South Dakota’s unemployment rate was 3.4 percent compared to North Dakota’s 2.9 percent, which was second in the nation behind Nebraska, and North Dakota’s $55,000 per capita income in 2012 was third in the nation and well ahead of South Dakota’s $43,000 per head. But South Dakota is no laggard as its unemployment rate is third best in the nation and its per capita income is 20^th and a few hundred dollars above the national average. Moreover, North Dakota’s economy faces much greater risks than does South Dakota’s. You may have noticed that energy prices are way down; North Dakotans certainly have as the price of North Dakota sweet crude recently dropped below $50 a barrel and half the state’s rigs shut down. South Dakotans, by contrast, love cheap oil.

South of the quartzite border separating North from South, another “two Dakotas” loom large, the East and West River sections of South Dakota. Few doubt the importance of the distinction, though some think the James River superior to the Missouri River as the actual dividing line between the two sections. The James, or Big Jim as some affectionately call it, flows well east of the Missouri River until the big river turns east to meet it near Yankton. Like the Missouri River Valley, the 50 to 75 mile wide James River Valley bisects the state but it is perhaps best seen as a transition zone. To its east, agriculturalists expect adequate precipitation and usually get it. To its west, agriculturalists don’t expect enough rain and typically are not disappointed. In the Big Jim Valley proper, nobody knows what to expect. One year can be dry as a bone and the next farmers wish that they had planted catfish instead of corn as their fields flood. During flood years, crossing the James is quite a harrowing experience but during droughts the river becomes little more than a 710 mile long “crick.” That is why the Big Mo, the Big Muddy, the now tamed Missouri River, is probably the best dividing line between East and West.

Wherever one draws the line, West River is more about ranching than farming, mule deer and turkeys than whitetails and pheasants, cowboys and rodeos than dairymaids and county fairs. West River is home to the Badlands, vast Indian Reservations, Mount Rushmore and the Black Hills, the Sturgis motorcycle rally, and the Passion Play. Libertarians roam as freely West River as liberals do in downtown Sioux Falls and the hallways of East River state universities. One could go on and on about the differences between the two sections as many South Dakotans do, ignorant, perhaps, of what Sigmund Freud called the narcissism of minor differences. Outsiders can no more easily distinguish between an East River Dakotan and a West River Dakotan than the median American can tell the difference between a Swede and a forest Finn, a Fleming and a Walloon, or a Hmong and a Karen. Partly that’s because so many South Dakotans, whether they hail from east or west of the Mighty Mo’, make their living the same way, via entrepreneurship.

If that sounds incredible to you, do bear in mind several facts. First, the vast majority of entrepreneurs are not rich and famous like Steve Jobs, Elon Musk, or Thomas Edison. Most entrepreneurs are merely replicative. In other words, they extend an existing product to a new market so the economic rents, by which I mean above average profits, they earn tend to be small and/or fleeting. Most farmers and ranchers are replicative entrepreneurs, as are most retailers and other small business owners. Second, South Dakota is the most entrepreneur-friendly state in the nation according to a variety of experts who study such things. Until recently, it was the most economically free state or province in North America and imposed the lowest taxes and regulatory burdens on businesses.

Of course I don’t mean to imply that South Dakota is bereft of inventive or innovative entrepreneurs, far from it. Early patents claimed by South Dakotans included everything from mining godevils to bicycle tires suitable for riding over ice to semiautomatic shotguns, each, one imagines, the mother of necessity. A few of the state’s innovative entrepreneurs even made it big. Raven leveraged the state’s salubrious climate and the infatuation of South Dakotans with flight to create a world leading high performance balloon business, for example, while Daktronics became a leader in electronic signs that grace the Olympics and Madison Square Garden.

Note that the latter companies are manufacturers. South Dakota is not the Taiwan of the Prairie and likely never will be but it is far from being devoid of manufacturing enterprises. Entrepreneurs have created a very diverse state economy, one that is not dependent on any one sector, not even agriculture. When farmers and ranchers were having a difficult time during the 1970s and 1980s due to increased fuel costs and high nominal interest rates, entrepreneurs, including a political entrepreneur in the form of governor Bill Janklow, stimulated two clean, high paying sectors to take up the slack, finance and health care. Retailing and wholesaling remain important as well, with Sioux Falls, Aberdeen, and Rapid City serving numerous customers from adjacent states like Wyoming, North Dakota, Minnesota, Iowa, and Nebraska.

South Dakota also earns considerable foreign exchange, if you want to call it that, via its vibrant tourism industry. Two great attractions, one east of the river and the other west of it, attract masses of tourists each year and thousands of other entrepreneurs ride their wide coattails. I speak of course of Mount Rushmore and pheasant country, both of which support numerous hotels, restaurants, and smaller tourist attractions, from infamous “traps” with little to see but much to buy, usually at outrageous prices, to legends like Wall Drug. The Badlands and Black Hills have so many attractions, from the Crazy Horse monument to cavernous cave systems, that tourists can be entertained for weeks on end, even in the winter, or be lured back year after year. And events like the Sturgis Motorcycle Rally and the pheasant opener attract hundreds of thousands of people annually, many of whom spend freely thanks to the pleasant demeanor of most of the state’s tourist entrepreneurs. South Dakota is much more than the Mount Rushmore State, it is the Land of Infinite Variety.

Why is South Dakota’s business climate so good for entrepreneurs? For starters, a high density of entrepreneurship tends to replicate itself as family members and friends have plenty of role models and mentors to help them start their own businesses. So, in one sense, South Dakota is full of entrepreneurs today because it has always been well endowed with entrepreneurs, from Paleoindian mammoth hunters to the placer miners of the Black Hills gold rush to the homesteaders of the Great Plains.

Another factor is that the state has so little going for it. It needs to foster business or it could very well dry up and blow away, as it almost did during the Great Depression when the state had the dubious distinction of having a higher percentage of its population on the government dole than any other state. As previously noted, South Dakota is almost completely devoid of fossil fuels. Parts of it have good Houdek soil but much of the state is covered in gumbo, which refers to a sticky, hard to work soil, not the delicious Cajun dish. The weather is often delightful – I kid you not, the dry air and open horizon were thought to cause a euphoria called “prairie fever” and to cure all kinds of ailments – but when the weather is not delightful it is often frigging dangerous. East River is at the north end of Tornado Alley and smack in the middle of Hail Hallway, a phrase I just made up. During the winter, wind chills often rival those of Canada. West River’s climate is highly variable. Blizzards can strike in September while January temperatures can rise into the 70s. Nearly 100 degree swings in temperature over the course of a day have been recorded, which is pretty easy when you start the day at negative fiddy. Beauty abounds: from waterfalls to sunsets to prairie and badland vistas to Harney Peak, but that is more of a reason to visit a place than to live there. South Dakota is in the middle of the country by various measures but it isn’t really close to anything of importance. Its population is currently about 850,000, but if it wasn’t for the state’s liberal business laws the population would probably be closer to Wyoming’s, which is under 600,000.

But the biggest reason that South Dakota remains business-friendly is state and local government. South Dakotans have made sure that their governments are efficient, at least as governments go. The state’s politicians are accountable to the people and they know it. Citizens hail even governors and U.S. Senators by their first names and don’t hesitate to get into their faces when necessary. Republicans have long ruled the roost but politics is still competitive because of rivalries among various Republican factions and wings. South Dakotans are all for big government in Washington if it means a positive net flow of resources into the state but at home they keep government as small and simple as possible.

For example, South Dakotans pay more in user fees than most Americans elsewhere do but that is a good thing: user fees ensure that one part of the community does not subsidize another’s hobby. School funding is traditionally low by national standards but until very recently the outcomes ranged from acceptable to downright good. Except for Sioux Falls in recent years, crime has been low and public amenities have been constructed cheaply compared to elsewhere. Relatively low taxes combined with decent public services attracted many businesses to the state, especially from relatively high tax Minnesota and especially along the I-29 corridor.

None of this means that South Dakota will always prosper economically. Some believe that it has been chronically under-investing in education and that the piper will soon have to be paid in the currency of higher crime rates and more unemployment. The large health care sector is vulnerable to shocks emanating from the controversial Affordable Healthcare Act. Pheasant populations are trending downward as more and more farmers destroy key habitat by plowing from ditch to ditch, ripping up shelterbelts, and draining wetlands, rendering South Dakota a veritable Iowa. A return to high fuel prices could cut into tourism along the I-90 corridor, which includes fishing on the Missouri’s manmade lakes as well as the more famous Badlands and Black Hills attractions.

My biggest fear at present is that South Dakotans will blow off their own feet by passing ballot initiatives that limit economic freedom and hence entrepreneurship. Last year, a ballot initiative raising the minimum wage and indexing it to inflation passed, as did a health insurance regulation. There is talk now of re-imposing a usury cap of 24 percent. The frightening thing is that even ardent proponents of the minimum wage law admitted that the economic effects of the measure were uncertain but took that to mean that the matter should be pressed forward even though it meant diminishing the liberty of both employers and employees. A repeat regarding the usury cap appears likely. In and of themselves, these measures are unlikely to destroy the state’s prosperity but the precedent that a bare majority of voters, not of eligible voters or the entire population but of people who show up at the polls, can meddle in such intimate affairs could have a chilling effect on business, especially startups and other entrepreneurs vulnerable to populist policy changes such as these.

We have to be careful on the policy front because while South Dakota is obviously capable of creating great prosperity it is also capable of generating great poverty. In fact, the state has the dubious distinction of being home to five of the poorest seven counties in the nation. All five are coterminous with, or associated with, Indian reservations such as Rosebud and Pine Ridge. This brings us to the third and most important of the “two Dakotas,” the Euroamerican and the Native American one.

Many people don’t consider this final “two Dakotas” because they hold racist or ethnocentric views of the matter. For them, Indians are poor because they are Indians plain and simple or because Indians hold native cultural values. By contrast, I proceed from the assumption that Indians are human beings and that their cultures, like Euroamerican cultures, are on net causes of neither poverty nor prosperity. Because I was impoverished as a youth, I know that driving an old car, drinking alcohol on a daily basis, and being generous to family, friends, and neighbors isn’t an Indian-thing, it is a poor-thing. What allowed me out of the culture of poverty was access to the Euroamerican system of political economy that credibly promised to protect my life, liberty, and property and thus gave me incentives to build my human capital or know-how. What keeps Reservation Indians impoverished is a political economy of poverty imposed upon them from Washington and, to a lesser extent, Pierre, South Dakota’s quaint capital.

One myth that I try to dispel in Little Business on the Prairie is the notion that Native Americans are naturally environmentalist-communists who want to remain impoverished. The environmentalist claim is easily disproven by showing evidence that Indians sometimes did not use all of the bison. Sometimes, they just ate the tongue or the fetus and moved on, while capitalist and presumably anti-environment meat processors literally use all parts of every single head of cattle, hog, and chicken.

The latter myth, that Indians were communist or a-economic or otherwise disinterested in material gain, I try to dispel by pointing to Indian entrepreneurs both now and in the past. Augustana College anthropologist Adrien Hannus, for example, thinks that the Mitchell site along the James River might prove that Indians processed bison into pemmican en masse and floated it down the James and Missouri Rivers to Cahokia, near present day St. Louis, where they exchanged the preserved meat for pottery and religious services. The Crow Creek massacre site near present day Chamberlain shows that Indians in South Dakota circa 1325 AD engaged in exploitative entrepreneurship but probably also replicative entrepreneurship when “trading” was more lucrative than “raiding.”

Indians in what became South Dakota were certainly eager to trade with the new Euroamerican arrivals, first the French, then the British, and finally the Americans. When the U.S. government forced them onto reservations, they eventually gave up their nomadic economy and became successful farmers and, especially, ranchers. By all accounts they would have thrived had not the federal government’s policies stripped them of all incentive to work. Foremost, the federal government never respected Indian property rights, regularly reneging on treaties and cutting into tribal reservation lands. Loss of land continued throughout the twentieth century with the Pick Sloan dam projects – watch the documentary Waterbuster to learn what this did to the incentives of an entire generation of Native Americans -- and up to the present with calls for bison reserves to be carved out of the Pine Ridge Reservation.

Allotment, the division of tribal lands into privately-owned parcels, was supposed to provide Indians with incentives to work hard but in the end it led to checker boarding and fractionation. The former means that most reservations are not distinct jurisdictions but rather geographically fragmented political entities that are difficult to discern much less to effectively govern. The latter means that most lands in the hands of individual Indians are, due to the effects of intestate probate laws over generations, owned by too many people, from scores to thousands, to be used to collateralize loans. As a result, most Indians in South Dakota have minimal access to the formal financial system and hence remain unable to finance expansion of their businesses, most of which remain nano-sized.

Native Americans eventually became U.S. citizens but a completely separate and unequal system of political economy applied, and continues to apply, to them. Indians have their own health care and education systems, for example, and even in certain confusing circumstances their own criminal laws and business regulations. If Apartheid is too strong a term it is only because the system appears geared toward keeping Indians economically idle rather than cultivating a source of cheap labor as was the case in South Africa. Moreover, some tribes in urban areas were able to turn the separate system of political economy to their advantage by establishing casinos that became quite lucrative. The tribes of South Dakota did likewise, except for the lucrative part. In addition to being located many, many hours of travel from the urban gambling masses, South Dakota’s Indian casinos faced increasingly stiff competition from Deadwood casinos and the ubiquitous electronic gaming casinos that suffuse the state.

I see South Dakota, then, as a natural experiment akin to those offered by China, Germany, and Korea in the twentieth century. The experience of those places shows that when people are provided with ample economic freedom, they thrive even in a difficult environment. Squelch that freedom, however, and they wilt from a lack of incentives. Why work hard or smart if you can’t get a loan to grow your business? If you think the government might take what you have built, offering little or nothing in compensation?

China spontaneously divided itself into three parts -- mainland, Hong Kong, and Taiwan – limited freedom on the mainland and allowed it to run amok on the two islands, which combined produced more than the much larger, much more populous, and much more resource rich mainland. Only when the mainland increased economic freedom with Deng Xiaoping’s reforms did it show signs of an economic pulse. Ditto Korea, where the autocratic North is a famine-ridden economic wasteland while the free South is one of the world’s most successful economies. And let’s not forget about Germany, which the victorious Allies arbitrarily divided into East and West following World War II. The communist East foundered economically while the free West surged even though the East was better endowed with factories and natural resources. The exact same outcome in Berlin, located in the economically backward East, showed beyond all doubt that political economy was the key driver of the different economic outcomes, not culture or latitude or anything other than incentives, incentives, incentives.

Going forward, therefore, what I would like to see is more, much more, economic freedom for Indians in South Dakota and indeed the entire country. I’d also like to see South Dakota maintain a high level of economic freedom even if that means placing some restrictions on initiated ballot measures. One way would be to limit passage to half of all registered voters, not half of those who turn out to vote. This means that those who want change will have to convince people to turn out and can’t rely, as they have in the past, on apathy. Or, we could restrict initiated ballots only to those laws that increase, rather than decrease, liberty. So legalizing marijuana would be a legitimate use of ballot initiative but banning alcohol consumption would not.

Thus concludes my quick romp through South Dakota’s economic history. Little Business on the Prairie contains many more details, especially regarding the development of Rapid City, the metropolis of the West, and Sioux Falls, the metropolis of the East, as well as specific industries including agriculture and agricultural goods processing, construction, mining, transportation, wholesaling, and the like. I hope you pick up a copy, and enjoy it, and remember the other two Dakotas.

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.

***Consumer Alert*** Nagel Property Management Inc., Sioux Falls, SD ***Consumer Alert***

***Consumer Alert*** Nagel Property Management Inc., Sioux Falls, SD ***Consumer Alert***

On occasion, I exercise my First Amendment right to warn friends and neighbors about potentially shady businesses, including hotels and auto dealers who have ripped off my family. That time has come again. Renters and property owners thinking of listing property with Nagel Property Management Inc. of Sioux Falls should beware. Just this afternoon I tried to rent a property through the company only to learn that its leases contain some onerous terms. The company did not send out the lease beforehand so I arrived at the office cashier's check in hand and ready to sign. Several parts of the document and behavior of the company, however, put me on guard. Most importantly, the terms for contract violation were very heavy and breaking the lease inadvertently would be easy to do because it contains sweeping definitions, like banning all forms of "business" activity from the premises. Another clause limits guests to a 2 week stay. The first was easily negotiated but required positive action on my part. The company acted very strangely on the second. We negotiated a change in language from an absolute ban to "written permission" and then to "written notification." Nevertheless, the company tried to sneak a document changed to "authorization" by me, as if I don't know the difference between authorization and notification or that authorization is virtually synonymous with permission. Moreover, it tried to foist on us a second document with many of the same stipulations as the first, including the 2 week guest rule! We had already signed some documents re: security deposit and so forth, so I ripped them up when it became clear that the company was not going to budge on the rule, citing a bunch of bizarre irrelevancies, because I no longer felt I could trust it with my signature. Perhaps worst of all, the company tried to make all sorts of oral, side agreements about the guest rule although its lease clearly states, as it should, that only the written agreement binds.

Of course no one should make a decision about renting a property from, or with, Nagel on the basis of my experience alone but do look over all documents VERY CAREFULLY, know what you are signing, and don't be afraid to walk away if things don't look/feel right.

UPDATE 3/19/15: I've already received interesting feedback on this. I'm not alone in having doubts about Nagel. The most interesting comment so far has been the suggestion that property management companies work in the interests of owners rather than renters because without any properties to list there would be no renters. True, but without any renters there will be no demand for listed properties. So *quality* property management companies will balance the interests of both sides instead of just trying to suck renters into the maw.