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Symbols Matter, Reality Doesn’t

What economists call an “agency problem” pervades higher education.

By Michael Rizzo

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September 20, 2012

In September 2011 my university proudly unveiled a green investment in campus infrastructure, the “Solar-Dok” picnic table/charging station.

While it looks like a picnic table, it has 10 square feet of solar panels attached to its awning. Those panels are connected to a battery so that people can plug in their laptops phones, cameras, iPads or other devices. Rochester doesn’t get a whole lot of sun, but the potential justification for it was that it might save $90 per year in electricity costs and $9 per year in damages to the earth from reducing carbon dioxide emissions (both unreasonably optimistic assumptions). Aside from being a funny-looking table that gets virtually no use, at $11,500 it is a terrible economic investment and an even worse environmental investment. But it remains prominently featured on the college’s website and proudly sports the campus symbol of smart sustainability.

When asked whether they had calculated its impacts, college administrators indicated that no such calculations were even attempted. Nor did they care: it was an important symbol and message. “A few students wanted it,” admitted one administrator, and “that’s what our competitors are doing.”

I can think of no better illustration of  what economists call the agency problem that cripples American higher education: It’s only a few dollars, what’s the big deal? And even if it’s a lot of dollars, well, there’s no harm to university administrators. Thus there is little incentive for administrators not to engage in these activities.

This mentality continues far beyond that $11,500. At the same time that our university installed the Solar-Dok, it broke ground on a new student dormitory, slated to cost $17 million. One reason for that price tag is that the building would be built to “LEED Gold” standards. To make a building certifiably green requires additional planning and construction expenses—by my estimate, $1 million of the total.

Wasteful expenditures are replicated at universities throughout the country. In the 2008-09 academic year, private and public four-year colleges spent over $365 billion (according to National Center for Education Statistics data on expenditures), roughly a 100 percent increase in real spending over a two-decade period.

How much of this spending delivers a better product? A lot of it involves adding buildings to accommodate the peak class demand times on Tuesday and Thursday afternoons so that students and professors don’t have to attend class on Friday.

And a lot of expenditures are non-academic. Does the club hockey team really need to become Division I?

The academic side of the enterprise, meanwhile, suffers from a lack of accountability. I am three-and-a-half years into my career here  (having taught 2,400 students), but during that time our department has not once had a discussion about what goals we have for our undergraduates; whether our current teaching is producing the outcomes we want; whether the course offerings are appropriate; where our majors end up after graduating; and whether we should be doing work outside the classroom to enrich the undergraduate experience.

Three quick illustrations:

Our major, economics, is the largest at the university, and students are clamoring for more exposure to research, policy, and the professional side of economics. But we have no formal program that engages undergraduates in research projects beyond their basic econometrics coursework—this in spite of the fact that the focus of our economics graduate programs is on research and the labor market for our students would be enhanced by greater research experience.

Second, a centrally located 500-square-foot lounge in our department remains a repository of empty desks, boxes and files even as student groups and teaching assistants struggle to find space.

Third, we have just discovered that our department owns endowed accounts set up years ago by dedicated alumni to improve the undergraduate experience. One such account is funded well into the five figures and was intended to provide funds to bring a prominent speaker to campus each year for the benefit of our undergraduates. The account was discovered in a neglected file drawer.

Higher education shares some of the same problems that plague non-profits. Non-profits have many “owners.” It is unlikely that the interests of parents, students, alumni, faculty, local communities, competitors, employers, vendors, and politicians are in harmony. It is asking a lot of a board of directors to align those many interests, particularly when they have interests of their own. In contrast, for-profit stakeholders have myriad interests, but the lure of profits and the need to avoid losses form a powerful glue that binds them together. Absent such glue, all we have are vague mission statements.

Universities are aware of this, of course. Two commonly proposed  “solutions” end up making things worse. First, in an effort to maximize something, schools focus on burnishing their reputations—which are inherently unmeasurable and depend on others’ perceptions. Second, many groups (all with their own interests) are given a “seat at the table” in crafting important decisions.

Paradoxically, working on your reputation promotes actions that degrade the reputation of the higher education system as a whole. When our peers invest in green elephants, so do we, because “all schools like us have a Solar-Dok.” When our peers inflate grades, so do we.

In the zero-sum game to “be the best” among our peers, we are drawn into the trap of arms races—for facilities, athletic program victories, mission creep administrative overhead, and more. But there can only be five schools in the top five, and this remains true whether we all have climbing walls in our athletic facilities or not.

These races persist because there is comfort in doing “what all good schools do,” without having to evaluate whether such programs make schools better.

And there are other pressures to conform, such as the accreditation process. Our university is accredited by the Middle States Commission on Higher Education. This means that Adelphi, Hofstra, St. Johns and Seton Hall, Penn State—competitors of ours—each have a say in whether we remain accredited.

How would such institutions view proposed research programs and curriculum changes that are risky, innovative, and out-of-the-box? And how would such institutions feel about questioning some of our green elephants, since we, too, have a seat at their accreditation table?

Americans would be uncomfortable if the major agri-businesses were responsible for ascertaining what foods were healthy and safe, or if investment banks determined the quality and safety of financial instruments. Yet we see exactly that in higher education.

When outputs are hard to measure, as learning outcomes are, and when accountability is hard to enforce, there is great protection in “everyone else is doing it.” Mere effort is seen as evidence of progress, and any failures to achieve goals can be deflected by arguing that “there is a tough balancing act.”

With vagueness preferred over precision, and with important decisions made by many stakeholders, none typically having sole authority, a likely outcome is to serve a lowest common denominator. That is the easy way to build support for programs, especially when third parties pay a large portion of the bill.

But not every action wins universal support. In a bureaucratic environment, many people are conditioned and empowered to say “no,” particularly when there’s no clear mechanism to reward them for a good outcome and when current sacrifice is virtually assured. Thus, when it comes to eliminating majors to cut costs, pricing class times and courses variably to reflect demand, or raising teaching loads, there is little incentive to swim upstream, say “yes,” and be a true leader.

Because feedback loops and accountability are missing, collegiality emerges as the currency of choice. Collegiality is college-speak for being “on-board.” Questioning the status quo is non-collegial and threatening. One cannot “collegially” raise questions about green elephant projects or the direction of the college’s educational mission. Paradoxically, the absence of monetary incentives (which would exist in a profit-making organization) increases the suspicions of the tribe regarding why someone would raise questions about such things. If you wish to remain in the good graces of your campus colleagues, it is not in your interest to ask hard questions.

F. A. Hayek correctly implied in The Fatal Conceit that not all emerged orders are “good” in the sense that they are generally desirable. I urge critics of higher education to avoid the temptation of arguing that the problems are the result of conscious policy choices and conspiracies. This seems to me to be wrong both theoretically and empirically—and it’s an uncharitable way to encourage people accept change. Almost every department chair, college staff member, college administrator and trustee that I have ever met has been extremely thoughtful and proud to be a part of the university.

The problem is that the combination of muted feedback mechanisms, multiple stakeholders, opaque output, and the accreditation process means that no amount of good intention can save universities from inefficiency and resistance to change.

Hayek offers us another lesson here. Hayek found that people thought that in the Road to Serfdom he had overreacted to the dangers of planning and government control in the United States and the United Kingdom. They contended that the U.S. and U.K. could get away with central planning because of their good history—they were “different” from the totalitarian states.

Hayek’s response was that government control can and does produce a change in the psychology of a people; the political ideals of a people and their attitude toward authority are endogenously determined. They are as much the effect as the cause of the political order within which they operate. To apply this insight to higher education, asking actors from within the sector to make dramatic changes is akin to asking them to take large pay cuts. Despite the preponderance of people in the academy promoting the virtues of altruism, I am not optimistic about many people taking up the plow.

 


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