Corporate model flawed

Tyco’s president was ousted; the University president received a raise and contract renewal.

If we are to combat the out-of-control tuition increases that beset the University, we need to understand the nature of the beast. What is it about this institution that leads to its insatiable appetite?

Recently there has been some discussion about the Corporate University: The idea being that universities are becoming more like businesses. I believe this model to be mistaken.

A business strives to increase its profits, which means that it must provide products with desirable attributes at a low cost. This is not the sort of market environment that a university faces.

Students generally get one chance to pick a university. They pay their $8,000 tuition and have access to the thousands of services that the university offers over the course of the year.

It is as if you were to sign up at Cub Foods and for a set yearly fee, you would receive four bags of groceries per week filled with items that Cub chooses. This is certainly not a very efficient system of allocation.

Consider the $200 annual CLA technology fee. For this fee, CLA students receive access to CLA computer labs and writing tutors. What would happen if these labs and tutors were required to be self-sufficient by charging users an hourly fee to cover their costs? Computer users would go to the “free” open computer labs and the small percentage of students who use the tutors would be even less. These services would wither away and students would be $200 richer.

The University does not receive price signals indicating consumer preferences for the services it provides. Also, unlike a business, it does not have shareholders who receive profits in easily measurable dollars.

The incentive for University administrators to contain costs is not the same. In the corporate world if costs are not minimized profits tend to fall and shareholders become dissatisfied.

While it is true that corporate managers do try to appropriate funds for themselves in the form of inflated salaries and perks, there are limits. When the former head of Tyco spent 0.5 percent of his company’s gross revenues on a party for himself, he was ousted and sued.

A comparable percentage of the University’s gross revenues were spent on its president’s inauguration celebration and he received a contract renewal and a hefty raise.

As an institution the University is less like a business and more like the Soviet Union. There are a number of surface similarities such as:

– The Soviet Union and the University place great emphasis on sports. Pseudo-amateur athletes are trained and provided with expensive facilities to promote the prestige of the University and to distract the masses.

– Both regimes have a predilection for monumental building projects over meeting consumers’ wants.

– The Soviet Union engaged in superpower rivalry which fed the ambitions of its military industrial complex and diverted the attention of the people. The University is setting out on a mission to become one of the three greatest public universities in the world.

We can expect that at some future conference of university presidents, our leader in a Krushchevian moment will bang his shoe on the table and shout at Berkeley’s president, “We will bury you.”

– Lenin declared that the Party was above the law. The University has recently asserted the same premise in relation to the state’s open meeting laws.

On a more basic level, in the absence of price signals the University operates as a command economy where the consumer is not sovereign, but the preferences of bureaucrats hold sway.

The apparatchiks of the Soviet University are primarily motivated by the desire for pay, promotion, prestige, perks, power, job security and freedom from stress.

Which of these motivating factors dominates will vary from individual to individual, but they will all lead to greater costs in the present incentive environment.

For what might be termed the lazy bureaucrat, job security and freedom from stress are the dominant motivators. He will want to increase his staff so that the work can get done with little effort or organization. He will include a surplus in his budget to cover unforeseen circumstances and to compensate for the inefficiencies caused by his disorganization.

Any surplus left over at the end of the budget cycle will be quickly and haphazardly spent so that his budget will not be cut next year.

The entrepreneurial bureaucrat is driven primarily by the other motivating factors. She will seek to expand her empire and to be seen by her superiors as doing things.

Put two such bureaucrats together and you will have meetings, reports, committees and initiatives.

To support these activities she will need more and more staff – hence the 74 percent increase in administrative employees at the University in the past 10 years.

The value of these new initiatives is judged not by the marketplace of consumers but by those higher up in the nomenklatura who also wish to see their empires grow.

Can we expect the University to rein in costs any time soon? Are we at last entering the bureaucratic workers’ paradise?

The answer is: not under the present regime, whose goal is to become one of the top three most expensive public research universities in the world. The only way to curb rising costs is through regime change.

Robert Katz is a University library assistant. Please send comments to [email protected]