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The Spirit of Adam Smith Returns

At one time, professors were independent contractors paid by students; that relationship may return.

By George Leef

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February 12, 2013

Sellers of goods and services are motivated to do their best when they can make more money if they do a great job of satisfying their customers. On the other hand, very few will put forth their best when there is no extrinsic reward for doing so.

Incentives matter, and that’s true whether someone is selling peanuts from a push-cart or is selling his teaching of philosophy. If there is more profit in figuring out how to do something better than others and thereby reap greater gains, count on people behaving that way.

Adam Smith, perhaps the most perceptive observer of human action of his time, pointed out from experience that incentives mattered to professors. At Scottish and English universities in the 18th century, some professors were in the main paid directly by student fees, while others were paid entirely by the university, thus putting a middleman between the customers and the providers of teaching services.

In the former case, Smith wrote (in Book V of The Wealth of Nations), a professor’s reputation is important and depends “upon the affection, gratitude, and favourable report of those who have attended upon his instructions; and these favourable sentiments he is likely to gain in no way so well as by deserving them, that is, by the abilities and diligence with which he discharges every part of his duty.”

In universities where professors were paid entirely by the institution, however, their incentives were markedly different. Smith observed, “if his emoluments are to be precisely the same whether he does or does not perform some laborious duty, it is certainly his interest…either to neglect it altogether or…to perform it in as careless and slovenly manner as authority will permit.”

In contemporary America, we overwhelmingly pay professors a salary under a contract with the college or university. That salary usually has nothing directly to do with the diligence and effectiveness of his teaching. It’s true that untenured faculty members have to worry about not having their contracts renewed if they receive bad evaluations from students, but that doesn’t necessarily lead to an incentive to teach well. Rather, it creates an incentive to make the students happy, which isn’t the same thing at all.

Markets have a way of breaking through barriers, however. Entrepreneurial people, including academics, are always looking for ways to profit from doing things better. Today’s cumbersome higher education system has lots of potential for that.

Back in 2011, Troy Camplin, a scholar not affiliated with any educational institution, wrote a piece for the Pope Center entitled “The Free-Lance Professor.”  In that piece, he argued that students would be better off if they could contract directly with professors who offered exactly what they wanted—quality instruction in whatever field of learning they were interested in. In such a system, students wouldn’t waste their money on education they didn’t want, and professors would strive to make their courses the best they could be to improve their reputations.

The trouble is that our system blocks out Camplin’s Smithian idea of professorial entrepreneurship with its accreditation and degree requirements. But higher education is changing rapidly and the barriers to a free market seem to be eroding.

Consider, for example, StraighterLine’s new online platform Professor Direct.  Professors can offer for-credit online courses to students and thus far, fourteen are doing so, in such fields as history, accounting, business, nutrition, health care management, math, classics, psychology, and writing.

How much do courses cost? Not much when compared with even the least expensive “brick and mortar” college offerings. StraighterLine charges $49 and the professor can set whatever price he wants to above that. When it comes to pricing, competition comes into play and sellers in this educational market know that if they charge too much, they will get fewer customers. One professor, for example, charges each student only $50 above the $49 base. Very affordable.

Moreover, competition also affects the nature of the services the professor offers. Some are willing to ensure a great deal of student contact and prompt response to questions, while others may choose a lower service model. One professor, Daniel Gryboski, told Chronicle of Higher Education reporter Jeffrey Young that he promises students that he will promptly respond to emailed questions, will have online “office hours” for two hours per week, and that he will have supplemental tutorial videos in addition to the regular course materials.

Just as competition offers hungry people everything from the minimal service of fast-food drive-throughs to the maximal service of fancy restaurants, so will the new higher education market offer students a range of choice in service level—choice that barely exists for them when they enroll at a college today.

A student who finds math difficult would probably want to hunt for a course where the professor guarantees a lot of interaction with students (like Professor Gryboski’s) even if it costs more. On the other hand, a student who finds math pretty easy and doesn’t think he needs much interaction with the instructor may be able to save money by going with a course where the professor commits to less interaction.

The competition-driven revolution in online education will bring entrepreneurial thinking into a field that in many respects is still stuck in the horse and buggy age. Students will be able to customize their learning to suit their needs. Although a great deal of attention has been lavished in the last year on MOOCs (Massive Open Online Courses), perhaps the more important trend is toward what we might call POCs—Personalized Online Courses. (I left out the “Open” because students will usually have to pay something for educational services they want.)

Another competitor in the online education market is Udemy. Educators who offer their courses on Udemy may or may not be academics with university positions, but they all have a passion to teach about something. They can set their own prices. David Janzen is a Udemy seller, offering a course in computer science for $89. 

The course is the same as his basic computer science course at Cal Poly San Luis Obispo, but there are no deadlines. In an email, he told me that he has had over 500 students take his online course, although a smaller percentage of students complete it online than complete it when they take it on campus. The reason, he says, is that more of his online students lack the necessary discipline to do the assigned work.

It’s too bad that so many students don’t have the discipline needed to complete an online course, but they’re only out $89. We don’t denounce sales of home exercise equipment just because many people lack the willpower to make themselves use it; similarly, we shouldn’t criticize online courses just because many students lack the discipline to complete them.

Udemy courses don’t lead to college credits. Professor Janzen informed me that no student who has taken his course has ever asked for a certificate to prove that he passed it. Evidently they are pursuing the knowledge he offers simply because they think it’s valuable. That’s an encouraging sign.

It is a bad habit Americans have gotten into that we often look askance at learning opportunities unless they’re “for credit.” The return of the free market in higher education will help break that habit, as people again learn for the sake of learning (as Adam Smith’s students did) and stop taking courses just because they need some credits.

Adam Smith’s great contribution was to show how wasteful the mercantilist system was, and how much better off people would be under free trade and unfettered competition. It seems that 237 years after the publication of The Wealth of Nations, free trade and unfettered competition is finally breaking out in his vocation—teaching.

 


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