Higher Education and Productivity

Thomas Garrett and William Poole (both with the Federal Reserve Bank of St. Louis) have written an important article proposing an ambitious agenda for restructuring higher education. They provide an attractive, almost seductive framework, focusing on ways to increase productivity (and, along with that, lowering costs) in higher education. I suspect this article will find a receptive audience among state legislators and in many university administrators' offices.

They note that tuition has increased much more rapidly than prices in general, rising 5.9% per year at public institutions between 1991 and 2003, compared with an overall rate of inflation of only 2.5%. This suggests a rate of growth in “real”—inflation-adjusted tuition of 3.4% per year. (They also note, but do not deal with the implications of, rising financial aid. That is, they compare increases in the “sticker price” of higher ed, rather than “actual discounted prices,” to increases in prices in general. Although it’s not clear whether such an adjustment would increase or decrease the “after-aid” rate of increase in tuition.) While they note the decline in state support for higher education (real instructional expenditure per student is up only 17%, and real instructional plus real administrative expenditures are up 27%), they do not follow through with a full discussion of that.

They suggest that the problem is that productivity has not increased and that it is essential to look for ways to increase productivity in higher education. They do note the difficulty of measuring productivity; what is interesting is that there is no direct mention of student learning in this discussion (although learning might be thought to be subsumed under “student quality”). And they propose a number of ways in which productivity might be increased.

But here’s where the real gains are to be found; the rest is window dressing: Increased flexibility of faculty staffing.

"Much of the discussion relating to the role of faculty in contributing to productivity in higher education involves lengthening the time that faculty spend in the classroom, enhancing the quality of instruction and increasing flexibility of faculty staffing. Given the size of instruction as a percentage of total university expenditures (35 percent on average), an important cost-saving and quality-enhancing strategy is to better align faculty with student needs. At many universities, as student demand for certain majors or classes ebbs and flows over time, there is little change in the number of faculty in each department. A failure to match teaching capacity with student demand is completely opposite the private sector, where changes in business conditions directly influence staffing levels.

"To rein in costs, universities must have the flexibility to hire more faculty or increase teaching loads of current faculty when demand for a major increases and, conversely, universities must have the flexibility to reduce the number of faculty when demand for a major decreases. Just as an automaker must be able to shift production from large SUVs to small cars when energy prices soar, universities must make similar adjustments when student interest in subject X soars and interest in subject Y sags.

"Probably the greatest obstacle to increased flexibility of faculty is tenure. An economic argument for tenure is that it saves initial expense on the part of the university. The saving arises because faculty with tenure, or those hired with the possibility of tenure, will work at a lower salary in return for the guarantee of lifetime employment. Thus, tenure can be viewed as a nonpecuniary payment in lieu of salary. However, while there may be initial cost savings from tenure, the resulting inflexibility imposed by tenure has greater costs in terms of both dollars and student quality. Tenure prevents significant staffing changes in response to changes in student demands; tenure also prevents lower quality faculty from being replaced by higher quality faculty. Clearly, however, the abolition of tenure would be met with opposition from faculty and would even face legal challenges. Strong department leadership would be willing to take such risks, as is typical of strong leadership in the business world."

There’s so much to be said here. First, note that this discussion apparently assumes the faculty has no interest in, or control over, what programs an institution offers, what courses their departments offer—or, perhaps more accurately, that the faculty ought to have no such interest. Faculty are to be treated purely as an input, not as anything more central to the academic process.

Second, their argument essentially presumes that tenure is essentially an economic institution. And clearly tenure has significant economic aspects and implications. (I'm no fan of tenure, by the way. I think most of its benefits could be achieved by using a "rolling" multi-year contract for faculty past a probationary period. That system, however, might be as pernicious, from Garrett and Polley's point of view, in limiting administrative flexibility.) But tenure is more than an economic institution. It also provides protection for faculty whose research or teaching creates conflict with administrators, legislators, or the public. And if universities are to fulfil one part of their bargain with society--extending the boundaries of knowledge--faculty will frequently come into such conflicts, and need some sort of protection.

Third, this proposal assumes that the only activity in which the university engages (ought to engage?) is teaching—the transmission of knowledge. For land-grant colleges, Congress explicitly identified a mission that includes generation of knowledge as well as transmission. And, at most research-oriented institutions, outside research funding generally more than covers research costs and can be an important contributor to the institution’s budget.

Fourth, this proposal would almost certainly lead to increased turnover in academic programs, which would, over time, almost certainly lead in instability and to a failure to develop substantive expertise.

Fifth, this proposal assumes that the best arbiters of what academic programs ought to include are the students. Now, I’m broadly sympathetic with the notion that student concerns ought to be incorporated into the decision-making. But at my institution, taken to its limit, this would mean that business majors (for example) would know no statistics. Um. That’s a good idea.

Finally, and of practical concern, universities have already moved a long way toward contingent staffing, as more and more courses are taught by part-time or non-tenurable faculty. So this source of inflexibility is, well, not so important as it once was.

Garrett and Polley explicitly put forward a vision of higher education that is cramped and narrow-minded, the transformation of universities as homes for seekers after knowledge and well as institutions that conserve and transmit knowledge into something else, something much smaller. The transformation would diminish our society even as the Garretts and Polleys see universities becoming more productive.

It’s a future in which we all work for the University of Phoenix.